Introduction
The fact that manufacturing continues to become a commodity within the value chain is indisputable. The greater the rate of manufacturing commoditization, the greater the focus on creating efficiencies that drive down product costs. From the world’s largest computer manufacturer to the world’s largest automotive manufacturer, companies that create value that are orders of magnitude greater than their competitors do so because they relentlessly focus on “leaning” their manufacturing operations without compromising their ability to adapt dynamically to the vicissitudes of their markets.
Managing an Environment of High Product Variety and Demand Variability
In the current business environment, demand rates constantly vary, and manufacturing operations need to be continuously rebalanced without destabilizing operations. Moreover, multiple products are frequently produced on the same line, and each of these operations could operate for different periods of time in a day
Given the current pressure on product margins, lean manufacturing principles provide an excellent framework for squeezing costs out of manufacturing. However indisputable maybe the benefits of lean manufacturing and Six Sigma, in today’s fast-moving, complex business environment, organisations must continually adapt. They must do so by handling large amounts of data and executing complex workflows while electronically communicating any exceptions simultaneously to multiple locations. In an environment like this, they need enabling software applications and a stable technology platform. Without IT, organizations cannot be a truly lean or six sigma enterprises. To create an adaptive manufacturing environment, firms must be able to access real-time information from the plant floor and the supply chain and then use this information to manage exceptions with enterprise resource planning (ERP) and supply chain management (SCM) applications such as MRP.
Material Requirements Planning (MRP)
MRP refers to the calculation of the quantity and timing of materials, parts, and components needed to create an end item.
MRP System
Based on a master schedule derived from a production plan, a MRP system creates schedules identifying the specific parts and materials required to produce end items, the exact numbers required, and the dates when orders for these materials should be released and be received or completed within the production cycle. We have been forced to planning for materials to be delivered when needed and not before, because of space requirements and associated storage costs for excess inventory.
Objectives of MRP
The main purpose of a basic MRP system are to control inventory levels, assign operating priorities for items, and plan capacity to load the production system. The theme of MRP is “getting the right material at the right place at right time in right quantity”.
The objectives of inventory management under MRP system are to improve customer service, to minimize inventory investment, and to maximize production operating efficiency. The philosophy of MRP is that materials should be expedited when their lack would delay the overall production schedule and de-expedited when the schedule falls behind and postpones their need.
Typically when an order is behind schedule, there will be a significant interest and effort to try to get it back on schedule. However the opposite is not always true. The result is a one-sided effort – late orders are hurried but early orders are not rescheduled for later. Aside from perhaps using scarce capacity, it is preferable not to have raw materials and ancillary items before the actual need since the inventories tie up finances, clutter up stockrooms, prevent design changes, and prevent the cancellation and delay of orders.
Benefits of MRP System
Other than the general benefits of better customer and inventory management, this system makes the firm have better response to market demands, with highly efficient and flexible production systems. Many firms that have converted to MRP system claim as much as a 40 percent reduction in inventory investment.
In addition to these, the MRP system gives advance notice and hence so the managers can see the planned schedule before actual release of orders. It tells when to expedite as well as de-expedite; delay, cancel or change orders; and thus aids capacity planning.
MRP System Structure
The MRP portion of manufacturing activities most closely interacts with the master schedule, bill of materials file, inventory records file and the output reports.
The MRP system works as follows:
Orders for products are used to create a master production schedule, which states the number of items to be produced during specific time periods.
A Bill of Materials file identifies the specific materials that are used to make each item and the correct quantities of each.
The inventory records file contains data such as the number of units on hand and on order.
These three sources become the data sources for the MRP programme, which expands the production schedule into a detailed order scheduling plan for the entire production sequence.
The demand from the known customers and the forecasted demand are combined and form the input for the master production schedule. In addition to the demand for end products, customers also order specific parts and components either as spares, or for service and repair.
Working of the MRP Programme
The MRP programme operates on the inventory, master plan and the Bill of Materials data. It works in this way:
- A list of end items needed day-wise is specified by the Master Plan
- A description of the materials and parts needed to make each item is specified in BOM.
- The number of units of each item and material currently on hand is contained in the inventory records.
The MRP program computes the quantities of each item required. The number of units of each item required is then corrected for on-hand amounts, and the net requirement is ‘off-set’ or set back in time to allow for the lead time needed to obtain the material
Reports generated from a MRP system
Primary: Primary reports are the main or the normal reports used for inventory and production control. These reports consist of:
- Planned Orders to be released at a future time
- Order Release Notices to execute the planned orders
- Changes in Due Dates of open orders due to rescheduling
- Cancellations or Suspension of open orders due to cancellation or reduction of items on the Master Production Plan
- Inventory Status Data
Secondary: These are additional reports which are optional under the MRP system.
- Planning Reports to be used, for example, in forecasting inventory and specifying requirements over some future time horizon.
- Performance Reports for purposes of pointing out inactive items and determining the agreement between actual and programmed item lead times and between actual and programmed quantity usages and costs.
- Exception Reports that point out serious discrepancies, such as errors, out-of-range situations, late or overdue orders, excessive scrap or non-existent parts.
Concept of Closed Loop MRP
When the MRP system has information feedback from its module outputs, this is termed closed loop MRP. It is defined as:
A system built around MRP and also including the additional planning functions of Master Production Planning and Capacity Requirements Planning. Further once the planning phase is complete and the plans have been accepted as realistic and attainable, the execution functions come into play. The term ‘closed loop’ implies that not only is each of these elements included in the overall system but also that there is feedback from the execution functions so that the planning can be kept valid at all times.
Manufacturing Resource Planning (MRP II)
Manufacturing Resources Planning (MRP II) systematically relates the production system to purchasing, finance, and marketing as well as other business functions. It is the design of ordering and inventory system for dependent demand. The need for dependent demand items, such as materials, components, or subassemblies, occurs because of the demand for a “higher level” item of which they are a part.
Dependent demand implies that the process of determining how many items are needed and when they are needed is simply computed from the end product is designed and the production process it goes through.
The original MRP planned only materials. However as computer power grew and applications expanded, so did the breadth of MRP. Soon it considered resources as well as the materials and was called MRP II. A complete MRP program consists of 20 or so modules controlling the entire system from order entry through scheduling, inventory control, finance, accounting, and so on. MRP today impacts the entire system and includes just-in-time, kanban and computer integrated manufacturing (CIM).
MRP II plans and monitors all the resources of a manufacturing firm: manufacturing, marketing, finance, and engineering through a closed loop system. It has been designed to stimulate the manufacturing system and is generally conceived as being a total company-wide system.
Benefits of MRP II throughout entire ecosystem of an organization
Initially in organizations lacking a proper MRP system, there might be delays in placing orders with suppliers because of the need to churn out manual reports. This would result in delayed inventory shipments to shop floor, which would impact the production schedule. Now, automated action messages display changes in demand, forecasted requirements, and supplier forecasts. This allows the buyers and material managers to provide their suppliers with forecasts of what they need by week, by month, or at any level they want. Other related benefits are:
o Achieved productivity efficiency gains across the company, including supply chain integration, inventory control, automation of financial activities, and centralization of procurement
o Improved competitiveness and responsiveness through visibility of customer demand and inventory and through business intelligence reporting that provides insights for better decision making
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