Materials Management Systems - MRP II &amp JIT

Technological Educational Institute of Piraeus
MSc ADVANCED INDUSTRIAL AND

MANUFACTURING SYSTEMS
Module: Industrial Systems and Management
Assignment 2:
Materials Management Systems: MRP II & JIT
Module Leader : Dr Emilia Kondili
Student’s Name: Georgios G. ROKOS
Student’s Signature :___________________________
Date: January 2011

TECHNOLOGICAL EDUCATIONAL INSTITUTE OF PIRAEUS
Table of Contents
Preface .................................................................................................................................. 2
Abstract ................................................................................................................................ 3
1. Introduction to MRP II and JIT ..................................................................................... 4
1.1 MRP, closed-loop MRP and MRP II ....................................................................... 4
1.2 Just In Time ............................................................................................................. 6
2. JIT Implementation ....................................................................................................... 9
2.1 JIT introduction in a company ............................................................................... 9
3. Materials Management Systems ............................................................................... 13
3.1 Materials Management Philosophies and Practices ...........................................13
3.2 Benefits and functionalities of Materials Managements Systems .....................15
3.3 Materials Management Systems: a brief market overview ...............................17
Annex I. MRP II: A Case Study .......................................................................................... 19
References ......................................................................................................................... 26
1
P
Prreeffaaccee
This paper has its origins in the Industrial Systems and Management Module
of the MSc in Advanced Industrial and Management Systems, undertaken at
the Technological Educational Institute of Piraeus, in cooperation with the
Kingston University, under the aegis of Dr. Emilia Kondyli.
This assignment revolves around Material Management Systems, focusing on

JIT and MRP. It presents elaborately the principles, the philosophy and the
differences between those two systems and proposes a plan for their
integration based on former actual experiences and examples. It also records
the advantages of their integration and co-existence.
Moreover, this paper occupies with Material Management as an ensemble of

techniques and practices. It identifies the functionalities that they include and
the general advantages associated with their implementation. It also presents
an overview of vendors’ market.
Finally, a case study is included in Annex 1, to simulate how an MM system,

in particular MRP II, can be smoothly implemented in a manufacturing
company producing small fridges. The case study is written in the form of a
report, written by a product manager who proposes the implementation of
the system. Most data about the company are imaginary. However, they are
taken from other referenced publications.
Hopefully, this paper will be a pleasant experience for its readers.
Georgios Rokos
2
Abstract:
“JIT and MRP II are two production systems based on different philosophies, the pull
or Kanban philosophy, based on order-fulfillment, and the push, make-to-stock
philosophy based on demand forecasts.
In fact, MRP was American’s response to the Japanese JIT. Their optic angle differs.
As a result, JIT and MRP II offer different benefits and carry different defects.
The goal of combining each system’s benefits so as to cover their defects is a

challenging task.
History shows that it is possible to successfully implement JIT on top of MRP II and,
subsequently, to benefit from both systems’ characteristics. (Krepchin, 1986)”
3
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In the 1980’s, US companies were forced to confront the productivity challenge. A

series of articles in famed magazines, such as Newsweek, Business Week, Fortune
and Time Inc., and journals, such as American Industry, were dealing with America’s
hysteresis compared to the Japanese production model (Wight, Manufacturing
Resource Planning: MRP II: Unlocking America's Productivity, 1984). American
manufacturers were wondering what was going wrong. In the early 80’s most of
them were accusing their labor-based system for their productive insufficiency.
Nevertheless, at that time, some large companies such as Tennant, Twin Disc and
Hewlett-Packard (Sheldon, 2005), were already unfolding their plans to conform to
the teachings of one of the fathers of Production Management that all resources,
including people, who are not a cost source but a production resource, will have to
be managed in better way if greater productivity is to be attained (Drucker, 2010).
Both MRP II and JIT are practices that highlight scheduling and capacity.
1.1 MRP, closed-loop MRP and MRP II
In the 60s, a new method of Material Planning was rising to replace the traditional
Economic Order Quantity (EOQ) technique. This method, called Material
Requirements Planning (MRP), depicts the finished good requirements as recorded in
the Master Production Schedule (MPS) for a predefined product structure (stemming
from Bill of Material or BOM) and turns them into a detailed plan of supplies and
production orders, without neglecting the inventory on hand. MRP may sound easy
to handle, however, its application is very time-consuming if carried out manually.
Companies that implemented MRP saw their inventory, production costs and delivery
lead times decrease as a result of coordinating supplies and production. Despite
MRP’s success manufacturers were looking for a more extended Planning technique
that would apply to more types of resources.
In the 1970s, companies started incorporating Capacity Requirements Planning

(CRP) into the MRP logic. Capacity was introduced to MPS, so that resources
requirements such as labor would be also taken into account in the generation of a
production plan. CRP’s incorporation in the MPS took MRP to the next level, identified
as closed loop MRP (Altekar, 2005). In the early 1980s, the inclusion of financial
resources signified the transition to the Manufacturing Resources Planning (MRP II)
era. American Production and Inventory Control Society (APICS) defines MRP II as:
“A method for effective planning of all resources of manufacturing company. Ideally

it addresses operational planning in units, financial planning in dollars and has a
simulation capability to answer “what-if” questions. It is made up of a variety of
functions each linked together: Business Planning, Production Planning, Master
Production Scheduling, Material Requirements Planning, Capacity Requirements
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Planning and the execution system for capacity and priority. Outputs from these
systems would be integrated with financial reports, such as the business plan, the
purchase commitment report, shipping, budget, inventory production, etc.” (APICS,
1985).
At the beginnings of MRP and MRP II many Process Industries reacted to their
correlation with Discrete Manufacturing Industries. Sheikh (2003) finds that there
are only some minor differences between the two when it comes to MRP.
Specifically, he recognizes that scheduling and Work In Progress Control as they are
incorporated in the MRP logic are not so vital for Continuous Process Manufacturing
Companies due to their easy-to-handle BOMs and court lead-times. Yet, the
purchasing function associated with MRP remains a plus even in this kind or
companies. In addition, MRP could facilitate quality and cost control processes as far
as Batch Process Manufacturing companies are concerned, especially when the batch
mode implies numerous BOM levels, extended lead-times and workcenter-
dependent lot-sizes. That is because their planning and scheduling processes are
likely to look alike those of jobshop environments. Table 1 compares the MRP logic in
Process and Discrete Manufacturing.
Differences Between MRP II Functionalities as Applied to Discrete and Process Manufacturing

Sr. No. Function Discrete Manufacturing Process Manufacturing
1. MPS Unit driven Production Process driven family
2. Constraint Material availability Capacity utilization
3. Planning Issues Schedule attainment Process continuity and yields
4. MRP I Primary tool for detailed planning Secondary tool, or not used for detailed
planning
5. CRP Secondary tool for detailed planning Primary tool for detailed planning
6. BOMs/ Formulas 1. Deep and complex BOMs 1. Shallow and simple formulas
2. BOM shape is generally either 2. Bill shape could be ‘A’, ‘V’, ‘X’, or ‘I’.
‘A’ or ‘X’ 3. BOM models the manufacturing
3. BOM models the product process
breakdown 4. Quality specifications are much
4. Quality specifications are tight wider (p.ex. acceptable water
(p.ex., acceptable dimensions content between 2 and 7%)
10±0,002mm). 5. Process outputs may vary due to
5. Process outputs are accurately variation in the input specifications,
predictable such as potency (a measurement of
active material in a specific lot),
concentration, or purity
7. Material Item number, quantity and location are Additional specifications, such as unit of
Specifications enough in most cases measurement, lot/batch number, sublot
number, expiry and/or best-before date,
container type and ID, potency, etc are
required
8. Routings Many with alternatives Fixed by process
9. Work Centers Discrete and flexible Fixed and dedicated
10. Planners Commodity and part focused Process focused
Table 1: MRP II-related differences between Process and Discrete Manufacturing
Source: Scheich (2003)

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1.2 Just In Time
Just-In-Time or JIT is a management approach coined by Taiichi Ohno, an engineer

at Toyota, who was inspired by the way American supermarkets were operating.
Ohno observed that clerks replenish the shelves on a regular basis and figured out
that a company would benefit from a plan that would minimize movement or
transportation in a way that only the necessary material would be available at the
necessary time and place. His theory’s backbone was “Eliminate Waste”, namely
time, motion, unnecessary products, defective products and WIP inventories (Shaw
& Mazur, 1997).
T-Ohno started working on his theory in 1950 but managed to put into practice only
12 years later. JIT was the response of the Japanese to Americans’ superiority in
terms of manufacturing productivity. Just-In-Time was not generated out of the blue.
Japanese manufacturers were struggling to arrive to a competitive production
practice for years, inviting experts to share their wisdom (Arora, 2004; Son,
Tutschke, & Yang, 2004)
 Dr. W.E. Deming
In 1950, Japan invited Dr. Edward Deming to give lectures on the topic of statistical
quality control to manufacturers and opinion leaders.
Deming highlighted the importance of statistics in the elimination of excessive

inventory and production. In fact, he showed how to manufacture low cost, yet high
quality products.
Deming’s contribution to the Japanese manufacturing industry was so vital that its
representatives named after him the most prestigious award for quality, the “Deming
Prize”.
 Dr. J. M. Juron
Four years later, Juron succeeded Deming by giving lectures on the Quality topic.
Juron initiated the “Involve Everyone” management practice. At first, he encouraged

Top Managers participate in practice on quality matters. Then, he introduced his
Project to Project Quality Improvement Theory by asking administrators to constantly
seek for improvement opportunities.
Juron also theorized that senior managers should be allowed to make decisions by
themselves and even set-up lower-level project teams if they foresaw a chance to
improve the production process.
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He believed that companies make a habit of ignoring the low-quality products’ costs
and that by following his Cost of Quality Principle, also known as “Gold in the Mine”,
they would not only improve the quality of their products but also lower their
manufacturing costs.
His theories were immediately adopted by Japanese Industries.
 Professor Kaoru Ishikawa
Ishikawa was a Japanese Professor who approved Juron’s theories and proposed
that they should be applied to even lower scales, down to workforce. He based his
proposal on the conclusion that operational controllable problems are generally very
likely to creep for more time than needed because Top Management tends to
underestimate them.
He also accused Taylorism of abalienating workers and devaluing supervisors.

Ishikawa believed that should teams of workers of a certain department receive
some training, they would be capable of taking actions to ameliorate their working
field, of making targeted proposals and of detecting gaps.
Schniederjans and Olson (1999) argue that JIT principles have expanded with the
pass of time. At first, they only applied to Inventory Management but they soon
extended to production management and quality management.
Inventory Management Production Management

Seek…
zero inventory uniform daily production scheduling
reliable suppliers production scheduling flexibility
reduced buffer inventory a mixed model scheduling system
reduced lot sizes and increased frequency of a synchronized pull system and eliminate waste
orders
improved inventory handling improved flexibility in providing product
changeovers
continuous identification and correction of all improved communication and visualization
inventory problems
production lot sizes
reduced production setup costs
to allow workers determine production flow
unitary production
to schedule work at less than full capacity
increased standardization of product processing
continuous identification and correction of all
production management problems
Table 2: JIT principles in Inventory and Production Management
Source: Schniederjans and Olson (1999) 7

Quality Management Supplier Relationship

Seek…
Long-term commitment to quality control efforts Certification in quality of items purchased
High level of visibility management on quality Improved quality
To use fail safe methods to help ensure quality Reduced costs
conformity
Self-correction of worker-generated defects Timely communication and responsiveness
Process control maintenance and strict production Smaller lots with more frequent delivery
quality compliance
To utilize statistical quality control methods to Single-source suppliers
monitor and motivate product quality
To empower workers by sharing authority in the Long-term relationships with suppliers
control of product quality
To persuade workers perform routine Ordering flexibility
maintenance and cleaning duties
To make quality everybody’s responsibility To reduce inventory delivery lead time
To maintain 100% quality inspection of products To continuously identify and correct all supplier
through WIP efforts relation problems
Table 3: JIT principles in Quality and Procurement Management. Source: Schniederjans and Olson
In the 1980s, JIT incorporated human resource management principles, taking into
account the physical working environment.
In the 1990s, JIT philosophy entered the fields of services and administration.
Human Resource Management Facility Design

Seek…
To provide continuous and extensive training To use automation where practical
Long-term or lifetime commitment to employees A focused factory
A highly flexible workforce To identify and eliminate production bottlenecks
To maintain a substantial part-time workforce to schedule work at less than full capacity
Employee team approach to production cells and To reduce distance between all production
problem solving activities
To establish a family atmosphere to build trust in
To reallocate reduced physical space under JIT to
employees other productive activities
To establish compensation plans that reward To minimize material handling by using reusable
individual and team efforts containers and unity packaging
To utilize peer pressure to motivate employee To minimize material flow congestion by
performance designing replenishment systems closer to the
point of use
To build pride in workmanship and mutual Continuous redesign efforts to improve facility
respect of employees layout and facility structure
To continuously identify and correct all human To use group technology cells in production
resource problems layouts
increased standardization of product processing
continuous identification and correction of all
production management problems
Table 4: JIT principles in HR Management and Facility Design
Source: Schniederjans and Olson (1999) 8

Chapter 2. JIT Implementation
JIT and MRP II are two production systems based on different philosophies, the pull
or Kanban philosophy, based on order-fulfillment, and the push, make-to-stock
philosophy based on demand forecasts.
In fact, MRP was American’s response to the Japanese JIT. Their optic angle differs.
As a result, JIT and MRP II offer different benefits and carry different defects.
The goal of combining each system’s benefits so as to cover their defects is a

challenging task.
History shows that it is possible to successfully implement JIT on top of MRP II and,
subsequently, to benefit from both systems’ characteristics.
Krepchin, (1986) describes how DuPont de Nemours & Co, a science-based

manufacturing company, implemented JIT on top of MRP II and achieved a surge of
productivity by 25% and a drop of cycle times from 6 weeks to 2 days (!). After the
implementation, their assembly plant ran with lot sizes of one.
Tucker & Davis (1993) identify numerous cases of JIT implementations on top of
MRP. Nothern telecoms, a small US-based computer and telephone manufacturer
was using an MRP system and decided to procceed with a JIT system in 1972. The
reason was that the company wanted to reduce the inventory levels. Nothern
Telecom accomplished the reduction of manufacturing cycle time by half, of
inventory transactions by 30%, while the storage and production space was
diminished by 62%.
Benton & Shin (1998) identify the integrated JIT – MRP systems as Synchro-MRP,
Rate-based-MRP, and JIT/MRP, systems.
2.1 JIT introduction in a company
According to Sillince and Sykes can work together. JIT can be complementary of
MRP, so that the benefits of the first cover up the gaps of the second.
Sillince & Sykes (1992), Cheng, Podolsky, & Jarvis (1996), relocate the following
fields in which MRP II and JIT can complement each other:
1. MRP II can not operate with repetitive processes, while JIT can.
2. JIT can not operate in companies that produce a great number of codes
while MRP II can.
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3. MRP II can handle fluctuating demand because it provides the company

with a production plan for average demand, based on forecasts, whereas
JIT is more flexible at low levels of WIP.
4. MRP II does not allow changes in its production plan. That is why its
alternative, Distribution Requirements Planning (DRP), is often preferred
by companies that face high customer changeability. JIT is a pull system,
thus it expects orders first to set up production.
5. Shall a company want to apply changes in routeings or design, it will be
restricted by its MRP II system. A joint MRPII/JIT system implies manual
stock controls on the shop-floor, thus such changes are possible.
6. When it comes to continuous improvement, MRP II is a hesitant system
whereas JIT favors any changes for the shake of production
improvement.
7. MRP II can cope with fluctuating demand but once implemented, it can
no longer lead to cost and lead times reductions. That is because “it is
based on traditional order point and economic batch quantities to process
the goods” and fixed batch sizes signify standard lead times and standard
production duration.
8. MRP II delimits each employees range and dictates that specific training
should be offered to specific posts. JIT on the other hand proposes a
broadened range of activities and, hence, training no matter the post of
the employee. This postulates greater versatility.
9. JIT is not a forethoughtful system, as it does not look into demand
forecasts. Thus, it is likely to breed shortages. In addition, it can not
handle complex flows or equipment breakdowns. Some companies have
added to their joint MRPII/JIT system OPT or other own-designed
systems to deal with lookahead risks.
10. MRP/JIT makes stock control manual on the shop floor thus changes are
more possible.
Huq & Huq (1994) suggest that the features of JIT are of secondary importance.
They state their belief that should a company attempt to implement Just In Time, it
must first provide the system with an operating environment, namely:
 Group Technology
 Preventive Maintenance
 Uniform Plant Load
 Low Set up Times
 Supplier Participation.
The adjustment of the company to the above dictations constitutes the major strike,
even before the implementation takes place.
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According to (Benton & Shin, 1998), companies that implement JIT should expect an
increase in unit cost, which will be leveled by the reduction in inventory and
manufacturing costs in the long run.
Gupta & Brennan (1993) simulate how the two systems work together in an
electronics company, like in our case. A general overview is given below.
Description of
manufacturing model
MRP
CRP Master
Schedule
JIT logic
Shop floor Knowledge

logic database
Output
Figure 1: Hybrid MRP II/JIT architecture
Source: Gupta & Brennan (1993)

According to the proposed model, MRP is responsible for the production planning and
JIT for the production control. MRP will address to the planned order releases for the
finished products while JIT will control the production of the component parts
required for the planned order releases.
MRP will occupy with the Capacity Requirements Planning (CRP) so as to provide a
MPS adjusted to the organization’s particularities. The MPS will constitute an input to
the JIT model, which comprises JIT, the Shop Floor Logic and, of course, a database
that will serve as the link between JIT’s rules and the CRP module, the knowledge
database.
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The latter will also contain information about the products, the processes and the
resources. It will include the structure of the operations and a dynamic time-
structure that will upgrade constantly, every time the production process makes a
step.
The JIT module will serve as a “pulling mechanism” of the lower lever component
parts into the production system. The SFL will make sure that the WIP operations are
properly assigned and delivered, so that the flow of materials and the level of
resources are synchronized.
According to Cheng, Podolsky & Jarvis (1996), to avoid a breakdown during the JIT
implementation, companies should follow seven steps.
1. Educations and leadership. Educate all the concerned parties. Develop a

leadership plan.
2. Company assessment. Especially top management must be committed to the
plan.
3. Implementation plan. Develop an accurately-stated plan.
4. Pilot implementation. Implement the system for specific products. See how it
works.
5. Small group improvement organization and quality circles. Determine small
activity groups.
6. Performance evaluation. Record the results and compare them with the
former situation.
7. Company-wide transition and internalization.
Sillince and Sykes (2003) believe that some products can be treated under the JIT
philosophy while other products can be treated under the MPR II philosophy. The
latter is preferable in the case of small, low-value and difficult to acquire items.
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Chapter 3. Material Management

Systems
Corke (1977, p.245, cited in Lind 1991, p.76) defines Material Management as…
“a technique that comprises all the functions associated with the flow of material,
from identifying the need to place orders on outside suppliers, through buying,
receipt of goods, ordering of manufactured items and control of manufacture, to
dispatch.”
Datta (1998) suggests that Materials Management objectives can be classified into to
levels: the Primary and the secondary objectives. The primary objectives deal with
provisioning, storage and reduction of inventories whereas the secondary objectives
are related to the detection of new sources of supply, the development of labor’s
skills, the coordination of functions and activities, the standardization of processes
and materials, variety diminishment, value analysis and reengineering.
The accomplishment of the above implies (a) the uniform flow of supplies, (b) the
reduction of materials costs, (c) the appropriate value-for-money proposal, (d) the
establishment of good external relations, (e) the provision for lower departmental
costs and better customer service without disrupting the ambience, and finally (f) the
effective inventory control.
He recognizes the following major objectives:
1) Profit increase for survival and growth

2) Customer service increase.
3) Technological innovations
4) Good internal human relations
5) Other social objectives
3.1 Materials Management Philosophies and Practices
There are various practices to implement a MM plan. Howerer, the philophic

approaches that these practices imply are limited to two; the Pull and the Push
systems.
Material Management Systems can be divided into three major categories (Lakshmi,
2010):
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1. Pull Systems
Pull systems are a group of methods that aim at the immediate replenishment when
stock is used in the productions process. Most of the "pull" systems are based on
visual controls instead of computer controls. This is why they are aligned to "lean
manufacturing". Pull systems are “zero-inventory” oriented.
• Replacement. The manufacturer instantly replaces the stock entering the

production process.
• Vendor-managed inventory. In this case, suppliers check by themselves
their client’s inventory status through simple top-up to predetermined levels.
• Top up point of use. Suppliers deliver their products directly in their point
of use, to avoid unneeded proceedings.
• Input /Output control. It controls what is input and what out the
manufacturing process. This is also known as a "Conwip" (Constant WIP)
Kanban system.
• 2 bin systems. There are two bins in the process. Bin 1 is in use and Bin 2
is close, waiting to replace bin 1 when it is worn off. Bin 1 is then refilled,
waiting for the replacement of Bin.
• 3 bin systems. In this case, safety stock is stored in the third bin. If the
third Bin is required, the company must detect the flaw in the process.
• Kanban systems are an extension of the 2 and 3 bin systems. There is a
standard number of containers in the system that are spread throughout the
system.
• Reorder point systems. This is also a replenishment method, taking into
account the variability of supply and demand and lead-times mediating to
replenish. A reorder-point is set prior to the need for the safety stock usage.
2. Push Systems
Push systems are a group of methods that deal with demand forecast and are
inventory - compatible.
• MRP systems – logic (See Annex 1). It may be integrated in an MRP II or

an ERP system.
• All time buy. This is used for items difficult to acquire in the future and of
low value. It is applied mainly in the aerospace and electronics industries.
• Project manufacturing. It is different than MRP systems. This system
schedules both parts and processes. Different BOMs are created for different
projects, including engineering resource planning.
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3. Other Complementary techniques
• Consignment stocks. Manufacturers who do not want to keep stocked

inventory pre-buy their material resources but suppliers keep them in their
warehouses until their client needs them.
• 3rd party kitting. This system is usually combined with 2 bin systems.
While one kit is being delivered, a second one is being prepared. In this case
the manufacturing company does not have a direct transaction with the
kitting supplier. They deal with an intermediate who acts as the supplier.
• Milk-round. In this case the manufacturer delivers products and receives
supplies on a predefined basis that can be weekly, monthly etc. This method
is particularly used by companies that only deal with big clients. Economy of
scale is its greater advantage.
• Visual control systems. These systems are aligned with the JIT systems
and lean manufacturing processes. The goal is to have 100% accurate BOMs.
These systems can determine the suppliers payment.
Today, no matter which material management technique is put forward, it is

integrated in a broadened system called ERP, or Enterprise Resource Planning. A
company may use various techniques, depending on the code. One component part
may call for MRP treatment and another for a JIT treatment.
3.2 Benefits and functionalities of Material Management Systems
Numerous advantages can be attributed to the use of Material Management

Systems. The most important of them is the generalized organization of the
company. Specific benefits identified in the adoption of an MM system are listed
below:
1) Inventory cuts. Inventory is a holding cost (Kondyli, 2010).

2) Productivity increase. The organization of the company will bring an increase
in productivity, both at the front office and at the shop floor (Entrup, 2005)
3) Data Standardization. This will help the Production department, which will
know what it will, when it will need it, the Sales Department, which will be
able to coordinate its practices with the production, the Procurement
Department, which will be enabled to build strong relationships with the
proven-to-be most responsible suppliers, and the Marketing Department,
which will be able to build a strong Brand Name for the final products and the
company itself.
4) Increased rate of on time order fulfillments. Clients will be more satisfied with
the company and the risk of losing a specific customer will decrease
significantly.
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ERP’s MM functionalities:
1. Inventory Management. This module offers accurate visibility and

effective contol over inventory. Thus a customer-by-customer pricing can be
achieved while operating costs will drop and the customers will be satisfied
by the timely order deliveries.
2. Extended Pricing enables a company to develop standard price schemas
(such as reductions, value off and net pricing, and other customized pricing
options), to apply a successful sales and promotions plan, and to possess and
an easygoing pricing index.
3. Bill of Materials allows a company to:
 organize supplies
 include electronic notes to bills to assess the precise component use
 identify the actual cost of assembled items
 plan future shifts, and manage current and past products
 plan transactions without keeping stock.
4. Cradle-to-Grave Serial or Lot Tracking allows a company to:
 recognize more effectively lot number lifecycles.
 easily research and track an item using its serial or lot number.
 search in all transactions, including BOM and customer orders.
5. Shelf Life Controls and automated alerts is a module used to make sure
that expired lots will not be selected for production or distribution.
6. Item Classing. It allows a company to organize and track its items more
easily.
7. Inventory Ranking. This module allows a company to prioritize the
allocation of stock based on the value of the items, the expiration date, etc.
8. Quality Controls. This module helps the company to keep close control over
the inventory with quantity tracking at the bin level, cycle counting, stock
count calendars, and inventory snapshots.
9. Bin Lookups allows the company to decide which bin to use based on bin
priorities and maximum capacities and accept or turn down the system’s
suggestions.
10. Multi-bin Tracking allows a company to detect a single item across multiple
bins inside the warehouse.
11. Real-time Moving Average Cost can be calculated every time a
transaction takes place purchase, generating simultaneous general
accounting adjustments for inventory.
12. Instant Access to Transaction Information. This can be particularly
useful in case of retarded payments.
13. Document Transfer allows the users to transfer information for one item
from one document to another.
14. Comprehensive Reporting Tools. These tools permit the analysis of all
facets of the inventory status, with comprehensive standardized reports.
15. Stock Count and Discrepancy Alerts. This module permits the company
to possess an up-to-date stock count schedule and look into stock disparities
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quickly with system alerts that notify us when inventory should be counted or
when differences exist between an item's reported status and its actual
presence.
3.4 Materials Management Systems: a brief market overview
As aforementioned, Materials Management is today a module of the expanded ERP.

For manufacturing industries, this part of ERP systems is the most important one.
Through the SaaS versions, a company may acquire solely the Materials
Management Module and implement it in the existing system. The cost of Materials
Management Systems varies depending on the number of users, the consulting
services and their duration, the vendor and their expansions.
According to Barrar (1995), the quality of an MM

system depends on the largeness of vendor.
Panorama Consulting Group (2010) showed that
price depends on it as well. The latter conducted
a research on the general ERP Market. 31%
30%
PCG identifies SAP as the market’s leader of
today. SAP is believed to gather 30% of the total
ERP implementations globally.
15%
Oracle comes second, with a rate of 25%. 25%
Microsoft is third-classed, with a rate of 15%. The
remaining 30% is shared among the rest of
vendors. Figure 5: 2010 ERP Market Share
SAP Oracle
Microsoft Tier
Source: Panorama Consulting II (2010)
Group
Tier I Tier II Tier III

SAP Epicor ABAS
Oracle Sage Activant Solutions Inc.
Oracle e-Business Suite Infor Bowen and Groves
Oracle Peoplesoft IFS Compiere
Microsoft Dynamics QAD Exact
Lawson NetsSuite
CDC Software Visibility
CGS
Exact
HansaWord
Consona
Syspro
PCG also divides ERP vendors into 3 categories, depending on their size. Table 5
depicts which vendors are classed in which category.
Table 5: 2008 Overall Comparison of Tier I and Tier II ERP solutions

17
Source: Panorama Consulting Group (2010)
The average implementation costs varies between $2,6 m and $16,8 m.
SAP Oracle Microsoft Tier II Average

Duration
(Months) 20,0 18,6 18,0 17,8 19,8
Cost of
Implementation $16,8 m $12,6 m $2,6 m $3,5 m $8,5 m
Overall
Satisfaction 73% 62% 69% 70% 67%
Business Risk
Factor 50% 56,9% 57,7% 61,8% 54%
It should be underlined that the above costs concern a full ERP implementation. The
Table 6: Classification of products in Tiers
Source: Panorama Consulting Group (2010)
MM module by itself will cost a lot less. Unfortunately, a pricelist for the MM module
only, is not available.
18
Annex I. Materials Management: A Case

Study
Storyline: My name is Georgios Rokos. I am a Production Manager at Refr-, an

EU-based manufacturing company making small fridges for the domestic market.
The company’s production volume is currently 300 units on a monthly basis. The
company is not equipped with any kind of Materials Management System. I am
writing a report to the company’s CEO to recommend the implementation of an
MRP II system, aiming to improve the company’s overall productivity. Although
MRP II would work better if accompanied with a JIT system in a repetitive
manufacturing company, Refr- had better enter CAM with a simple system. After
all, JIT is usually implemented after and on top of MRP II. Refr- currently
occupies 50 people.
TRANSMITTAL LETTER
January 17, 2011
Mr. Antony Jenkins

CEO
Refr- S.A.
Dear Mr. Jenkins:
I am submitting to you a report to let you know the benefits and the
procedure of a Materials Management system implementation. The report
is entitled Implementing MRP in Refr- company. The content of this report
concentrates on a plan to implement an MRP system in Refr-. If you
should have any questions concerning my project and paper, please feel
free to contact me at 6945454544.
Sincerely,
Georgios Rokos
Production Manager
19
A) Introduction to Manufacturing Resource Planning (MRP)
Manufacturing Resource Planning is a scientific computerized method for planning

the ordering and usage of materials at various levels of the production process and
for tracking the inventories and the capacity resources at any given moment of the
production flow. MRP II is an Inventory Control, Capacity Control and Scheduling
computer system. It coordinates actions so as to achieve greater productivity.
Manufacturing Resource Planning’s main activities are summarized below (Sheikh,

Manufacturing resource planning (MRP II): with introduction to ERP, SCM and CRM):
1. Master Scheduling (Strategic Planning). MRP II sets a company’s

management plan in manufacturing terms. It plans the manufactured output
of a company. or MPR II must comply with the directions of other
departments. That is why it develops the company’s overall plans.
2. Detailed Planning of Material Flows and Capacity (Tactical Planning). MRP II
develops a plan of material and capacity requirements.
3. Plan Execution (Operations Planning). MRP II deals with the execution of the
tactical planning in terms of detailed shop scheduling and purchasing. A shop
floor control system makes sure that the incoming orders will be delivered on
time. A purchasing system develops detailed plan of supplies schedule.
MRP II consists of the following modules:
• The Master Production Schedule. MPS is a plan for the anticipated demand -
orders. It contains information about both the quantity and the timing of
forthcoming orders.
• The Bill of Materials. BOM provides the system with the formulas –
composition of each final or semi-product manufactured within the plant. It
records the component part needs of our production process.
• The Inventory Status Record. ISR depicts what resources are on hand, the
scheduled receipts and what is allocated. It also contains information about
the lot sizes of each one of the component parts or subassemblies.
The three above elements constitute what was MRP II’s ancestor, the Material
Requirements Planning. The integration of MPS, BOM and ISR may provide the
company with a Purchasing Schedule and a proper Inventory Control System. MRP II
also contains:
• The Routing, which demonstrates the capacity -labor or equipment- resources

needed so as to meet MPS’ requirements.
• The planned or current capacities (manpower and equipment).
20
• Demand Management. This module consolidates the company’s requirements

for one item from all the directions involved, such as the sales forecast,
based on statistical data, eventual delayed order receipts and equipment or
machinery maintenance requirements.
B) The benefits of MRP II
Companies that implement an MRP II system usually experience the following

benefits (Entrup, 2005):
• At least 95% on-time completion of orders.

• Reduced Inventories, normally by between 20 and 35%.
• Greater labor productivity, from 5 to 10% in fabrication, 25 to 40% in
assembly and 50 to 90% overtime cuts.
• Greater productivity of support staff, as a result of labor’s greater
productivity.
• Data standardization.
MRP II is a trial & error system. If a sudden order comes along, the company may
meet its material requirements to respond to the demand but the system will inform
us if it does not meet the capacity requirements. Thus, it will be known if an order
can not be completed on time and the retarded order fulfillments will be significantly
reduced.
In addition, the management will be aware of eventual labor-related delays.

Productivity will inevitably increase.
Through its implementation, the company will be able to keep accurate data
concerning both sales and the production flow. It is a system that will coordinate the
sales department and the shop floor.
21
C) The Implementation Plan
Prior to the implementation, Refr- should select the appropriate vendor. MRP II
vendors can be classified depending on (Barrar, 1995):
• The consultancy services offered. The extent of the services offer varies.
Some vendors emphasize this procedure, while others undermine it. Since
Refr- does not have any experience in the field of Computer Aided
Manufacturing, it would be wiser to prefer a vendor who offers a wide
consultancy-services package.
• Their manufacturing expertise. MRP II works better in discrete manufacturing
companies. The selected vendor should be an expert in repetitive
manufacturing, as in our case.
• Their target users. Some vendors target larger enterprises, while others
target smaller manufacturing units. Although this should not be a criterion in
the selection process, Refr- should bear in mind that small companies like
ours are usually receive big client treatment by smaller vendors.
• Their turnover. Larger vendors are more likely to provide a wide range of
services. In addition, they possess the specialists needed to offer quality
services.
• Their rate of growth. Fast growing vendors are likely to provide more
qualitative services.
The selection process will be made in two steps. First the company should pick out
the most interesting written proposals. Four or five vendors should be discriminated.
Then, those vendors should be invited to discuss the possibility of co-operation. It is
important to identify whether the vendor’s philosophy matches Refr-’s. The company
should select the vendor based on the content of his plan and not on the cost that it
implies.
The selected vendor should then be equipped with elaborate data that are related to
the project. These data include:
 Financial Information. What the company pays and what it receives. What is
the cost for each item delivered to the company. What is the pricing strategy.
What are the incentives that suppliers offer for mass orders.
 Production Information. Who does what in the shop floor. What are the
procedures for a possible machinery breakdown. How often does such a
breakdown occur. The BOM. The Inventory Status Report.
 Sales Information. What is the ratio of Big to Small orders. What is the
forecast for future demand.
This information will be detected by a member of our staff who will schedule
personal meetings with the directors of the above departments. Additionally,
information can be tracked in the balance sheet and in invoices.
22
Figure 3: Architecture and Information Resources for MRP II
Source: Moustakis (2000)
Phases of Implementation (Wight, 1984;1995a)
1. Initial training/education. Prior to the justification process, top and middle

management should receive an introductive training to be able to judge the
system.
2. Commitment. The administration must commit to the project. Top
management must communicate to the employees the commitment with the
vision. A vision statement should be signed at this point.
3. Project Leader. The project leader should stem from the company. It should
not be the consultant or a newcomer. The project leader should be a person
who knows deeply the company and its employees. Perhaps the CIO or even
the CEO himself. The project leader should be 100% dedicated to the
implementation.
4. Professional Guidance. At this point the company must assign a consultant to
facilitate the implementation process.
5. Project Plan – with cost/benefit analysis. A financial plan should be developed
at this point, setting up the goals of the whole project. The steering
committee, on behalf of the management, and the project team should be set
up.
6. Training. A more elaborate training takes place at this point. This time
everyone involved in the process participate.
7. Right after training, goals should be identified and stated. Also, Performance
evaluation measures should be taken.
23
8. Data insertion commences. This is the most crucial step of the

implementation process. If inaccurate data is mitigated, the system is very
likely to collapse when going live.
9. Process Improvement. The manufacturing flows should be reviewed at this
point. MPR II philosophy must impact the processes.
10. Regular Management Review. The system starts operating. For 8 months, the
operation will be considered pilot. Any gaps or mistakes will be detected
during this period.
The overall implementation time is estimated to be between 15 and 18 months. At

least 3 months are needed to develop an accurate report, based on statistics and
actual past operations, which will represent the company in figures. This report will
be an input to MRP II.
D) Cost and Benefit Analysis
There are three types of Costs (Wight, 1984).
4. The computer costs (Hardware, Software and Systems Work)

5. The data integrity costs (BOM, routings, ISR, work centers, MPS)
6. People (Education, Professional Guidance)
We may also discriminate the costs as one-time and on-going costs.
50 people are working at Refr-. An MRP system should have about 7% of the
total labor trained on it. Thence, the MRP II system should not be operated by
more than 4 users plus the CEO. A 5-user MRP II system should cost no more
than 300000€, all computer costs included. As for the training, it costs about
2000€/ person. For 5 trainees the cost will climb at 10000€. An additional 20% of
the purchasing cost is normally the vendor’s compensation yearly for his support
services, thus 60000€ should be budgeted on annual basis.
About 7% of the employees should receive training. Training costs are about
2000€ per person. In Refr-, there are 50 employees, thus 4 should receive
training for total cost of 8000€. An MRP installation one-time cost is about
300000 and a 20% yearly to maintain it. Normally, 2 employees must take live
courses every year, either to continue their training or because they are
newcomers
Given that Refr-‘s monthly revenues are 300 items x 200€ = 60000€ and the
company’s profits are 20000€ per month (assuming that 30% of the turnover is
the labour cost, another 30% of the turnover covers up the procurement and the
24
rest of production costs and 10% constitute the inventory related expenses) or
240000€.
According to the worst scenario, financial benefits related to MRP II will begin to
appear 18 months after the implementation started.
• Inventory-related benefits: Drop of Inventory Costs by 30%, namely

21000€ yearly.
• Drop of the salaries, due to the diminishment of overtimes, by 10%,
namely 24000€ yearly.
• Increase in overall productivity by 15%, two thirds of which is profit and
one third procurement and other production costs. Namely 48000€.
It appears that Refr-‘s profits will increase by 93000€ annually. This means that
the company will achieve Return on Investment in approximately 4,5 years.
25
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Technological Educational Institute of Piraeus

MSc ADVANCED INDUSTRIAL AND

Module: Industrial Systems and Management

Materials Management Systems: MRP II & JIT

Module Leader : Dr Emilia Kondili

Student’s Name: Georgios G. ROKOS

Student’s Signature :___________________________

Date: January 2011

This assignment revolves around Material Management Systems, focusing on

Moreover, this paper occupies with Material Management as an ensemble of

Finally, a case study is included in Annex 1, to simulate how an MM system,

Hopefully, this paper will be a pleasant experience for its readers.

The goal of combining each system’s benefits so as to cover their defects is a

CChhaapptteerr 11.. IIn

In the 1980’s, US companies were forced to confront the productivity challenge. A

1.1 MRP, closed-loop MRP and MRP II

In the 1970s, companies started incorporating Capacity Requirements Planning

“A method for effective planning of all resources of manufacturing company. Ideally

Differences Between MRP II Functionalities as Applied to Discrete and Process Manufacturing

Source: Scheich (2003)

1.2 Just In Time

Just-In-Time or JIT is a management approach coined by Taiichi Ohno, an engineer

 Dr. W.E. Deming

Deming highlighted the importance of statistics in the elimination of excessive

Juron initiated the “Involve Everyone” management practice. At first, he encouraged

His theories were immediately adopted by Japanese Industries.

 Professor Kaoru Ishikawa

He also accused Taylorism of abalienating workers and devaluing supervisors.

Inventory Management Production Management

Source: Schniederjans and Olson (1999) 7

Quality Management Supplier Relationship

Human Resource Management Facility Design

Source: Schniederjans and Olson (1999) 8

Chapter 2. JIT Implementation

The goal of combining each system’s benefits so as to cover their defects is a

Krepchin, (1986) describes how DuPont de Nemours & Co, a science-based

2.1 JIT introduction in a company

3. MRP II can handle fluctuating demand because it provides the company

Shop floor Knowledge

Figure 1: Hybrid MRP II/JIT architecture

Source: Gupta & Brennan (1993)

1. Educations and leadership. Educate all the concerned parties. Develop a

Chapter 3. Material Management

He recognizes the following major objectives:

1) Profit increase for survival and growth

3.1 Materials Management Philosophies and Practices

There are various practices to implement a MM plan. Howerer, the philophic

• Replacement. The manufacturer instantly replaces the stock entering the

• MRP systems – logic (See Annex 1). It may be integrated in an MRP II or

3. Other Complementary techniques

• Consignment stocks. Manufacturers who do not want to keep stocked

Today, no matter which material management technique is put forward, it is

3.2 Benefits and functionalities of Material Management Systems

Numerous advantages can be attributed to the use of Material Management

1) Inventory cuts. Inventory is a holding cost (Kondyli, 2010).

1. Inventory Management. This module offers accurate visibility and

3.4 Materials Management Systems: a brief market overview

As aforementioned, Materials Management is today a module of the expanded ERP.

According to Barrar (1995), the quality of an MM

Tier I Tier II Tier III

Table 5: 2008 Overall Comparison of Tier I and Tier II ERP solutions

The average implementation costs varies between $2,6 m and $16,8 m.