The?discussion?of?MRP?thus?far?has?focused?on?the?basics,?often?referred?to?as?”little?MRP.”?It?is?important?to?understand?how?MRP?can?be?extended?to?make?it?more?useful?and?applicable?to?areas?of?the?business?beyond?operations.
Capacity?Requirements?Planning
As?mentioned?previously,?the?master?schedule?is?developed?from?the?aggregate?plan.?Thus,?the?master?schedule?can?provide?much?more?exact?measures?of?the?capacity?requirements?than?the?aggregate?plan?can.?As?the?master?schedule?is?developed,?rough-cut?capacity?planning?is?used?to?check?capacity?requirements?against?capacity?availability.?Rough-cut?capacity?planning?does?not?take?into?account?lead-time?offsetting,?or?the?amount?ahead?of?time?that?component?parts?must?be?made?to?meet?the?master?schedule?for?end?items.?MRP?can?form?the?basis?for?much?more?detailed?capacity?calculations?because?MRP?performs?lead-time?offsetting?when?it?generates?planned?order?releases.?For?parts?made?in-house,?the?planned?order?releases?generated?by?MRP?indicate?exactly?when?certain?parts?must?be?made?and?in?what?quantity.?Those?planned?order?releases?will?initiate?a?series?of?production?requirements?on?the?machines?and?equipment?used?to?produce?those?parts?and?subassemblies.?These?demands?consume?a?portion?of?capacity?of?the?machines?and?equipment.?Using?a?routing?sheet,?which?indicates?the?sequence?of?machines?or?work?centers?through?which?a?part?must?pass?during?processing?and?the?labor?standards,?it?is?possible?to?determine?capacity?requirements?at?each?operation.
Figure?9.21?shows?planned?order?releases?for?tricycle?axle?supports,?along?with?information?contained?in?the?routing?sheet?for?that?part.?In?each?week,?the?run?time?on?each?machine?is?multiplied?by?the?order?quantity?for?that?week?and?then?added?to?set-up?time?to?get?capacity?requirements.?This?procedure?is?done?for?each?work?center?and?each?week.
Figure?9.21:?Capacity?requirements?planning?for?tricycle?axle?supports

The?information?generated?in?Figure?9.21?is?only?for?one?part.?Many?other?parts?would?also?generate?capacity?requirements?at?the?same?work?centers.?By?adding?together?all?the?capacity?requirements?for?each?work?center?in?each?week,?a?total?figure?for?capacity?requirements?will?be?generated.?The?total?capacity?requirements?placed?on?a?work?center?during?a?given?time?period?are?called?the?load.?The?output?of?capacityrequirements?planning?(CRP)?is?usually?in?the?form?of?a?load?report,?or?load?profile,?which?is?a?graphical?representation?of?the?load?on?each?work?center?by?time?period.?An?example?of?a?load?report?is?shown?in?Figure?9.22.
Figure?9.22:?Drill?work?center?load?report

Closed-Loop?MRP
Capacity?requirements?planning?is?of?significant?benefit?in?ensuring?that?a?company’s?plans?are?realistic?and?can?be?implemented.?However,?MRP?can?only?project?what?should?happen?if?demand?is?as?forecasted?on?the?master?production?schedule.?In?reality,?machines?may?break?down,?deliveries?from?suppliers?may?be?delayed,?or?some?other?calamity?may?occur.?If?these?events?are?not?reflected?back?in?the?MRP?plan,?then?that?plan?will?be?invalid.
Closed-loop?MRP?provides?feedback?about?the?execution?of?production?plans.?By?tracking?what?actually?happens?on?the?shop?floor?and?then?reflecting?that?information?in?the?MRP?record,?plans?can?be?kept?valid.?Instead?of?”launching”?orders?with?no?information?about?completion,?closed-loop?MRP?provides?the?feedback?loop?necessary?to?keep?information?up?to?date.
Manufacturing?Resource?Planning?(MRP?II)
Many?companies?have?found?that?material?requirements?planning?can?greatly?improve?their?operations?through?better?planning.?MRP?also?forces?companies?to?better?coordinate?the?activities?of?operations,?marketing,?and?purchasing.?The?master?schedule?will?have?implications?for?finance,?personnel,?workforce?requirements,?and?purchases?of?materials.?A?company?must?be?sure?that?its?operations?plan?fits?appropriately?with?the?business?plan.?All?functional?areas?must?base?their?activities?on?the?plan.?To?do?that,?an?extension?of?MRP?has?been?developed?called?manufacturing?resource?planning.
Manufacturing?resource?planning,?or?MRP?II,?as?it?is?commonly?called?to?differentiate?it?from?material?requirements?planning?(MRP),?is?a?way?of?tying?all?parts?of?an?organization?together?to?build?on?the?strategic?plan.?The?strategic?plan?is?an?overall?blueprint?that?specifies?the?company’s?objectives?and?how?it?plans?to?reach?them.?The?operations?function?will?develop?its?own?goals?and?plans?to?help?achieve?the?corporate?objective,?as?will?the?marketing,?finance,?and?all?other?departments?of?the?organization.?The?actions?of?one?functional?area,?however,?will?have?an?impact?on?the?other?areas.?For?instance,?if?marketing?plans?a?promotional?effort?that?will?greatly?increase?sales,?then?operations?must?be?ready?and?able?to?produce?enough?product?to?meet?that?increased?demand.?Hiring?more?employees?or?buying?additional?equipment,?which?will,?in?turn,?have?a?major?impact?on?the?financial?area,?may?be?necessary.?Because?the?operations?activity?is?such?an?integral?part?of?any?organization,?it?can?be?especially?vulnerable?to?the?actions?taken?by?other?departments,?and?will?have?a?large?influence?on?other?areas?of?the?company?through?its?actions.
Planned?orders?can?also?provide?information?about?expected?expenditures.?Purchase?order?releases?can?be?used?to?estimate?future?payments?to?suppliers.?Shop?order?releases?will?generate?needs?for?machine?time?and?labor,?so?that?they?can?also?be?used?to?estimate?future?expenses.?Before?the?development?of?MRP?II,?companies?used?cost?accounting?primarily?as?a?way?to?determine?success?after?the?fact.?It?was?a?way?to?find?out?what?it?had?cost?to?do?what?was?already?done.
MRP?II?can?change?the?way?companies?operate.?By?generating?cost?projections,?it?is?possible?to?plan?for?production?costs?ahead?of?time?and?then?compare?actual?costs?to?these?projections.?Any?major?deviations?can?be?spotted?and?investigated.?A?related?advantage?with?MRP?II?is?that?it?can?be?used?to?answer?what-if?types?of?questions.?Using?MRP?II,?a?company?can?estimate?the?effect?of?a?supplier?cost?increase?and?develop?strategies?to?address?it,?instead?of?trying?to?respond?after?the?fact.?Figure?9.23?shows?how?MRP?II?connects?all?parts?of?the?organization.
Figure?9.23:?MRP?II

MRP?in?Service?Organizations
Although?MRP?was?originally?developed?for?manufacturing?companies,?it?can?also?be?applied?to?service?organizations.?Instead?of?the?master?schedule?representing?goods?to?be?produced,?it?can?represent?services?to?be?provided.
For?example,?an?airline’s?master?schedule?could?show?the?number?of?flights?from?different?cities?each?week.?In?this?case,?the?materials?required?to?provide?that?service?include?fuel?for?the?airplanes,?meals?for?the?passengers,?and?other?related?items.?Likewise,?hospitals?can?develop?a?master?schedule?showing?the?number?of?different?types?of?surgeries?each?week.

?iStockphoto/Thinkstock
When?airlines?create?a?master?schedule?they?also?compile?a?list?of?materials?needed?to?provide?that?service?such?as?fuel?for?the?airplanes?and?snacks?for?the?passengers.
Materials?required?include?various?surgical?supplies.?This?is?a?variant?of?MRP,?known?as?hospital?requirements?planning?(HRP).
Although?some?surgeries?are?emergencies,?many?others?are?scheduled?in?advance.?Historical?information?about?emergency?surgeries?can?be?combined?with?those?that?are?scheduled?to?develop?a?master?schedule.?MRP?can?then?be?used?to?convert?the?master?schedule?into?requirements?for?medical?equipment,?instruments,?supplies,?operating?rooms,?and?staff.?Houston’s?Park?Plaza?Hospital?has?used?this?approach?to?improve?management?of?expensive?inventory.
Distribution?Requirements?Planning?(DRP)
In?the?retail?setting,?the?MRP?approach?has?been?applied?so?widely?that?a?variant?of?MRP,?called?distribution?requirements?planning(DRP),?has?been?developed.?In?this?way,?the?MRP?planning?logic?is?applied?to?requirements?for?retail?outlets?or?warehouses.
Distribution?networks?often?consist?of?local?outlets?or?service?centers?that?are?supplied?from?local?distribution?centers.?In?turn,?these?distribution?centers?may?be?fed?by?a?regional?or?national?warehouse.?By?thinking?of?each?level?in?the?distribution?network?as?a?level?in?a?bill?of?materials,?it?is?possible?to?see?that?orders?placed?by?the?service?centers?will?generate?gross?requirements?at?the?regional?warehouses.?Figure?9.24?shows?an?example?of?distribution?requirements?planning.
Giant?Food?Company,?a?supermarket?chain,?uses?DRP?as?part?of?its?ECR?(efficient?consumer?response)?approach?to?supply?chain?management.?DRP?allows?the?company?to?connect?its?POS?(point-of-sale)?information?from?stores?to?inventory?levels?throughout?the?supply?chain,?making?that?information?available?to?all?supply?chain?partners.?DRP?then?”pulls”?items?through?the?system?based?on?customer?demand,?facilitating?one?of?the?basic?ideas?behind?ECR.
Figure?9.24:?Distribution?requirements?planning

Role?of?Management?Information?Systems?in?Planning
MRP?is?usually?calculated?on?a?computer?because?of?the?large?volume?of?computations?that?must?be?performed?and?because?much?of?the?information,?such?as?bills?of?material?and?inventory?records,?is?stored?on?computerized?databases.?MRP?II,?by?including?more?organizational?functions?within?its?scope,?further?increases?the?need?for?computerized?information.?As?a?result,?companies?very?often?use?computerized?information?systems?for?operations?planning?and?control?activities.?One?such?system?and?the?data?files?that?it?works?with?are?shown?in?Figure?9.25.?Enterprise?resource?planning?(ERP)?uses?a?single?integrated?database?for?the?entire?organization.?In?this?way,?each?part?of?the?organization?is?connected,?and?efforts?to?break?down?barriers?within?the?organization?are?facilitated.
Figure?9.25:?Information?system?for?managing?and?controlling?operations

The?discussion?of?MRP?thus?far?has?focused?on?the?basics,?often?referred?to?as?”little?MRP.”?It?is?important?to?understand?how?MRP?can?be?extended?to?make?it?more?useful?and?applicable?to?areas?of?the?business?beyond?operations.
Capacity?Requirements?Planning
As?mentioned?previously,?the?master?schedule?is?developed?from?the?aggregate?plan.?Thus,?the?master?schedule?can?provide?much?more?exact?measures?of?the?capacity?requirements?than?the?aggregate?plan?can.?As?the?master?schedule?is?developed,?rough-cut?capacity?planning?is?used?to?check?capacity?requirements?against?capacity?availability.?Rough-cut?capacity?planning?does?not?take?into?account?lead-time?offsetting,?or?the?amount?ahead?of?time?that?component?parts?must?be?made?to?meet?the?master?schedule?for?end?items.?MRP?can?form?the?basis?for?much?more?detailed?capacity?calculations?because?MRP?performs?lead-time?offsetting?when?it?generates?planned?order?releases.?For?parts?made?in-house,?the?planned?order?releases?generated?by?MRP?indicate?exactly?when?certain?parts?must?be?made?and?in?what?quantity.?Those?planned?order?releases?will?initiate?a?series?of?production?requirements?on?the?machines?and?equipment?used?to?produce?those?parts?and?subassemblies.?These?demands?consume?a?portion?of?capacity?of?the?machines?and?equipment.?Using?a?routing?sheet,?which?indicates?the?sequence?of?machines?or?work?centers?through?which?a?part?must?pass?during?processing?and?the?labor?standards,?it?is?possible?to?determine?capacity?requirements?at?each?operation.
Figure?9.21?shows?planned?order?releases?for?tricycle?axle?supports,?along?with?information?contained?in?the?routing?sheet?for?that?part.?In?each?week,?the?run?time?on?each?machine?is?multiplied?by?the?order?quantity?for?that?week?and?then?added?to?set-up?time?to?get?capacity?requirements.?This?procedure?is?done?for?each?work?center?and?each?week.
Figure?9.21:?Capacity?requirements?planning?for?tricycle?axle?supports

The?information?generated?in?Figure?9.21?is?only?for?one?part.?Many?other?parts?would?also?generate?capacity?requirements?at?the?same?work?centers.?By?adding?together?all?the?capacity?requirements?for?each?work?center?in?each?week,?a?total?figure?for?capacity?requirements?will?be?generated.?The?total?capacity?requirements?placed?on?a?work?center?during?a?given?time?period?are?called?the?load.?The?output?of?capacityrequirements?planning?(CRP)?is?usually?in?the?form?of?a?load?report,?or?load?profile,?which?is?a?graphical?representation?of?the?load?on?each?work?center?by?time?period.?An?example?of?a?load?report?is?shown?in?Figure?9.22.
Figure?9.22:?Drill?work?center?load?report

Closed-Loop?MRP
Capacity?requirements?planning?is?of?significant?benefit?in?ensuring?that?a?company’s?plans?are?realistic?and?can?be?implemented.?However,?MRP?can?only?project?what?should?happen?if?demand?is?as?forecasted?on?the?master?production?schedule.?In?reality,?machines?may?break?down,?deliveries?from?suppliers?may?be?delayed,?or?some?other?calamity?may?occur.?If?these?events?are?not?reflected?back?in?the?MRP?plan,?then?that?plan?will?be?invalid.
Closed-loop?MRP?provides?feedback?about?the?execution?of?production?plans.?By?tracking?what?actually?happens?on?the?shop?floor?and?then?reflecting?that?information?in?the?MRP?record,?plans?can?be?kept?valid.?Instead?of?”launching”?orders?with?no?information?about?completion,?closed-loop?MRP?provides?the?feedback?loop?necessary?to?keep?information?up?to?date.
Manufacturing?Resource?Planning?(MRP?II)
Many?companies?have?found?that?material?requirements?planning?can?greatly?improve?their?operations?through?better?planning.?MRP?also?forces?companies?to?better?coordinate?the?activities?of?operations,?marketing,?and?purchasing.?The?master?schedule?will?have?implications?for?finance,?personnel,?workforce?requirements,?and?purchases?of?materials.?A?company?must?be?sure?that?its?operations?plan?fits?appropriately?with?the?business?plan.?All?functional?areas?must?base?their?activities?on?the?plan.?To?do?that,?an?extension?of?MRP?has?been?developed?called?manufacturing?resource?planning.
Manufacturing?resource?planning,?or?MRP?II,?as?it?is?commonly?called?to?differentiate?it?from?material?requirements?planning?(MRP),?is?a?way?of?tying?all?parts?of?an?organization?together?to?build?on?the?strategic?plan.?The?strategic?plan?is?an?overall?blueprint?that?specifies?the?company’s?objectives?and?how?it?plans?to?reach?them.?The?operations?function?will?develop?its?own?goals?and?plans?to?help?achieve?the?corporate?objective,?as?will?the?marketing,?finance,?and?all?other?departments?of?the?organization.?The?actions?of?one?functional?area,?however,?will?have?an?impact?on?the?other?areas.?For?instance,?if?marketing?plans?a?promotional?effort?that?will?greatly?increase?sales,?then?operations?must?be?ready?and?able?to?produce?enough?product?to?meet?that?increased?demand.?Hiring?more?employees?or?buying?additional?equipment,?which?will,?in?turn,?have?a?major?impact?on?the?financial?area,?may?be?necessary.?Because?the?operations?activity?is?such?an?integral?part?of?any?organization,?it?can?be?especially?vulnerable?to?the?actions?taken?by?other?departments,?and?will?have?a?large?influence?on?other?areas?of?the?company?through?its?actions.
Planned?orders?can?also?provide?information?about?expected?expenditures.?Purchase?order?releases?can?be?used?to?estimate?future?payments?to?suppliers.?Shop?order?releases?will?generate?needs?for?machine?time?and?labor,?so?that?they?can?also?be?used?to?estimate?future?expenses.?Before?the?development?of?MRP?II,?companies?used?cost?accounting?primarily?as?a?way?to?determine?success?after?the?fact.?It?was?a?way?to?find?out?what?it?had?cost?to?do?what?was?already?done.
MRP?II?can?change?the?way?companies?operate.?By?generating?cost?projections,?it?is?possible?to?plan?for?production?costs?ahead?of?time?and?then?compare?actual?costs?to?these?projections.?Any?major?deviations?can?be?spotted?and?investigated.?A?related?advantage?with?MRP?II?is?that?it?can?be?used?to?answer?what-if?types?of?questions.?Using?MRP?II,?a?company?can?estimate?the?effect?of?a?supplier?cost?increase?and?develop?strategies?to?address?it,?instead?of?trying?to?respond?after?the?fact.?Figure?9.23?shows?how?MRP?II?connects?all?parts?of?the?organization.
Figure?9.23:?MRP?II

MRP?in?Service?Organizations
Although?MRP?was?originally?developed?for?manufacturing?companies,?it?can?also?be?applied?to?service?organizations.?Instead?of?the?master?schedule?representing?goods?to?be?produced,?it?can?represent?services?to?be?provided.
For?example,?an?airline’s?master?schedule?could?show?the?number?of?flights?from?different?cities?each?week.?In?this?case,?the?materials?required?to?provide?that?service?include?fuel?for?the?airplanes,?meals?for?the?passengers,?and?other?related?items.?Likewise,?hospitals?can?develop?a?master?schedule?showing?the?number?of?different?types?of?surgeries?each?week.

?iStockphoto/Thinkstock
When?airlines?create?a?master?schedule?they?also?compile?a?list?of?materials?needed?to?provide?that?service?such?as?fuel?for?the?airplanes?and?snacks?for?the?passengers.
Materials?required?include?various?surgical?supplies.?This?is?a?variant?of?MRP,?known?as?hospital?requirements?planning?(HRP).
Although?some?surgeries?are?emergencies,?many?others?are?scheduled?in?advance.?Historical?information?about?emergency?surgeries?can?be?combined?with?those?that?are?scheduled?to?develop?a?master?schedule.?MRP?can?then?be?used?to?convert?the?master?schedule?into?requirements?for?medical?equipment,?instruments,?supplies,?operating?rooms,?and?staff.?Houston’s?Park?Plaza?Hospital?has?used?this?approach?to?improve?management?of?expensive?inventory.
Distribution?Requirements?Planning?(DRP)
In?the?retail?setting,?the?MRP?approach?has?been?applied?so?widely?that?a?variant?of?MRP,?called?distribution?requirements?planning(DRP),?has?been?developed.?In?this?way,?the?MRP?planning?logic?is?applied?to?requirements?for?retail?outlets?or?warehouses.
Distribution?networks?often?consist?of?local?outlets?or?service?centers?that?are?supplied?from?local?distribution?centers.?In?turn,?these?distribution?centers?may?be?fed?by?a?regional?or?national?warehouse.?By?thinking?of?each?level?in?the?distribution?network?as?a?level?in?a?bill?of?materials,?it?is?possible?to?see?that?orders?placed?by?the?service?centers?will?generate?gross?requirements?at?the?regional?warehouses.?Figure?9.24?shows?an?example?of?distribution?requirements?planning.
Giant?Food?Company,?a?supermarket?chain,?uses?DRP?as?part?of?its?ECR?(efficient?consumer?response)?approach?to?supply?chain?management.?DRP?allows?the?company?to?connect?its?POS?(point-of-sale)?information?from?stores?to?inventory?levels?throughout?the?supply?chain,?making?that?information?available?to?all?supply?chain?partners.?DRP?then?”pulls”?items?through?the?system?based?on?customer?demand,?facilitating?one?of?the?basic?ideas?behind?ECR.
Figure?9.24:?Distribution?requirements?planning

Role?of?Management?Information?Systems?in?Planning
MRP?is?usually?calculated?on?a?computer?because?of?the?large?volume?of?computations?that?must?be?performed?and?because?much?of?the?information,?such?as?bills?of?material?and?inventory?records,?is?stored?on?computerized?databases.?MRP?II,?by?including?more?organizational?functions?within?its?scope,?further?increases?the?need?for?computerized?information.?As?a?result,?companies?very?often?use?computerized?information?systems?for?operations?planning?and?control?activities.?One?such?system?and?the?data?files?that?it?works?with?are?shown?in?Figure?9.25.?Enterprise?resource?planning?(ERP)?uses?a?single?integrated?database?for?the?entire?organization.?In?this?way,?each?part?of?the?organization?is?connected,?and?efforts?to?break?down?barriers?within?the?organization?are?facilitated.
Figure?9.25:?Information?system?for?managing?and?controlling?operations