Introduction to Industrial

Management(Humanities III)

Paper Code: HSMC-501

Unit: III
Topic: Materials Management
Sub-topic: Material Requirements Planning
Material requirements planning
 Material requirements planning is a time phased
priority-planning technique that calculates material
requirements and schedules supply to meet demand
across all products and parts in one or more plants.
 It is a computer based system in which the given Master
Production Schedule (MPS) is divided into the required
raw materials, parts and subassemblies needed to
produce the end product in each time period, which may
be a week or month of the production horizon
 MRP is an inventory control process carried out with the
aid of the computer to determine time-phased
requirement of components that are used for
manufacturing products on the assembly line principles.
System Components
 Under the MRP system, three major sources of
information are necessary, a Master Production
Schedule (MPS), a bill of materials file and an inventory
status file. These components are discussed below.
Master Production Schedule (MPS)
 A Master Production Schedule (MPS) is a plan for
production, staffing, inventory, and so on. MPS is developed
as the customer orders are received by the firm or from the
forecasts of demand before the MRP system begins to
operate.
 The MPS is an input to the MRP system. It is designed to
meet market demand by identifying the quantity of each end
product and when it is to be produced during each future
period, during production planning horizon.
 Orders are placed for replacement components for customers
and entered as end items in the MPS. Thus, MPS provide the
important information for the MRP system
Bills of Materials
 A Bill of Materials or BOM is a list of the raw
materials, sub-assemblies, intermediate assemblies,
components, • sub-components, parts and the
quantities of each needed to manufacture the end
product. This information is obtained from product
design documents, work flow analysis and other
standard manufacturing and industrial engineering
documents.
 The MRP receives primary information from the
BOM i.e. the product structure which shows various
components • of the product. Each item in the product
is given a unique identification number. Taking into
consideration the master schedule for the end items,
MRP schedules the time phase for the orders for the
correct components items in the production structure.
Inventory status file
 The MRP system must retain an updated file
of the inventory status of each item in the
product structure. This file provides accurate
and up-to-date information about the
availability of every controlled item by the
MRP system, which can then maintain an
accurate accounting of all inventory
transactions both actual and planned.
 The inventory status file contains the
identification numbers, quantity on hand,
safety stock level, quantity allocated and
procurement lead time of every item.
Demand Dependency
 The concept of demand dependency is important between the
reactive and proactive (planning) systems. The demand
dependency is the degree to which the demand for the same
product is associated with the demand for another item.
 In case of “independent demand”, the demand is unrelated to the
demand for other items. However, in case of a “dependent
demand” situation, if we know the demand for one item, we can
deduce the demand for the other related items. For example, If the
demand for a product is known, we can calculate how many of its
subcomponents are needed as its demand is already known.
 In the past, industries used reactive control systems such as order
quantity, reorder point system ignoring the dependent and
independent demand. Now, large safety stocks are not needed for
dependent demand items because it is possible to calculate the
exact amounts required. It is also not necessary to stock up items
that are related to the dependent demand.
 In the past, industries used reactive control systems such as
order quantity, reorder point system ignoring the
dependent and independent demand. Now, large safety
stocks are not needed for dependent demand items because
it is possible to calculate the exact amounts required. It is
also not necessary to stock up items that are related to the
dependent demand.
 Depending on the nature of the industry, the production
process and the item, demand for an inventory item may be
either discrete or continuous. Thus, variability of demand
and the complexity of production process are the
determining in using an order point system or time phased
materials planning system.
 In job lot or batch production demand discontinuity is
pronounced. When production is discontinuous, a product
is broken down in many components, parts subassemblies
and the materials planning system coordinates the
ordering, delivery schedule and the start off time variation,
Objectives of MRP
 Inventory reduction: MRP determines the number of
components needed and the time when they are needed to meet
the master schedule. It enables the managers to procure the
component as it is needed thus avoiding costs of excessive
inventory.
 Reduction in production and delivery lead time: MRP identifies
quantities, timings, availabilities, procurement and production
action required of materials and components to meet delivery
dead lines. By coordinating inventories, procurement and
production decisions MRP helps in avoiding delays in
production. It helps in arranging production activities in
priorities by putting due dates on consumer job orders.
 Realistic commitments: Realistic delivery promises can enhance
customer satisfaction and make him delighted. By using MRP,
production system can give information in time and likely
delivery time to prospective customers.
 The potential customer orders can be added to the system to
show the manager how the revised total loading can be
handled with the existing capacity. This will result in more
realistic delivery dates.
 Increase in efficiency: MRP provides close coordination
amongst various work centres as production progresses
through them. Hence production can be processed with
fewer indirect personnel and fewer material interruptions.
The information provided encourages production
efficiencies.
 It reduces inventory cost by reducing inventory levels.
 It improves plant operating efficiency by making better use
of productivity resources
 Thus, the MRP technique is used as:
 requirement calculator..
 manufacturing and planning control system..
 manufacturing resource planning system
Advantages of MRP
 Reduced levels of inventory: Helps in achieving better
coordination among various orders for components and •
production plans for parent items. As a result average
inventory level tends to get reduced for dependent demand
items like raw materials and work in progress.
 Better utilisation of human and non human resources:
Provides accurate prior information; it helps in improving •
delivery systems, flow of work, avoiding intermittent delays
and reducing manufacturing cycle times in jobs. All these
result in optimum utilisation of all available resources.
 Improved consumer service: Enables managers to fix delivery
dates that are definitely achievable. It helps in • improving the
company’s ability to react to changes in customer orders,
improve service by providing quality products at fair prices,
meet assembly dates and reduce delivery time significantly.
 Efficient financial planning: Enables to plan effective cash
flow requirements. It enables to identify bottleneck work
centres or capacity constraints thus helping the operations
manager to take better investment decisions
 Better scheduling: Provides better knowledge about priorities
hence better scheduling can be undertaken easily.
 Improved vendor relations: Enables the purchase department
to know the priorities and changes in due dates for orders so
that purchaser places the orders on vendors accordingly. This
helps in improving vendor relations.
 Efficient planning: May suggest necessary changes in the
Master Product Schedule (MPS) for evaluating an alternative
to it. It helps in projecting facility and equipment
requirement, manpower planning, etc. so that the organisation
can survive and grow under competitive conditions.
 Promoting engineering efficiency: Helps in planning the time
of design releases as well as design modifications.
Dynamic nature: MRP is a dynamic system which is an
important advantage. It reacts effectively with changing
conditions. In fact it thrives on change. Changing
conditions from the master schedule for several periods
in future can affect not only the end item but also
thousands of components. As the product system is
computerised the management can make a new MRP
computer run to revise production and procurement
plans that react quickly to changes in customer
demands as reflected in the master schedule.
Rational material decisions: In order to maintain
planned production schedules, planned order releases
for necessary items have to be acted upon immediately.
Thus, it enables the manager to take rational decisions.
Limitations of MRP
 The limitations of MRP arise from the conditions that need to be met
before it can be used. Thus, for implementing MRP, computers are
necessary, the product structure has to be assembly oriented, bills of
material and inventory status information need to be regularly
collected and computerised and a valid master schedule must be
prepared.
 Limitations related to data integrity. Unreliable inventory and
transaction data from the shop can ruin a well planned MRP system.
Training personnel to keep accurate is not an easy task, but it is
critical for the success of MRP implementation. In general, the
system must be accurate and directly useful or else it becomes an
expensive ornament that is bypassed in favour of ad hoc methods.
 Top management support and proper organisation of functions such
as production planning and control, materials, production, quantity,
engineering and so on. Timeliness of generating information,
effective communication systems, proper motivation of people,
efficient leadership are necessary things for the successful
implementation of MRP. Most of these can be lacking in many
organisations.
Keeping MRP Current in a Changing
Environment

 MRP is dynamic; it is responsive to new job orders from

customers, current shop conditions and changes
anticipated in the future. So, the MRP system must be
updated with current information. It must provide
stability for production operations in the face changing
conditions. The four aspects of MRP are vital elements
under dynamic environments. These are as follows:
 Pegging: It is a process of tracing through the MRP
records and levels in the product structure to identify
how changes in the records of the component will affect
the records of other components. The pegging procedure
shows exactly which item plans must changed.
 Cycle counting: An accurate record is necessary for MRP,
otherwise the production schedule cannot be maintained,
deliveries will be missed and labour and equipment will
be inefficiently used. Cycle counting ensures that on-hand
inventories correspond to the quantities shown in the MRP
records. The updated records indicate the excesses or
shortage of components and hence production schedules at
various work centres need adjustment.
 Updating: When new jobs arrive or other shop
transactions take place, the MRP system must be updated.
 Time fence: MRP has to function under dynamic
environments; hence, the changes may lead to unstable
and erratic shop operations or “system nervousness”.
Stability can be gained by using time fences in the MRP
system. The time fence is incorporated into the MPS and
the shortest lead-time from raw materials to finished
goods is determined .Within this time fence, the MPS is
fixed.
Software packages available
in market

Fishbowl Inventory:
 Fishbowl Inventory is an inventory solution available for
deployment both on-site and through the cloud. It’s well-
suited for small- and medium-sized businesses that are in
the wholesale distribution, manufacturing and e-commerce
sectors. The program offers integrations with vendors such as
Xero and QuickBooks to provide users with accounting
functionality. Other integrations that are offered to increase
functionality include EDI, CRM, shipping, work order
management, job shop floor control and bills of materials.
 Fishbowl Inventory support is available via phone, email
or chat. Online training resources are also accessible to
customers who have questions about the system.
Benefits
 Asset Tracking: The solution enables users to conduct operations
across multiple warehouses, monitor expiration dates, track
shipments and automatically reorder materials. The quantity and
location of each part are tracked to enable automatic reordering.
Other aspects that are used to track products through this system
include serial, lot, tag number and revision. A detailed warehouse
map provides visualization of the location of physical products.
 Integration: A range of integrations are available through this
program. Some of the functionality that users can obtain through
integrations include shipping, accounting, e-commerce, EDI, CRM
and merchant services. The system’s integration with accounting
tools such as Xero and QuickBooks connects accounting data to
inventory information, which is updated in real time. With this
connection, the system verifies whether or not data is accurate and
alerts users in case information is duplicated. Additional integrations
that are offered include Fishbowl Anywhere, Hosted Services, Go,
Checkout and Time and Labor.
 Order Management: The order management function records items
when they are received at the warehouse and facilitates the picking,
packing and shipping of products. It also tracks shipments from
source to the final destination.
 Reporting: Fishbowl Inventory offers various reporting
plug-ins and tools that help with tasks such as creating
barcodes and translating inventory/sales data into graphs and
need forecasts. The reporting tools can identify gross sales
by person and product through visualization of sales data.
Additional reports such as inventory availability, accounting,
advanced purchasing by sales order, bill of materials and
sales are available as well.
 Bills of Materials: This system manages a list of the
materials and parts used in the manufacturing process. Some
of the data it contains related to these items includes costs,
part names and quantities. This feature can assist with
disassembly, assembly, replacement, repair and other
manufacturing duties.
 Capacity Requirements Planning: Fishbowl Inventory
includes supply and demand analysis, which concludes
optimal production level to reduce spoilage and the over-
ordering of materials.
NetSuite
 NetSuite ERP is a cloud-based software solution
that consolidates a range of business processes,
such as financial management, inventory
management and fulfillment. It’s suitable for
companies of all sizes, and for those that operate
on Mac, Windows or Linux platforms. Some of the
industries that use this solution include education,
advertising, consulting, financial services,
energy, FMCG hospitality, healthcare,
manufacturing, IT services, technology, logistics,
transportation, retail and wholesale distribution.
 Benefits
 Order Management: The order management function makes
the process from sales quote to order fulfillment easier,
alleviating manual bottlenecks and preventing errors. The order
management feature is integrated with the finance, sales and
fulfilment teams to provide visibility and speed up workflows
as well.
 Source Management: With the source management feature,
you can sort and manage suppliers based on their past
performance. It provides a portal to work with suppliers and to
centralize purchases in real time, ensuring compliance. NetSuite
ERP provides dynamic forecasting and operational planning
capabilities that can reforecast in case of deviance.
 Warehouse Management: With the warehouse management
feature in NetSuite ERP, users can reduce cycle times and
overhead costs and increase on-time delivery rates and
inventory turns. Some of the specific capabilities included in
this tool are task management,
 RFI barcode scanning, returning authorization receipt,
cycle count planning and strategy definition for put-
away and picking items.
 Customization and Visibility: The system offers a
centralized location for users to access information
regarding orders, customers, inventory and items. The
program also lets users create business rules and
manage their own requirements through built-in
automation functionality.
 Material Requirements Planning: NetSuite ERP
contains demand planning tools that check inventory
and safety stock levels, maintain bills of materials,
analyze supply, and review demand before generating
orders. The program also provides multi-location
planning functionality.
IQMS
 IQMS is a manufacturing and ERP system that manages all
factory operational processes. It’s available for deployment
both on-premise and in the cloud, and offers modules for
supply chain planning, manufacturing execution system
and manufacturing management. The program contains a
single database that cuts costs that users would typically need
to pay to third-party integrators. Industries such as medical,
manufacturing, automotive, food and beverage, aerospace,
defence and plastics commonly utilize this solution.
 Some of the specific capabilities included in this solution
include sales and order management, financial
management, material management, supply chain
management, production management and customer
relationship management. IQMS has two facilities where it
offers in-person training to its users. Internet and virtual
courses are also available.
Benefits
 Project Management: The project management module offers
functionality such as inventory, quoting, purchasing, preventative
maintenance, time and attendance and product lifecycle management.
Comprehensive project tracking capabilities are available through
project templates and user-defined tasks. Projects can be managed
from the time a quote is entered to the time a work order is marked as
completed. The system includes labor assignment, project history,
inventory management and a centralized reporting list for all project
statuses, tasks and costs.
 Forecasting: The solution gives users a look at current and projected
orders and uses this information to measure how they impact past,
present and future sales. Data mining functionality is also included in
this program to track resources and materials while considering
production requirements and customer inventory. The time-phased
planning feature in this system is continuously updated with each
MRP run and lets users look at forecasts by part, customer or plant.
This tool is linked to shipping activity, which gives users access to
shipping and sales information. This connectivity allows users to
compare projected quantities and sales by customer, month, part or
order.
 Outsource Central: The Outsource Central module offers users
control of different supply chain management tasks such as
planning, setting up, shipping and tracking sub-contracted product
statuses for items produced at outsource vendor locations. The
system creates ship orders and work orders for products that are
shipped to suppliers based on demand while considering the scrap
percent of parts listed in the outsource bill of materials. With this
program, users can track the status of goods sent to outsource
vendors through inventory in-transit location information, ship
orders and rejects. It also contains CTP, ATP and supplier-specific
pricing.
 Shipping Management: IQMS streamlines both foreign and
domestic shipping processes. It automates workflows such as
picking tickets, receiving sales orders and capturing relevant data
such as inventory location, shipment information and quantities.
The program also creates advanced shipping notices (ASNs),
which give customers access to information such as terms of
payment, shipment information, destination and carton/weight
measurements.
 Customer Relationship Management: The CRM
functionality in this system manages support
interactions and contains information on calls, notes,
meetings and tasks. It also provides drag-and-drop
functionality for deploying email correspondence.
 Labour Capacity Planning: This feature looks at
how standard labour hours stack up to the labour
hours required to stick to a schedule. This information
can be analyzed by week, shift, or day and is based on
aspects such as work orders and the labour schedule.
Available labour can be calculated by qualifications,
category and skill level.
 Auxiliary Equipment Planning: IQMS tracks the
availability of equipment and detects conflicts of
auxiliary equipment based on the bill of materials.
GMDH Streamline
 GMDH Streamline is an on-premise inventory and supply chain
management program. Some of its specific features include sales
forecasting, demand forecasting, inventory optimization,
demand planning, inventory replenishment, inventory
planning, material requirements planning, automatic stock
replenishment and sales and operations planning. The system
uses a time-series depreciation methodology to develop forecasts.
It also provides GMDH Shell, which offers functions such as time
series analysis, time series forecasting, neural network capabilities
and predictive analysis.
 Some of the industries that leverage this program include
healthcare, transportation, FMCG and others. GMDH Streamline
offers support through online video tutorials that convey
information related to demand forecasting and planning,
connecting data, revenue forecasting, inventory planning and
replenishment. New users also have access to a user guide that
provides documentation and tutorials meant to give insight into the
system.
 Benefits
 Forecast Mechanism and Approval System: The program
contains analytical models that leverage data to develop
forecasts. The forecast approval system enables users to manage
different forecasts and allows users to mark SKUs with statuses
such as Needs Attention, Approved and Unapproved. When a
SKU is marked as Approved, it is locked so that further changes
can not be made.
 Order Planning: GMDH Streamline creates replenishment
suggestions and the order plan. It also develops optimized order
proposals for the purchasing system. The system supports a
reordering point, maximum levels and minimum levels to adhere
to the needs of material requirements planning. It also tracks
target inventory levels while considering inventory investments.
 Demand Forecast: Using historical data, GMDH Streamline
selects the best statistical model to anticipate future demand. It
also allows users to manage, modify and re-evaluate forecasts as
needed.
 Stock-out/Overstock Alerts: The program checks inventory
levels and highlights any problems regarding excess or shortage
of inventory. It also develops recommendations to help optimize
inventory levels in addition to providing projected inventory
level settings. With the system, users can mark exceptions
including potential stock-outs, shortfall and excess stock.
 KPI Reporting: KPIs can be tracked by item category, location
and the item itself. The demand forecasting tab contains a
repository of KPIs such as expected stock-out value, expected
overstock value, inventory turnover, non-moving inventory
value, gross margin, average days to sell, revenue forecasts and
turn-earn margin. The reports tab contains reports on KPIs.
 Material Requirements Planning: With this program, users can
create a material requirements plan using the demand forecast of
finished goods and the bill of materials. Once a product has been
manufactured, the system sorts SKUs into finished items,
materials and intermediate items (goods that are created during
the manufacturing process and that are used to create a finished
item.)
ERPAG
 ERPAG is an ERP solution that is best suited for small- and
medium-sized businesses that are looking for a cloud-based
program. It’s available through a subscription-based pricing model
and can be obtained through a Basic, Standard or Premium
membership plan. Some of the capabilities of this system include
sales, manufacturing, inventory, finance and purchasing. It also
integrates with modules that provide security measures such as
scripting and encryption. The program can manage multiple
warehouses and supports transfers between them. It includes lot
tracking, storage location and bins, inventory back-ordering, lot
label printing, serial number tracking, shipment management,
scanning, barcoding and return goods management.
 ERPAG integrates with third-party vendors such as QuickBooks
Online, Square, WooCommerce and Shopify. CSV import and
export is supported in this program as well. As far as user assistance
goes, the Standard and Premium packages include support for free.
Some of the available resources include in-app help, video training
materials and phone and email assistance.
 Benefits
 Dropship Management: With this tool, users can connect
dropshippers with specific product types while also setting a default
dropshipper for different items. Emails can be automated through this
tool so that received orders can be quickly sent to dropshippers to
expedite the fulfillment process. The system tracks warehouse
inventory by barcode, SKUs, serial number and lot to give users more
visibility and control over inventory.
 Service and Repair Management: Barcode scanning is included and
can be attached to any standard device, allowing users to create
standard barcodes in the UPC, EAN and EAN-13 formats. The system
tracks quantity variation and captures data such as size, color and other
variations. It also accounts for currency settings and taxes for different
pricelists when inventory is spread across multiple warehouses.
 Inventory Management: ERPAG updates inventory levels in a single
location for operations across an organization. The program manages
orders that come in through various sales channels, sends items to
customers and looks for missing order items. Reporting functionality is
also included and can group sort, filter and render charts instantly.
 BOM: The system includes a multi-level bill of materials. It provides
the ability to filter by sub-components, components and work
operations. It also enables users to remove and add components to the
BOM and provides multiple versions of the BOM.
 Document Management: ERPAG includes an integrated document
management system that stores projects, contracts, drawings and more
within the program itself.
 Work Order Management: The solution tracks labor, time and
materials for manufacturing work orders. It measures information
derived from work orders such as expected arrivals and missing parts. It
offers item-level information to users from the missing parts report or
the work orders directly. It also contains status tags that can send alerts
when specific terms are met, prompting the generation of work orders.
 Sales Management: The sales management feature in this system
includes back-ordering, sales order recording, customer contact
management, sales pipeline process, invoicing and reports for sales and
customers. It also provides material planning, bills of materials,
manufacturing cost tracking, shop floor reporting and expiry date
management.
 Purchasing: This function can perform tasks such as partial packing,
purchase suggestions, shipment reporting and shipment planning.
 Financial Management: The financial tool offers stock movement