Yangon University Of Economics
Department Of Commerce
Chapter 14
Material Requirements Planning (MRP)
And ERP
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Dependent Demand
• “Dependent Demand” means the demand for one item is related to the demand for
another item.
Material Requirements Planning (MRP)
• A Dependent demand technique that uses a bill of material, inventory, expected
receipts and a master production schedule to determine material requirements. It ensures that
the right materials are available at the right time to fulfill production needs. More generally,
for any well-defined product for which a schedule can be establish, dependent techniques
should be used. The dependent technique used in production environment is called material
requirement planning.
Benefits in material requirements planning (MRP)
These benefits include-
• Better response to customer orders as the result of improved adherence to schedules
• Faster response to market changes
• Improved utilization of facilities and labor
• Reduced inventory levels
The Major Strength of MRP
• The Major Strength of MRP is its ability to determine precisely the feasibility of a
schedule within aggregate capacity constraints.
Dependent Inventory Model Requirements
• Master Production Schedule
• Specifications or bill of material
• Inventory availability
• Purchase orders outstanding
• Lead times
Master Production Schedules(MPS) – is a plan that details what a business intends to
produce, specifying quantities and schedules for each finished product. It acts as a link
between the production planning and actual manufacturing processes.
Let's say a company manufactures bicycles. Their MPS might outline the following for a
specific month:
• Week 1: Produce 200 mountain bikes, 150 road bikes
• Week 2: Produce 180 mountain bikes, 160 road bikes
• Week 3: Produce 220 mountain bikes, 140 road bikes
• Week 4: Produce 190 mountain bikes, 170 road bikes
• The MPS is crucial for coordinating various departments like production, sales and
logistics to streamline operations and fulfill orders effectively.
Bill of Material (BOM) – A listing of the components, their
description, and the quantity of each required to make one unit of a
product. It defines a product by providing a product structure.
BOMs are crucial for production planning, inventory management,
and cost estimation. They guide manufacturers in sourcing materials,
assembling products and ensuring all necessary components are
available for production.
Modular Bills
• Bills of Material Organized By Major Subassemblies
by Product Options
• Two other kinds of bills of materials
• Planning Bill
• Phantom Bill
Planning Bill (Pseudo or Super Bill)
• Are created in order to assign on artificial parent to
the bill of material.
Phantom Bill
• Bills of material for components, usually assemblies,
that exist only temporarily, they are never
inventoried.
Low level coding
• A number that identifies items at the lowest level at
which they occur.
Accurate Inventory Records
- Good inventory management is an absolute necessity for a MRP system to work.
Purchase Order Outstanding
- Knowledge of outstanding orders exists as a by-product of well-managed purchasing and inventory-control
departments.
- Only with good purchasing data can managers prepare meaningful production plans and effectively execute an
MRP system
Lead Time
- The time required to acquire
- In purchasing system > The time between recognition of the need for an order and receiving
- In production system > The order, wait, move, queue, set up and run time for each component
MRP Structure
MRP structure is a system that helps organizations manage and plan the procurement of materials for production.
Gross material requirements plan is a schedule, it combines a master production schedule and the time phased
schedule. GMRP shows the total demand for an item.
Net Requirements Plan-The result of adjusting gross requirements for inventory
on hand and schedule receipts.
Plan Order Receipt -The quantity planned to be received at a future date.
Planned Order Release -The schedule date for an order to be released.
System Nervousness
- System nervousness is as instability in planned orders caused by uncertainty
in demand (can create in purchasing and production departments if
implemented).
Two tools to reduce MRP system nervousness,
- Time Fences: Allow a segment of the master schedule to be designed as not
to be rescheduled.
- Pegging; In MRP system, it means tracing upward in the BOM from the
component to the parent item
Lot-Sizing Technique
Lot-Sizing Decision>The process of, or techniques used in determining lot sizes
>A decision about how much and when to order
Lot for Lot >Lot sizing technique which produced exactly what was required
>To meet the requirement of dependent demand
MRP MANAGEMENT
• An approach to inventory management in which a company use computers to
predict the timing and quality of materials needed to complete a production
process.
Demand-Driven MRP (DDMRP)
• Strategically alters lead times and precisely safety stock with the BOM structure
to improve MRP performance and also reduces stockouts and improve stability in
challenging MRP environments.
Economic Order Quantity (EOQ)
• EOQ is a formula used to determine the optimal order quality that minimizes
the total inventory costs, including ordering costs and holding costs.
• To use it as a lot-sizing technique for MRP system
• EOQ is useful when we have relatively constant demand
Periodic order Quality (POQ)
• POQ is a lot-sizing technique that orders the quantity needed during a
predetermined time between orders, such as every 3 weeks.
POQ =EOQ/(Average Weekly Usage)
• Other lot-sizing techniques known as dynamic lot-sizing, are similar to periodic
order quantity as they attempt to balance the lot size against the setup cost.
Extensions of MRP
Material Requirements Planning II (MRP II)
- MRP is defined as a system that allows with MRP in
place, Inventory data to be augmented by other resource
variables
- MRP II provides another tool in OM's battles for
sustainable operation
- MRP II systems are seldom stand-alone programs
Closed-loop MRP
- Provide feedback to scheduling from the inventory
control system, capacity plan, master production
schedules and ultimately to the production plan
CAPACITY PLANNING
-LOAD REPORTS SHOW THE RESOURCE REQUIREMENTS IN A WORK CENTER
FOR ALL WORK CURRENTLY ASSIGNED TO THE WORK CENTER.
-CLOSED-LOOP MRP SYSTEMS ALLOW PRODUCTION PLANNERS TO MOVE
THE WORK BETWEEN TIME PERIODS
TACTICS FOR SMOOTHING THE LOAD AND MINIMIZING THE
IMPACT AND CHANGED LEAD TIME.
• OVERLAPPING
• OPERATIONS SPLITTING
• ORDER SPLITTING OR LOT SPLITTING
MRP IN SERVICES
• -DEMAND FOR MANY SERVICES IS CLASSIFIED AS DEPENDENT DEMAND
WHEN IT IS DIRECTLY RELATED TO OR DERIVED FROM THE DEMAND FOR
OTHER SERVICES
• -OFTEN REQUIRE PRODUCT-STRUCTURE TREES, BILL OF MATERIAL AND
LABOUR AND SCHEDULING
• -VARIATIONS OF MRP SYSTEMS CAN MAKE A MAJOR CONTRIBUTION
TO OPERATIONAL PERFORMANCE IN SUCH SERVICES
• EXAMPLES : RESTAURANTS, HOSPITALS, HOTELS
Distribution Resource Planning (DRP)
• Is a time-phased stock-replenishment plan for all
levels of the supply chain
• Analogous to MRP
• With DRP, expected demand becomes gross
requirements
• Net requirements are determined by allocating
available inventory to gross requirements
• DRP starts with forecast at retail level
• DRP pulls inventory through the system
• Effective use of DRP requires an integrated
information system to planned order releases from
one level to the next
• The goal is small and frequent replenishment
within economics bounds
Enterprise Resource Planning (ERP)
- An information system for identifying and planning the
enterprise-wide resources needed to take, make, ship and
account for customer orders
- ERP is a software that allows companies to
1. Automate and integrate business processes
2. Share a common database and business practices
3. Produce info in real time
- The objective is to coordinate a firm's entire business
- ERP systems are umbrella systems that tied together
specialized systems
- ERP systems include : SCM, Blockchain, CRM, Sustainability
ERP in the Service Sector
- Health care, Government, Retail Stores, Financial Services
- ERP is supply chain management systems in the grocery
industry that tie sales to buying, to inventory, to logistics, and
to production
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