Material Requirements Planning
Material requirements planning
Material requirement planning (MRP) is a technique that managers use to schedule production and inventory when demand is dependent. Dependent demand is a situation whereby a relationship between different items can be determined. Dependent techniques are used in MRP system to schedule inventory and production of finished products as a way of improving customer service level. For the management to carry on with MRP, there are various ingredients that should be observed in the scheduling process (Heizer and Render, p. 547). The management should have a comprehensive Master Production Schedule (MPS) that specifies what is to be made and when to be made. The management should ensure that the MPS is in line with the company production plan that provides a ceiling for all production specifications. MPS is important because it gives information about what is required to satisfy demand and meet the overall production plan. Bills of Material (BOM) lists and gives description and quantities of all components that are required to produce a single unit of the finished product. BOM is an essential ingredient in MRP because it specifies the necessary materials and components that are required in a production process of a given product. Bills of the material may be modular, planning bills, phantom, or phantom bills (Heizer and Render, p. 551)
Keeping accurate inventory records is also critical for MRP system to work well. Inventory management is essential because it controls the material utilized in the production process so that an organization can adequately meet forecasted demand effectively. Effective MRP also requires knowledge of outstanding purchase orders. This gives information of scheduled delivery dates of orders to the production personnel. From this input, the purchasing and inventory departments can effectively executive the master requirement plan system to meet the production plan (Heizer and Render, p. 551). Finally, manager needs to consider lead time in the execution of MRP system. Lead time stipulates the order, wait, move, queue, setup, and run times for each component that is used in the production of the final product.
Managers need to determine and make a decision about how much to order. MRP system offers lot-sizing decision, which is the decision-making process that determines the lot size to be ordered. There are a number of lot-sizing techniques in the MRP system that managers can adopt. Lot-for-lot is a technique that managers can use to generate the exact lot that should be ordered to meet the plan (Heizer and Render, p. 557). Economic Order Quantity (EOQ) can determine the optimal orders and reorder points of supplies when independent demand exists. Part Period Balancing technique (PPB) balances the setup and holding cost. It provides variations in lot size to reflect requirements for the next lot size in the future (Heizer and Render, p.559).
Enterprise resource planning (ERP)
MRP system ability to integrate production, supply chain, and sales activities have resulted in the development of ERP systems. ERP system is used by management to support firm strategies of differentiation, response, and cost leadership. ERP system enables companies to integrate all business processes, share common database, and real time information. In the process, ERP reduces transaction cost and produces accurate information (Heizer and Render, p. 565).
Hill’s Automotive, Inc.
Hill’s Automotive, Inc. plan
Marketing department should give reliable demand forecast to the purchasing and inventory departments. The production department to change its master production plan by aggregating and disaggregating the production schedule. The purchases department to use demand forecast to determine order point and determine material requirements. The purchasing department should consider evaluating the capacity inventory to ascertain the inventory levels that need to be maintained by drawing capacity requirement plan. Stock forecast and schedule orders ought to be incorporated in the plan. Assembly department should determine the bill of material to be utilized through schedule modules to avoid any holding excess inventory.
The MRP plays an important role in this plan by providing the necessary ingredients in the preparation of the plan. The plan utilizes the MPS, accurate inventory records, bills of material, outstanding purchases, and lead time.
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