Chapter 1 Literature Review Order Forecasting Methods

Material requirement planning system and its components

Today most large manufacturing enterprises throughout the world used by the manufacturer a planning method called Material Requirements Planning (MRP). This is primarily done through special software. Material Requirement Planning is used as the dependent technique in a production environment. If there is a relationship between the items, demand is dependent on the items. Therefore, numbers for all subcomponents may be calculated as management gets an order or develops a projection for the final product. The raw ingredients and components required to create the completed product are all dependent on one another. Dependent models are preferred use in manufacturing, distributors, and every field.
Material Requirement Planning is a set of techniques that uses bill of material data, inventory data, expected receipts, expected release, and the master production schedule to calculate requirements for materials. MRP system assists the organization in providing products for delivery to customers on time. If the company does not buy enough goods, the company can not supply products on time. Therefore, MRP helps the company to find answers to these questions:

1. 
   Which material and its components are needed to buy?
   
2. 
   How many are needed to buy?
   
3. 
   When they are needed?
   

MRP also helps the company to get the lowest possible material levels without losing the quality of products. It searches to find a way how to increase customer demand by reducing materials and products without loss of quality. It helps to improve profitability and the ability of operations. İt is also effective in decreasing labor costs.
The company must meet the relationship between past and future demands and gather accurate information that how many products are needed. If customer orders for products exceed the quantity of the inventory on hand, production delays will happen and it results in reducing loss of customer and money. Otherwise, if the company buys large amounts of products or materials, money is wasted. Therefore, Therefore, MRP is used to avoid production delays and to make process consistency.
Bill of material data, inventory data, expected receipts, and expected release is calculated for all components. MRP assures that materials and components will be available when needed, minimizes inventory levels, decreases customer delivery times, and improves customer satisfaction.
The five basic inputs of an MRP system include (for dependent inventory models):

1. 
   Master production schedule (what is to be made and when)
   
2. 
   Bill of material (materials and parts required to make the product)
   
3. 
   Inventory control system (what is in stock)
   
4. 
   Purchase orders outstanding (what is on order, also called expected receipts)
   
5. 
   Lead times (how long it takes to get various components)
   

Before defining each of these requirements, Aggregate planning is prepared. Aggregate planning provides input in terms of the master production schedule for MRP. Aggregate planning is determined due on the demand forecast, the production capacity, the inventory level, the labor force, and the production costs. If changes happen in demand, capacity, inventory, labor, or costs, these changes affect aggregate planning.

1. 
   The master production schedule is planned into specific products and periods as opposed to aggregate plans. The schedule must be made due to the aggregate plan. The plan is created as the result of the capability of operation, supplier performance, financial data, inventory system, manufacturing and production capacity, and more. The master production schedule ensures what items to make and when. master production scale differs from the aggregate plan due to the determination of specific products at a specific time. İf changes happen in the plan of production changed to another production, these changes will affect MPS.
   
2. 
   Bill of material has different types; engineering bill of materials and manufacturing bill of materials. It depends on business needs. In the production process, a bill of material is called an ingredients list. Bill of material (BOM) is a hierarchical listing of all the materials, and sub-components needed to make a product. BOMs are categorized into dependent and independent demand. In independent demand, the final product is at the top of the hierarchy. But, for each of these components, it is defined how many items are needed to make the next component in the BOM hierarchy independent demand. Each component is considered with its quantities. BOM is more effective to define without overstock and shortage for calculating the quantities of each component. If the BOM is not accurate, it can affect to enhance operating costs. Designing BOM is the one of important steps to building an MRP system. BOM shows its information in one of two ways: an explosion display or an implosion display. A bill of materials (BOM) explosion shows a component at the higher level broken down into its subcomponents at the lowest level, while a BOM implosion shows subcomponents at the lower level to components at the higher level.
   
3. 
   Inventory control system is necessary to ensure consistency for the company needs to keep the product in stock when a customer demands it. The inventory system consists of the complication of shipping, holding, sales, and purchases. Many obstacles result from excess costs to working inventory systems in order. When a customer wants to get their orders quickly on some days. If an inventory is imperfect and there is not enough the amount of an item, production orders may be delayed and even canceled. This could result in a loss of customers. On the other hand, when the stock is more than enough, it results in overstock that generates enhanced holding costs, taxes, and insurance costs. An inventory control system intends to prevent wasted money by keeping inventory at optimal levels. İnventory system control ensures to have right products are in stock, which results to increase customer satisfaction and provide financial saving.
   
4. 
   Purchase orders outstanding ensures data on what is on order. Records of those orders and their planned delivery dates should be clear to production accordingly.
   
5. 
   Companies use lead time in manufacturing, supply chain management, and project management during processing. Lead times define important information when an order is placed and the item is delivered. There are two types of lead times; material lead time and production lead time. Material lead time defines how long can be available to order and receive subcomponents. Production lead time ensures data about how long time takes to make and ship the product after all subcomponents are in. A lead time is the time from the start of the process to its completion. A lead time indicates the time between the customer and supplier order and final delivery. In MRP, A lead time is used to increase customer satisfaction. Efficiency, output, and revenue can be enhanced by reducing lead time. Otherwise, increasing the lead time causes another production delay which leads to decreased customer satisfaction. Production processes and inventory management can affect lead time. Due to manufacturing, all elements of the finished product may take longer to be constructed on-site than some elements to be completed off-site. Transportation issues can put off delivery of necessary parts, pausing or slowing production and decreasing output and return on investment(ROI).