Materials Management

Material requirement
planning

• MRP is a production planning, scheduling

and inventory control system used to manage
manufacturing processes. Most MRP systems
are software -based, but it is possible to conduct
MRP by hand as well.

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 Material Requirements Planning

➢ MRP is a computerized inventory planning and control system for

determining when (no earlier and no later) and how many of each of the
parts, components, and materials should be ordered or produced.

➢ It translates master schedule requirements for end items into time-

phased requirements for sub-assemblies, components and raw
materials.

➢ MRP is a software system

 Objectives

• Ensure materials are available for production

and products are available for delivery to customers.

• Maintain the lowest possible material and product

levels in store

• Plan manufacturing activities, delivery schedules

and purchasing activities.

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Material Requirements Planning System
Based on a master production schedule, a MRP
system:

➢Creates schedules identifying the specific parts and materials

required to produce end items

➢Determines exact unit numbers needed

➢Determines the dates when orders for those materials should be

released, based on lead times
 MRP System
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
 MRP Inputs 1:
Master Production Schedule
✓ Drives MRP process with a schedule of finished products; states which end
items are to be produced, when these are needed, and in what quantities

✓ Quantities may consist of a combination of customer orders & demand

forecasts

✓ Quantities represent what needs to be produced, not what can be produced

 Master Production Schedule (MPS)
Time-phased plan specifying how many and when the firm plans to build
each end item

Aggregate Plan
(Product Groups)

MPS
(Specific End Items)
 Master Production Schedule
Shows items to be produced
Derived from aggregate plan
Example:
Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31
Clipboard 85 95 120 100 100
Lapdesk 0 50 0 50 0
Lapboard 75 120 47 20 17
Pencil Case 125 125 125 125 125
 MRP Inputs 2: Bill-of-Materials

• Bill of materials (BOM): One of the three primary inputs of MRP; a listing
of all of the raw materials, parts, subassemblies, and assemblies needed to
produce one unit of a product.

• Product structure tree: Visual depiction of the requirements in a bill of

materials, where all components are listed by levels.
 Product Structure Tree: Example 1
Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

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 Product Structure Tree: Example 2

Bicycle(1)
P/N 1000

Handle Bars (1) Frame Assembly (1)

P/N 1001 P/N 1002

Wheels (2) Frame (1)

P/N 1003 P/N 1004
 Product Drawing: Example 3
Clipboard

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)
Finished clipboard Pressboard (1)
 Product Structure Tree ( Example 3)

Clipboard Level 0

Pressboard Clip Ass’y Rivets

(1) (1) (2) Level 1

Top Clip Bottom Clip Pivot Spring

(1) (1) (1) (1) Level 2
 MRP Inputs 3: Inventory Records File

➢ One of the three primary inputs of MRP

➢ Includes information on the inventory status of each item by time
period
➢ Gross requirements
➢ Scheduled receipts
➢ Amount on hand
➢ Lead times
➢ Lot sizes
➢ And more....
 MRP Terminology (1 of 3)
➢ Gross requirements

➢ Scheduled receipts

➢ Projected on hand

➢ Net requirements

➢ Planned-order receipts

➢ Planned-order releases
 MPR Terminology (2 of 3)

➢Gross requirements
➢Total expected demand
➢Scheduled receipts
➢Open orders scheduled to arrive
➢Projected on hand
➢Expected inventory on hand at the beginning
of each time period
 MRP Processing Terminology (3 of 3)
➢ Net requirements
➢Actual amount needed in each time period
➢Gross requirements – available inventory
➢ Planned-order receipts
➢Quantity expected to be received at the beginning of the
period
➢Offset by lead time
➢ Planned-order releases
➢Planned amount to be ordered in each time period
 MRP Processing Logic:
Assembly Time Chart
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11

Weeks
 MRP Processing
• Determine the gross requirements of a finished products
• Determine the net requirements and when orders will be
released for fabrication or subassembly
• Net requirements = Total requirements – Available
inventory
• Net requirements = (Gross requirements + Allocations) –
(on hand) – Scheduled receipts
 Benefits of MRP

1. Better response to customer orders

2. Faster response to market changes
3. Improved utilization of facilities and
labor
4. Reduced inventory levels
5. Increased customer service and
satisfaction
 Limitations of MRP
• High costs and technical complexities in
implementation.
• considerable effort on installing necessary
equipments
• training personnel, maintaining the software.
• The time required for planning and implementing an
MRP system is generally very long.
• Data entry and file maintenance requires
considerable inputs.
• Dependence on forecast values and estimated lead-
time can sometimes be misleading.
Manufacturing Resources Planning (MRP II)

• Involves the whole production process,

starting with aggregate planning, then MPS
and finally MRP.
• Emphasizes integration with:
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing
– Personnel
 MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
Characteristics of MRP II
Advantages of using MRP II
 Inventory
❑ Inventory means all the materials:

• may be raw or finished parts/components,

• in process or finished products,
• consumable, kept in stock for some period of time

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 Inventory
• Even inventory is an idle resource

• Not for immediate use

• But necessary for smooth functioning

• Maintaining certain level is essential.

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 Importance of Inventory
• Good consumer service

• Enable smooth and efficient production

• Provides protection against uncertainties

• Ensure proper utilization of resources

• Quantity discounts
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 Classification (acc. to material flow)

• Production Inventory

• W-I-P Inventory

• Finished goods Inventory

• Operating & maintenance Inventory

• Misc. Inventory
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 Conventional Classification
• Direct Inventories

• Indirect Inventories

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Reasons for holding inventories
• Financial objective
• To create a buffer stock
• To ensure against delay in deliveries
• To ensure against scarcity
• To make use of qtt discount
• To utilize advantage of price fluctuations

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 Inventory Control

• Inventory Control
– It means stocking adequate number and kind of
stores, so that the materials are available
whenever and wherever required.
– Scientific inventory control results in optimal
balance

– Keep track of inventories

– Concern with making optimum decisions

❑A scientific way of finding out the quantities to
be kept in stock to meet production
requirements in such a way that desired degree
of service can be provided at minimum ultimate
cost

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 Causes of poor I.C.
• Over buying
• Over production
• Over stocking
• Cancellation of orders

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 Functions of Inventory Control
• To develop policies, plans and standards required
• Effective running of stores
• Technological responsibility (storage)
• Stock control system
• To ensure timely availability
• Protection of inventories

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 Advantages
• Reduction in mfs. Cost

• Improvement in customer satisfaction

• Improvement in resource utilization

• Improve financial position

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Inventory control terminologies
• Demand: No of items required per period

• Lead Time: time period b/w placing an order and its

receipt in stock.

• Safety Stock: Minimum stock level of materials below

which the actual stock should not be allowed fall.

• Lot Size: The amount of material procured or

quantity produced during one production run by an
organization
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 Inventory control costs
Procurement or Ordering cost:

• Amount of money spent in obtaining materials

into stock, which includes:

I. Cost of processing requisitions

II. Cost of follow up the orders
III. Cost of receiving materials in stock
IV. Cost of materials purchased

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Setup cost or Cost in mfs process:

• Cost of switching mfs activity which includes

I. Cost of setting up process including equipment, tooling etc.

II. Cost of PPC
III. Cost of scrap which occurs primarily at beginning

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Inventory Carrying Cost or Holding cost

• Cost incurred in maintenance of stores in industry

• ICC expressed as so many rupees per year per

rupee of inventory.

• Money involved is spent in holding facilities divide

into two categories

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A. Cost depend upon qtt of inventory:
• cost of Storage space, lighting, building rent, up keeping, and
maintain
• Cost of protection of goods from spoilage
• Cost of keeping records

B. Cost Depend upon value of inventory:

• Cost of capital (interest of invested capital), Insurance, obsolesce
Etc

• ICC= 20-30% of Inventory value

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Cost of Shortage:
• Cost associated with either delay in meeting demands or inability
to meet it at all (down time cost)

• Out of stock when needed

• Back order – lost of customer goodwill, future sales, over time
• Lost sales

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 EOQ
and Inventory Cost Relationships
Inventory Models -
Deterministic and
Probabilistic
• Model 1: derivation of Harris formula for instantaneous
supply , continuous consumption and zero buffer stock
• Notations:
– Q = Economic order quantity EOQ
– D = Annual demand or consumption of input materials
or yearly usage of items
– C =Unit cost
– P = Procurement cost or ordering cost per quantity
– i = rate of interest charged per unit per year
– H = Inventory holding or carrying cost
• Model II: Economic order quantity or
Economic lot size with reserve stock:
• Where R is Reserve stock
• and f = R/Q
Model III: EOQ when there is shortage
Where, C1 = Penalty per unit shortage cost per unit
time
• Model IV: Economic lot size when continuous
supply & cont. consumption or supply or
consumption rate varying, N shortage, No buffer
• Where;
– the rate of inventory build up = ( S - p ),
– Rate of supply = S
– Rate of consumption = p
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Problem

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 Safety Stock
• Safety stock term used by logisticians to describe a
level of extra stock that is maintained to mitigate
risk of stockouts (shortfall in raw material or
packaging) due to uncertainties in supply and
demand. Adequate safety stock levels permit
business operations to proceed according to their
plans
 ABC Analysis
• Always Better Control:
– A- class items are very important and have value
upto 70 % but their inventory used is upto 10 %

– B-class items are of moderate important and

have a value upto 20 %, and their inventory used
is upto 20%

– C- class items are lower importance and have a

value upto 10%, but inventory upto 70 %
VED Analysis
SDE Analysis
 HML Analysis
• The items under this analysis are classified into
High, Medium and Low price according to their
unit price .
• To Classify the items are listed according to the
descending order of their unit price .The cutoff is
then fixed for each category.

• For e.g. :An item above the price of Rs.1000 can be

classified into ‘H’ Category .An item in between the
price range of Rs.150 to Rs. 1000 can be classified
into ‘M’ Category and below Rs.150 can be
classified into ‘L ‘ Category .
 FSN Analysis
• The FSN Analysis is based on the rate of issue or
rate of usage of spare parts and the alphabets F S
and N stands for Fast Moving, Slow Moving and
Non Moving items.
• The FSN classification system categorizes the items
based on how frequently the parts are issued and
how frequently they are used.
– Fast Moving – Items which are frequently issued from
inventory which are more than once for a specific time
period
– Slow Moving – Items which are less frequently issued
which might be once in a specific time period
– Non Moving – Items which are not issued from the
inventory at all in a specific time period
 SOS Analysis
• SOS analysis is based on seasonality of
items and it classifies all the items into two
categories :‘Seasonal ‘ And ‘Off seasonal ‘

– The analysis helps in:

• Identifying items that are available only during
a limited period of the year .For e.g. Raw
mangoes are only available only during a
summers
• Identifying items that are seasonal but
available throughout the year however their
costs in offseason are relatively high.
• Non Seasonal items
Material Handling

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Material Handling
• Minimize material handling
• Material handling does not add any value to product
• It helps in value addition
• Poor MH increases production costs
Functions of Material Handling
Systems
Objectives of Material Handling
Principles of Material Handling,
 MHS PRINCIPLES
9.-ECOLOGY
1.- ORIENTATION 10.- MECHANIZE
2.- PLANNING 11.- FLEXIBILITY
3.- SYSTEMS 12.- SIMPLIFY
4.- UNIT LOAD 13.-GRAVITY
5.- SPACE USE 14.- SAFETY
6.- STANDARDIZE 15.- COMPUTERIZE
7.- ERGONOMIC 16.- SYSTEM FLOW
8.- ENERGY
MHS PRINCIPLES
17.- LAYOUT
18.- COST
19.- MAINTENANCE
20.- OBSOLESCENCE
Unit Load Concept
 MHS EQUIPMENT

• CONVEYORS
• CRANES AND HOISTS
• AUTOMATED STORAGE/RETRIEVAL SYSTEMS
(AS/RS)
• INDUSTRIAL TRUCKS
• AUTOMATED GUIDED VEHICLES (AGV)
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Selection of Material Handling
Equipment