Model Answer
0 min readIntroduction
Material Requirements Planning (MRP) is a computer-based inventory management system designed to ensure materials are available as needed for production and to keep inventory levels as low as possible. Emerging in the 1960s as a response to the growing complexity of manufacturing, MRP revolutionized production planning by shifting from a ‘push’ system (based on forecasts) to a ‘pull’ system (driven by actual demand). It forms a core component of Enterprise Resource Planning (ERP) systems today. This answer will outline the objectives of MRP and explain how the system achieves these objectives through its core functionalities.
Objectives of Material Requirements Planning (MRP)
The primary objectives of MRP are threefold:
- Ensuring Material Availability: Guaranteeing that the right materials are available in the right quantities at the right time to meet production schedules.
- Efficient Inventory Management: Minimizing inventory holding costs while avoiding stockouts and production delays.
- Accurate Production Scheduling: Developing a realistic production schedule that considers material availability and capacity constraints.
How MRP Achieves its Objectives
1. Ensuring Material Availability
MRP achieves material availability through a process of dependent demand calculation. Unlike independent demand (customer orders), dependent demand is derived from the production schedule. The MRP system works backward from the finished product, exploding the Bill of Materials (BOM) to determine the quantity of each component needed. This process involves:
- Bill of Materials (BOM): A hierarchical list of all the materials, components, and assemblies required to manufacture a product.
- Inventory Records: Accurate data on current inventory levels of each item.
- Master Production Schedule (MPS): A plan that specifies what finished products will be produced and when.
The MRP system then calculates the Gross Requirements (total demand), Scheduled Receipts (materials already ordered), and Net Requirements (Gross Requirements - Scheduled Receipts). Finally, it determines when to place orders for materials, considering Lead Times (the time it takes to receive an order). This ensures materials arrive just in time for production.
2. Efficient Inventory Management
MRP minimizes inventory costs by adopting a ‘just-in-time’ approach. By accurately calculating material needs, it reduces the need for large safety stocks. Key features contributing to efficient inventory management include:
- Lot Sizing: Determining the optimal order quantity to minimize costs (e.g., Economic Order Quantity - EOQ).
- Safety Stock Management: Maintaining a buffer stock to account for unexpected demand fluctuations or lead time variations. MRP helps optimize safety stock levels based on historical data.
- Reduced Obsolescence: By aligning production with actual demand, MRP minimizes the risk of obsolete inventory.
Example: A bicycle manufacturer uses MRP. The BOM for a bicycle includes tires, frames, handlebars, etc. The MPS indicates 100 bicycles need to be produced next week. MRP calculates the exact number of tires, frames, and other components needed, factoring in current inventory and lead times for ordering. This prevents overstocking of components and ensures timely production.
3. Accurate Production Scheduling
MRP integrates material planning with production scheduling. It identifies potential bottlenecks and material shortages that could disrupt the production process. The system provides:
- Shop Floor Control: Tracking the progress of work orders and identifying any deviations from the schedule.
- Capacity Requirements Planning (CRP): Assessing whether sufficient capacity is available to meet the production schedule. If capacity is insufficient, the MPS can be adjusted.
- Rescheduling Capabilities: The ability to quickly revise the production schedule in response to changes in demand or material availability.
Table: MRP Input & Output
| Input | Output |
|---|---|
| Master Production Schedule (MPS) | Planned Order Releases |
| Bill of Materials (BOM) | Material Requirements |
| Inventory Records | Order Quantities & Timing |
| Lead Times | Production Schedule |
Conclusion
In conclusion, Material Requirements Planning is a powerful system for managing materials, inventory, and production schedules. By accurately calculating dependent demand, optimizing lot sizes, and integrating with capacity planning, MRP helps organizations achieve significant cost savings, improve customer service, and enhance operational efficiency. While modern ERP systems have expanded upon MRP’s functionalities, the core principles of dependent demand management remain fundamental to effective supply chain management. The successful implementation of MRP requires accurate data, disciplined processes, and ongoing monitoring.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.