Subject: Purchasing and Materials Management

Course Code: POM-325 Author: Dr. Vijender Pal Saini

Lesson No.: 2 Vetter: Dr. Sanjay Tiwari

Determination and Description of Material Quantity (MRP and JIT)

Structure

1.0 Objectives

1.1 Introduction - Materials Requirement Planning (MRP)

1.2 Definition - Materials Requirement Planning

1.3 Basic Characteristics of MRP

1.4 MRP- Inputs

1.5 MRP-Outputs

1.6 Just-in-time (JIT) -Introduction

1.7 Definitions of JIT

1.8 Pre-requisites of JIT Implementation

1.9 Just-in-time Uses/Application

1.10 Summary

1.11 Key words

1.12 Self-assessment questions

1.13 References/Suggested readings

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1.0 Objectives

After going through this lesson, you will be able to:

 Understand the concept of Materials Requirement Planning (MRP).

 Describe purchasing activities and importance of purchase management.

 Discuss the concept of materials management and identify relationship

between materials management department and other departments.

 Elaborate the concept of JIT, pre-requisites of JIT Implementation and

benefits of JIT system.

1.1 Introduction

Materials Requirement Planning (MRP)

Materials Requirement Planning (MRP) was introduced in 1970 as a computerized

inventory control system. It helps in knowing the need of raw materials and helps to calculate

the demand for a particular item. It takes into account the lead time required to order

automatically with the help of software. It helps in tracking the records of the raw materials

especially when the materials like raw materials or components parts are required. Basically

MRP is an information system which generates automatic results in the area of systematic

planning of materials requirement. It is known as computerized ordering

and scheduling system for manufacturing. It uses three important input data: bill of

materials data, inventory data, and master production schedule to calculate the demand for

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particular items like raw materials or components parts. Joseph Orlicky, George Plossl and

Oliver Wight introduced MRP and popularized this programme. They imparted training for

this programme for many years. Many upgraded versions are made available till now. The

benefits of MRP are remarkable as it generates work orders and purchase orders

automatically. Now in these days MRP-II is available, which is known as Manufacturing

Resource Planning.

1.2 Definition - Materials Requirement Planning (MRP)

Material requirements planning (MRP) is a production planning, scheduling, and

inventory control system used to manage manufacturing processes. Most MRP systems are

software-based, while it is possible to conduct MRP by hand as well.

Material requirements planning (MRP) is a production planning and inventory control

system. An MRP takes important inputs from inventory and the bill of materials (BOM) to

give output in terms of planning purchasing and shipping schedules for the raw materials,

parts or components required for the production of a product.

A materials requirement planning (MRP) information system is a sales forecast-based

system used to schedule, order and track records of raw material, components required and

manages deliveries and quantities, helpful in systematic production planning.

A computerized system for managing dependent-demand inventory, calculate the demand for

items, scheduling replenishment orders, and meeting all the requirements for the production

as given in the Master Production Schedule.

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Material Requirements Planning is a time phased priority-planning technique that calculates

material requirements and schedules supply to meet demand across all products and parts in

one or more plants.

The material requirements plan is a sophisticated computer generated calculation quantifying

procurements and production requirements from the relationships of the above four reference

questions, 1) What are we going to make?; 2) What does it take to make it?; 3) What have we

got?; 4) What do we have to get?. Specifically these inter-relationships are generated from

the master production schedule, the inventory records and the bill of material. (Wong &

Kleiner 2001)

MRP is a tool that provides answer for several questions:

 What material is required?

 How many are required?

 When are they required?

 Dependent demand – Demand for items that are sub-assemblies, parts or raw

materials to be used in the production of finished goods.

 Independent demand – finished products

1.3 Basic Characteristics of MRP

The following are the features of MRP:

i. MRP calculate the demand for components, subassemblies, raw-materials, spare

parts.
ii. MRP helps in systematic planning

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 iii. MRP takes into account the lead time required for orders.

iv. MRP helps in purchase orders planning and tracking

v. MRP is helpful in preparing production schedules

vi. MRP ensures materials are available for production and products are available

for delivery to customers.

vii. MRP maintains the lowest possible material and product levels in store.

viii. MRP is helpful in planning manufacturing activities, delivery schedules

and purchasing activities.

MRP is best suited for the control of purchased materials that exhibit the following

characteristics:

 Material that can be purchased on long term contracts with frequent releases for

shipment in relatively small quantities.

 Raw material or standard items for which lead item requirements are relatively short

and seldom vary appreciably.

 Material that can be purchased repetitively without requiring much creative

purchasing analysis or for which value analysis, purchasing research and vendor

studies have previously been completed. (Dobler & Burt, 1995)

1.4 MRP Inputs

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 Master Production Schedule (It tells what is to be produced, when they are needed,

and in what quantities. It is a time-phased plan specifying how many and when the

firm plans to build each end item)

 Product Structure

 Inventory Records ( It gives the information about quantity of raw materials and

finished goods, details of the suppliers, order lead time etc)

 Demand for all products.

 Lead times for all finished goods, components, parts and raw materials

 Lot sizing policies for all parts

 Bill of Materials (It tells about the requirements of the raw materials, spare-parts, and

sub-assemblies needed to manufacture the products)

 Safety stock requirements

 Any orders previously placed but which haven't arrived yet

MRP Inputs MRP Processing MRP Outputs

Master Production Schedule

Order Schedules

Production Planning Reports

Bill of Materials
MRP Software
Inventory Reports

Inventory Records
Performance Reports

Figure 1.1 : MRP Functioning

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1.5 MRP Outputs

 Order Release (It gives clear idea about the amount and timing of future orders)

 Planned Inventory Schedules

 Action notices: notices to expedite, de-expedite, or cancel orders, or to change order

quantities or due dates

 Priority reports: information regarding which orders should be given priority

 Inventory Reports

 Planning Reports: reports such as inactive items, actual lead times, late orders, etc.

This report is helpful in assessing the materials requirement.

1.6 Just In Time (JIT)

Just-in-time was invented by Taiichi Ohno of Toyota Motor Company in Japan shortly after

World War II. It is a management philosophy which involves providing the right items of the

right quality and quantity at the right place and at the right time. JIT is not merely an

inventory reduction programme, but is much broader in effect so that the organization

operates more efficiently and with minimum resources. (Mukhopadhyay, 1995) JIT is an

inventory strategy in which companies increase efficiency and decrease waste by receiving

materials only as they are needed in the production process, thereby reducing inventory costs.

JIT is an all-encompassing philosophy found on eliminating waste. Anything that does not

add value to process is called waste.

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The success of just-in-time (JIT) on the production floor in reducing costs, improving quality

and enhancing responsiveness has led many firms to attempt to extend the philosophy to the

entire supply chain. The application of JIT to the sourcing arena has become more important

in the past few years because the value of purchased inputs, as a percentage of costs of goods

sold, has increased steadily in many production environments. Research has indicated that a

firm will source outside its home borders if it expects to achieve dramatic and immediate

improvement in four critical areas: (Humphreys, Yeung, 1998)

 cost reduction;

 quality improvement;

 increased exposure to technology; and

 delivery and reliability improvements

1.7 Definitions of JIT

Just-in-time is a philosophy which means producing only what is needed, when it is needed,

not early, not late; not less, not more. The key target is achieving high volume production

using minimal inventories. It is an integrated but simplified system. The JIT mandate is the

elimination of all types of waste in the organisation. According to this philosophy, anything

which is not generating value is called waste.

Just-in-time (JIT) is a highly coordinated processing system in which goods move through

the system, and services are performed, just as they are needed. Supplies and components are

‘pulled’ through the system to arrive where they are needed when they are needed.

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Just-in-time is defined as the production of the minimum number of units in the smallest

possible quantities at the latest possible time, which eliminates the need for inventory. It does

not mean to produce on time but to produce “just in time”.

JIT is defined as an approach for providing smoother production flows and making continual

improvements in processes and products. (Svensson, 2001)

The fundamental aim of JIT purchasing is to ensure that production is as close as possible to

a continuous process from receipt of raw materials/components through to the shipment of

finished goods. The success and resulting performance of purchasing system is based upon

cooperation between the purchaser and supplier. Some of the elements of this system are as

follows: (i) smoothed flow of materials between suppliers and buyers; (ii) order cost

reduction; (iii) stock reduction; (iv) quality; and (v) product simplification (Gunasekaran,

1999).

JIT is more than an inventory system. It is an operational philosophy which includes:

 Short lead time

 A maintenance improvement system.

 A quality improvement system.

 A productivity improvement system.

 Minimum inventory-level

 Closely coupled flow-lines

1.8 Pre-requisites of JIT Implementation

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Top management is responsible for change in the organisation. For that sake, it has to create

an environment in the organisation. The management has to develop a culture in the

organisation. In order for JIT implementation to be successful, the organisation must frame

these policies regarding JIT and must get commitment from the employees to follow the

guidelines lead down in the policies by words and means. The implementation of JIT is not

just for the sake of change. Most of the organisations implement JIT just for the sake to beat

the competitors. In this way they miss the true essence of the philosophy and the results are

like half-hearted. The success of JIT philosophy lies in the commitment of the employees.

This philosophy covers the whole organisation under one umbrella. All the departments have

to work with coordination and follow the guidelines with full spirit. The top executives have

to be the leaders involved in JIT and they must be the guiding light for all the employees. So,

the success of JIT philosophy depends upon the strategic planning that runs deep in the

commitment of all the departments and all the employees. Getting everyone involved and

committed is the first step to successful implementation of JIT and the first step to an

increase in continuous improvement.

A properly implemented JIT system must have:

 Visible goals

 Produce products as per the customers’ requirements.

 Continuous improvement of all the processes

 Doing right at first time

 Producing at the rate customers want them.

 Delivering right quality and quality at first time.

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  Produce instantly with zero unnecessary lead time.

 Advocating zero waste of labor, material or equipment.

 Following zero-defect policy

1.9 Just-in-time Uses/Application

JIT has an enormous impact on a company’s profitability, especially in a competitive

environment characterized by small profit margins. Furthermore, the application of JIT

technologies such as small lot size, lead time reduction and quality improvement play a

significant role in achieving JIT purchasing. (Yang & Pan, 2007) The benefits are as follows:

 Part Costs – Low scrap costs; low inventory carrying costs

 Quality – fast detection and correction of unsatisfactory quality, and ultimately higher

quality purchased parts

 Capital requirements – reduced rework inventories of purchased parts, raw materials,

work-in-progress and finished goods.

 Administrative efficiency – fewer suppliers; minimal expediting and order release

work; simplified communications and receiving activities. (Chung & Bakar, 2001)

Other financial benefits of JIT include:

 Lower investments in factory space for inventories and production;

 Less obsolescence risk in inventories;

 Reduction in scarp and rework;

 Decline in paperwork;

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  Reduction in direct material costs through quantity purchases. (Kootanaee, Babu,

Talari, 2013)

Benefits of JIT implementation include:

 Reductions in lead-time ;

 Inventory-levels reduction;

 Consistent quality improvement culture;

 Zero wastage in the organisation;

 Involvement of employees;

 Stabilize production schedules;

 Increased equipment utilization; and

 Reduction in customer-related problems

Applications of JIT are as follows:

 Inventory Reduction as a Tool for Improvement

Inventory reduction is directly related with cost. Costs are reduced greatly if

inventory is reduced.

 Waste Reduction

If any activity that increases cost but does not add value to any process in an

organisation is called waste. Eliminate waste of labor, material or equipment. JIT

advocates zero waste in organisation.

 Supplier Relationships

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 There must be good relationship with suppliers. Its helps in getting raw material

supply exactly when required.

 Minimum batch sizes

The batch sizes must be kept as small as possible. The defects can be observed easily

in small batches.

 Minimum Movements

The movements must be kept low in production plants. The computerized equipments

are very much helpful in minimising the movements in the plants.

 Total Quality Assurance

The production department must control all the processes time to time to control the

variation in the production output in terms of quality. Proper training is very much in

the total quality assurance.

 Preventive Maintenance

The inspection after the accident is useless. Preventive maintenance is needed to

reduce variation in the process. This requires a regular and complete examination of

all the processes on a regular basis.

1.10 Summary

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Materials Requirement Planning (MRP) is a computerized inventory control system. It helps

in knowing the need of raw materials and helps to calculate the demand for a particular item.

It takes into account the lead time required to order automatically with the help of software.

It helps in tracking the records of the raw materials especially when the materials like raw

materials or components parts are required. Basically MRP is an information system which

generates automatic results in the area of systematic planning of materials requirement.

It uses three important input data: bill of materials data, inventory data, and

master production schedule to calculate the demand for particular items like raw materials or

components parts. Many upgraded versions are made available till now. The benefits of MRP

are remarkable as it generates work orders and purchase orders automatically. Now in these

days MRP-II is available, which is known as Manufacturing Resource Planning.

Just-in-time is a philosophy which means producing only what is needed, when it is needed,

not early, not late; not less, not more. The key target is achieving high volume production

using minimal inventories. It is an integrated but simplified system. According to this

philosophy, anything which is not generating value is called waste. JIT advocates minimising

all types of wastes. Top management is responsible for change in the organisation. For that

sake, it has to create an environment in the organisation. The management has to develop a

culture in the organisation. In order for JIT implementation to be successful, the organisation

must frame these policies regarding JIT and must get commitment from the employees to

follow the guidelines lead down in the policies by words and means. The implementation of

JIT is not just for the sake of change. Most of the organisations implement JIT just for the

sake to beat the competitors. In this way they miss the true essence of the philosophy and the

14
results are like half-hearted. The success of JIT philosophy lies in the commitment of the

employees. This philosophy covers the whole organisation under one umbrella. All the

departments have to work with coordination and follow the guidelines with full spirit. The

top executives have to be the leaders involved in JIT and they must be the guiding light for

all the employees. Getting everyone involved and committed is the first step to successful

implementation of JIT and the first step to an increase in continuous improvement.

1.11 Keywords

Waste

If any activity that increases cost but does not add value to any process in an organisation is

called waste.

Material Requirements Planning (MRP)

It is a production planning and inventory control system. An MRP takes important inputs

from inventory and the bill of materials (BOM) to give output in terms of planning

purchasing and shipping schedules for the raw materials, parts or components required for

the production of a product.

Just-in-time

It is defined as the production of the minimum number of units in the smallest possible

quantities at the latest possible time, which eliminates the need for inventory.

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1.12 Self-assessment Questions

1. What are the primary objectives of an MRP system?

2. What is Material Requirement planning?

3. What you understand about Just- In- Time technique of materials management?

4. Define Just-In-Time. What are advantages and limitations of Just- In-Time?

5. Discuss the benefits of implementation of JIT system in manufacturing.

1.13 References/Suggested readings

Chung, C. K., & Bakar, N. A. (2001). The Relevancy of Just-In-Time (JIT) Concept IN
Government Purchasing. Jurnal Teknologi, , 35(A), 1-8.

Dobler, D. W., jr, L. L., & Burt, D. N. (1995). Purchasing and Materials Management. New
Delhi: Tata McGraw Hil Publishing Company Limited.

Gunasekaran, A. (1999). Just-in-time purchasing:An investigation for research and

applications. International Journal of Production Economics , 59, 77-84.

Humphreys, P., Mak, K. L., & Yeung, C. M. (1998). A just-in-time evaluation strategy for
international procurement. Supply Chain Management: An International Journal , 3 (4), 175-
186, accessed from http://dx.doi.org/10.1108/13598549810244197 on January 27, 2016.

Kootanaee, A. J., Babu, k. N., & Talari, H. F. (2013). Just-in-Time Manufacturing

System:From Introduction to Implement. International Journal of Economics, Business and
Finance , 1 (2), 7-25.

Mukhopadhyay, S. K. (1995). Optimal scheduling of just-in-time purchase deliveries.

International Journal of Operations & Production Management , 15 (9), 59-69.

Svensson, G. (2001). Just-in-time: the reincarnation of past theory and practice. Management
Decision , 39 (10), 866-879.

Wong, C. M., & Kleiner, B. H. (2001). Fundamentals of material requirements planning.

Management Research News , 24 (3/4), 9-12.

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Yang, J. S., & Pan, J. C.-H. (2007). Just-in-time purchasing: an integrated inventory model
involving deterministic variable lead time and quality improvement investment. International
Journal of Production Research , 42 (5), 853-863, accessed from
http://dx.doi.org/10.1080/00207540310001632448 on January 27, 2016.
…………………..

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Subject: Purchasing and Materials Management

Course Code: POM-325 Author: Dr. Vijender Pal Saini

Lesson No.: 3 Vetter: Dr. Sanjay Tiwari

Receiving and Incoming Quality Inspection

Structure

1.0 Objectives

1.1 Introduction

1.2 Broad Objectives of the Quality Inspection

1.3 Responsibilities of the Receiving and Stores

1.4 Stages of Quality Inspection

1.5 Receiving and Incoming Quality Inspection

1.6 Importance of Receiving and Incoming Quality Inspection

1.7 Check-lists for Receiving and Incoming Materials and Parts

1.8 Inspecting a shipment

1.9 Inspection of Goods at Receiving and in Manufacturing System

1.10 Methods of Inspection

1.11 Summary

1.12 Keywords

1.13 Self Assessment Questions

1.14 References / Suggested Readings

1.0 Objectives