MGT613 - Production / Operations Management - Lecture Handout 35

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Learning Objectives

  • Discuss benefits and requirements of MRP.
  • Explain how an MRP system is useful in Capacity Requirements
  • Benefits and shortcomings of MRP
  • MRP II and MRP.

MRP: A Recap

  1. Material Requirements Planning (MRP) is software focusing on production planning and inventory control system used to manage manufacturing processes.
  2. An MRP system is intended to simultaneously meet three objectives:
    1. Ensure materials and products are available for production and delivery to customers.
    2. Maintain the lowest possible level of inventory.
    3. Plan manufacturing activities, delivery schedules and purchasing activities.

MRP Processing

  1. Gross requirements
    • Total expected demand.
  2. Scheduled receipts
    • Open orders scheduled to arrive.
  3. Planned on hand
    • Expected inventory on hand at the beginning of each time period.
  4. Net requirements
    • Actual amount needed in each time period.
  5. Planned-order receipts
    • Quantity expected to be received at the beginning of the period.
    • Offset by lead time.
  6. Planned-order releases
    • Planned amount to order in each time period.

Updating the MRP Systems

  1. Regenerative system
    • Updates MRP records periodically.
  2. Net-change system
    • Updates MPR records continuously.

MRP in Services

  1. Food catering service
  2. End item => catered food
  3. Dependent demand => ingredients for each recipe, i.e. bill of materials
  4. Hotel renovation
  5. Activities and materials “exploded” into component parts for cost estimation and scheduling

Benefits of MRP

  1. Low levels of in-process inventories
  2. Ability to track material requirements
  3. Ability to evaluate capacity requirements
  4. Means of allocating production time

Requirements of MRP

  1. Computer and necessary software
  2. Accurate and up-to-date
  3. Master schedules
  4. Bills of materials
  5. Inventory records
  6. Integrity of data


  1. Expanded MRP with emphasis placed on integration
  2. Financial planning
  3. Marketing
  4. Engineering
  5. Purchasing
  6. Manufacturing

Capacity Planning

Capacity requirements planning: The process of determining short-range capacity requirements. Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.
Time fences: Series of time intervals during which order changes are allowed or restricted.

As an operations manager we should be able to identify the process of Capacity Planning. Infact the Capacity requirements planning process determines short-range capacity requirements. The necessary inputs are:

Capacity Planning

  1. Planned order releases for MRP
  2. The current shop load
  3. Routing information
  4. Job times

Outputs include load reports for each work center.

Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.
An organization generates a Master Schedule in terms of what is needed and not in terms of what is possible or available.

An over view of the capacity planning process includes the following.

  1. The Master schedule is first tested for feasibility and possibly adjusted before it becomes permanent.
  2. The proposed schedule is processed using MRP to ascertain the materials requirements the schedule would generate.
  3. These are then translated into capacity requirements in the form of load reports for each departments or work centers.

The initial schedule may or may not be feasible given the limits of production or availability of materials. Also, with the aid of Time fences (the series of time intervals during which order changes are allowed or restricted) a feasible schedule may be finalized.

feasible schedule


Manufacturing Resource Planning (MRP II) is defined and accepted by professionals as a method for the effective planning of all resources of a manufacturing company.

Ideally, it should answer operational planning in units, financial planning in rupees, and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP.

This is not exclusively a software function, but a merger of people skills, dedication to data base accuracy, and computer resources. It is a total company management concept for using human resources more productively.

Accounting and finance departments get accurate costs and predict cash flows. Operations and Engineering departments audit and feed in accurate data on production methods in detail, such as:


  1. Bill of Materials
  2. Quality Control based operational and functional data.


Enterprise resource planning (ERP): often called the rightful next step in an evolution that began with MPR and evolved into MRPII. Integration of financial, manufacturing, and human resources on a single computer system.

ERP Strategy Considerations

  1. High initial cost
  2. High cost to maintain
  3. Future upgrades
  4. Training


  • Materials Requirements Planning (MRP) is an information Systems used to handle ordering of dependent demand items ( components of assembled products)
  • The planning process begins with customer orders, which are used along with any back orders to develop a Master Schedule that indicates timing and quantity of finished goods.
  • The end items are exploded using the bill of materials; Material Requirement Plans are developed show quantity and timing for ordering or producing components.
  • The main features of MRP are the time phasing of requirements, calculating component requirements and planned order releases.
  • To be successful MRP requires a computer program and accurate master production schedules, bills of materials and inventory data.
  • Firms can only implement MRP if they have accurate records
  • MRP II links business planning, production planning and the MPS. ERP’s are more refined as well as comprehensive versions of MRP.