VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY

HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY

OFFICE FOR INTERNATIONAL STUDY PROGRAMS


PRODUCTION AND OPERATIONS MANAGEMENT

CHAPTER 8: MATERIALS REQUIREMENTS PLANNING

(MRP) AND ERP
Subject: Production and Operations Management
Class: CC01
Group: 5
Instructor: Echelmeyer Wolfgang

Full Name Student Number

Châu Vĩnh Kỳ 2211785

Huỳnh Minh Thư 2053475

Lê Huỳnh Cát Tường 2252888

Nguyễn Đặng Việt Hằng 2153334

Nguyễn Ngọc Tâm Như 2153670

Nguyễn Thị Huỳnh Khuê 2153489

Ho Chi Minh City, March 3rd, 2024

 CONTENTS
INTRODUCTION ..................................................................................................................1
ANSWER THE QUESTIONS...............................................................................................2
1. What is the difference between a gross requirement plan and a net requirements
plan ? ....................................................................................................................................2
2. Once a material requirements plan (MRP) has been estab-lished, what other
managerial applications might be found for the technique?There are three types of costs that
are involved in an inventory system. ........................................................................................2
3. Which is the best lot-sizing policy for manufacturing organi-zations? ......................3
4. MRP is more than an inventory system; what additional capabilities does MRP
possess? ....................................................................................................................................4
5. What are the options for the production planner who has: a) Scheduled more than
capacity in a work center next week? b) A consistent lack of capacity in that work center? .5
6. Master schedules are expressed in three different ways depending on whether the
process is continuous, a job shop, or repetitive. What are these three ways? ..........................5
7. What functions of the firm affect an MRP system? How? .........................................6
CONCLUSION .......................................................................................................................7
REFERENCES .......................................................................................................................8
Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

INTRODUCTION
Material requirements planning (MRP) is a system used by businesses to effectively
manage and plan the materials needed for production. It is a computer-based production
planning and inventory management technique that helps ensure the availability of the right
raw materials at the right time and in the right quantity.

The main goal of MRP is to optimize inventory levels while minimizing out-of-stocks
and excess inventory. By analyzing the bill of materials (BOM), which outlines the
components and quantities needed for each finished product, MRP calculates the required
materials and creates production schedules and procurement plans. .

Enterprise resource planning (ERP) is a comprehensive software system that integrates

many different business functions into one centralized platform. It provides a unified, real-
time view of an organization's operations, including finance, human resources, supply chain
management, customer relationship management, and more.

ERP systems enable seamless communication and data sharing between different
departments within an organization. By consolidating data and automating processes, ERP
improves efficiency and decision making across the entire business.

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Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

ANSWER THE QUESTIONS

1. What is the difference between a gross requirement plan and a net
requirements plan ?

Gross requirement plan Net requirement plan

Similarity Determining the quantity of goods/ services needed for the production and
used in inventory management.

Difference  Used in the initial  Used in existing stock and upcoming

planning. deliveries needed.
 To forecast the total  To calculate the additional quantity
quantity of goods or needed after subtracting scheduled
services during the receipts and projected on hand from the
period. gross requirements.

2. Once a material requirements plan (MRP) has been estab-lished, what other
managerial applications might be found for the technique?There are three
types of costs that are involved in an inventory system.
 Material requirements plan (MRP) has been adapted for many various purpose in
managerial applications:

o Optimizing the inventory levels: Calculating the materials, components needed.

By keeping tracking order to identify if the inventory is excess or not, managers
can make decisions in time.
o Scheduling production and purchase: by this way, we can give best response to
customer orders, faster response to market changes and utilize the facilities and
labor.
o Suggested retailed price: By optimizing the quantity of goods and the labor, we
can decrease the overall price of all and reducing unnecessary expenses (For
example: A foodcourt experiences high waste due to over-preparing food items

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Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

with low demand. This leads to higher food costs and increased waste disposal
expenses. In this situation, we can cut off the use of labor without unnecessary
overtime. Besides, we can track the number of orders in order to know which foods
are served mostly and then optimize the number of foods.)

3. Which is the best lot-sizing policy for manufacturing organi-zations?

Lot-sizing Orders quantity Advantages Disadvantages

technique

Lot-for-lot Exact the number Lowest inventory costs Lots of setups

of goods needed possible. mean high setup
based on the net costs, bad for
requirements changing demand.

Economic Minimizing  Cost efficiency -Hard to figure out

order quantity orders and  Easy if things change,
(EOQ) inventory costs implementation not good for fancy
 Consistency: is items.
suitable for stable -Complex supply
demand patterns. chain.

Periodic order Standard number  Simplified -Complex demand

quantity of units at regular replenishment. pattern.
(POQ) intervals  Batch production. -Inventory
 Stable demand. imbalance.

Dynamic Optimizing Handles complex Super complicated,

programming quantity for each situations with changing needs special
approach period within demand and limited software or
specified future resources. experts.
timeframe

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Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

Based on this above table, the best lot-sizing policy for manufacturing organizations is
upon on each situation. While Lot-for-lot (LFL) offers the lowest costs, it maybe not adapted
easily if the demand changes. Economic order quantity (EOQ) gives the cost efficiency and
easy for implementing but it maybe not suitable for organizations with continuous demand
variability. POQ maybe a good choice for stable growth and batch production, however, it
has inventory imbalance which can affect the overstocking/ understocking. Dynamic
programming approach maybe rather well at all aspects (including optimizing quantity,
adapting changing demand and handling complex situations). However, it is super
complicated and need us to pay more for experts’s expenses.

4. MRP is more than an inventory system; what additional capabilities does

MRP possess?
An inventory system is just a simple system of tracking and managing stock levels.
While MRP provides more additional functions:

 Production planning and scheduling: Calculating the quantities of raw materials

and components needed at specific times, determining the amount of production
capacity needed and creating an efficient production timeline.

 Dependent demand management: refers to the demand for an item that is directly
related to the demand for another item/ items. Thanks to this, all parts and
components can be calculated whenever schedule can be established.

 Capacity planning and resource management:

- Bill of materials (BOM): detailed list of all components with quantities and
potential costs.
- Product structure tree: a graph show parent-child relationships, like branches
on a tree.

 Integration with other systems: like ERP (Enterprise resource planning) for better
planning,tracking automatically.

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Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

5. What are the options for the production planner who has:
a) Scheduled more than capacity in a work center next week?
b) A consistent lack of capacity in that work center?
Situation a: Scheduled more than capacity in a work center next week:

 Option 1: Rescheduling tasks: Prioritize critical tasks, consider delaying or shifting

works to someone on other work center.
 Option 2: Find alternative ones: find faster shipping or better quality but keeping
the same cost.
 Option 3: Increased capacity: consider working overtime or looking for some
services that work in this major to solve.
 Option 4: Reduce the demand: can exchange alternative ones or orders back later
with customers.

Situation b: A consistent lack of capacity in that work center:

 Option 1: Increase capacity: by investing in additional convenient equipment or

training employees.
 Option 2: Improving by integrating with software like MRP: eliminating the waste,
reduce the overtime and optimize workflow for a long term period.

6. Master schedules are expressed in three different ways depending on

whether the process is continuous, a job shop, or repetitive. What are these
three ways?

Process Master Definition Example

type schedule

Continuous Rate-based quantity of product produce 100 cars per

schedule produced per unit of time. week.

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Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

Job shop Job-based specific orders along the Complete order #30 for
schedule due dates and required 32 widgets by the next
quantities. week.

Repetitive Mix combination and quantity of produce 40 cars and 12

schedule different products. motorbikes next month.

7. What functions of the firm affect an MRP system? How?

 Production: Providing clear production planning, schedules, and lead times to
ensure the materials needed
 Purchasing: Offering accurate information about supplier lead times, pricing, and
availability for reliable purchase scheduling.
 Inventory Management: Maintaining accurate inventory records to avoid
production delays or excess costs.
 Sales and Forecasting: Providing accurate demand data helps avoid stockouts or
excess inventory and allows for adjustments to production and inventory levels.
 Engineering: helping everyone understand how the product fits together and how
changes in one component might affect others.
 Quality Control: Ensuring effective quality measures prevents rework, scrap, and
delays, impacting material needs and production.

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Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

CONCLUSION
In conclusion, Materials Requirements Planning (MRP) is a technique used to plan and
manage materials for production, while Enterprise Resource Planning (ERP) is a
comprehensive software system that integrates various business functions, including MRP, to
streamline operations and improve overall efficiency. Together, MRP and ERP enable
businesses to effectively manage their materials, optimize inventory levels, and enhance
supply chain management.

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Subject: Production and Operations Management Instructor: ECHELMEYER WOLFGANG

REFERENCES
[1] Powerpoint Presentation Chapter 8
[2] Written Summary Chapter 8
[3] https://www.investopedia.com/terms/m/mrp.asp
[4] https://www.bartleby.com/solution-answer/chapter-14-problem-1dq-operations-
management-11th-edition/9780132921145/what-is-the-difference-between-a-gross-
requirements-plan-and-a-net-requirements-plan/51edda42-9872-11e8-ada4-
0ee91056875a

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