BIJ BIJU PATNAIK INSTITUTE OF IT & MANAGEMENT STUDIES, BHUBANESWAR, ODISHA

Module- 3
Resource Requirement Planning
Resource Requirement Planning:
 Resource Requirement Planning is directed at the determination of the amount and timing of
production resources such as personal, materials, cash and production capacity needed to
produce the finished products or end items as per the master production schedule (MPS).
 It is also called RRP for short, and is to plan the requirements of productive resources
including machine/equipment, workers, fund based on the Production Plan. Specifically
speaking, it is to calculate the requirements of each resource by period, referring to the
product load profile, based on the planned production by month. Using this Resource
Requirements Planning, the production plan, capacity plan, and financial plan are reviewed.
 Resource Requirement Planning is also known as Rough-Cut Capacity [Link] can be
used to evaluate the feasibility of a trial master production schedule.

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 Rough-Cut Capacity Planning is an aggregate planning tool that is used to sum up and
evaluate the workload that a production plan (MPS) imposes either on all work centres or on
only selected key work centres where resources are limited, expensive to obtain from outside
sources (sub-contractor).
 This step ensures that a proposed MPS does not overload any key work centres or department
or machines thus making the MPS unworkable.
 Rough-Cut Capacity Planning is usually applied to the critical work centres which are most
likely to be bottleneck. Steps involves in Rough-Cut Capacity Planning are;
Step-1: Developing a trial production plan that indicates the company’s products that
are planned for production during each week or month of the planning horizon.
Step-2: Computing the work load that production plan will impose on each key work
centre and key sub –contractor for each period of the planning horizon.
Step-3: The load profile i.e. the load on each work centre over time , is evaluated for
feasibility by comparing the load with the availability capacity in each of the key
work centres or key sub –contractors.
Step-4: If the trail production plan does not appear to be feasible or does not make
optimal use of the resources in the key work centres, the plan may be revised.
Step-5: The capacity requirement of the revised production plan can then be
evaluated to determine the feasibility of the plan.
Step-6: Step-4 & Step-5 are repeated until a plan considered to be satisfactory is
developed.

Nature of Resource Requirement Planning:

1) It generally converting the master production schedule (MPS) into requirements for
key/critical resources, often including labor, machinery, warehouse space, suppliers’
capabilities, and in some cases, money.
2) Its comparing of capacity required of items in the MPS to available capacity is usually done
for each key resource.
3) Three are three approaches to performing RCCP are: capacity planning using overall factors
(CPOF), capacity bill (bill of capacity), and resource profile.

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4) To determining in detail the amount of labor and machine resources required to accomplish
the tasks of production
5) Assigning no more work to a work center than the work center can be expected to execute in
a given time period.
6) Demonstrated capacity: Proven capacity calculated from actual performance data.
7) It usually refers to a computer technique (called advanced production scheduling (APS)) that
involves calculating shop priority revisions in order to level load operation by operation.
8) Rough-cut capacity planning method that provides more direct link to individual end
products
Resource Requirement Planning System:

It is seen from the above flow chart that , there are two main element of resources requirements
planning systems namely; Material Requirement Planning (MRP) & Capacity Requirement Planning
(CRP)

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MRP-I (Material Requirement Planning)

1) Material Requirements Planning (MRP) is a computer-based production planning and
inventory control system. MRP is concerned with both production scheduling and inventory
control.
2) It is a material control system that attempts to keep adequate inventory levels to assure that
required materials are available when needed.
3) MRP is applicable in situations of multiple items with complex bills of materials.

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Purpose of MRP:

The main purposes of MRP system are to control inventory levels. Assign operating priorities for
items and plan capacity to load the production system which are;

1) Inventory: order the right item, order in the right quantity and order at the right time in order
to receive the supplies at the right time.
2) Priorities: order with the right due date and keep the due date valid.
3) Capacity: plan for a complete load, plan an accurate load and plan for adequate time to view
future load.

The major objectives of an MRP system are to simultaneously:

i. Ensure the availability of materials, components, and products for planned production and for
customer delivery,
ii. Maintain the lowest possible level of inventory,
iii. Plan manufacturing activities, delivery schedules, and purchasing activities.

Objectives of MRP

The Objectives of MRP in operation management are;

a) To improve customer service by meeting delivery schedules promised and shortening

delivery lead time
b) To reduce inventory cost by reducing inventory level.
c) To improve plant operating efficiency by better use of productive resources.
d) To provide the right parts at the right time to meet the schedules for completed products.
e) It determines the quantity and timing of finished goods demanded.
f) It determines the time phased requirements of the demand for materials, components and
sub-assemblies over a specified planning time horizon.
g) It computes the inventories, work-in-process batch sizes and manufacturing and packing lead
times.
h) It controls inventory by ordering materials and components in relation to orders received
rather than ordering them from stock level point of view.

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Operation of MRP-I System:

The three major inputs of an MRP system are the

1) Master Production Schedule(MPS)

2) Product Structure Records (Bill of Material File)
3) Inventory Status Records/File

Figure: Material Requirements Planning (MRP) System

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Master Production Schedule (MPS):

The demand for end items is scheduled over a number of time periods and recorded on a master
production schedule (MPS). The master production schedule expresses how much of each item is
wanted and when it is wanted. The MPS is developed from forecasts and firm customer orders for
end items, safety stock requirements, and internal orders. MRP takes the master schedule for end
items and translates it into individual time-phased component requirements.

Figure: Master Production Schedule (MPS)

Product Structure Records:

The product structure records, also known as bill of material records (BOM), contain information
on every item or assembly required to produce end items. Information on each item, such as part
number, description, quantity per assembly, next higher assembly, lead times, and quantity per end
item, must be available.

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Figure: Example of Bill of Materials

Inventory Status Records:

The inventory status records contain the status of all items in inventory, including on hand inventory
and scheduled receipts. These records must be kept up to date, with each receipt, disbursement, or
withdrawal documented to maintain record integrity. MRP will determine from the master
production schedule and the product structure records the gross component requirements; the gross
component requirements will be reduced by the available inventory as indicated in the inventory
status records.

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Figure: Input & Output of MRP System

MRP System Inputs & Outputs:

Inputs:

1) Master Production Schedules

2) Bill of Material File or Product Structure File
3) Inventory Status File

Outputs:

Primary Outputs:

 Planned order schedule which is a plan of the quantity of each material to be ordered in each
time period. The order may be purchase order on the suppliers or production orders for [parts
and sub-assemblies on production departments.
 Changes in planned order i.e. modification of previous planned orders.


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Secondary Outputs:

 Exception reports which list items requiring management attention to control.

 Performance report regarding how well the system is operating, e.g. Inventory turnover,
percentage of delivery promises kept and stock-out incidences.
 Planned reports such as inventory forecast, purchase commitment reports etc.

MRP Computational Procedure:

MPS procedure consolidates the independent demands of forecasts and customer orders to determine
the requirements of the end products in each time bucket in the planning horizon. After netting the
on-hand and on-order inventory, and offsetting the lead-time, the production schedule of the end
products, MPS, is determined.
In MPS procedure, the available-to-promise (ATP) is also determined. MPS is then fed into the MRP
procedure to determine the requirements of the lower level components and raw materials. The gross
requirements of components are determined by calculating the planned order releases (POR) of the
parents via single level BOM explosion.
The net requirements are calculated by subtracting the on-hand inventory and scheduled receipts
(on-order) in each time bucket. After the consideration of lot-size, the net requirements are
transformed into the planned order receipts. Planned order receipts appear in every period. Lead-
time offsetting shifts the planned order receipts backward and derives the POR which are the MRP
result of current item.
The MRP procedure continues to explode the POR to obtain the gross requirements of its
components. The MRP repeat the procedure until the POR of all the items are determined. The flow
chart of the MRP procedure is described in Figure.

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The net requirement in a period is determined in MRP procedure by the following formula,
Net requirement = Gross requirement – Available inventory
The available inventory for the first period is
Available inventory = On hand inventory + Scheduled receipts of the first period– Allocations
– Backorders – Safety stock.
And, for the other periods
Available inventory = Projected available balance at the end of last period + Scheduled
receipts of the current period

Figure: MRP Procedure

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Issues in MRP:

Some of the issues which deserve consideration in any comprehensive treatment of MRP are;

Lot –Sizing:

 Lot size refers to the quantity of an item ordered for delivery on a specific date or
manufactured in a single production run. In other words, lot size basically refers to the total
quantity of a product ordered for manufacturing.
 The MRP system generates planned order release, which trigger purchase order for outside
suppliers or production order for the in-house production department. As certain cost such as
ordering cost and holding cost are associated with each order , it is necessary to consider the
trade-off between theses these cost and take regular decision regarding how much to order
(i.e. batch size/ lot-size).
 Various methods/ techniques of lot sizing are Lot-for-lot ordering techniques, Economic
Oder Quantity (EOQ )Technique and Period Order Quantity(POQ) Technique etc.

Safety Stock:

 Safety stock is an additional quantity of an item held in inventory in order to reduce the risk
that the item will be out of stock.
 Safety stock acts as a buffer in case the sales of an item are greater than planned and/or the
supplier is unable to deliver additional units at the expected time.
 The use of safety stock can be justified only by the sources of uncertainty, present during the
lead time.
 Safety stock is normally maintained for end items which have independent demand

Scrap Allowances:

The bill of materials explosion could include multiplication by a factor (more than one) to make
allowances for the usual scrap loss in manufacturing an items.

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Pegging:

Pegging is a technique which enables the planner to trace from a work load in a work centre, back
through its higher level assemblies to determine, what end item in the MPS caused the load.

 Single level pegging is used often, which simply tells the immediately higher level parent of
a component.
 When material plan disrupted, pegging helps to identify which components are affected by
such disruptions.
 Pegging shows the level-by- level linkages among components and their time phased status
in MRP records.

Cycle Counting:

 Cycle Counting is the process of counting on hand inventories at regular intervals to verify
inventory of components including defective items at each stage of production and in storage
areas.
 This ensures that on hand inventories tally with quantities shown in the MRP records.
 Based on cycle counting the MRP records are updated daily or weekly to show the actual
inventory status.

Updating:

Whenever changes occur in MPS, in inventory status file or in product structure file or change in
product design occurs, the MRP system must be updated. Two approaches to update MRP system
are;

 Regenerative method which is a process used to update the MRP at regular intervals by
reprocessing the entire set of information and regenerating the entire MRP.
 Net Change method in which only those portions of the previous MRP directly impacted by
informational changes are reprocessed, Transactions are entered into a net change MRP
program frequently to reflect conditional as they change.

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Time Fence:

It is a length of time that must elapse without changing the MPS to stabilize the MRP system. The
MPS may be changed only after time period, the time fence is the shortest lead time from raw
material to finished production for an end item. Within the time fence, the MPS becomes frozen and
the planned order releases become firm planned orders.

Potential Benefits of MRP:

Engineering: MRP helps in planning the time of design releases and design changes.

Finance: MRP can help better planning of cash flow requirements. It can identify time capacity
constraints or bottleneck work centres, thereby helping operations managers to make better capital
investment decisions.

Inventory: The information provided by the MRP system is useful to better coordinate order
components with production plan for parent items. This results in reduced levels of average
inventory for dependent demand items.

Production: Information from MRP facilitates better utilization of human and capital resources and
improves delivery performance. It can also improve flow of work, thereby reducing intermittent
delays and reducing the manufacturing cycle time for the jobs.

Planning: MRP can simulate changes in the MPS for the purpose of evaluation of alternative MPS.
It facilitates the projection of equipment and facility requirement, workforce planning and
procurement expenses for a proposed MPS.

Purchasing: MRP helps the purchase department by making known the real priorities and
recommending changes in due dates for orders so that the purchase staff may expedite or delay the
order placed on vendors. It also improved better relationship with vendors.

Sales: MRP helps to check in advance whether the desired delivery dates are achievable. It improves
the company’s ability to react to change in customer order and improves customer service by helping
production, meet assembly dates and helps cut delivery lead times.

Scheduling: Better scheduling can results from MRP though better knowledge of priorities.

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The Advantages of MRP:

1) On time availability of the right materials required for production.

2) Little, if any, excess inventory
3) Timely delivery of manufactured goods to your customers
4) Optimal use of manufacturing resources
5) Decrease in capital cost due to decreased inventory levels and optimal use of production
resources.
6) Collecting the business data for analysis and better planning.
7) Tracking & Forecasting Enhancement
8) Data Sharing Accessibility
9) Boost in Customer Aid
10) Easy to use, Integrated System

The Disadvantages of MRP:

1) Suitable for make-to-stock manufacturers.

2) Customization Restrictions
3) Inflexible System; Not Compatible for Specific Organizations
4) Operation Process Re-Organization
5) Steep Cost for Installation/Operating
6) Material planning is highly dependent on inputs it receives from other systems or department.
If input information is not correct than output for material planning will also be incorrect.
7) Material planning requires maintenance of robust database with all information pertaining
inventory records, production schedule, etc. without which output again would be incorrect.
8) Material planning system requires proper training for end users, as to get maximum out of the
system.
9) Material resource planning system requires substantial investment of time and capital.

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Implementation of MRP:

Successful implantation of MRP depends on the following factors;

Data Accuracy: After a MRP system is installed, careful attention and discipline must always be
exercised to ensure that all data used by the system are accurate. Manager must exert effort to see
that, accurate and timely data are supplied to the system.

Education & Training: It is necessary that all people connected with the MRP system must be
trained in its application and use. All the people who work with the MRP system must understand it
and must know how to use it.

Management Commitment: Top level managers and other managers in all parts of the organization
that will be affected by MRP must be aware of the efforts needed to achieve the new way of
managing other activities.

Realistic MPS: The MPS developed should be realistic and achievable. The MPS should not
overload the plant capacity. The company must develop MPS that effectively uses its capacity
without causing bottleneck or overloads.

Selection of Packages: The potential user must be able to decide about the use of the net change or
regenerative MRP package, knowing their advantages and disadvantages. The user must decide
whether to develop his own MRP system or to purchase and adapt the available package.

User Involvement: The team consisting of people from all those parts of the company that will use
the MRP system will be responsible for the development and implementation of the MRP. This will
ensure that the participation of users of the system in its development will make them more familiar
with the system and its use.

Problem in Using MRP:

 Preparation of MPS, which is realistic in the midst of uncertainties in market environment

and non-availability of adequate lead time from customers for delivery of end products.
Frequent changes in MPs aggravate the problem.

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 Maintaining accurate BOM files: Changes incorporated in BOM by the design department
should be communicated to all user of BOM.
 Incorrect Inventory Status: A major problems is to know the correct status of all materials at
all stages, incorrect stock status results in an erroneous net requirement of materials.
 Unrealistic Lead Time: The most important step in the MRP system which minimizes
inventory is the time-phasing of requirements and release of orders, advancing by the lead
time required so that materials arrives just when required.

Managing Problems in the MRP System:

 Need for formal system and role of the system

 Need for proper organization of function such as production planning and control, materials,
production, quality, engineering etc.
 Importance of proper appreciation of planning and control systems.
 Timeliness of generating information required in managing the plant
 Effective communication system
 Proper motivation of people concerned with the implementation of the system and right
leadership

Manufacturing Resource Planning (MRP-II):

What Is Manufacturing Resource Planning?

 Manufacturing Resource Planning (MRP II) is an integrated information system used by

businesses.
 Manufacturing Resource Planning has been developed by manufacturing managers to address
the planning and controlling of a manufacturing process and all of its related supports
functions.
 Manufacturing Resource Planning (MRP II) evolved from early Materials Requirement
Planning (MRP) systems by including the integration of additional data, such as employee
and financial needs. The system is designed to centralize, integrate and process information
for effective decision making in scheduling, design engineering, inventory
management and cost control in manufacturing.

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 Both MRP and MRP II are seen as predecessors to Enterprise resource planning (ERP),
which is a process whereby a company, often a manufacturer, manages and integrates the
important parts of its business. An ERP management information system integrates areas
such as planning, purchasing, inventory, sales, marketing, finance and human resources. ERP
is most frequently used in the context of software, with many large applications having been
developed to help companies implement ERP.

The Basics of Manufacturing Resource Planning (MRP II)

1) MRP II is a computer-based system that can create detail production schedules using real-
time data to coordinate the arrival of component materials with machine and labor
availability.
2) MRP II is used widely by itself, but it's also used as a module of more extensive enterprise
resource planning (ERP) systems.
3) MRP II is an extension of the original materials requirements planning (MRP I) system.
Materials requirements planning (MRP) is one of the first software-based integrated
information systems designed to improve productivity for businesses.
4) A materials requirements planning information system is a sales forecast-based system used
to schedule raw material deliveries and quantities, given assumptions of machine and labor
units required to fulfill a sales forecast.
5) MRP II was provided as a solution, which included this functionality in addition to all the
capabilities offered by MRP I.
6) Most MRP II systems deliver all of the functionality of an MRP system. But in addition to
offering master production scheduling, bill of materials (BOM) and inventory tracking, MRP
II provides functionality within logistics, marketing and general finance.
7) For example, MRP II is able to account for variables that MRP is not including machine and
personnel capacity providing a more realistic and holistic representation of a company’s
operating capabilities. Many MRP II solutions also offer simulation features that allow
operators to enter variables and see the downstream effect. Because of its ability to provide
feedback on a given operation, MRP II is sometimes referred to as a closed-loop system.

MRP II includes those three, plus the following:

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 machine capacity scheduling

 demand forecasting
 quality assurance
 general accounting

MRP II systems are still in wide use by manufacturing companies today and can either be found as
stand-alone solutions, or as part of an enterprise resource planning (ERP) system. Enterprise
Resources Planning (ERP) software systems are regarded as the successors to MRP II software.

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Capacity Requirement Planning (CRP):

1) Capacity Requirements Planning refers to the planning where the load for each process is grasped
according to the manufacturing order, the adjustments are made, and then the work of each
process is planned. It is necessary to set the capacity after considering the current situation, in
order to make Capacity Requirements Planning more practical.
2) Capacity requirements planning is an accounting method used to determine the available
production capacity of a company. Capacity requirement planning first assesses the schedule of
production that has been planned by the company. Then it analyzes the company's actual
production capacity and weighs the two against each other to see if the schedule can be completed
with the current capacity.
3) In this planning, the following three capacities are used:
 Standard Capacity: the ability to produce items in a standard process. The standard capacity
is usually set for each process, and such time margin as morning meeting time and break time
as well as attendance rate are also considered. In addition, Capacity may be registered for
each operation date.
 Maximum Capacity: the ability to produce the maximum quantity/quality of items in a
process. It can be set according to the actual performance or as an overload tolerance.
 Set Capacity: the ability to be set based on the relationship between the maximum capacity
and load.

When setting the capacity, such factors as overtime work, shift, and the increase or decrease
in staff transfer are considered. Capacity requirements planning are an important part of ensuring
that a company can meet production expectations. If a firm finds that its production capacity is
inadequate, it may contract with another firm that has excess capacity. If a firm fails to do capacity
requirements planning before production, it may find itself unable to produce the goods it has agreed
to produce. This can obviously be disastrous for the firm if it is unable to meet the requirements of a
contract or other formal production agreement.

Capacity Requirement Planning Process:

To conduct capacity requirements planning, small-business owners first need to assess the demand
for their company’s product or service. This is done by studying recent sales and inventory records

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to determine how much of the product or service the company is actually selling. The business
owner must then look at historical sales records for a time frame comparable to the one he is
planning for, such as a fiscal quarter, and compare them to recent sales and inventory data. This will
establish whether demand is increasing or declining, and provide a basis for estimating how much
the company can look forward to selling in the near future. To do this with as much accuracy as
possible, business owners also take the current financial and political environment into account.
Next, business owners must examine production records, such as individual staff sales or data on
how many units of a product the company makes, to see if the current production levels are adequate
to meet projected future demand. If so, no changes need to be made. If production cannot keep up
with the forecasted demand, the company must take steps to increase production, such as hiring
more employees, offering overtime to current employees, creating and incentivizing goals, or
upgrading technology and equipment to more efficient models.

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The CRP system converts that order into standard labour and machine hours of load on the
appropriate workers and on the machines as identified form the work centre status and shop routing
files. The output is a load projection report work centre wise. If the work centre capacities are
adequate, the planned order releases are verified for the MRP systems and released order become
purchase and shop cases. Work load reports are also used for controlling inputs and outputs. If the
initial load projection report reveals in adequate of capacity in any work centre, either the capacity
must be increased or the master production schedule must be revised.

Benefits of Capacity Requirement Planning:

 Monitor Costs: Capacity requirement planning takes into account personnel, facilities,
production schedules and supplies. When the capacity level is carefully planned, the
company can monitor costs during periods of growth and recession.
 Available Capacity: Capacity requirement planning offers organizations a clear picture of the
resources currently held by the organization and the capacity required to meet a production
schedule.
 Production Cycles: The Company can use capacity planning to maintain proper production
levels during expected business cycles. For example, if your company traditionally sees an
increase in orders during the summer in anticipation of the Christmas season, then you can
use historical data to plan production capacity and have ample staff on hand to handle the rise
in demand.
 New Locations: Using capacity requirement planning information from your existing
locations, you can develop a more accurate projection of needs for facilities and personnel
levels, and of the kind of production that can be expected from the new location. This is a
valuable tool when putting together the business plan and budgets for the company's growth.

Compiled By
Er. Manoj kumar Rout
Asst. Professor,
BIITM, BBSR.

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