Material Requirement Planning

• This is the most comprehensive approach to

manufacturing inventory and other dependents which
demand an efficient inventory management system.

• The MRP system determines item – by – item, what is to

be processes and when, as what is to be manufactured
when.

• This is based on order priorities and available capacities.

Material Requirement Planning
• Material requirement is a special technique to
plan the requirements of materials for
production, for the manufacturing company to
produce the end items to meet demand the
availability of sufficient production capacity
must be coordinated with the availability of all
raw– materials and purchase items from which
the end items are to be produced.
 what is Dependent Demand
• Dependent Demand: Dependent Demand
means part, raw material that are used to
prepare the end products .
• To know about the end parts which in
other word means dependent demand ,
so to known about the dependent
demand we have to do material planning .
Material Requirement Planning
• Basically material requirement planning is a
plan to know the requirement of material
for the production
• In corporate sector it is very important to
ensure availability of raw materials
according to the demand of the market or
demand of the consumer on the basis of
that we order the raw- material
 When to use MRP
• Job Shop Production
• Complex products
• Assemble to order enviourmients
• Discrete and Dependent Demand items
 What can MRP do
• Reduce inventory Levels
• Reduce Component Shortages
• Improves shipping Performance
• Improve Customer Service.
• Improve Productivity
• Simplified and Accurate Scheduling
 What can MRP do
• Improve communication
• Improve plant Efficiency
• Reduce Freight Cost .
• Improve Competitive Position.
• Improve Calculation of Material
Requirements.
 What can MRP do
• Identifying Requirements.
• Running MRP- Creating the Suggestions.
• Firming the suggestions.
 Identify the Requirements
• Quantity on Hand
• Quantity on Open Purchase Order
• Quantity in / or Planned for
Manufacturing
• Quantity committed to Existing Orders.
• Quantity Forecasted.
 Identify the Requirements
• Quantity on Hand
• Quantity on Open Purchase Order
• Quantity in / or Planned for
Manufacturing
• Quantity committed to Existing Orders.
• Quantity Forecasted.
 Objectives of MRP
• Material Requirement Planning has two major
objectives
• To determined requirement and keep priorities
current

• Determine Requirement: in this we see that right

material, right quantity is available at the right time
in that way so that demand of the product meet .
 Objectives of MRP
• One of the main objectives of the material
requirement is that to determine what
components are needed to meet the
master production based on the lead
times.
• Important point: MRP is a priority plan for
the components needed to make products
in the MPS
 Bill of Material
A bill of materials (BOM) is a comprehensive
inventory of the raw materials, assemblies,
subassemblies, parts and components, as well as the
quantities of each, needed to manufacture a product.
In a nutshell, it is the complete list of all the items
that are required to build a product. A BOM is
sometimes also referred to as a product structure,
assembly component list or production recipe (in
process manufacturing industries).
 Bill of Material
• Take, for example, a bicycle manufacturer
that wants to build 1,000 bicycles. A bill of
materials for a bicycle will include all the
parts that make up the bicycle such as
seats, frames, brakes, handlebars, wheels,
tires, chains, pedals and cranksets,
including the quantities required of each
component and their cost.
 Bill of Material
Types of bills of materials
There are three main types of BOMs to be aware of:
Manufacturing bill of materials. A manufacturing BOM (MBOM) includes
a structured list of all the items or subassemblies required to make a
manufactured, shippable finished product. An MBOM, in addition to the
information on individual parts, also includes information on the parts
that require processing prior to assembly and explains how various
components relate to one another in a product. The information in the
MBOM is then shared with all the integrated business systems involved in
ordering and building the product, including enterprise resource planning
(ERP), material requirements planning (MRP) and, in some cases, a
manufacturing execution system (MES).
 Bill of Material
Engineering bill of materials. An engineering BOM
(EBOM) defines assemblies or parts as designed by the
engineering department. Showing the component
structure from a functional perspective, an EBOM, for
example, will consist of a mechanical or technical drawing
of a product. An EBOM is typically developed by engineers
using computer-aided design (CAD) or electronic design
automation (EDA) tools, and it is common to have more
than one EBOM for a product as the design undergoes a
series of revisions.
 Bill of Material
Sales bill of materials. A sales BOM (SBOM) defines a product
in the sales stage, meaning details of the product prior to
assembly. In an SBOM, the list of finished products and the
components required to develop it appear separately in the
sales order document. Here, the finished product is managed
as a sales item instead of an inventory item.
It's important to note that each type of BOM will involve a
different structure and level of detail. For example, an EBOM
may list parts related to a specific function of the product,
such as chips for a circuit board. An MBOM, by definition, lists
every material that goes into manufacturing a product.
 Importance of Bill of Material
• Customized Shopping List
You can often refer to the Bill of Materials as
‘recipes’ or ‘shopping lists,’ as they detail all
the raw materials and quantities required. An
accurate BoMt simplifies the procurement of
components. You can scale production jobs
up or down as per budgets.
 Importance of Bill of Material
Never Run out of Materials
Organized material requirements planning
inventories and accurate quantities ensure that you
never run out of materials again. BoM and a robust
inventory software solution that includes a
manufacturing module helps you to set reminders
when stock is running low. Some inventory software
will even auto generate a PO to a supplier when
component levels drop to a specified quantity.
 Importance of Bill of Material
Better Planning
BoM provides you with a comprehensive list
of what is needed to complete a project. It
provides you with all the data required to
map out how long a project will take and the
number of people involved.
 Importance of Bill of Material
Better Costing
Better planning provides your business with more accurate
knowledge about how much time a task may take. It
allows your sales team to cost up jobs and orders more
efficiently and provides an accurate view of COGs
increasing your control over profit margins for your
company. It’s always advisable to include some of the sales
team in the BoM creation. An inventory management
solution allows multiple teams across the company to
review and approve production job details.
 Importance of Bill of Material
Unites all Departments
The right inventory software solution ensures
that all departments work as one. While
creating a BoM, you must have input from
design, manufacturing, procurement and sales
team to ensure that the document is accurate.
 Importance of Bill of Material
Unites all Departments
The right inventory software solution ensures
that all departments work as one. While
creating a BoM, you must have input from
design, manufacturing, procurement and sales
team to ensure that the document is accurate.
 ERP
ERP is a set of integrated business
applications, or modules which carry out
common business functions such as general
ledger, accounting, or order management.
IT software that integrates business activities
across an enterprises.
 What is ERP
• ERP is short for enterprises resource planning.
• An ERP system is an attempt to integrate all functions
across a company to a single computer system that
can serve all those functions specific needs.
• Support business through optimizing, maintaining,
and tracking business functions.
• From product planning, parts purchasing, inventory
control, and product distribution to order tracking.
 Evolution/History of ERP
• 1960’s – System jut for inventory control
• 1970’s – MRP – Material Requirement Planning
• 1980’s – MRP – II Manufacturing Resources
Planning
( Extended MRP to shop floor & distribution
management)
• Mid 1990’s – ERP – Enterprises Resource
Planning
 Advantages of ERP
• Business Integration
• Improved Customer service and order fulfillment.
• Improved communication with suppliers and
customers.
• One common system - less duplication , more
efficient.
• Reduce inventory
• Save enormous time and effort in data entry
• Improved business perfomance.
 Disadvantages of ERP
• High Software Cost
• Consulting Fess
• Forced Change of Process
• Very Complex Software
• Lack of trained people
• Not – Internet Ready
Quantitative Forecasting Techniques
• Quantitative forecasts often use historical data, such
as previous sales and revenue figures, production and
financial reports and website traffic statistics. Looking
at seasonal sales data, for example, can help you plan
next year’s production and labor needs based on last
year’s monthly or quarterly figures. Quantitative
forecasting also uses projections based on statistical
modeling, trend analyses or other information from
expert sources such as government agencies, trade
associations and academic institutions.
 Qualitative Forecasting Techniques
• Qualitative forecasting techniques come from the experience
and instincts of seasoned business experts. These forecasting
techniques aren’t just guesses; they include interpretation of
data combined with the professional expertise you've developed
over time on the job. For example, if you want qualitative
information for projecting sales for the year, you might estimate
the impact of a new ad campaign or promotion your company is
planning, look at the effects that new technologies might have
on consumer purchasing and take into account recent social fads
and trends. You might forecast demand by holding focus groups
of customers to discuss and gauge their reactions to several new
product features your company is considering.
 Types of Inventories
• Raw materials are inventory items that are used in the
manufacturer’s conversion process to produce components,
subassemblies, or finished products. These inventory items may
be commodities or extracted materials that the firm or its
subsidiary has produced or extracted. They also may be objects
or elements that the firm has purchased from the outside the
organization. Even if the item is partially assembled or is
considered a finished good to the supplier, the purchaser may
classify it as a raw material if his or her form has no input into
its production.
 Types of Inventories
• Work in Process ( WIP) is made up of all the materials, parts
( components). Assemblies and subassemblies that are being
processes or are waiting to be processes within the system. This
generally includes all material raw materials that has been
released for initial processing up to material that has been
completely processes and is awaiting final inspection and
acceptance before inclusion in finished goods.
• Any item has a parent but is not a raw material is considered to
be work – in progress. A glance at the rolling cart product
structure free example reveals that work in process in this
situation consists of tops, legs assemblies, frames, legs and
casters. Actually the leg assembly and casters are labeled as
subassemblies because the leg assembly consists of leg and
casters and the casters and the casters are assembled from
wheels, ball bearings, axles and caster frames.
 Types of Inventories
• Buffer Inventory.
• As previously stated, inventory is sometimes used to protect
against the uncertainties of supply and demand, as well as
unpredictable events such as poor delivery reliability or poor
quality of a supplier products. These inventory cushions ate
often referred to as safety stock. Safety stock or buffer inventory
is any amount held on hand that is over and above that currently
need to meet demand. Generally, the higher the level of buffer
inventory. The better the firms customers services. This occurs
because the firm suffers fewer stock- outs ( when a customer
order cannot be immediately filled from existing inventory)
 Types of Inventories
• Cycle Inventory
Those who are familiar with the concept of economic order quantity
(EOQ) know that the EOQ is an attempt to balance inventory holding
or carrying costs with the costs incurred from ordering or setting up
machinery. When large quantities are ordered or produced,
inventory holding costs are increased, but ordering/ set up costs
decrease. Conversely, when lot sizes decrease, inventory holding/
carrying costs decrease, but the cost of ordering / set up increases
since more orders / set ups are required to meet demand. When the
two costs are equal (holding/ carrying costs and ordering / set up
costs ) the total costs ( the sum of the two costs) is minimized
 Types of Inventories
• Anticipation Inventory
• Oftentimes, firms will purchase and hold inventory that is in
excess of their current need in anticipation of a possible future
events. Such events may include a price increase in demand, or
even an impending labor strike. This tactic is commonly used by
retailers, who routinely build up inventory months before the
demand for their products will be unusually high ( for e.g.)
Halloween, Christmas or the back to school season). For
manufacturer , anticipation inventory allows them to build up
inventory when demand is low
 Inventory Turnover Ratio
• Inventory Turnover Ratio

• Activity Ratios
• Relationship between sales / COGS & the levels of various assets .
• Important for knowing the companies financial statements.
These ratios are also called efficiency ratios/ asset utilization ratios
or turnover ratios. These ratios show the relationship sale and
various assets of a firm.
Inventory Turnover ratio
This ratio indicates the number of times inventory is replaced
during the year. It measures the relationship between cost of
goods sold and the inventory level.
Formula : COGS / AUG INVENTORY
 Inventory Turnover Ratio
• Inventory Turnover Ratio

• Activity Ratios
• Relationship between sales / COGS & the levels of various assets .
• Important for knowing the companies financial statements.
These ratios are also called efficiency ratios/ asset utilization ratios
or turnover ratios. These ratios show the relationship sale and
various assets of a firm.
Inventory Turnover ratio
This ratio indicates the number of times inventory is replaced
during the year. It measures the relationship between cost of
goods sold and the inventory level.
Formula : COGS / AUG INVENTORY
 Standardization
• The process of defining and applying the conditions to ensure
that a given range of requirements can morally be met with a
minimum of variety and in reproducible and economic manner
of the basis of the best techniques.
• For example : Piston Industry : Standards Size of piston are
produced for different products. For example in Maruti piston
for engines are produced.
• Nut & Bolt Industry : Standard nut and bolts are produced so
that they can be easily available in market in case of
requirement.
 Standardization Process
• Step involve in Standardization of products
(1) With the help of market research, sales statistics, etc. decides
what to sell in future.
(2) Then, define a standard range of products
(3) From the range, ask the designer to develop minimum variety of
component to match the range
 Importance of Standardization
• Standardization brings innovation and spreads knowledge \
Standards are reference documents that represent a consensus
among the players in a given industry and define voluntary
characteristics and rules in a specific industry. The concrete
benchmarks they define are based on the fields collective
knowledge, which can then be distilled and updated. In that way
standard foster the development of the industry involved.
Standardization also brings innovation, first because it provides
structured methods and reliable data that save time, knowledge
about leading edge techniques.
 Importance of Standardization
1. Greater clarity & predictability
Standardization avoids any unpleasant surprises. Your processes
(inputs & outputs) become predictable, and you can plan them more
easily. You know exactly how they’re configured, what steps they’re
made up of, and how much time they take. This is reassuring for staff
and managers alike, as managers can then steer processes more
easily and staff know in advance what the outcomes should be.
2. Knowledge retention
Knowledge is the key to success, especially in our modern-day
information society. By standardizing processes and tasks, it
becomes easier to document and then retain knowledge.
Standardization involves drafting clear instructions, which means it’s
far less likely that you’ll lose important knowledge when someone
leaves the company to find a new job or retire. What’s more, it also
helps you onboard new staff more quickly
 Importance of Standardization
3. Greater flexibility
Standardization makes it easier to rotate staff because they have a
clear blueprint guiding them and allowing them to pick up other
tasks more easily. What’s more, if you also standardize products and
tools, it reduces the time needed to find the right replacement
components or parts when something breaks.
4. Consistent quality
Is everyone performing a certain task in exactly the same
way, If so, then output and ultimately your end product
will be of a consistently high quality. In effect, this
establishes an internal system of quality standards that can
help set you apart from your competition.
 Importance of Standardization
5.Easier compliance
Most manufacturers have to comply with international, national, or
sector-specific standards, for example ISO 9000. Non-compliance
simply isn’t an option. In such a case, standardization acts as a
control mechanism to help you comply with all the rules,
regulations, and requirements.
6.  Reduced waste
When everyone in your organization is performing a task in the same
way, it then becomes easier to spot any bottlenecks or sources of
waste. Once you’ve resolved these issues, your organization will
become more economical with its use of energy, raw materials, and
human capital.
 CODING In Material
Management

• Systematic concise representation of equipment, raw- material,

tools, spares, suppliers.
• Coding refers to the process of assigning symbols to the parts.
•Coding is define as process of allocating symbol to the parts. The
symbol represent design characteristics of parts, manufacturing
attributes or both.
 IMPORTANCE OF CODING
• Due to industrial requirement organization has to store large
no. materials. Therefore there should be some mean of
identifying them hence Coding is used.
• Classification and codification of materials are steps in
maintaining stores in a systematic way.
• Materials are coded in such way that storing, issuing and
identifying of materials become easy.
 CRITERIA FOR EFFECTIVE CODING

• Code should be simple.

• Code should be unique.
• Coding should be compact, concise and consistent.
• Code should be sufficiently flexible to meet future demands.
 Objectives of Coding
• To bring all similar items together under one classification or
group.
•To classify an item according to kits nature of characteristics.
•To avoid duplication and confusion.
• To fix essential parameters to specify an item.
 Common Methods of Store Codification

• Alphabetical Codification
• Numerical codification
• Mnemonic codification
• Combined alphabetical & numerical c codification
• Decimal codification
• British/ Brisch codification
• Kodak codification
• Colour codification
 Value Analysis
• value analysis originated from second world war due to the
shortage of essential material.
• Lawrence D Miles was the first to develop the technique and
name it.
• Value analysis is defined as an organized creative approach
which was , as its objectives, the efficient identification of
unnecessary cost ( cost which provides neither quality nor use
nor appearance nor attention).
 Scope of Value Analysis

(1) organized cost reduction analysis: by which accountants

analyze costs in products or procedure, the ranking of their
elements in a descending order of magnitude and in informed
challenge to each, staring with the most important.
(2) Development as practiced in many firms : where it follows
the realization of a design and combing through the specification
to remove costs by substituting standards and relaxing tolerances
and finishes.
(3) Purchasing analysis : which systematically searches for
cheaper bought – out components or services , probably by
seeking alternatives or a fresh basis for price negotation.
 Scope of Value Analysis

(3) Method Study: The part of work study that studies and
analyses work of any kind in a disciplined manner that leads
to improvement in methods.

Concept of Value Engineering

• The systematic application of recognized techniques which
identify the functions of the products or services establish
the worth of those functions and provide the necessary
functions to meet the required performance at the lowest
overall cost.
 Purchasing Departement
Purchasing Department play two important roles in an organization
• Strategic Purchasing : In this role, the purchasing department
plans high – level procurement activities based on the
organizations business goals. Strategic purchasing department
responsibilities help in sourcing goods strategically ( e – sourcing ) at
economical prices and optimum quality.
• Operational procurement: This role is also defined as tactical
purchasing” where all purchase department responsibilities are
focused on taking care of business operations and administration.
Repeat orders, inventory restocking and invoice payments are
maintained to keep the production line running at its optimal
capacity. Operational procurement primarly caters to the long term
need of the company.
 Role of Purchasing Department
Purchasing Department play two important roles in an organization
• Strategic Purchasing : In this role, the purchasing department
plans high – level procurement activities based on the
organizations business goals. Strategic purchasing department
responsibilities help in sourcing goods strategically ( e – sourcing ) at
economical prices and optimum quality.
• Operational procurement: This role is also defined as tactical
purchasing” where all purchase department responsibilities are
focused on taking care of business operations and administration.
Repeat orders, inventory restocking and invoice payments are
maintained to keep the production line running at its optimal
capacity. Operational procurement primarly caters to the long term
need of the company.
 Role of Purchasing Department
• Strategic Purchasing: In this role, the purchasing department
plans high level procurement activities based on the organization’s
business goals. Strategic purchasing department responsibilities
help in sourcing good strategically ( e – sourcing ) at economical
prices and optimum quality . Decisions such as in – house
manufacturing or procurement from external suppliers are taken at
the strategic purchasing stage.
• Operational Procurement : This role is also defined as tactical
purchasing “ Where all the purchase department responsibilities
are focused on taking care of business operations and
administration. Repeat orders, inventory , restocking and invoice
payments are maintained to keep the production line running at its
optimal capacity.
 Role of Purchasing Department
• Acquiring Goods at the best possible price.
• Procuring raw – materials for sustaining operations.
• Compliance with industry protocols
 Purchase Cycle
• Requirements for purchase systems
• At the right price
• Delivered at the right time.
• Of the right quantity
• From the right source.
 Purchase Cycle
• Purchasing of material, machinery and service is done by
purchasing department.
• For buying the material company has to pay up a price, the value
that a seller sets on his goods in the market is called as the price of
that goods.
• price is one of the greatest variables in the purchasing of
materials.
 Steps in purchase cycle
(1) Receive and analyse purchase requisitions.
(2) Select suppliers, issue quotations.
(3) Determine the right price.
(4) Issue purchase orders.
(5) Follow- up to assure correct delivery.
(6) receive and accept the goods.
(7) Approve invoice for payment.
 Negotiations & Bargaining
• Negotiation and Bargaining are two different words with
different meaning.
• Bargaining is only related to price. Negotiation is not used in
connection with the price alone. This term can also be applied
in legal situations where two parties want to come to an
agreement. Usually, bargaining is often done in an informal
situation whereas negotiation can be used as a description for
situations other than just price and basically for legal scenarios.

• Negotiation
• Negotiation, on the other hand, aims to reach at a result
where both parties are in a win-win situation. 
 Negotiations & Bargaining
• Negotiation is sensible
• Bargaining is more of a selfish conversation but again,
negotiation is a sensible conversation.
• Negotiation, on the other hand, aims to reach at a result
where both parties are in a win-win situation
• Bargaining is more of a selfish conversation but again,
negotiation is a sensible conversation
 Benefits of Vendor Management
• Improve cash flow
• Provide excellent Service
• Improve reliability of supply
• Help reduce reliance on capital assets.
• Provide cutting edge technology trends.
• Alternate cutting edge technology trends.
• Alternate sources / manufacturing sites