Managing Business Operations
B & D Patterns Ltd is the largest supplier of fabricated pipe assemblies to Rolls Royce (RR) Aerospace. Having decided to change their manual systems to a computerised MRP system for their manufacturing facility, this report discusses how MRP works together with its advantages and disadvantages. 2. Material Requirements Planning (MRP) Material Requirements Planning (MRP) is a planning tool designed for assembly operations specifically. It aims to advise the supplier when and what part is required for a unit.
Introduced by Joseph Orlicky, an American engineer, MRP links product demand to raw material supply by buying only what was required enabling inventories or bills of materials to be reduced dramatically (Bbc. co. uk, 2005). B & D Patterns needed to maintain a large number of bills of materials (BOMs) due to their manufacturing processes requiring ten components on average to assemble each unit. An integrated system was needed that could handle complex BOMs, purchase ordering and production procedures including the flow of information.
Manufacturing encompasses a flow of materials from suppliers, through plants, to customers together with information to all intermediaries involved regarding what is planned, what has been completed and what should happen next. Orlicky (1995) concluded in his theory that
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MRP is a “push” system that is triggered by the interpretation of demand that is expected and scheduling of the supply to meet that demand thereby receiving the push from the demand (SMThacker. co. uk, 2010). It is designed with quality control integrated into processes and aims to define and measure specifications for quality at critical steps in the process. By maintaining the quality of the processes, delays and costs can be minimised ultimately satisfying the customer (Alpha-erp. com, 2009).
Although B & D Patterns Ltd saw great benefit with MRP, some manufacturing companies have little to gain from MRP such as Toyota whose focus is on identifying and eliminating time and material waste rather than tracking every activity and every piece of material within the manufacturing plant. John Krafcik of Toyota found lean manufacturing improved the flow of work and reduced cost and production time (Kochan et al, 1997). Research found the system of replenishing stock triggered by the usage or depletion of stock makes lean manufacturing a “pull” system whereby they react rather than plan like MRP and are pulled by the demand.
In this case, MRP would not be of benefit Toyota due to the amount of time needed to provide the MRP system with all information needed as they would see this time as a waste and could be put to use by using it for manufacturing. MRP and lean manufacturing are techniques of supply chain management whereby they control and minimise the consequences of demand fluctuations as a small change in demand can have a large effect on the supply chain. MRP and Lean manufacturing demonstrate both push and pull systems. However, there are several types of push/pull systems.
All these systems provide benefits dependant upon the demand of the manufacturer and what the needs of their manufacturing environment are. For example, with MRP, a goods receipt would automatically update outstanding purchase orders, update the stock balance, create a creditor in the purchase ledger and eventually update the general ledger with the end result. When there a large number of bills of materials (BOMs) and demand fluctuates this system would be the most effective as it controls inventories (Louis, R, 2006).
However, for a manufacturer where demand is steady, using again Toyota as an example, the components for their vehicles have to be manufactured for a vehicle regardless of demand and so Kanbans which align to lean manufacturing provide a way of scheduling what to produce, when to produce it, and how much to produce rather than what is needed to produce by using the rate of demand to control the rate of production (Ono, T, 1988). Bin systems work in a similar way to Kanbans but with stock being re-ordered once a pre-determined level has been reached.
That level would be determined by the manufacture. B & D Patterns could make use of the bin systems with their sales forecast figures, however research shows that the overall administration needed for bin systems far outweighs the initial administration needed for MRP. That said, Kanbans and bin systems could reduce the buildup of stock because the systems provide the customer what they want when they want it unlike MRP which works to forecasted figures rather than actual figures and has the ability to build up large amounts of stock which needs to be stored (Gross, J, 2003).