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Introduction:

One manager commented on each of their company's experience with material requirement
planning (MRP):

"I don't know how we managed to get along without MRP for as long as we did. Our
scheduling has gone from a state of turmoil to relative calm. We have achieved a substantial
reduction in inventory size and cost, and yet our customer service levels have actually
improved quite a bit. We are more than satisfied with MRP; it allows us to plan instead of
having to spend all of our time trying to react to one crisis after another. I would strongly
recommend that all manufacturing firms adopt MRP or some other similar approach."

This view reflect the range of reaction that typifies efforts of manufacturing firms to
implement and use material requirement and use material requirement planning. Maintaining
an efficient flow of materials and services from suppliers and managing internal activities
relating to materials and other sources are essential to a profitable operation.

What is MRP:

Material requirement planning (MRP) is a computer-based information system designed to

handle ordering and scheduling of dependent –demand inventories (e.g. raw material,
component parts, and subassemblies). A production plan for a specified number of finished
products is translated into requirements for component parts and raw materials working
backward, using lead time information to determine when and how much to order.

Material requirement planning is as much as philosophy as it is a technique, and as much an

approach to scheduling as it is to inventory control.

Ordering and scheduling of assembled products suffered from two difficulties. One was the
enormous task of setting up schedules, keeping track of large numbers of parts and
components, and coping with schedule and order changes. The other was a lack of
differentiation between independent demand and dependent demand. Techniques designed
for independent-demand items were used to handle assembled items, which resulted in
excessive inventories. Consequently, inventory planning and scheduling presented major
planning for manufacturers.

In the 1970's manufacturers began to recognize the importance of the distinction between
independent – and dependent –demand items and to approach these two categories in
different ways. Much of the burden of record keeping and determining material requirement
in many firms has now been transferred to MRP.

Inputs to MRP:

The key inputs of an MRP system are –

I. Bill of materials database

II. Master production schedules
III. Inventory record database

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Inputs to
MRP

Bills of Master production Inventory

Materials Schedule Record

Figure 1: Inputs of MRP

An MRP system translates the master production schedule and other sources of demand, such
as independent demand for replacement parts and maintenance items, into the requirement for
all subassemblies, components, and raw materials needed to produce the required parent
items.

This process is called an MRP explosion because it converts the requirement that specifies
the replenishment schedules of all subassemblies, components, and raw materials needed by
the final products.

Fig1.1: Material Requirements Plan Inputs

Authorized
Master Other
production sources of
schedule demand

MRP Engineering
Inventory Inventory Explosion Bills of and Process
Transaction Records Materials Designs

Material
Requirement
Plan

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Bills of materials:

The replenishment schedule for a component for a component determined from the
production schedules of its parents. Hence the system needs accurate information on parent-
component relationships. A bills of materials is a record of all the components of an item, the
parent-component relationships, and usage quantities derived from engineering and process
designs.

In the figure below of 1.2 all items except A are components because they are needed to
make a parent. Items A, B, C, and H are parents because they all have at least one
component. The BOM also specifies the usage quantity, or the number of units of a
component needed to make one unit of its immediate parent.

Four terms frequently used to describe inventory items are end items, intermediate items,
subassemblies, and purchased items. An end item typically is the final product sold to the
customer; it is parent but not a component.

A
Ladder-back
Chair

B (1) C (1) D (2) E (4)

Ladder-back Seat Front legs Leg supports
Subassembly subassembly

F (2) G (4) H (1) I (1)

Back Back Slats Seat Frame Seat
Cushion
Legs

J (4)
Seat-frame
Boards

Fig 1.2: Bills of materials for a Ladder-Back Chair

An intermediate item is one such as B, C, or H that has at least one parent and at least one
component. A subassembly is an intermediate item that is being transformed from more than
one component. Items B and C are subassemblies. A purchased item has no components
because it comes from a supplier, but it has one or more parents. The usage quantity increases

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volume and repeatability for some items- that has several advantages for process design and
helps minimize inventory costs.

Master production schedules:

The second input into a material requirement plan is the master production schedule, which
details how many end items will be produced within specified periods of time. It breaks the
aggregate production plan into specific product schedules.

There are some aspects of master production schedules-

I. The sums of the quantities in the MPS must equal those in the aggregate production
plan. This consistency between the plan is desirable because of the economic analysis
done to arrive at the aggregate plan.

II. The aggregate production quantities must be allocated efficiently over time. The
planner must select lot size of each type of product, taking into consideration
economic factors such as production setup costs and inventory carrying costs.

III. Capacity, limitations, such as machine, or labor capacity, storage space, or working
capital, may determine the timing and size of MPS quantities.

The MPS start quantities are used to determine the components needed to support the
schedule.

Inventory control:

Inventory control records are the final input to MRP, and the basic building blocks of up-to-
date records are inventory transactions. Transactions include releasing new orders, receiving
scheduling receipts, adjusting due dates for scheduled receipts, withdrawing inventory,
canceling orders, correcting inventory errors, rejecting shipments, and verifying scrap losses
and stock returns. Recording such transactions is essential for maintaining the accurate
records of on-hand inventory balances and scheduled receipts necessary for an effective MRP
system.

The inventory records divide the future into time periods called time buckets. The inventory
record shows an item's lot-size policy, lead-time, and various time-phased data. The purpose
of the inventory record is to keep track of inventory levels and component replenishment
needs. The time-phased information contained in the inventory record consists of-

I. Gross requirements,
I. Scheduled receipts,
II. Projected on-hand inventory,
III. Planned receipts, and
IV. Planned order releases.

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Authorized Prospective Master No

Production Production Are Resources
Plan Schedule Available?
Yes

Material Authorized Master

Requirement Production
Planning Schedule

Figure: Master Production Scheduling Process

The gross requirements are the total demand derived from all parent production plans. They
also include demand not otherwise accounted for, such as demand for replacement parts for
units already sold. The figure shows an inventory record for item C, the seat subassembly.
Item C is produced in lots of 230 units and has a lead-time of two weeks. The inventory
record also shows items C's gross requirements for the next eight weeks, which come from
the master production schedules. The MRP system works with release dates to schedule
production and delivery for components and subassemblies.

Schedule receipts are orders that have been placed but not yet completed. For a purchased
item, the scheduled receipt could be in one of several stages: being processed by a supplier,
being transported to the purchaser, or being inspected by the purchaser's receiving
department. If the production is making the item in-house, the order could be on the shop
floor being processed, waiting in queue, or waiting to be moved to it's next operation.

Projected on- hand inventory is an estimate of the amount of inventory available each week
after gross requirements have been satisfied. The beginning inventory indicates on-hand
inventory available at the time the record was completed.

Planned receipts are receipts of new orders that keep the projected on hand balances from
dropping below zero. Weekly on-hand inventory is projected until a shortage appears.
Completion of the planned receipt is scheduled for the week when the shortage is projected.
The addition of newly added receipt should raise the projected on-hand balances so that it
equals or exceeds zero. It will exceed zero when the lot size exceeds requirements in the

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week it is planned to arrive. Projection of on-hand inventory continues until the next shortage
occurs. This process is repeated until the end of the planning horizon by proceeding column
by column through the MRP record- filling in planned receipts as needed and completing the
projected receipts for the on-hand inventory row.

A planned order release indicates when an order for a specified quantity of an item is to be
issued. We must place the planned order release quantity in the proper time bucket.
Regardless of when he flows are assume to occur, we find the release date by subtracting the
lead-time from the receipt date.

Planning factors:

The planning factors in MRP record factors play an important role in the overall performance
of the MRP system. By manipulating these factors, managers cane fine-tunes inventory
operations.

I. Planning lead time,

II. The lot-sizing rule,
III. Safety stock.

Planning
Factors

Planning Lot-sizing Safety

Lead-time Rules Stock

Planning lead-time is an estimate of the time between placing an order for an item and
receiving it in inventory. Accuracy is important in planning lead item. If an item arrives in
inventory sooner than needed, inventory holding costs increase. If an item arrives too late,
stock outs, excessive expediting costs or both may occur. For purchased items, the planning
lead time is the time allowed for receiving a shipment from the supplier after the order has
been sent, including the normal time o place the order. Often the purchasing contract
stipulates the delivery date. Planning lead-time consists of estimate for-

I. Setup time,
II. Process time,
III. Materials handling time between operations, and

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IV. Waiting time.

Each of these items must be estimated for every operation along the item's route. Estimating
setup time, processing, and material handling time may be relatively easy, but estimating the
waiting time for materials handling equipment or machine to perform a particular operation
may be difficult.

Lot sizing rules determines the timing and size of order quantities. A lot-sizing rule must be
assigned to each item before planned receipts and planned order releases can be computed.
The choices of lot-sizing rules are important because they determine the number of setups
required and the inventory holding costs for each item. There are three types of lot-sizing
rules-

I. Fixed order quantity,

II. Periodic order quantity, and
III. Lot for lot.

The fixed quantity rule maintains the same order quantity each item an order is issued. The
lot size might dictate by equipment capacity limits, as when a full lot must be loaded into a
furnace at on time. For purchased items the FOQ could be determine by the quantity discount
level, truckload capacity, or minimum purchased quantity.

Periodic order quantity rule allows a different order quantity for each issued but trends to
issue the order at predetermined time intervals such as every two weeks.

A special case of the POQ rule is the lot-for-lot (L4L) rule, under which the lot size ordered
covers the gross requirements of a single week. Thus P = 1, and the goal are to minimize
inventory levels. This rule ensures that the planned order is just large enough to prevent a
shortage in the single week it covers. The L 4L lot size is

L4L lot size Gross requirements Projected on-hand

To arrive in = for week t - inventory balance at the end of week t-1
Week t

The projected on-hand inventory combined with the new order will equal zero at the end of
week t. Following the first planned order, an additional planned order will be used to match
each subsequent gross requirement.

This time we want to switch from the FOQ rule to the L4L rule. Figure 15.8 shows
application of the L$L rule to the seat subassembly inventory. As before, the first order is
needed in week 4:

L 4L Gross requirements Inventory balance

Lot = in week 4 - at end of week 3
Size

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1. The FOQ rule generates a high level of average inventory because it creates inventory
remnants. A remnant is inventory carried into week but is too small to prevent a shortage.
Remnants occur because the FOQ doesn’t match requirements exactly.

2. The POQ rule reduce the amount if average on-hand inventory because it does a better
job of matching order quantity to requirements. It adjusts lot sizes as requirement increase
of decrease.

3. The L4L rule minimizes inventory investment, but it also maximizes the number of orders
placed. This rule is most applicable to expensive items or items with small ordering or
setup costs. It is the only rule that can be used for a low volume item made to order.

Safety Stock

An important managerial issue is the quantity of safety stock to require. It is complex for
dependent demand items than for independent demand items stock for dependent demand
items with lumpy demand gross requirements able only when future gross requirements, the
timing or size of scheduled M and the amount of scrap are uncertain. Safety stock should be
reduced and ultimately removed as the causes of the uncertainty are eliminated. Safety stocks
can be incorporated MRP logic by scheduling a planned receipt whenever the projected on-
hand inventory balance drops below the desired safety stock level rather than zero as before.
The objective is to keep a minimum level of planned inventories equal to the stock quantity.

OUTPUTS FROM MATERIAL REQUIREMENTS PLANNING:

Material requirements planning systems provide many reports, schedules, and notices to help
managers control dependent demand inventories.

Material Requirements Planning Explosion

MRP translates, or explodes, the master production schedule and other sources of demand
into the requirements for all subassemblies, components, and raw materials needed to
produce parent items. This process generates the material requirement plan for each
component item.

An item's gross requirements are derived from three sources:

I. MPS for immediate parents that are end items,

II. Planned order releases for parents below the MPS level, and
III. Any other requirements not originating in the MPS.

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MRP
Explosion

Material Requirement Plan

I. Action notices I. Priority reports I. Capacity reports

II. Releasing new orders II. Dispatch lists II. CRP
III. Adjusting due dates III. Supplier schedules III. Input-output control

Routing
And
Time
Standards

Manufacturing Resources Plan

Cost and
Price Data
Performance Reports

Fig 1.5: Material Requirement Output

Action Notices

Inventory records for each item appearing in the bills of materials can be printed in hard copy
or displayed on a computer video screen. Inventory action notice planners use a computer-
generated memo called an action notice to make decisions about releasing new orders and
adjusting the due dates of scheduled receipts. The action notice alerts planners to items that
need their attention. They can then view the full records for those items and take the
necessary actions. An action notice can simply be a list of part numbers for items needing

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attention. Or it can be the full record for such items, with a note at the bottom identifying the
action needed.

Releasing New Orders

If there is a nonzero quantity in the first week's entry of action bucket the planned order
release row, sometimes called the action bucket, the computer issues an action-notice. An
order in the action bucket is the call to release the planned order. When an order is released,
paperwork is issued to the shop authorizing the withdrawal of all required materials from the
inventory storeroom and the start of production. Action notices are not issued for planned
order releases outside the action bucket so as to focus attention only on those orders needing
immediate attention. Subsequent MRP explosions will generate action notices for future
planned orders as they reach the action buckets.

Fig1.3: Material Requirements Planning Outputs.

MRP
Explosion

Material
Requirements
Planning

Action Priority Capacity

Notices Reports Reports

Capacity Finite capacity I/O

requirement scheduling Control
planning Report

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Releasing
Adjusting due Making
New
Dates of Scheduled Decision
Orders
Receipts

Adjusting Due Dates of Scheduled Receipts

If subtracting the scheduled receipt from the projected on-hand inventory for the week in
which it is due doesn't cause a shortage the scheduled receipt is arriving too early. In this
case, the inventory planner can delay the scheduled receipt. If the projected on-hand balance
for the week prior to the arrival of the scheduled receipt indicates a shortage the scheduled
receipt is arriving too late. In this case, the planner should expedite the arrival of the
scheduled receipt. Mismatches in the planned due dates of scheduled receipts and their actual
"need" dates occur because of changes in the item's gross requirements.

Making Decisions

Although the computer generates action notices, decision based on them is made by the
inventory planner. The planner reviews the item's complete MRP inventory record, along
with those of its components. If component inventory is available to support the order, the
planner usually decides to release the order as planned. The planner would input an inventory
transaction to change the computer record file by adding the quantity and due date of a new
scheduled receipt

Capacity Reports

By itself, the MRP system doesn't recognize capacity limitations when computing r the
material planned orders. That is, it may call for a planned order release that exceeds the
amount that can be physically produced. An essential role of managers is to monitor the
capacity requirements of material requirements plans, adjusting a plan when it can't be met.
In this section we discuss three sources of information for short-term decisions that materials
managers continually make: capacity requirements planning reports, finite capacity
scheduling reports, and input-output reports.

Capacity Requirements Planning

One technique for projecting time-phased capacity requirements for workstations is capacity
requirements planning (CRP). Its purpose is to match the material requirements plan with the
plant's production capacity. The technique is used to calculate workload according to work
required to complete the scheduled receipts already in the shop and to complete the planned
order releases not yet released. This task involves the use of the inventory records, which
supply the planned order releases and the status of the scheduled receipts; the item's routing,
which specifies the workstations that must process the item. Using the MRP dates for arrival

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of replenishment orders for an item to avoid shortages, CRP traces back through the item's
routing to estimate when the scheduled receipt or planned order will reach each workstation.
The system uses the processing and setup times to estimate the load that the item will impose
on each station for each planned order and scheduled receipt of the item. The workloads for
each workstation are obtained by adding the time that each item needs at a particular
workstation. Critical workstations are those at which the projected loads exceed station
capacities.

Finite Capacity Scheduling

In large production facilities thousands of orders may be in progress at any one time.
Manually adjusting the timing of these orders with the use of spreadsheets or wall-mounted
magnetic schedule boards is virtually impossible. The best solutions-those that meet the MRP
schedule due dates and don't violate any constraints-may never be identified because of the
time needed to finite capacity scheduling explore the alternatives. A useful tool for these
situations is a finite capacity scheduling system, which is an algorithm, designed to schedule
a group of orders appropriately across an entire shop. The system utilizes routings for the
items manufactured, resource constraints, available capacity, shift patterns, and a scheduling
rule to be used at each workstation to determine the priorities for orders To be effective FCS
system needs to be integrated with MRP. The MRP system can download the orders that need
to be scheduled, but the FCS system needs much more than that. An FCS system operates at a
finer level of detail than MRP and needs to know the status of each machine and when the
current order will finish processing, the maintenance schedule, the routings, the setup times,
machine speeds and capabilities, and resource capacities.

Input-Output Control

Input-output control report compares planned input report with actual input and compares
planned output with actual output. Inputs and outputs are expressed in common units, usually
labor or machine hours. Information in the report indicates whether workstations have been
performing as expected and helps management pinpoint the source of capacity.

RESOURCE PLANNING

We have emphasized the attributes of MRP as an information system for aiding order-
launching decisions in manufacturing. However, the databases created and maintained by
MRP can be used to generate valuable reports for other functional areas and even other
companies.

Resource
Planning

Manufacturing
Material Requirement Planning (MRP) Resource Planning
Enterprise Resources
Resource Planning for Services Planning
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Fig 1.8: Resources planning

Manufacturing Resource Planning

The basic MRP system has its roots in the batch manufacturing of discrete parts involving
assemblies that must be stocked to support future manufacturing needs. The focus is on
producing schedules that meet the materials needs identified in the master production
schedule. The focus of MRP II is to aid the management of a firm's resources by providing
information based on the production plan to all functional areas. MRP II enables managers to
test "what if" scenarios by using simulation. Information from the MPS, scheduled receipts,
and planned orders can be converted into cash flow projections, broken down by product
families. For example, the projected on-hand quantities in MRP inventory records allow the
computation of future levels of inventory investment. Managers in manufacturing,
purchasing, marketing, finance, accounting, and engineering use information from MRP II.
MRP II reports help these managers develop and monitor the overall business plan and
recognize sales objectives, manufacturing capabilities, and cash flow constraints. MRP II is
used extensively and provides benefits beyond that of MRP.

Resource Planning for Services

MRP as an information system for manufacturers because it isn't well suited to the needs of
service providers. Nonetheless, several basics of MRP can be useful to service providers. A
master schedule of service activities can be used to derive the requirements for all materials
and resources needed to support them. However, the concept of a bill of materials must
change. Service providers are typically capacity-driven rather than materials-driven as in
manufacturing. This condition is true for high-volume service providers involved in delivery
services, airline transportation, health care, and the like. The focus is on the utilization of
resources because materials are only a fraction of the organization's investment in capital and
people. Consequently, service providers need to use the concept of a bill of resources (BOR),
which is a record of all the required materials, equipment time, staff, and other resources
needed to provide a service, the parent-component relationships, and the usage quantities.

Enterprise Resource Planning

MRP II synchronizes an organization's information systems. Although the planning

information generated by MRP II provides insight into the implications of the master
production schedule and materials plan, it focuses on internal operations. In some companies,
MRP II is evolving into a new form, enterprise resource planning. It is a system that has
additional capabilities for quality management, field service, maintenance management,
distribution, marketing, and supplier management. These systems have databases structured
for ease of external access and the ability to access the information systems of other
companies

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ERP systems are responding to the need for a more comprehensive view of manufacturing.
They supply information that MRP II systems typically do not. ERP enables the firm to deal
directly with suppliers to assess the availability of their resources. It can even enable the firm
to manage suppliers as if they were an external process of the firm, as in the case of virtual
manufacturers, which rely on subcontractors to produce all their products. ERP enables the
firm to access information at each supplier's site, create an internal work order to satisfy
requirements for a product, and then link it directly to purchase orders with the suppliers.

ERP allows customers access to manufacturing schedules and inventories. Presently, this
interaction is provided through electronic data interchange (EDI). Customers can query the
schedule directly to find out when the firm can fill a new order, thereby providing the firm a
competitive edge over other manufacturers.

Essentials

In addition to top management's support, two prerequisites to successful implementation of

an MRP system are

I. Computer support and

II. Accurate and realistic input.

Computer Support

Successful implementation of MRP requires the size of random access memory, the capacity
of external data storage devices, the processing speed of the central processing unit (CPU),
and the number and types of individual computer workstations. Most MRP packages can be
installed on microcomputers. Processing speed can be an important consideration because
completely exploding a master schedule with thousands of components and assemblies can
take many hours of computer time. The system also generates numerous reports, requiring
adequate printing capabilities.

Computer support is the choice of software. Decisions must be made regarding the functions
to be supported by the MRP system and the amount to be spent on the software packages.
Many MRP II packages are available, each containing various modules such as capacity
planning, warehouse control, plant and equipment maintenance, human resource planning,
EDI, shop floor scheduling, order processing, payroll, tool management, and hazardous
materials management.

Accurate and Realistic Input

To work properly, any decision support system such as MRP must have valid input data from
the master production schedule, bills of materials, and inventory records. When MRP falls
management should look first at these inputs. Data adequacy makes a significant difference in
whether MRP implementation is successful.

MRP Procedure

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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 results 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 net requirement in a period is determined in MRP procedure by the following formula,

Net requirement = Gross requirement ¡V Available inventory

The available inventory for the first period is

Available inventory = on hand inventory + Scheduled receipts of the first period ¡V

Allocation ¡V Backorders ¡V Safety stock.

And, for the other periods

Available inventory = Projected available balance at the end of last period + Scheduled
receipts of the current period

If the calculated net requirement is positive, then it is the net requirement of that item in that
period. In this case, the projected on-hand balance at the end of that period is less than the
safety stock, and the projected available balance is the projected on-hand balance plus the
planned order receipt in that period. If the calculated net requirement is negative, then it is the
projected available balance at the end of that period.

Favorable Environments for Material Requirements Planning

Some companies don't adopt an MRP system or are disappointed with its results because their
manufacturing environment doesn't give MRP a distinct advantage over other systems. Three
environmental characteristics are particularly important: number of BOM levels, magnitude
of lot sizes, and volatility.

Number of BOM Levels

MRP is most useful in managing large numbers of dependent demand items-that is, when
there are many levels in the bills of materials. Thus the greatest numbers of MRP users are in

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the fabricated metals, machinery, and electric and electronics industries, which tend to have
many BOM levels and consequently lumpy demand for components.

Magnitude of Lot Sizes

Even with many levels, though, dependent demand patterns need not be lumpy. The other
variable is the magnitude of lot sizes. The relative superiority of MRP is greatest with more
BOM levels and larger lot sizes. When a firm works with extremely small lot sizes, changing
over to MRP may not be beneficial.

Feature of Material Requirement Planning (MRP):

►MRP is a process that identifies and schedules material and component supply against
the demands on production. It recommends new orders, changes in order due dates, and
order cancellation.

►MRP demand can optionally include stock re-order levels, Sales Orders, Quotations
and Production Plan items.

►MRP processing can ignore the dependent demand on bulk-issue items and can have
optional time buckets, from one day upwards.

►MRP can be run with a delayed start and with an automatic terminal program quit to
protect security. The process can then be run out of business hours.

► Results can be used to automatically assign ABC codes to parts.

► Results can be reviewed by part number, date, adjustment code or reference, including
primary supplier code.

► Results can be used to automatically generate Purchase and Work Orders.

About Material Requirement Planning (MRP): In Real World

In every production system, there are primary inputs and necessary resources that undergo a
transformation function to produce a desired product or service. In the dental practice, the
inputs are the patients. The necessary resources are the dentist, the auxiliary staff, and the
required supplies and materials, along with the appropriate dental equipment. The
transformation process is the physiological oral health care or therapy provided and the
desired outcome or output is the oral health of the patient.

The material requirement planning system began in the manufacturing industry, as a way of
calculating the amounts of materials required in the production process. In its basic form, the
system takes into account the amount of each item and when it will be required to complete
the product or service within a specific time frame. The main purpose of material requirement
planning in a dental practice is to control inventory levels, minimize inventory investment,
maximize operating efficiency, and manage the dentist’s time with respect to the scheduled
patient appointments.

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To manage the inventory, the office should be set up to order the appropriate materials, in the
correct amounts, within a specific time frame so that the practice never runs out of supplies.
All materials and supplies can be categorized in an inventory file in the computer. This
database can contain the specifications on each item used in the practice, the vendor or
supplier, the unit cost, and the delivery or cycle time. For the efficient utilization of resources
in the dental office, the dentist should know the sequence of the use of the materials, supplies,
and labor for every procedure performed.

Most office computer systems can summarize how many specific dental procedures were
performed in a given year and the cost of the associated materials. With this information, the
dentist can calculate the cost of materials or supplies for each procedure. In doing this
analysis, the dentist will discover the cost of a portion of the overhead and which procedures
are the most expensive for the office to deliver. For example, a dentist can make a list of each
item used in a composite restorative procedure (anesthetic cartridges, needles, cotton
products, rubber dam, composite material, etc.). Then the per-unit cost and the quantity of
each item used in the procedure is calculated. This sum gives the material and supply portion
of the procedure overhead, excluding the fixed costs. Taking this to another level would
include calculating the cost of labor, rent, and equipment to arrive at an overall true cost of
performing each procedure. This is somewhat time-consuming, but it can be a very useful
starting point for determining an initial level of cost control measures.

An assumption to be made at the outset is that every practice must have control over the
office appointment schedule. The old adage, "time is money" is never more true than in a
dental office. Dr. Roger Levin in the May 2000 issue of the Journal of the California Dental
Association remarked that the scheduling system reflects the use of time, and this system
overpowers all other systems and must be the focal point for change. An office should plan
for a full productive day with a specific dollar amount as the daily goal. The target amount is
then divided by the number of hours in a work session to arrive at an hourly rate of
production. This will assist the front office staff in the preparation of the daily schedule as
they allocate time for the different patient appointments. The schedule should be as accurate
as possible with respect to the specific amount of time the dentist will need to complete the
procedure. The dentist and auxiliaries should periodically review their time requirements and
discuss any improvements with the schedule coordinator or office manager. Saving a few
minutes by becoming more efficient will allow the dentist and team to increase daily
production.

Material Requirement Planning (MRP)

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Material Requirement Planning (MRP)

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Material Requirement Planning (MRP)

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Material Requirement Planning (MRP)