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System Business Manufacturing

1. Introduction: For around 25 to 30 years accounting systems and business planning have been around in manufacturing. As accounting practices became more complex they were applied first to the function of accounting to handle the massive amount of computations and data collection required. Computers were then being used during the 1970s on a broad scale to applications such as order processing, inventory control, production planning and purchasing. To model the business processes of that time and as a result create a higher effective, efficient operation, these systems were designed. Today's business systems, surprisingly enough in terms of how they operate are almost very much like those original systems. To 'professionaloze' the function of production and inventory control the American Production and Inventory Control Society (APICS) began its efforts in the 1970s. They did this by educating and certifying the practitioners of this rather obscure set of activities. In order to accomplish a widespread presence throughout industry, APICS established local chapters and created a standard curriculum of courses, segmented into specific areas of study, focusing on distinct aspects of the planning/scheduling process. The computer industry recognized the strength of APICS, realizing that APICS members were often in a position to influence decisions on computer purchases and quickly developed allegiances to the group. By the early 1980s this allegiance had developed a standard model of an integrated business system for manufacturing called material requirements planning (MRP). This model completely dominated the manufacturing industry for nearly 15 years. It led to a multi-billion dollar software and services industry. More than 60,000 MRP systems were implemented worldwide and over 4,000,000 manufacturing employees were educated on the theory and practice of MRP (AMR, 1995).

MRP was modeled after a typical 1978 manufacturing organization and designed to operate on an IBM 360 mainframe computer and this is the fundamental problem. Since the late 1800s and early 1900s, manufacturing practices in the 1970s held a close resemblance to those in use, division of labour concepts were upgraded and reinforced, when through the contributions of individuals like Samuel Colt, Henry Ford and Alfred Sloan. Published in The Wealth of Nations in 1776, these are the concepts whose origin date back to Adam Smith's theories on the division of labor (Hammer and Champy, 1993). The underlying concepts never truly changed, although MRPII evolved over the next decade to meet changing business wants and to take advantage of higher performance computer systems. Contrast this with the staggering amount of change in the manufacturing industry resulting from global competition during the same period. Manufacturers are in a constant state of change in their areas of production today, who hope to be here tomorrow. Today's market forces demand that manufacturers becom the lowest cost, highest quality, and the most agile producer of mass customized products in their industry (Sameer Kumar and David Mead, 2002).

Planning systems as a result of their heritage today are in many views counterproductive to the process of execution. In many cases planning systems dictate actually the inefficient business practices in order to support the functions of planning and accounting and they no longer model the business processes. The effects of being constrained by the system has made many manufacturers suffer which limits their agility, resulting in inventories filled with huge raw materials and finished goods, creating lead times which lead to false manufacturing and stifling the efforts in becoming more integrated throughout their information system.

Considerable attention has been shown in the last few years over the uncertainty issues that are associated with MRP systems. The most widely used production planning and control systems are in fact MRP systems (Mohan and Ritzman, 1998). Industries use MRP systems widely, even though they may be referred to as MRPII, or ERP systems These information systems are driven by MRP which is used as the basic engine, and as a result systems that are all MRP-based the effects of uncertainty makes them vulnerable. Uncertainty has been focused by a number of studies that is associated with MRP systems and examinations of various issues have been undertaken in these studies. MRP is affected by uncertainty in a number of different ways and this has been shown by recent works which have examined the impact of lead time uncertainty and demand uncertainty (Brennan and Gupta 1993, Ho and Lau 1994). A number of items are affected significantly by uncertainty which has been indicated by these findings, which also includes increase in costs (Ho and Lau, 1994) setting of lead times (Mohan and Ritzman, 1998), the choice of lot-sizing rules (Melnyk and Piper, 1985; Brennan and Gupta, 1993) and practices of shop floor control (Gupta and Brennan, 1995). These studies have however focused on the uncertainty impact, not per se on the methods to provide protection against it (Guide Jr. and Srivastava, 2000).

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It is important to cope with the issue of uncertainty since it lives in an operating environment which is realistic. In order to account for different forms of uncertainty, a number of methods have been proposed. There exists uncertainty in various ways in the system of production. The product and (replacement) parts demand is forecast typically, and uncertainty to a certain degree is the result with respect to both the timing of the quantity demanded, and the quantity demanded in a particular time period. It is obvious that there is uncertainty in the quantity demanded; often, however, uncertainty in timing also exists. Due to problems of quality, shortage of wanted materials, or of required equipments for operations, uncertainty can occur in the form of yield losses for parts and assemblies which are manufactured, which may lead to timing uncertainty. At the supply level i.e. for purchased items, uncertainty exists as another major source, which could again occur in the form of quantity or timing or both.

A range of approaches have been suggested, ranging from carrying safety stock to dealing with uncertainty of quantity, and built-in safety lead times to cope with uncertainty of timing (Whybark and Williams, 1976); to where to locate the safety stock (Chang, 1985; Wacker, 1985); and how much safety stock is appropriate (Wijngaard and Wortmann, 1985). Safety lead time is preferable to safety stocks when demand is known with certainty, as suggested by recent works of Buzacott and Shanthikumar (1994), and when the demand knowledge is imperfect the user will be indifferent.

The review of past research in this area is conducted, work done is evaluated, and gaps are identified in the literature for which address is needed in order to deal fully with the uncertainty issue that are related to MRP systems. The study will also focus on the common buffering forms as stated in the literature review, i.e. safety stocks and safety lead times. Also, the MRP implementation methods and techniques will be discussed and an MRP run using 123mrp.NET software has been carried out by making data assumptions.

What is MRP?

MRP is a routine that compares your demands (order book and/or forecasts) to your current stock and suggests replenishment works orders for the appropriate dates and quantities to cover any shortfalls.

It then checks that you have enough components to build these works orders and suggests purchase orders to cover shortfalls. In doing this it takes account of current stock, outstanding orders, minimum purchase quantity rules etc.

So, in essence, MRP does some maths and then suggests what you should make and when and what you should buy and when.

Project Background

A company buys an MRP system in order to drive the material requirements. In order to accept new methods of doing business, it is a change of culture for firms and companies. The success of the project will mainly depend on the interest and commitment of the top management of the company.

For any implementation or re-implementation success of MRP, senior maangement must be fully committed to the project. In order to understand what is required education at senior level is needed, and more important, resources should be committed.

An MRP system doesn't work nor yield the benefits expected by magic, and companies work in a similar fashion. They sell their products by getting customer orders, buying materials and assembling the components.

Of the staff and technicians who are assigned to use and install MRP systems, the MRP systems are far ahead of them in general. In fact, people sometimes question whether the tool would work for the normal company since there can be many problems which may arise during the installation. Just loading a few discs and running the system is not a matter of MRP system implementation.

To perform as desired, a company using an MRP system should have rules and methods in place. Part numbers and dates are the two things the MRP system knows. If the system doesn't have any on-hand when there is an order for a component, manufacturing planned order will be produced to build one and have it ready on a certain date. Considered firm orders are the master scheduled parts.

The system calculates component requirements from the bill by looking through the bill of materials. It will generate purchasing planned orders by again reviewing the inventories for the needed components and also the due date for receipt will be specified.
For any MRP system to function correctly there are three requirements which must be perfect. They are:

Inventory quantities must be accurate

Bill of materials must be accurate and

Customer due dates and Master schedule due dates must be realistic

The system will either order excess or not order what is required if the inventory is incorrect. The same scenario will apply even if the bill of materials is not correct. The MRP system will not know to order if the items are missing. Also realistic ship dates is also a factor which has to be accurate.The overall lead time is obtained assuming no material in house if the lead times needed to buy the material, assemble and test the part and package for shipment are added. Purchasing is expediting orders and scrambling, priorities are changed constantly by the shop floor and Quality Control is pressured to test and ship it, if the ship dates are constantly too short.

The Early Road to Material Requirement Planning

Significant contributions were made by many individuals to the development and advancement of material requirement planning and control systems during the 20th century. Ford W. Harris (1913) was one who made the first contribution by applying mathematics to set lot sizes for manufacturing. In the following decades, dozens of researchers have studied the basic Economic Order Quantity (EOQ) model by Harris and number of variations. The Economic Order Quantity analysis, additionally, forms a key component with other variants in the field of operations management involving a discussion on inventory management.

Difficulty to predict and volatility of the world was recognized by Wilson (1934), while the focus by Harris was upon a world of certainty and demand constancy. Breaking the inventory control problem into two separate parts was found useful by an analysis in such an environment that focused upon: (1) amount of inventory determination for purchase or production, and (2) determination of level of inventory and reorder point in order to trigger a replenishment order for purchasing or producing material. However, consideration of the when needed question was not direct in this early period which is inherent in the explosion process of Material Requirement Planning.

A foundation was laid to the inventory management literature by this early work which is frequently referred to as independent demand management. Various ROP (reorder order point) systems like base stock, continuous review, (S, s), periodic review, etc were developed by this early work. Most of this work was manually carried out using pen and paper, a slide rule or a normal tabulating machine which were available during early 1930s and 1940s. Focus of the approach was normally upon stocking decisions at single level, even though multi-echelon material flow on the factory floor were being dealt by many companies.

Fig-1: Early office machinestabulator (left) and reproducing gang punch (right)

[Source: Journal of Operations Management 25 (2007) 346-356]

Fig-2: Plug board control panel

[Source: Journal of Operations Management 25 (2007) 346-356]

The improved computing technology, however, developed and changed the way for many firms regarding material planning that occurred on the factory floor. By 1940, companies such as IBM, NCR and Burroughs produced office machines that could sort, consolidate and summarize the coded data on a punch card. As shown in figure-1, on the left side, this tabulating machine had capability to make addition, subtraction, and summarization of totals and print tabulated reports. As shown in figure-2, a control panel was used which had nearly 5000 wireable plug holes as the primary processor for completion of this task. As shown in figure-1, right side, the reproducing gangpunch machine could be connected to the tab machine, as it was called frequently; summary cards could be punched which held new information for use in subsequent steps.

Material planning systems' basics were being used even during Second World War, but the means was by manually operating a punched card versus computers with RAM (Random Access Memory) and hard disks that are being used today. For example, B-24 bombers of ten various models were produced by Ford Motor Company plant at Willow Run (Michigan), at the time of war. Modular design of 24 prime sub-assemblies was used and fabricated prime components were batch scheduled to increase the production rate, and it rose at 25 planes per day coming off the line of assembly. Production flow was managed on the shop floor by using punched cards and tabulating machines for material planning process, requirements for the prime items were determined by reproducers and sorters from the set of 30,000 components that were needed in the plane. The quantity ordered, due date,

Fig-3: Requirements estimation processcard flow and machines (IBM office machines available in 1949)

[Source: Journal of Operations Management 25 (2007) 346-356]

department, work center, etc., for the order was held in the punched data of the card. As shown in figure-3, a series of steps were being used to process the keypunched order cards, by using bills of materials that were pre-punched. A material plan was built for the horizon of production for the various B-24 models by collating, summarizing, gangpunching and sorting the requirements cards. It was a very slow function and time-consuming, which required various data processing operators to handle hundreds of punched cards for a single update routine. The heart of an MRP system is the general logic, while the approach was labor intensive.

Punch cards usage with machine summarizing and sorting continued into the 1950s. During mid-1950s, Robert W Hall of Zero Inventories (Hall, 1983) fame in the department of production control at Indianapolis at Link Belt Corporation. To control the flow of production of batched orders on the shop floor, the card approach formed the heart of the planning system. When executing a planning run the logic of material requirements was regenerative in scope, because of the nature of data storage being sequential. As a result, the update of MRP was consuming a lot of time and frequently required a whole weekend to complete. Various structural characteristics of early MRP systems were defined by these types of constraints. For example, because of the typical weekly update cycle a time bucket of one week was the norm.

But things changed. The IBM 650 Magnetic Drum was introduced in 1954 and records could be accessed in a non-sequential manner which reduced time of processing. The IBM RAMAC 305 (random access memory accounting machine) disk-based system followed the IBM 650 Magnetic Drum in 1956. Whenever the status changed the manual sort effort of inventory cards was streamlined, and there was the elimination of the maintenance of multiple cards on different parts that filled huge file cabinets covering hectares of floor space. The establishment of COBOL (Common Business Oriented Language) in 1959 was done by using a simple English term-like command structure for programming applications.

With the vast improvements in computing memory, processing speed and programming languages achieved by the early 1960s, time-phased replenishment planning could be done cost-effectively using the computer on the entire bill of material for the hundreds or thousands of items in the product catalogue. Time-phased requirements planning enabled efficient processing not only at the gross requirement or end item level, but also assigned a detailed schedule to the entire nested bill of material structure down to the lowest level. This moved much of the material planning from its traditional base using single level historical data and the manual reorder point method of inventory stocking to a system based upon the multi-level bill of material processing.

The Material Requirement Planning Crusades

During the 1960s, Dr. Joe Orlicky was at J.I.Case and was honoured as was being the father of Material Requirement Planning and hence, time-phased replenishment planning (Orlicky, 1975). The initiation of the first Material Requirement Planning system in 1961 is suggested by the title 'father', but this is not the case. Installations of prototypes were reported earlier. For instance, Paul Bacigalupo, who was a systems engineer at IBM working with American Bosch Armor in Springfield, Massachusetts, in 1959 he employed the IBM RAMAC 305 disk based computer and coordinated a net-change installation for his client (Lilly and Smith, 2001). In order to convert the pagan EOQ/ROP believers, Joe Orlicky who was an evangelist stepped onto the globe of manufacturing.

Joe Orlicky left J.I. Case and moved to IBM in 1962. Educating the senior executives at IBM client sites was his job so that they could benefit from the application of computer technology to manage inventory and control production. During his job as an educator and promoter of the upcoming discipline, he met Oliver Wight who was working in New Britain, Connecticut, in The Stanley Works. In 1965, Oliver Wight joined IBM and stayed there until 1968, when he left the company to work with George Plossl, who had worked with Oliver at The Stanley Works. George and Oliver started operating an education and consulting firm and separated to work individually in 1969. But their relationship led to a major contribution which resulted in a co-authored work, Production and Inventory Control: Principles and Techniques (Plossl and Wight, 1967). This book was considered as a Bible by some practitioners of production and inventory control, industry analysts, consultants, and people who showed interest on the subject. Ideas which were different from those in the book were frequently viewed as variant and may have held back other works to the field (Lilly and Smith, 2001).

Even though Plossl, Orlicky and Oliver had different personalities, they had a common vision of educating the world to the usefulness of Material Requirement Planning. Orlicky was viewed as a 'techie', while Oliver was thought of as 'marketer', and Plossl possessed a 'professional' style exhibiting quality of philosopher. Plossl made his contribution to the field for more than four decades. The ignition of the Material Requirement Planning crusade was helped by these three who formed a part of a select group.

From the Foreword of Plossl's Orlicky's Material Requirements Planning (1995), here is George Plossl's description of the origins of MRP1:

''In 1966, Joe Orlicky, Oliver Wight, and I met in an American Production and Inventory Control Society (APICS) conference. We found that we had all been working on material requirements planning (MRP) programs, Joe at J.I. Case Company and IBM, Oliver and I at The Stanley Works. We continued to meet and compare notes on MRP and other topics. In the early 1970s we organized the APICS MRP Crusade, using the resources of the Society and the knowledge of a few 'Crusaders' to spread the word on MRP among APICS members and others interested. All but a few APICS chapters participated.''

1.3.1 The First Crusade

The Material Requirement Planning crusade was the outcome of a hot debate that took place at the 14th American Production and Inventory Control Society (APICS) conference which was held in St. Louis in October 1971, as indicated by Robertson et al. (2002). The debate started around the benefits of a traditional Re-order Point (ROP) approach for material planning versus the use of Material Requirement Planning. A paper was given by Orlicky at the conference which was titled 'MRP - A hope for the future or a present reality - a case study', in which MRP was referred by him as the 'Cinderella' of inventory planning and control. Jim Burlingame from Twin Disc co-presented him by providing practitioner support to the claiming that Material Requirement Planning was very efficient than the old ROP methods. Many of the ideas were challenged by the attendees.

While the debate occurred during fall 1971, the plan to launch the Material Requirement Planning Crusade had started many months prior to that time. For example, Oliver Wight wrote a letter to Henry Sander, Executive Director, APICS, dated June 29, 1971, proposing them to sponsor the 'MRP Educational Crusade'. During the planning meeting in Boston on 9th September 1971, the key disciples - Joe Orlicky, Romey Everdell, George Plossl, Ernie Theisen, Jim Burlingame, Oliver Wight and Walt Goddard - wrote about the value of Material Requirement Planning by committing their energy and time, and used the APICS organization as the primary delivery mechanism (Clark and Newell, 1993).

Different promotional tools were employed by the 'MRP Crusade'. For example, Orlicky, Plossl and Wight, by producing 11 video films sponsored by IBM, by explaining the philosophy underlying Material Requirement Planning, illustrated its beneficial effects and applications. APICS made this available for use by the members by publicizing the series. To demonstrate the highness and advantages of Material Requirement Planning to the community that practised it, articles were published by APICS's Production and Inventory Management journal, IBM white papers and COPICS (Communications Oriented Production Information and Control System) manuals, also published by IBM, field was codified and various major books were written. Also, Oliver Wight and Walt Goddard delivered seminars and presentations at APICS national and chapter meetings praising the excellence of MRP. Similarly, various presentations were made by individuals like Joe Orlicky and Jim Burlingame at academic conferences. For example, during fall 1976 at American Institute for Decision Sciences (AIDS) national meeting, a master scheduling tutorial was conducted by Romeyn Everdell (Everdell, 1976). AIDS changed its name to Decision Sciences Institute (DSI) in 1986.

Of all the MRP disciples, Wight may have been the best front man. ''Oliver Wight was gregarious and outgoing and was gifted with the flair of a raconteur. Known as ''Red'' by intimates, and simply Ollie by everyone else, Wight was red-haired, good looking, and broad shouldered, and rarely, if ever, did he meet a fellow he couldn't warm with his easy manner and quick smile. Wight commanded a room as did few others, and before an audience of a half-dozen or several thousand, he knew how to capture the interest and generate a sense of shared commonality such that it was always a pleasure to be in his company.'' (Lilly and Smith, 2001) His quick mind was legendary and his college degree in English frequently resulted in humorous pieces. This dynamic, personal and engaging style was very effective as he built his worldwide consulting practice known as Oliver Wight Associates.

Various articles were written and numerous discussions were made about the 'rust belt' industries of America and performance failure in manufacturing by the early 1980s. This gave rise to searches for corrective action from various directions. During this time, liver Wight was considered as leading global expert in the world of Operations Management (Ralston, 1996). The need for Integration of production and planning was endorsed by him and control of resources related with manufacturing such as finance and distribution. The title Manufacturing Resource Planning or MRPII was put forth by Oliver during a meeting at Wight's home that was attended by Jim Burlingame, Walt Goddard and others (Lilly and Smith, 2001). Standardized software applications supported MRPII (Wight, 1984) by integrating various functions, which led to the establishment of the basics of Enterprise Resource Planning (ERP), from which resources could be utilized very effectively by manufacturing firms. Additionally, a methodology was proposed by Oliver Wight for implementation of MRPII - the 'Proven Path' - also a 'Class A-D' checklist that was standardized against which companies pursuing to become 'A-Class' were able to audit their process of MRPII implementation (Robertson et al, 2002). In the past two decades, this checklist has been revised many times and now the 'Oliver Wight ABCD Checklist for Operational Excellence' includes these areas: strategic planning, people/team systems, total quality, continuous improvement, new product development, planning and control. The integrated nature the field has matured to in the 21st Century is reflected by it.

The APICS organization was used by Orlicky, Plossl and Oliver to educate and influence the path the production planning and control methods were implemented in the field of manufacturing. A desire to influence future managers in the coming decades was also present.

1.3.2 The Second Crusade

During the initiation of MRP crusade through APICS, a clear and highly visible focus existed on re-educating both APICS and non-APICS members in firms of manufacturing, also the approaches to material planning and control was planned to be changed the way the academic world described and taught. Future managers and business leaders had to be exposed to the fact that MRP was an ideal approach for control and planning of flow of materials. The necessity of this second crusade was a question and figure-4 lists the textbooks for the field from 1965 to 1975 and the answer to the question is highlighted by this. When the content of these books was reviewed, it indicated that MRP was absent from all prior to 1973. But a report by Plossl and Wight entitled 'Material Requirement Planning by Computer' was an exception which was published by APICS in 1971. Authors of textbooks used the approaches of operations research, modelling, systems analysis, etc. which were common themes and described different procedures for lot sizing

Fig-4: (a) Operations management textbooks, 1965-1975.

(b) Production planning and inventory control textbooks, 1965-1975

[Source: Journal of Operations Management 25 (2007) 346-356]

and reactive inventory systems like reorder point. Thomas Vollmann (pp. 577-582, 1973) authored the first American academic oriented textbook identified by this writer to discuss MRP. Data inputs and information outputs were discussed, the presentation being very descriptive and rudimentary in nature. Also, a book by Colin New in 1973 in Great Britain was published which was titled 'Requirements Planning'.

James Green (1974) was the next American to sight a presentation on Material Requirement Planning. He presented a detailed Bill of Material explosion example in which the primary tool used was matrix algebra (pp. 253-267) and he also discussed the basic system design of Material Requirement Planning. Although he was exquisite, the intermediate part inventory levels requirements estimation and lead times were ignored by his approach.

Fig-5: Academic faculty members' seminar on MRP, February 17-20, 1974

[Source: Journal of Operations Management 25 (2007) 346-356]

During this time (1973 to 1974) Orlicky discussed with Thomas Vollmann. Orlicky was supported by Vollmann to start work with the faculty of academics and educate them in the logical supports of Material Requirement Planning. Vollmann's leadership led to the beginning of the 'second crusade' plan at the 1973 DSI Annual meeting. Small teams of interested academics were invited by Orlicky and later he designated his MRP Mafia to focus seminars on MRP. In 1974 and 1975 IBM sponsored two seminars that were conducted at the IBM Executive Training Center in Poughkeepsie, New York. Figures- 5 and 6 shows the professionals who attended the seminar from North American Institutions, Jay Ross and John Ruhl - the industry professionals, and directors - Joseph Orlicky and James Clark.

Fig-6: Advanced MRP seminar June 29-July 3, 1975

[Source: Journal of Operations Management 25 (2007) 346-356]

Orlicky delivered most of the presentations for the seminars and the faculty tried their best to puzzle him and make him dumb. He was able to counter every single point put forward, and was persistently calm throughout. His desire was that this team of scholars should be followers and disciples of Material Requirement Planning. He took the logical inference of Nicolas Copernicus (1473-1543) who is accepted as the establisher of modern astronomy.

A work by Nicholas Copernicus in 1530 which was entitled De Revolutionibus was completed, which explained that the earth revolves round the sun in its own axis, which was a very brave concept at those times. Ptolemaic theory was the accepted concept by the western world thinkers which meaned that the Universe was bounded in an envelope beyond which nothing existed until Copernicus put his theory. The proposals put forth by Copernicus was opposing to the philosophical and religious rules which people believed during medieval times. Galileo and Giordano Bruno were the scientists from Italy who comprehended Copernicus' concept undoubtedly and were punished by authoritative church investigators.

Orlicky used the same concept parallely with some humor that his dedication to reveal the true benefits and highness of the MRP system against the traditional EOQ/ROP concept was like Copernicus changing the present thoughts about the world about mankind in the 1500s. In figure-6, the name Copernicus can be seen on the T-shirts of all those who attended the seminar. He had the enthusiasm and determination to be the active medium for change. The teaching of inventory management is what he wanted to change and he even conducted research.

The works of Joe Orlicky, George Plossl and Oliver Wight were all rewarded from early to middle 1970s. Perception and conversation gives rise to examination and dispersion in text books and journal publications written by academicians. Berry (1972) and Thurston (1972) who were considered favorites made publications of their ideas that were constructed upon by many others in the approaching years. Elwood Buffa of 1970s was a renowned author whose textbooks were used by the academicians of the United States. He wrote textbooks on various topics to reach the different faculty choices, one of his edition of 1976, 'The Management of Productive Systems' (Buffa, 1976), demonstrated the explosion, netting and off-set procedures for lead-time, and was the first to hold a topic on Material Requirement Planning. Other academicians and writers soon followed similar methods which became the standard for most of today's textbooks.

While Joe Orlicky, George Plossl and Oliver Wight were the thrust for the MRP crusade, other professionals as shown in figures-6 and 7 also contributed in revealing the doctrines of MRP among academicians in late 1970s and 1980s. For example, APICS presented an accumulation of MRP associated cases penned by University doctorates for use in the academic field (Davis, 1977), and figure-7 shows the list. Also, local APICS teams frequently met every month and conducted educational seminars, making use of academicians to present MRP lessons and details of interest. Some of the well-liked places visited were to Indiana, New Jersey, Pennsylvania and many more.

Fig-7: Cases and authors in studies in materials requirements planning: a collection of company case studies

[Source: Journal of Operations Management 25 (2007) 346-356]

Aims and Objectives

AIM - To Implement Material Requirement Planning using 123Mrp.NET Software

Objectives - The objectives of the project are:

Inventory reduction: To Maintain the lowest possible level of inventory

To reduce lead times: To reduce manufacturing and delivery lead times

Realistic delivery commitments: Ensure materials and products are available for production and delivery to customers

Planning: Plan manufacturing activities, delivery schedules and purchasing activities

Increased efficiency: To achieve uninterrupted flow of materials through the production line and to increase the efficiency of the production system

Review of Report Contents

The rest of this report is separated into four chapters. Chapter 2 is a range of national and international literature on Material Requirement Planning. Chapter 3 presents a detailed overview of the techniques used to gather new data for the project, which include case studies. The findings from the analysis of the new data sets are presented in chapter 4. Chapter 5 brings together the results from the literature review and new data. Recommendations are written and actions suggested to substitute the recommendations into effect.

2. Literature Review

The MRP implementation literature can be discussed by categorising into case studies and theoretical modelling studies. Case studies are descriptions of implementation experiences at some companies who had implemented MRP (Brown, 1994). Many of these studies gifted appraisals of successful MRP implementations (D. Sheldon, 1994), while others gave instances of failed implementations and fruitless efforts (C.G. Andrews, 1978). Experimental study on MRP has basically focused on finding factors that alter or donate to all round implementation success (Burns and Turniseed, 1991; Cerveny and Scott, 1989; Duchessi et al, 1988; Wacker and Hills, 1977; White et al. 1982).

One of the first explanations of successful MRP implementation was provided by Bevis (1976) at Tennant Company. He stressed the vitality of dedication during process of implementation. Studies have also found out other major implementation variables; commitment of top management and contribution (J.C. Anderson, 1984); MRP education and training; committed project team; data combination; understanding between individual department inside a company; and unambiguous project goals. Theoretical modelling studies may be sub-divided into modelling of the implementation process using contextual variables and modelling the process of implementation as change processes.

Contextual protean studies paid attention on various individual, organisational and technological proteans which were vital to MRP implementation (E.M. White et al. 1982). Majority of these experimental studies made use of statistical modelling techniques such as regression, discriminant analysis, and chi-square tests to investigate the corresponding of victorious MRP implementation.

Wacker and Hills (1977) pointed out that the acceptance of the MRP system by people and individuals was a major factor for implementation success. They put forward various methods for defeating human resistance such as structured management style, communications, consultation with altered parties, education, piloting and a proper reward process.

White et al. (1982) investigated the difficulties faced during the MRP implementation process. The investigation revealed that accuracy of data, top management commitment, marketing management dedication and training in-house and knowledge were all forecasters of victorious MRP implementation. White et al. (1982) conducted a distinguished analysis to find out factors impacting successful implementation based on United States survey of 422 MRP users. Companies were successful who were high on two factors: an implicit performance measure, and a summarized interval-scaled measure on user fulfilment. Accuracy of data and heights of computerisation were found to be major factors of implementation success.

Schroeder et al. (1981) conducted a regression analysis to associate MRP advantages and various independent variables. The study pointed out that company size, accuracy of data and implementation process altered the heights of MRP advantages achieved.

Duchessi et al (1988) experimentally found out the determining factors of success in implementing MRP systems. The results revealed various variables identified by White et al. as principal to successful MRP implementation. Dedication from top management, marketing department and production department were specifically vital for victorious MRP implementation. Data accuracy after implementation, formal steering committee, lack of unambiguous goals and firm dimension were all found to be considerably associated to successful MRP implementation.

Duchessi et al. (1988) revealed on another US survey to find out the variants of implementation sucess. A rough success score was utilized to assert implementation results. Since data was missing, no mathematical modelling was conducted. Primary statistical examinations showed that the findings resembled to those in (White et al. 1982)

Burns and Turniseed (1991) utilized free chi-square tests to determine variables important to MRP implementation success. The results pointed out that the formation of a project team and accuracy of data were related with thriving MRP implementation. Burns and Turniseed (1991) examined 238 users and identified that higher success was gained when a company is more dedication to change and the technology of product is reasonable. Success was also related with process factors such as utilization of project group and consultant, software application, and the availability of a clear implementation plan. Two dimensions of success were utilized. The first scaled measure associated to the range to which MRP has reached the respondent's anticipation and the other one was Wight's (Wight, 1984) A to D user classification.

Sum et al. (1995) determined determinant variables for particular MRP advantages such as operational efficiency, customer support, and co-operation. Data accuracy, people dedication, company dimensions, level of integration were important determinant factors for MRP implementation success.

Cerveny and Scott (1989) utilized four comprehended scaled measures, two objective measures, and user class to delineate success. Their findings revealed that success was not associated with the type of system but is altered by the size of outside support and education rendered.

Implementation studies have also considered the process of implementation (Bevis, 1976; Blasingame and Weeks, 1981; Cooper and Zmud, 1989, 1990; Cox and Clark, 1984; Hall and Vollmann, 1978; White, 1980). Bevis (1976) presented a case study of the implementation program at Tennant Company. Cooper and Zmud (1989, 1990) and White (1980) suggested that MRP implementation process should be managed as a change process within an organisation. Blasingame and Weeks (1981) proposed a questionnaire instrument to assess an organisation's readiness in implementing MRP. Cox and Clark (1984) and Hall and Vollmann (1978) highlighted pitfalls in implementing and operating an MRP system.

MRP implementation research had also been directed by the change theories of organizations. These researches reasoned that the difficulties on MRP implementation were primarily deportmental, originating from a natural opposition to differ on the part of individuals. Thus, MRP implementation is associated to negotiating a change methodology within the firm. These thoughts stood on Lewin-Schein's (1947-1964) change theory of unfreezing, change and refreezing stages. The main concept of this theory is that in order to study something new, an individual must first unfreeze previous ideas and thoughts and go through a felt need to change. Brown (1994) reasoned that trenchant management of technological shift such as MRP implementation needs dedicated and transforming leadership and wide and spectacular planned sets of rites are essential to support change in people both at psychological and behavioural level (International Journal of Production Economics, Volume 58, Issue 3, 25 January 1999 Chee-Chuong Sum, Ser-Aik Quek and Hoon-Eng Lim, pages 303-318).

Studies dealing with specific MRP benefits are limited (Cerveny and Scott, 1989; Duchessi et al., 1988; Schroeder et al., 1981). Ceweny and Scott (1989) reported turnover increase and lead time reduction benefits but did not provide any mathematical model to relate these benefits to its determinants. Duchessi et al. (1988) grouped benefits into three categories: better manufacturing planning and control, improved manufacturing performance, and improved business/financial performance. These categories were basically derived from Schroeder et al. (1981). No mathematical model was presented because of the large amount of missing data.

Schroeder et al. (1981) presented a comprehensive study of MRP benefits. The five benefits studied were inventory turnover, delivery lead time, delivery promise, split orders, and expediters. Regression models were constructed for each benefit. The independent variables included company characteristics, type of MRP system, type of implementation approach, and starting performance levels prior to implementation. A major finding was that all categories of the independent variables affected performance.

A handful of empirical studies exist on MRP implementation in Singapore. Based on a sample size of 26, Yeo et al. (1988) reported that reduced stock inventory, reduced material waste, and reliable delivery were the major advantages of MRP. Yuen (1990) developed an instrument for measuring MRP effectiveness and tested the instrument on 36 respondents in a mail survey. The study proposed that MRP effectiveness can be measured by the degree of data integrity, level of management commitment, and amount of effort expended on education and training. Sia (1990) conducted a mail survey and collected 33 responses, of which only 21 had implemented MRP. No mathematical models were built in any of the studies because of the small sample sizes and the limited scope of the studies.

2.1 Literature review - Uncertainty

Although there exists' a broad bulk of literature which may transact with MRP and uncertainty, the focal point in this segment is to inspect buffering issues, particularly, safety stocks and safety lead times in MRP systems. The review is restricted to those paprs considered pertinent to these issues. Uncertainty could arise in demand, supply, or in both. In each of the two circumstances, uncertainty could subsist in either the quantity or in the timing, or both. Preceding researches have inspected one or more of these uncertainties.

2.1.1 Demand quantity uncertainty

The majority of the current literature deals with the subject of demand quantity uncertainty in the perspective of buffering in MRP systems. Yano and Carlson (1987) produced a trial-and-error approach to attain a fairly precise clarification to the safety stock quantity trouble in the context of no urgent setups. There is no capacity restraints enforced in the lot-timing assessments. Lead times, yields, and supply timing and quantity were also supposed to be settled in this research. A fixed demand model was used. The intention is to establish the preset safety stock quantities, which reduce inventory expenses with respect to a fill-rate constraint. Safety stocks are examined at two stages. Their results illustrate that below the specified set of suppositions the safety stock level for second stage components must be zero, i.e. no component safety stock. In a later research, Carlson and Yano (1986) investigated the same trouble in the circumstance of systems with urgent situation setups for components. They produced a heuristic technique to the demand quantity trouble, which was categorized as a common non-linear random integer optimisation problem. Known the nonexistence of recognized solution methods, the authors utilized a heuristic technique to resolve the difficulty. They acquired a loose lower bound and an upper bound, which recreation results designated, was nearer to the explanation. The conclusion was that there is advantage from safety stock at those production levels where the setup expenses are more; there are a number of advantages still when the setup expenses are small.

In an additional study, Yano and Carlson (1987) investigated the impact of frequency of reschedule on safety stocks, which are used to defend in opposition to demand quantity uncertainty. All other timings and quantities were supposed convinced, and the prospect analysed was a rolling one. The performance assessments were service level calculated by the fill-rate and the inventory expenses. Reschedule rules inspected were entirely preset agenda for the planning perspective and absolutely flexible ones, which are the boundaries in requisites of rescheduling rules. A solitary product with two procured components was taken into consideration. Thus, there are probable troubles in simplification of the results. A recreation technique was adopted. The outcomes pointed out that if fixed scheduling is used then rising safety stock amplified both fill-rate and expenses with declining trivial profits. In the context of flexible rescheduling at the end-item phase, all four probable groupings of the two performance assessments were examined. The performance assessments were examined to progress in the similar direction (up or down) or in reverse directions. The recreation of phase 2 component safety stock pointed out that for preset scheduling, enhancing safety stock augmented both expenditure and service levels, but in general this was not cost effectual. In the context of flexible scheduling for phase 2 items with preset scheduling for phase 1 items, the key outcome of added safety stock at phase 2 was to augment expenses while not altering the service level considerably. The conclusions revealed were that under the set of suppositions made in the examination, fixed scheduling was further cost-effective and recurrent rescheduling must be carried out with vigilance. Their study also designated that if flexible scheduling was utilized at equal phases in the product structure then the outcome of component (phase 2) safety stock is very unforeseeable.

De Bodt and Van Wassenhove (1983) inspected the situation of a company that used MRP in an energetic environment with substantial demand uncertainty. They utilized a simulation technique in a rolling perspective atmosphere with service level as the performance assessment. It was revealed that the company's rule of one month safety lead time can be enhanced on by retaining safety stock at component and end-item levels in reply to demand quantity uncertainty.

Graves (1988) offered a review of the current literature on safety stocks and a model technique to inspect the transaction between safety stocks and manufacturing resilience. In his review he pointed that there was not a big literature on safety stocks in manufacturing systems. Major portion of the literature concentrated on demand uncertainty, which was as well the case of Graves' research. The literature review lengthened further than MRP systems, and was characterized by precise and fairly accurate models. The fairly accurate models reviewed were inclusive and exclusive lot sizing. In addition, erstwhile research attempts which do not match into the best possible and fairly accurate models groups were reviewed. These were characterized into simulation-supported documents, issues and procedures documents, parts commonality supported issues in safety stocks, and documents which transact with sources of uncertainty other than demand quantity uncertainty. In his representation, Graves presented a technique that involved a cumulative component and a thorough component to represent both the multi-item and single-item performance in the system. Once more, the technique included numerous suppositions. Demand was thought-out motionless with no forecasts. Lot sizing was left off by supposing lot-for-lot scheduling and capacity practicability tests were not completely included into the linear control policy used for positioning manufacturing output. Graves' work elevates questions, which stay mainly unanswered. There has been awfully small work on this subject consequent to Graves' work.

Guerrero et al. (1986) in a recreation research investigated the issue of position of safety stocks in the existence of uncertain demand. The recreation model depicted a hedged system and replicated the reply to dynamic demand at the end-item phase. The product had a serialized, three-phase product configuration. Lead times were supposed preset, no backorders were approved at the end-item phase, demand was conceived motionless, and no lot sizing was inspected. Operation assessments made use in the research incorporated service phase, replacement rate for service stock, and normal readily available inventories at every phase of the product configuration. Hedging directed to the position of safety stocks, conduit hedging arised when safety stocks were present at numerous phases of the product configuration, whereas end-item hedging inferred the subsistence of safety stocks at the end-item phase only. Their results designated that conduit hedging offered a service level superior than expected. The worth of safety stock investment in the two options was recorded to be relying on value added at the numerous phases in the product configuration. Conduit hedging would be beneficial every time there is considerable worth added.

Lagodimos and Anderson (1993) also investigated the case of arrangement of safety stocks in MRP surroundings. Their intention was to enhance the service level for a specified quantity of safety stock by means of a methodical approach. The authors recorded the restricted methodical results accessible and the limited applicability of recreation-based literature. The suppositions prepared in the research incorporated preset lead times, no capability constraints, no reschedule of orders, lot-for-lot ordering at every stock point, steady MPS components, and uncertainty subsists exclusively as a consequence of demand quantity. A progressing schedule was executed. Three service phase-related operation assessments were used in the research. The judgement revealed was that the best possible location of safety stocks is system explicit. The outcomes also supported the placement of each safety stock at the end-item phase. The generalisability of the outcomes stayed open to discussion.

Lambrecht et al. (1984) investigated the matter of safety stocks in multi-phase manufacturing systems in the circumstance of MRP systems. They constructed logical best possible models and a computationally well-mannered heuristic for establishing safety stocks specified uncertainty in demand measure. An energetic programming model was constructed to determine the best policy when the solitary uncertainty was demand changeability, a limited planning prospect was supposed, and an intermittent review strategy was adopted. Lead times were supposed known and preset, and surplus demand backordered. The best possible explanations could only be answered for minute troubles and a trial-and-error technique was constructed for resolving bigger difficulties, restricting the method to serial type of systems. They concluded that values of strategy variables only were inadequate to establish the quantity of safety stock or safety lead time; instead, the operational strategies were used. Safety stock was detected to subsist at either of the two phases constructed, while safety time subsisted at stage two.

Sridharan and LaForge (1989) made use of a recreation technique to examine the efficiency of accessing safety stock at the MPS (end-item) level to decrease schedule volatility. The uncertainty conceived in this research was in the appearance of demand quantity changeability. Performance assessments made use in this study incorporated schedule unsteadiness, lot-size cost inaccuracy, and client service level. Their outcomes designated that augmented safety stock at the end item phase referred to superior client service but not essentially added steadiness. Their outcomes revealed that little quantities of safety stock did develop steadiness and reduced the expenditure inaccuracy; nevertheless, augmented levels of safety stock had the reverse consequence. They came to conclusion that safety stock must be used with vigilance if it is to be used for the reason of steadying schedules.

2.1.2 Demand quantity and timing uncertainty

There are a few informed literatures that conceive this situation. This is significant as in actuality lead times are not often recognized and preset. Schmitt (1984) inspected the efficiency of three generally applied procedures made use to determine uncertainty in MRP systems: safety stock; safety capacity; and net change updates. As indicated by Schmitt, large portion of the study has conceived safety stock as a shield in opposition to uncertainty for a single-product and single-production phase. Modest work has been carried out on assessing safety stock as a buffering technique comparative to other procedures, e.g. safety times or often recurrent planning reviews. Furthermore, a number of studies have concentrated on the MRP surroundings to be an assembly system or a sequential production process, exclusive of the real multi-phase character of the system. In this research, Schmitt supposed demand quantity and timing uncertainty. Four operational measures were made use in the research: average service level; average work centre ability level; unpredictability in work centre capacity level; and average inventory level. The simulation model symbolized a two phase procedure of manufacture and assembly. His outcomes designated that as demand uncertainty augmented, additional capability and inventory was necessary to uphold the identical service level. One more result was that safety capacity (time) generated enhanced inventory levels contrasted to erstwhile procedures at the similar service level. The use of safety capacity condensed real lead times contrasted to erstwhile procedures which led to superior service levels. Erstwhile results pointed were that option of safety stock over safety capacity engages a trade-off connecting direct labour expenses and inventory expenses. In many instances the two buffering procedures generated fewer dissimilarities in capability contrasted to the overall change technique, though, with adequately low setup times the contrary may perhaps be factual.

Wijngaard and Wortmann (1985) assessed buffering in opposition to demand uncertainty in multi-phase manufacturing inventory systems beneath diverse circumstances. In the no reschedule circumstance, i.e. fixed lead times, standard suppositions analogous to those prepared in previous studies (Whybark and Williams 1976, Meal 1979, Lambrecht et al. 1984) were prepared. Investigative answers were explained for the safety stock in this surrounding for the distinct and multi-phase situation inclusive and exclusive of lot sizing. One inference is that in context of bulky lots made use safety time at phase 1 would work improved than safety stock. In the rescheduling situation, three potentials to produce stocks (inter-phase slack) were estimated: safety stock; safety time; and hedging. The writers indicate that inside MRP-software packages safety stock is executed as `dead stock', i.e. the system will not utilize; instead it attempts to avert safety stocks from being accessed. Consequently, rescheduling could be an outcome of an actual scarcity or of stock merely being beneath the safety stock level. Safety times were as well assessed in contrast to safety stocks. It was identified that making use of safety times would result in the formation of time-differing safety stocks. If safety stocks are made use and there is no actual demand in the coming prospect, safety stocks would be produced. A difficulty with safety times is that the planning prospect at the MPS level might require to be elongated. The third likelihood assessed was that of hedging, i.e. intentionally planning excesses the master schedule. The writers never supplied common policies to share out the slack (i.e. buffers) above the three levels on control intrinsic in MRP II, i.e. MPS, material synchronization, and shop floor control. They pointed that such a sharing would be relying on the resilience and uncertainty which depends on the condition. Effectual buffering was as well indicated to be relying on the accessible MRP software.

Buzacott and Shanthikumar (1994) produced methodical models to estimate the alternative among safety stocks and safety lead times. They put forward an incessant MRP system instead of the periodic systems communicated formerly and rightly examined that the lone restraint (to constant review MRP) is the database system that is in use. The base context situation modelled is when MPS capacity are identified up to certain point in time (t), and that previous to this point (t) an normal steady rate of demand is recognized. The research revealed that when t t' the usage of safety stocks or safety time enhanced performance evenly. In the context of 0 ≤ t t', the situation of ideal forecast demand above the lead time, then safety lead time must for all time made use till t'= t, the case where demand might never be absolutely estimated. Numerous erstwhile circumstances were inspected, and the results revealed that recurrent alterations in the timing of orders preferred the usage of safety stocks, except that safety lead times were preferred when schedules were excellent (Buzacott and Shanthikumar 1994). An attractive surveillance prepared is that in the attendance of meagre master production scheduling, erstwhile techniques, e.g. kanban or fixed (s, S) strategies are preferred to MRP. Nevertheless, there are no procedures specified as to fixing factors for safety stock allotment or safety lead time permissions. The effort by Buzacott and Shanthikumar (1994) is particularly appealing since it is the first attempt to respond to queries regarding MRP systems by means of analytical modelling. A possibly prolific region for exploration can be amending traditional continuous review inventory models within a continuous review MRP system. The model generated was restricted to a single-phase manufacturing system, and cautious investigation is necessary to guarantee that the outcomes are certainly appropriate to multi-stage production systems. Bitran and Tirupati (1993) present a total conversation of the complications of planning for multi-phase production systems.

An additional latest work including both lead time and demand uncertainty is by Molinder (1997), where lot sizes, safety stocks and safety lead times were enhanced in MRP surroundings. Molinder (1997) made use of a mixture of simulation modelling with optimisation, through simulated annealing. The objective of the study was to recognize the best possible intended lead times, which incorporated a safety lead time allowance, and to optimise the height of safety stock alleged at the similar time as the constant order quantity was optimised. Molinder (1997) wanted to check the hypothesis presented by Whybark and Williams (1976), i.e. that safety stocks are most excellent for quantity uncertainty and safety lead times are ideal for lead time uncertainty. The inferences designated that as demand variability enlarged, safety stocks were favoured, and as lead time inconsistency reduced, safety lead time was favoured. In the context of elevated lead time unpredictability and elevated demand unpredictability, safety lead time was the most excellent choice. The work supposed that stock out expenses are just pertinent for outside demanded items and that there are no capacity boundaries.

2.1.3 Demand and supply quantity and timing uncertainty

A few studies are present that have conceived the four types of uncertainty which might subsist in the circumstance of buffering, i.e. capacity uncertainty for demand or supply, and timing uncertainty for demand and supply. New (1975) talked about the benefits and drawbacks of the numerous processes of buffering. General operational measures of expenditure and service levels were also conversed. Three fundamental techniques to safety stocks were recommended: preset quantity safety stocks where the matter is the appropriate estimation of this quantity; safety time where the situation of this time is conceived appropriate; and the technique of hedging that means manufacturing extra than the demand estimate. New even talked about the effect of part generality on safety stock. New even indicated the necessity for energetic control of safety stocks and service levels.

Whybark and Williams (1976) investigated MRP beneath uncertainty through a recreation experimentation. They contrasted safety stocks and safety lead times as methods for defence against quantity and timing uncertainty together with demand and supply. Their research was the first methodical investigation of the buffering judgment in MRP systems. Demand timing uncertainty was categorized by the timing alterations in the overall needs from stage to stage. Demand quantity uncertainty was revealed to take place when the MPS was altered to mirror variations in client orders or the demand estimate. Supply timing uncertainty is an outcome of differences in retailer lead times or shop flow times. Supply quantity uncertainty was thought-off as the outcomes of lots sustaining scrap losses or of manufacturing overruns. To transact with such doubts, the two inventory-constituted buffering methods of safety stock and safety lead times were assessed. The operation measure made use was the service level (fill-rate). The outcomes of their research were that in all situations of timing ambiguity, a discrete liking for safety lead time was noticed. Safety stock was chosen for the capacity uncertainty situations. These outcomes did not vary with alterations in the stage of uncertainty, but as uncertainty augmented, the significance of deciding the right option among safety stock and safety lead time amplified.

Meal (1979) produced a procedure to compute the safety stock or the safety time necessary to buffer in opposition to uncertainty occurring from the demand and supply foundation in the circumstance of MRP systems. Meal even indicated that hedging may be suitable when little general parts are present so that the association difficulty amongst the agenda alterations for the parts does not survive. Though, if the parts and subassemblies are made use in numerous diverse products then the safety stocks and safety times must be calculated and utilized. Calculation necessitates the awareness of mistake estimation for demand and lead time, beside a process for determining service, e.g. likelihood of scarcity or fill-rate. Safety stock even relies on the lot-size of the component. Meal indicated that supply timing uncertainty and quantity uncertainty must be handled independently. In expressions of quantity uncertainty, the major curiosity is in deficiency or beneath consignment. The safety stock quantity next must be such that it considers both demand forecast inaccuracy variation and supply forecast inaccuracy variation. Safety stock would merely be an operation of the entire variance and the required service level. Likewise, Meal recommended the evaluation of lead time discrepancy to acquire the safety time for supply timing uncertainty. In addition, the entire timing uncertainty could be acquired by merging the supply and demand timing uncertainty as assessments by their timing inaccuracy variance. The employment of the safety lead time consecutively means a resultant safety stock. Meal even indicated that when the quantity and timing uncertainties are minute they should be handled separately. Conversely, if the safety stock was as big as the order quantity no safety time will be essential, or if the safety time is extremely big then no explicit safety stock is necessary, the stock resultant from the safety lead time will be sufficient.

New and Mapes (1984) conversed the surroundings where procedure yield damages at certain levels are together important in requisites of capacity and are greatly volatile. They offered a structure to manage the difficulty in MRP concept. Of the three fundamental techniques recommended in the literature for managing uncertainty, i.e. safety stocks, safety time and hedging, they indicated that not everything could be relevant in these surroundings. They came to conclusion that diverse approaches were necessary for diverse market surroundings. Four chief techniques were built to contain the diverse market situations. These techniques were foundation on issue, e.g. schedule sparsity, single against multiple lot manufacture, and make-to-stock against make-to-order.

Chang (1985) inspected the exchangeability of safety stocks and safety lead time as two procedures for buffering in MRP systems. A systematic procedure to assess the exchangeability was constructed. The suppositions prepared in the research incorporated lot-for-lot sizing method, setup times were not incorporated, and a suitable priority matrix would be present. The inferences noted were that even as safety stocks and safety lead times are exchangeable in numerous features, they are even diverse in other facets. It was observed in the research that circumstances for safety lead time, i.e. excess demand is identified prior to the definite production of the items at the least level and raw material at the least level is obtainable, are hardly ever met in run through. Therefore, slack time in a preset lead time loading system (fixed period MRP system) is not able to be conceived as an effectual measure to replace with safety stocks. Safety lead time is thus restricted in the capability to buffer deviations in quantity.

Wacker (1985) offered a hypothetical MRP representation, which incorporated demand and supply uncertainties through quantity and timing deviations. A retrogression technique was planned for estimation of safety stock for items. A reason was even given for safety stocks for externally ordered components as existing the very significant means of defending the system from supply ambiguity. The findings of the research even recommended that there are two significant kinds of safety stocks, one for end items and the other for outwardly ordered components. Wacker inferred that demand uncertainty can be managed by conventional inventory procedures for make-to-stock companies, by modular BoM for make-to-order firms, or by approximating the safety stock for outwardly ordered components in make-to order companies. For supply ambiguity, correctly approximated safety stocks for outwardly ordered components will guide to enhanced client service. Safety time was not assessed in this research, although it was accredited as a buffering process.

Etienne (1987a, 1987b) built a best possible technique to the buffering difficulty in transacting with ambiguity in MRP systems. Uncertainty was conceived together in timing and in quantity for demand and supply, i.e. all foundations of uncertainty were taken into consideration. It was noticed that all two kinds of timing uncertainty may perhaps be managed through safety time. The chief difficulty in buffering would be that of choosing among the two buffering tactics of safety stock and safety time to attain an objective service level at least amount of expenditure. Identifying the restrictions from preceding studies, best possible approaches for transacting with instantaneous timing and quantity uncertainty were built. The buffering difficulty was shaped logically and conclusion policies for deciding among the two buffering techniques supported on price consideration were built. The examination also designated that meagre schedules in MRP systems prefer the use of safety time above safety stock, a consequence that was even pointed in previous studies. For preset lead times and schedules the verdict law preferred safety time. In buffering alongside quantity uncertainty (demand and supply) the inference was that safety time tactic would be of awfully modest worth. Safety stocks would consequently be the favoured option. When timing and quantity uncertainties need to be buffered alongside concurrently, the technique recommended relied on the best possible tactic for transacting with timing uncertainty. If the technique was to use safety time then the technique recommended was to construct safety stock for quantity uncertainty into the order for components and next relate safety time to this amplified order. If the best possible tactic for transacting with timing was through usage of safety stock then a convinced amount of safety stock was enduringly introduced in the system and this was amplified by the quantity of safety stock essential to transact with quantity ambiguity.

Chu and Hayya (1988) offered a check of buffering conclusions in an MRP surrounding. They elevated a few issues, which in their vision stayed mostly unreciprocated. They asserted that the conduct of buffering in MRP systems is not fully studied. A structure was planned in the paper in sequence to encourage research and enhanced perceptive of the buffering conclusion. The features of the MRP system were put forward and the study subjects restated. These were summed up as: varieties and basis of uncertainty; substitutes for dropping uncertainties; buffering methods; the assignment of the buffers; the assessment of buffer range; and how to manage buffers. A few of these study matters have been faced inside the review of previous works summarized in present research. Chu and Hayya indicated that the outcomes from a few of the former studies were not convincing, they offered different and at times incompatible analysis and a few of the issues even now are unreciprocated. In addition, issues which might influence the buffering result have not been completely investigated. Their reassessment does not offer precise instructions in which to progress the study and attain the solutions to the issue brought forward, nor does it appraise earlier efforts for their restraining suppositions. It is imperative that these suppositions be completely scrutinized as they characteristically shift the study away from the actual crisis. Chu and Hayya accurately indicated that buffering choice in MRP is even now greatly disputed. Though, their conjecture that the usage of buffers can ultimately corrupt system performance is not sustained by current literature. They even categorized the buffering resolutions as contentious. Since large portion of the previous study has made use of diverse sets of suppositions, it is feasible to attain outcomes which appear to disagree with. Additional, in their review they have moved further than literature concentrated on MRP systems in requisites of buffering conclusions. Vigilance must be employed in this matter, as outcomes from other surroundings, e.g. independent demand, reorder point inventory systems, might not be openly appropriate or analogous in an MRP surrounding.

In a new research, Murthy and Ma (1991) inspected MRP with uncertainty and offered for few expansions. They initially characterized the kinds of uncertainty into environmental uncertainty and system uncertainty, and studied the effect of the uncertainty on the MRP system including the expenditure connotations. Even as this description offers for the foundations of uncertainty, in provisions of the effect on the system the fundamental uncertainties are only demand and supply quantity and timing. Four diverse techniques to transact with uncertainty were conversed in this research: safety stocks; safety lead times; hedging and overplanning; and yield factors. A reassessment of the literature was given with categorization laid on the basis of uncertainty and the process of scheduling with the uncertainty, and also the process of investigation made use. On the basis of literature survey conclusion was drawn in the research that no existing research transacted with MRP and all dissimilar kinds of uncertainty in an integrated behaviour. Many studies offered precise techniques to deal with explicit kinds of uncertainty, with a bulk of the literature concentrated on demand quantity uncertainty. One more inference in this research was that there yet exist unanswered issues, e.g. the position of safety stocks for a procedure with a moderately common product structure. The most favourable resolution techniques recommended in the literature have not been inspected for toughness; moreover, they are normally computationally intricate which directs to the necessity to build effectual heuristic techniques. At last, yet another surveillance conducted is that awfully little studies transacted with genuine cases. Murthy and Ma then investigated the context of MRP with uncertain quality, i.e. employment of the yield factor technique to transact with this kind of uncertainty.

3. Methodology

During the last ten years, many firms (especially those in industries characterised by multi-product, multi-stage production systems) have adopted production and inventory control systems that incorporate Material Requirements Planning (MRP) principles. They have done this because their previous systems of production and inventory control (typically order point, order quantity [Davis, 1975]) have been held responsible for a wide variety of problems, including late deliveries, excessive inventories and unsatisfactory productivity. Management has come to recognise that order point, order quantity systems are not able to address adequately the very high degree of product interaction and interdependence that often exists. In contrast, MRP's logic (which integrates top level manufacturing plans with detailed bills of material) explicitly recognises such interdependence.

Nonetheless, the changeover to MRP is not an easy task for most firms to manage. The failure rate for implementation has been set as high as 80-90 per cent (Brenzier, 1977 and Plossl, 1970). While the reasons for failure are not always clear-cut, it is true to say that MRP imposes much more stringent data integrity requirements than do order point, order quantity systems. Since MRP is a data dependent system, it requires up to date, accurate, and complete information on product structure, inventory levels, and the Master Production Schedule (MPS). Furthermore, as pointed out by Wight (1974), Orlicky (1975), Bevis (1976), Wacker and Hills (1977) and others, MRP implementation success depends upon its acceptance by everyone in the firm, from top management to the MRP user on the production floor. Finally, MRP requires reasonable estimates of manufacturing lead times. This last requirement of MRP has received relatively little attention in the MRP related literature, despite, as will be shown, playing a very important role in its operation.

When establishing lead lime values for use within the newly implemented MRP system, three questions arise:

(1) Can the performance of the MRP system be improved by adding "safety lead times" to the lead time forecasts?

(2) If safety lead time buffers do improve system performance, is the same direction and magnitude of buffer required at all levels?

(3) At what point in time can it be distinguish between a truly successful MRP implementation and a failure?

3.1 Safety Lead Time as an Approach to Lead Time Uncertainty

To address these questions, the role played by manufacturing lead time estimates within MRP systems must be understood. In an effectively designed (Q, s) system, the amount of goods on hand when an order is released (i.e. the re-order point) is equal to the total expected demand during the expected lead time, plus a safety stock based upon the amount of uncertainty in the forecasts of the lead time and the demand therein. In an MRP system, (or time-phased order point system as it was previously called), exactly the same relationship holds. In practice, however, most (Q, s) systems tend to deal exclusively with uncertainty in demand during lead times which are assumed to be known with certainty. MRP, on the other hand, by eliminating uncertainty in component level demand, allows one to focus exclusively upon lead time variability. Since timing is the only uncertain variable, the use of safety lead time is intuitively appealing. Many practitioners, however, are of the belief that dependent demand items should have no safety factor whatsoever:

''Putting in safety time really doesn't tell the system the truth...Priorities are distorted and by such cushions, work-in-process inventories are inflated and operating people soon learn that they have more time to get parts than the due dates indicate. The resulting 'credibility gap' can easily offset the benefits of having safety allowances."(Plossl and Wight, 1971)

"...if lead times are inflated, schedule increases can be accepted which require less than the cumulative product lead time. The major problem with using inflated lead times is that you do not know how many increases can be accepted until the 'pad' runs out."(Huge E.C, 1978)

Nonetheless, using a simulation model "for a representative part in an MRP system", but treating job completion times as exogenous random variables, Whybark and Williams(1976) were able to show that the use of safety lead times improved service levels, and did so with lower inventory investment than did safety stock.

Even if the need for safety lead time is accepted, however, there is not sufficient information available for the practitioner indicating how these lead times should be implemented. Guidelines are needed on how to decide at which levels in the bills of material these time buffers should be placed, and on how their size will affect a system's performance.

3.1.1 Impact of Lead Time Error

MRP starts with the need date at the end item (MPS) level and uses the lead times to determine the latest start date for each component part. Clearly, this time-phasing does not make direct use of the actual lead time values (which are unknown at the time), but of their estimates. Therefore, any deviation between estimated and actual lead times will affect the operation of the MRP system.

In the absence of the decoupling buffers of the {Q,s) system, the ability of MRP to meet deadlines is dependent upon the accuracy of the lead time estimates used, and the direction of estimate error. Under conditions where the estimate understates the actual value, the MPS becomes infeasible. If, on the other hand, the estimate exceeds the actual value, the result is an increase in work-in-progress inventory investment, and (if the shop is near capacity) in the actual lead times through increased queuing.

3.1.2 Lead Time Forecasting versus Lead Time Management

The task of setting lead time estimates is complicated by the fact that it must deal with and estimate both manufacturing and vendor lead times. Manufacturing lead times, which are the focus of this study, can be defined as the elapsed time between the release of an order to production and its receipt into stock. Similarly, vendor lead time can be defined as the elapsed time between when an order is placed with an outside vendor, and when it is received. These two lead times, however, are very different entities. While both types of lead time exhibit similar characteristics, they are differentiated by the amount of control which the firm can effectively exercise over their duration. In principle, since manufacturing lead times are determined internally (that is, within the firm's production process), the firm should be able to exercise considerably greater control over these lead times. It must be admitted, however, that production and inventory control practitioners often experience difficulty in convincing plant management of this fact. Thus, two distinct options are available:

(1) Treat manufacturing lead times as probabilistic;


(2) Emphasise the management of manufacturing lead times.

Under the first alternative, lead time is treated as an uncontrolled variable. That is, lead time estimation is addressed as a forecasting problem, and the emphasis is placed upon minimising the impact of forecast error. Under the second option, lead time is still estimated, but the step is not emphasised. Instead, intervention in the operation of the production system (through expediting, for example) is used to make the actual lead time values correspond with the estimates. This study, by focusing on the application of the first option, seeks to ascertain whether improved lead time estimates are sufficient in themselves, or whether the successful implementation of MRP requires that lead time management also be emphasised.

3.1.3 Estimating Manufacturing Lead Times

The task of providing the newly implemented MRP system with reasonable estimates of manufacturing lead times is complicated by the following fact: historic data from the (Q, s) systems are not representative. Data validity is a relevant concern during the implementation phase because, irrespective of the estimation technique chosen, the estimates used in the MRP system will be based upon observations gathered during the operation of the (Q,s) system. Yet, the (Q, s) system and MRP represent two very different approaches to the task of inventory management. There is no guarantee that the data on manufacturing lead times gathered during the operation of the (Q, s) system will be applicable to the operation of the MRP system.

In estimating manufacturing lead time, the decision-maker can apply a variety of estimation techniques. These procedures range from relatively simple procedures, such as the use of the past observed mean lead time, to more sophisticated techniques that attempt to improve estimated accuracy by including the impact of such factors as the production quantity or the number of operations. This study will use the past observed mean lead times, modified by the inclusion of varying levels of safety lead time, in deriving the manufacturing lead time estimates. Thus:

Estimate = Forecast Lead Time + Safety Lead Time

= Mean Lead Time + K * Forecast Standard Error

Where K is the safety factor

This technique was chosen because it can be used to represent a wide range of industrial estimation practices. For example, "optimistic posting", which is based upon the belief that existing lead times are too high, can be applied by setting K= - 1. ''Pessimistic posting" can also be obtained by setting K = 2, 3, or higher. In addition, it provides a means of systematically generating a variety of lead time values in order to provide insight into the previously mentioned controversy surrounding the role of safety lead time.

3.2 Major Problems of MRP

MRP is a software computerized information system for negotiating dependent-demand stock-take and planning stock replenishment orders (Krajewski and Ritzman, 1993). The basic theme of MRP is to acquire the correct part, in the right measure, and at the required time. The first most important problem of MRP is the necessity to preset planned lead time. Planned lead time symbolizes the quantity of time approved for orders to stream through the production resource. It plays a major role in the phasing theory of MRP, i.e. the planned order receipt date is counterbalanced by the planned lead time to ascertain the planned order discharge date. However there are two most imperative questions which have a very considerable impact on the performance of MRP, they are (1) how should one indentify the planned lead time? (2) What are the benefits of setting a loose or firm planned lead time?

The first question is especially complex. In general, lead time is self-possessed of processing time, setup time, waiting time in line up and a positive preset idle time, such as time essential to cool down a component. With the exemption of the preset idle time, the other parts are extremely tough to pre-determine. The setup time principally relies on the processing string of jobs, whereas the processing time principally relies on the dimension of the batch. More significantly, the waiting time in line is predominantly complicated to assess, because most orders expend flow times largely in queues. Plossl and Huge identified that the awaiting time in string can symbolize as more as 90 to 95% of the lead time. Therefore, lead time is mostly identified by how extensive it takes to attain the desired quantity, in other words, the obstruction level of the shop. Hence, setting best possible designed lead times for MRP is not an easy task.

A great deal of research has been conducted to investigate the lead time difficulty (Huge; Kanet; Kanet; Kanet; Melnyk; Melnyk and St.) There are three primary strategies accessible to identify the planned lead time in MRP, which are, constant (CON), number of operations (NOP) and total work (TWK). The CON principle utilizes the same planned lead time for any work, whereas the TWK and NOP principles set the total processing time needed for the work and the forecasted lead time as a linear operation of the NOP, respectively. A recreation research (Conway, Maxwell and Miller, 1967) revealed that NOP and TWK executed better than CON in means of tidy-oriented criterion; the same outcome was afterwards completed by other recreation studies (Baker and Bertrand, 1981). Even though these are a few primarily good strategies of designing lead time, nevertheless, it stays a serious difficulty in MRP. As identified in Kanet (1986), But total control (of lead time) is of no use - indeed it can be dangerous - without a corresponding measure of understanding.

Because it is extremely difficult to forecast the lead time exactly, the second question questions whether a company should set a comparatively loose or stiff lead time. If the lead time is very stiff, the MRP system may swiftly rupture, and the unofficial planning and scheduling system presumes control. The outcome is a lot of past-due orders and accelerating. On the other side, if the outstanding date is very loose, this may provide as a pattern of self-fulfilling prediction; therefore a lengthy lead time may truly happen. Karmarker (1989) revealed that an exaggerated lead time promotes deprived performance. St. John (1985) examined the value of depleted planned lead times for the multi-product, multi-stage surroundings, where Material Requirement Planning system was engaged. He identified that the total costs were considerably higher when the designed lead time was set to be extensive. Hence, any divergence of the planned lead time from the genuine lead time can cause objectionable effects.

The second prime issue in MRP transacts with the question: how to determine the order magnitude? This is basically called the lot-sizing assessment. The lot-sizing subject has engrossed a considerable amount of research. For the uncapacitated issue, Harris (1915) constructs the renowned EOQ based on the standardized demand supposition. Wagner and Whitin (1958) initiated an energetic programming method to deal with the time varying demand issue. Silver and Meal (1973) put forward a heuristic that seeks to reduce the standard cost of haulage and holding. Other well-known heuristics are; lot for lot (LFL), period order quantity (POQ), part period algorithm (PPA) (DeMattais, 1968), part period balancing (PPB), least unit cost (LUC), least total cost (LTC), fixed order quantity (FOQ) and fixed period quantity (FPQ).

Even though there are more complex lot sizing procedures, the average MRP system presents about three or four procedures from which the user could select from. The most ordinary procedures are LFL, FOQ, FPQ, and POQ (Haddock and Hubicki, 1989). This is since the more practical difficulties, such as capacity constrained issue have been exposed to be NP-hard (Bahl, Ritzman and Gupta, 1987). Therefore, MRP systems generally choose the easier sub-optimal methods.

The third important issue of MRP is that it does not generate a practicable agenda for the shop-floor. The planned order discharge and the planned order receipt purely stipulate the begin date and end date of an order. Therefore, MRP cannot identify the actual time period and workplace for processing every function. When a work is discharged to the shop-floor, there is no assurance that the work would be completed after the planned lead time has expired. This is since there is no quantity placed aside for the work either in-house or from external suppliers. Relying on how hectic the shop-floor is, the work may complete earlier or later than the planned order receipt date. Hence, it is a very rough tool to manage the shop-floor forecast and to make sure that the due date intentions are met.

Capacity planning is the last principal problem MRP has. When MRP is engaged to execute CRP (capacity requirement planning), it presumes that the resource capacity (equipment time) is used at the phase that a work is discharged or at the intermediate period between planned order discharge and planned order receipt dates (Chase and Vollmann). The randomness is because of the reality that MRP only stipulates the work release and finish dates. However, the genuine processing of a work's operation may remain for more than a period, or it essentially starts in a later period and remains for more than a period. Hence, the true situation is not reflected precisely by the capacity planning of MRP.

3.3 Implementation Tasks

The following is a list of implementation tasks in the project:

Assessment of user technical requirements - In this task it is made sure that the installation of the application is correct and the resources (computer, user account, role etc.) are available to every user so that they can perform the task that they are asked to. Also the Microsoft SQL server is installed first before installing the 123mrp.NET software.

Review Settings - The settings are reviewed before beginning. The company name, address and logo are set up for inclusion on the different documents that the system geenrates. Also all the background tables like currency codes, nominal codes etc. are setup. Most significant parameter decisions which will alter the way the system operates (for example with regard to traceability) also needs to be done in this section. By comletely understanding the consequences, these parameters are set.

Documentation review and change if necessary - A full set of ready to use sales, purchase and shop floor documents are present in the 123mrp.NET software. These documents are checked and accessed only if they are needed.

Capacities and Resources - The valid resources that products travel through is defined before laying down the routes. For example, operation 10 is 30 minutes of inspection, operation 20 is 10 minutes of assembly, then set up of inspection and assembly is needed.

Set up of main data - Stock details, Bill of Materials, routes, suppliers, customers and stock balances have to be imported from an existing system. This is often the biggest task and challenge that will be faced in the implementation.

Review of costs and financial issues - This portion is often overlooked and hence is included in the plan - if there is no contribution particularly from the department of finance on the project team. If moving from an old to a new system, however, certain financial statements are likely to be that are part of lifeblood of the firm that must not be lost. The Work In Progress and the stock figures at the end of the first month will have to be in the ballpark of the last set of figures from the old system. A thorough understanding of how the software handles costing is needed and planning is essential as to how costing information is taken.

MRP using 123mrp.NET Software

123mrp.NET software from Rent-IT Systems UK Limited is the software used for conducting the MRP run in this report. It offers a one of a kind approach to selecting and implementing a production management system. The time-consuming complexities, uncertainties, business disruption and risk normally associated with this are eliminated. A wide variety of businesses have successfully employed 123mrp.NET and it is suitable for most types of manufacturing. It provides the best system available today, and also the defence of a very fast growing and successful company committed to implementing its development resources to make sure that it continues to be the best.

Some of the other softwares available in the market for MRP are:

Epicor Vantage


Microsoft Business Solutions - Navision


VISUAL Enterprise's Material Requirements Planning

4.1 Introduction to test company - RAK COMPUTERS Co. Ltd.

It is assumed for the purpose of the project that MRP is being implemented for the company RAK COMPUTERS Co Ltd. Rak Computers buy in components from around the world and assemble PC's. They also manufacture electronic hardware items such as USB Mouse, iPod, plasma screen etc.

The basic model - the PC/1000, simply consists of a few components which are purchased from various suppliers and then assembled, tested and packed. A bill of materials and a routing for this product is made.

4.2 Prerequisites of MRP

4.2.1 Perspective

In order for present-day MRP systems to run efficiently, five data prerequisites must be met:

A time-phased master production schedule (MPS) expressing how many of each end item is to be generated, and when

A bill of material (BoM) for each MPS item and for each parent item (any item having one or more parts) at lower BoM levels which MRP is to plan

A particular number for each MPS item and all parents and components in BOM

Files of inventory data for all stocked items

Lead times for every procured and manufactured item

These so called must have data are imperative. Also, MRP needs assistance from other subsystems, including:

Customer order processing

Process information

Inventory transaction handling

Open purchase order tracking

Open manufacturing order tracking

Production reporting

The only language MRP identifies is numbers and letters: MPS items, inventoried items, ordered items, quantities in stock and on order, lead times, and other numerical and alphabetical data. MRP cannot work in English-language product descriptions, sales catalog model numbers, or ambiguous numbers that fail to identify precisely the items to which they apply. (Plossl and Orlicky, 1995, pg. 38,39)

4.2.2 Part Numbers

Every single inventory component must be assigned a part number. The intention of the number is merely to provide a sole name for every individual, just as people have different names. Parts with any variance in shape, fit , or operation should have separate numbers since they cannot be interchanged. Standard numbers must have the least digits, be only numerals (or alphabetic characters), and be allocated sequentially as new parts are initiated.

Most of them get detained, hugely confusing the difficulty of maintaining precise records, by working more with part numbers than assigning each an identity. Digits at each level are given prominence, examining some features such as shape, component, or product group. This extends the number, reduces its positive life, and enhances the possibility of people committing errors penning it or loading it onto computer-based systems. Important - digit numbers are a delay from process of punched card data, when the number of columns accessible for item data was restricted.

Proponents of important numerals reason that data processing paraphernalia handles lenghty numbers at nugatory cost. They neglect the job of adding extra new numbers (characteristics change very often than shape, fit, or function), setting right more errors, and wanting even lenghty numbers (one digit can manage only ten varieties of a feature). They also neglect that computers can retrieve subsidiary files of code numbers for expressive data without wanting these codes in part numbers. (Plossl and Orlicky, 1995, pg. 39)

For the purposes of implementation, the basic pentium PC will be given the part number PC/1000, and its components Base Unit, Kayboard, Mouse and Hard Drive will be given part numbers BU/1000, KB/1000, MS/1000 and HD/1000 respectively.

4.2.3 Bills of Material

Every single item in the MPS must posses a sole identifying number and be related with a bill of material defining its components to be planned and managed by MRP. Bills of Material recognise the parts needed to manufacture parent items. A parent can be either a simple part produced from raw materials or a complicated one being assembled from many different components.

Computer systems utilizing Bill of Material processing software generally supplied in computer manufacturers' and good commercial software, can store product structure data. These make use of computer storage effectively, skip dupication of data, and generate quick retrieval for assembly by the system of BoM in different patterns as expected by different users. BoMs can be viewed by taking a print out or by displaying on CRT screens as intended.

Regrettably, in practise, some parent items may have as more as five different bills of material:

A design parts list - Merely listing the component items, this BoM is the final step in engineering phase of design. It is the engineers' method of expressing the rest of the firm how many of which components constitute a product. Parts record may explain how engineering imagines the parent should be put collectively, but this is generally not the design engineers' role. Engineering stipulations come with BoM and hold other information essential to generate, investigate, and test complete, functioning products. Parts list frequently do not comprise packaging materials and generally leave out items like glue, grease, and paint for which it is tough to stipulate a quantity essential.

A manufacturing BoM - In addition to listing all items of a product, BoM should be designed to show production staff how to locate them jointly. Production may need subassemblies for appropriate welding or simplicity of assembly. Half-finished parts (unpainted, not plated, incomplete machining) may lower complication and enhance planning and manufacturing flexibility. Sales of field replacement spare parts may be assemblies done only for this intention. Engineering generally has no curiosity in these needs.

A material planning BoM - growth of valid, pragmatic MPS for goods that offer numerous options to customers need very dissimilar BoM from those given out by engineering and those essential by production. Material planning for numerous varieties of the identical basic product, for tooling and similar linked materials, and for make-to-order products prepared from a few standard subassemblies necessitate specifically structured BoM.

A cost-accounting BoM - frequently simplified by means of one part number for numerous painted or plated parts and for erstwhile components with deviation not upsetting costs or inventory assessment.

A BoM explaning the definite item prepared, which for numerous reasons is diverse from all other BoM for the item.

There is only one justifiable motive why manufacturing BoM must vary from the means products are essentially developed: last-minute plan changes provided by engineering as they were being developed were not yet selected up in computer files. arduous efforts must be made to maintain such time postponement to a bare minimum.

BoM showing products actually made are often different from planning BoM. This can be caused by legitimate differences; what was designed was not what was developed. Very often, however, the motive these BoM types are dissimilar is deficiency of data precision in the official files. Every group using BoM endeavour to keep its own; inexorably differences sneak in.

The five varieties of BoM are all essential. This doesn't imply that five different BoM computer files are essential; bill-of-material processor programs can code the essential data to connect components and generate BoM for every precise reason.

The phrase bill of material is used interchangeably for that covering a individual parent and its parts, called a single-level BoM, for more compound multilevel BoM having various levels, and for the whole bill-of-material computer file. (Plossl and Orlicky, 1995, pp. 40-41)

The BoM for the basic pentium PC/1000 can be seen as shown by 123mrp.NET software. A routing is a list of stages (typically called operations) which must be completed to build the product. In the above BoM, the routing consists of 3 operations - assembly, testing and packing. Each operation is assigned a standard (target) time and possibly some narrative which explains to the operators what they are required to do.

4.2.4 Engineering Change Control

The innermost task BoM perform in MRP programs makes it indispensable that engineering alteration be handled accurately. Such alteration are initiated into BoM by effectivity dates entered into BoM procedure file data for single items affected, mutually with indication to the engineering alteration numbers initiating them. Changes descend into two wide categories:

Mandatory. These consequence from product operational failures, prospective harm or damage to users, unavailability of resources, and new government laws or convention, and should be implemented instantaneously, perchance even recalling commodities in customers' hands. Costs and in-house problems are immaterial.

Optional. These comprise the huge size of changes consequential from competitors' innovations, innovative materials and procedures, cost diminution, and convalescing operations. Timing is frequently specified as soon as possible, When current material gone, Minimim cost, On X date, or With Y serial number.

Four aspects make controlling engineering changes complicated:

Design engineering works with and conveys data through parts lists that have been customized by others for their purpose.

The period of introducing alteration into planning BoM is important, and many factors deserve contemplation.

The absolute degree of changes can be daunting.

The impact on all BoM levels can be tricky to map out.

Engineering parts lists generally do not hold all items essential by others using product structure data. As a result, all effects of engineering changes are not perceptible to design people. Establishing the precise items enclosed by changes is not at all times simple in restructured BoM. Engineers habitually are unwilling to issue new part numbers if they perceive that shape, fit, and function are unaffected and parts will be exchangeable but active numbers may not supply the sole part numbers that MRP wants to operate.

MRP employs BoM as a scaffold for planning and replanning; the timing of changes influences the ways it manages requirements, netting, and order forecast. Factors to be considered comprise

Competitive advantages

Legal liability

Cost benefits

Inventories of current materials

Availability of new materials Service part needs

Tooling and other equipment

Effects on machine and equipment capacity

Cutomer order groupings and similarities

Service part needs

Documentation (parts lists, instruction manuals)

Tight management of engineering changes requires:

Clear assignment of responsibility for BoM accuracy. This is regularly given to one group, frequently called Data Management, who synchronize the effort of all groups concerned and create final conclusion on BoM data veracity. They also review BoM files to spot errors and recognize causes.

Easy accessibility of BoM files. Used by virtually everybody in manufacturing businesses, BoM data should be accessible easily and swiftly. BoM processor programs manage requests, but computers should be running when necessary and open for investigation.

Clear audit trails, called configuration control, to trace the history of BoM from first introduction to final obsolescence. Defense and aerospace companies, and those dealing with food, medicines, and radioactive materials, have officially permitted and contractual responsibility for these. The prospect of breaching governmental convention and sustaining large penalties for injury or death is making many companies uphold these audit trails. (Plossl and Orlicky, 1995, pp. 47,48)

4.2.5 Master Production Schedules

This is one of the most imperative sets of information in manufacturing planning and control. MPS are managements' handle on the business by which they sanction all activities of their people concerned in manufacturing products and serving clients. MPS are planning devices, statements of what can and must be made, ways of balancing customers' wants in opposition to plant capabilities, and foundations for coordinating all business groups and gauging their performance. They are not execution tools, sales forecasts, customers' orders, or final assembly schedules.

Do all manufacturing firms and plants have MPS? If they are explained as on the whole plans of production, it would be complicated to envisage of a plant functioning without them. Some manufacturing managers declare that they do not possess master production schedules; they actually mean that their on the whole plan of production is not spoken in one official set of numbers. In every manufaturing function, the sum total of what a plant is dedicated to generate at any point in occasion is correspondent to MPS totals. For MRP, the construction and safeguarding of formal MPS are prerequisites.

MPS must not be misunderstood with forecasts. These symbolize approximation of demand from external resource, while MPS contain plans of in-house production. These are not essentially the alike; goods are frequently prepared at different times and in diverse quantities from those required by clients. A obvious difference exists between developing schedules and setting up forecasts of manufacture, in spite of the fact that in some cases the two may be indistinguishable in content. Forecasting endeavours to predict when products will leave inventory; ultimate assembly scheduling, assisted by MPS, plans when they will enter.

MPS are declarations of how many explicit products will be generated and when they will be completed. Items in MPS are end items, explained as top-level entities not a component of any parent in BoM accessed by MRP for exploding necessities. Finished items may be products, major assemblies, planning element, groups of components enclosed by pseudobills, or even individual parts used at the uppermost stage in the product structure or subject to demand from resource exterior to the plant.

Forecasts of all exterior demands are precisely part of MPS but may not be scheduled in the official MPS files; a few for components are entered as gross requirements in their inventory accounts. Genuine orders are inputs to the execution stage and must not be entered into MPS.

The MPS design normally is a matrix which lists end items vertically and quantities of all horizontally in periods. Figure-8 is characteristic of MPS for families of end items possessing numerous models. The significance of the quantities in relation to the timing indicated is preset by users' convention. They may signify end item accessibility, the beginning of end-item manufacture, or end-item components accessibility. Relying on which is approved, the interface between the master production schedule and the MRP system will differ. (Plossl and Orlicky, 1995, pp. 49)

52 Weeks

Item A


























































Fig-8: Typical MPS format

(Source: George W. Plossl and Orlicky, 1995)

Time periods of MPS should be indistinguishable to those of MRP; characteristically they are one-week periods. Sales forecasts and production plans accessed by management and marketing, nonetheless, are produced and quoted in months or quarters, frequently for nonspecific models. These data should be converted into weekly statistics for explicit end-item numbers. (Plossl and Orlicky, 1995, pp. 49)

4.2.6 Data Integrity

A prerequisite for effectual function of MRP programs is a elevated level of file data integrity. File data should be accurate, absolute, and up-to-date, if MRP is to attain its complete potential. MRP can operate with defective data and produce some valuable outputs; there are good causes (debug programs, train people, measure benefits, and cope with a crisis) to begin applying MRP prior to all records are as precise as looked-for. If this is completed, however, top precedence should be given to identifying and presetting the causes of mistakes speedily before the MRP's trustworthiness is ruined.

The necessity of file data integrity may appear self-evident. To be effectual, planning systems should offer convincing data; mistakes destroy credibility. Order point procedures do not use MPS and BoM, and the impacts of errors in inventory data are decreased by safety stock cushions; their users become submissive to approval of the need for accelerating.

Order point operates simply as an order-launching system, a push system that should be harmonized by an expediting pull system in order that it would at least function. Subsequent to orders being initiated, order points provide no function; they cannot be planned again. The exact need dates for orders at succeeding operations, in stock rooms, or at assembly lines should then be identified by the informal system by means of shortages or other precedences.

An MRP program is proficient of rendering both push and pull functions; there is no necessity for the unofficial system if the data it uses are correct. Integrity of MPS, BoM, and inventory files in specific is imperative to MRP. The scrupulous preservation of these files calls for committed, exceptional hard work by system users-something straightforward to recognize, but extremely tricky to obtain.

Ordinary suppositions about data integrity were verified erroneous many years ago. It is not pricey, it is not prolonged, and it is not impracticable to obtain precise records. It does need understanding the major objective, not to locate and fix errors, but to find and eliminate the causes of erros. This requires a synchronized attack by all those handling data, everyone assuming responsibility for the value of data handled. (Plossl and Orlicky, 1995, pg. 51)

4.2.7 MRP Assumptions

Numerous assumptions, some unambiguous and some inherent, are prepared in MRP - based planning and control programs:

Each inventory item travels into and out of stock.

All components of an assembly are essential at the time an assembly order is released.

Components are disbursed and used in discrete lots.

Each manufactured piece can be processed autonomously of any other.

MRP presumes that each inventory piece under its rule passes into and out of stock, and that reportable receipts are present, subsequent to which the item will be (yet if only for a moment) on-hand. Afterwards it will be given out to some customer - either a manufacturing operation, storehouse, or outside customer. This commands the requirement for keeping track and recording the flow (physically or figuratively) of parts into and out of stockroom.

Standard MRP concept presumes that all items of an assembly should be accessible at the time an order for that assembly is to be released to the manufacturing works. This is the time allied with each component's gross necessities. It is supposed also that unit assembly lead time (the time necessary to manufacture one unit of the assembly) is comparatively small and that all parts are essential simultaneously. For many assemblies, this supposition is factual.

In cases of major exceptions to this regulation, where it might take quite a few weeks to assemble a unit and high-priced components are essential consecutively over this phase, standard MRP process can be customized by setting up sub-BoM combination of components essential early and those required later throughout assembly.

One more supposition beneath material requirments planning is discrete disbursement and useage of components. For instance, if 50 units of a component are necessary for a specified job or assembly order, MRP anticipates that precisely 50 units will be distributed and used. Bar stock, continuous sheets or coils, or large liquid containers are more often than not issued in unit capacities, frequently larger than required; this requires that standard MRP programs be customized to manage such inventory items appropriately.

The difficulty is identifying that surplus material issued is still accessible for employing in other orders but is no longer in the regular stock area. One explanation is to have the program compute the excess of issued over necessary quantity and to adjoin this to a field in the item's inventory documentation called surplus issue, which is reassured first when later orders calling for it are dispensed. For standard future requirements planning, the sum of this and the on-hand total are added. This to a great extent makes difficult cycle counting to authenticate inventory record accurateness, obviously. (Plossl and Orlicky, 1995, pg 52)

4.3 MRP Run

It can be seen that the on-hand quantity is 20 and the due-out quantity is 25. After the MRP software is run, it has suggested to make 5 PC/1000's. Because the customer General Engineering (GEN001) has ordered 25 on sales order SO/1505 line 001. MRP has checked the stock, seen that there are 20 and therefore suggested to make the shortfall of five.

Rakesh Venkatraman

3/08/2008 06:40:14

With the purchase action tab as shown above, firstly, MRP is driven by the fact that we need to build 5 x PC/1000's. That will require 5 off of each of the above. However MRP has suggested ordering 10 x BU/1000, HD/1000 and KB/1000 and suggested ordering 100 MS/1000, since the minimum stock level of BU/1000, HD/1000 and KB/1000 respectively are 5 each; and the minimum stock level of MS/1000 is 100, it has seen that there are only 5 MS/1000's in stock.

4.3 How does MRP establish its dates?

MRP will always work backwards from the customer due date and tell you when items are needed.

25th April 2008

18th April 2008

11th April 2008

28th March 2008

4th April 2008

Transit days

Intake buffer

Backward schedule

Lead time

In this example, the customer wants his goods on Friday 29th April.

Firstly, MRP will check the transit days on the customer record. Remember, this is the number of days it takes to physically transport the goods - the difference between when your customer wants them and the ex-works date. In this case transit days are set to 3, so MRP will schedule the works order to be completed on 26thApril.

Next MRP will backward schedule through the routing, going backwards through the various operations which this works order will pass through. By knowing the times (from the route) and the capacity available at each resource (from the calendars and the resource information), MRP can work out when each operation should start, so from this concludes the start date of the works order.

Now MRP knows when the works order is required to start it can schedule the components. Firstly it will check for any intake buffer days on each component. This is the number of days you set to represent the time between you receiving the component from your supplier and it becoming available to issue to a works order. This caters for unpacking, inspection and testing of incoming components.

Now that MRP knows when each component must arrive, it can apply the lead time to ascertain the drop-dead date for ordering the component.

5. Conclusion and Recommendations

Material Requirement Planning has been a working tool of manufacturing planning and control for nearly three decades. Throughout this time it has been a varied blessing. A few users have had exceptional outcomes, some have experienced tragedies, and a lot of them have identified MRP not good enough to use but bad enough to throw away. In spite of such spotty performance, many profound changes have taken place:

Early, extensive appliance of computers ended information-processing restraint on stable planning and control.

Expansion of time-phased material requirement planning, together a conception and a commanding gizmo, reinstated crude, fruitless processes of inventory planning.

Awareness of planning and control developed tremendously.

Strict planning and control systems were consturcted that can operate successfully in manufacturing without the support of relaxed expediting systems.

Accurate professional methods substituted traditional concepts of brute power and unawareness.

The circle between end-item master production schedules and component schedules was blocked.

Misconceptions of manufacturing logistics were made clear.

Management consciousness of the significance and practicability of stable production and inventory control augmented to a great extent.

Computer professionals and other visionaries envisaged for a lengthy time a practically ideal, thorough plan of material supply and manufacturing for any firm. MRP brought such visualizations close to authenticity, but endured from deprived results. Visionaries accused people needing changes, considering all would be fine if only everybody would hold motionless until the plan may possibly be accomplished.

The true world was unsuccessful to collaborate with such idealists. Yet prior to planning being finished, administration altered master schedules, engineers altered product designs, sales transformed forecasts, industrial engineers transformed manufacturing processes, and clients transformed their mentality on what they required. Dreadful, when work in fact started, Murphy's Law ruled operations; what might go erroneous did go erroneous, at the slightest appropriate time.

Nobody could prevent the modifications but visionaries still expected, thinking that the difficulty was not deprived planning but deficeincy of superior replanning. MRP supplied this potential also, and a lot supposed that all would be well if only it were accessed in place of hot lists. Total change enhanced restoration and several attempted real-time, on-line total modification. Replanning at the pace modifications were being done was impracticable, nevertheless, and no planning device, yet one as commanding as MRP, could deal with disarray in manufacturing. Plans were yet unacceptable, and people could not be supposed accountable for their implementation. Precedent knowledge confirms that aspiration for steadiness or relying on replanning are mutually fake insights. Manufacturing is intrinsically unbalanced and tumultuous. Transformation is the name of the game and will augment. Victory exists neither in strengthening and immobilising plants nor in replanning at unsighted pace but in eradicating superfluous changes (caused by deficiency of contacts and nuisance that can be resolved), therefore alleviating the firm's capacity to understand expected changes, react punctually and rightly, and do it habitually. Roughly all plant manufacture and data management difficulties can and have to be resolved. To the revelation of numerous people, revelations by clients varying orders can be to a great extent condensed through improved interactions.

Other misleading notions caused planning disappointment:

Systems resolve existing troubles. They don't; they just add new ones.

High-priced systems procure the path out of difficulty. They won't; functioning out of difficulty is the only means.

Systems decrease the necessity for expert people. They don't; teaching in new perceptive and skills is imperative.

Complicated systems will satisfy all wants. They probably won't; good specifications should be generated initially.

Just perform what the system reveals. And be unsuccessful at unsighted pace. Human judgement should conform plans to certainty.

It is now apparent what measures should be taken to execute an effective planning and control system:

Describe the interior and subsystems essential to satisfy the requirements of the business.

Recognize the essentials significant to strict control, and make certain these are put into practice quickly and fine.

Design the database required by the system and cleanse mistakes from active data.

Connect interior and subsystems in an electronic network.

Set up efficiency assessments with firm tolerances for all key actions.

The future will fetch auxiliary enrichment in firms' capability to answer appropriately to change. These will engage prolonged use of computer-based programs networked into integrated systems connecting dealers, producers, distributors, and clients. Such networks before now are in use fruitfully by key vendors; comparable ones will facilitate manufacturing companies a great deal.

Bands of individuals from numerous functions, not person all-stars, will tackle difficulties and expand enhancements incessantly. Every one should be well-informed to the undeniable need for abolition of waste of all types, pacing up and softening out movement of equipments and information, and initiating superior elasticity to manage change. Official systems can dislodge unofficial and be immensely extra efficient in serving to function manufacturing the path it ought to be run.


Books and Journals

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