Material Requirements Planning
Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes.
An MRP system is intended to simultaneously meet three objectives: Ensure materials and products are available for production and delivery to customers. Maintain the lowest possible level of inventory. Plan manufacturing activities, delivery schedules and purchasing activities.
The scope of MRP in manufacturing
All manufacturing organisations, whatever it is they produce, face the same daily practical problem - Customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required.
Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will lose the company money. A few examples are given below: If a company purchases insufficient quantities of an item used in manufacturing, or the wrong item, they may be unable to meet contracts to supply products by the agreed date. If a company purchases excessive quantities of an item, money is being wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all. This is a particularly severe problem for food manufacturers and companies with very short product life cycles. Beginning production of an order at the wrong time can mean customer deadlines being missed.
MRP is used by many organisations as a tool to deal with these problems. The questions it provides answers for are: WHAT items are required, HOW MANY are required and WHEN are they required by. This applies to items that are bought in and to sub-assemblies that go into more complex items.
Inputs and outputs
Running a report from MRP begins with an estimate of what products will be required in the next time period (an arbitrary length of time, often but not always one week), taken from the master production schedule. The MRP software calculates the times required to manufacture the products, using the factory's estimated time to assemble each product. Then, the system explodes the product into lists of parts required, assim using the bills of materials developed by the engineering department. The parts are ordered at times back-dated (or "offset") from the dates of assembly and the relevant paperwork is generated.
This system works through what are termed inputs and outputs. The inputs are entered into the software, which uses them for processing the outputs. The inputs and outputs essential to an MRP system are as follows:
Inputs Master production schedule. This is a combination of all the known and expected DEMAND for the products being created. The MPS spans a PLANNING HORIZON that includes the present and extends several months, and sometimes even years, into the future. The MPS ONLY addresses the END ITEMS being produced. The component levels will be addressed by the MRP system. This is sometimes referred to as "A production plan for all products". The MPS provides knowledge of DEMAND in these three details: The END ITEM(s) being created (a.k.a. Independent Demand, Level "O" on BOM) How much is required at a time When the quantity(s) are required to meet demand Inventory status records. Records of NET materials AVAILABLE for use already in stock (on hand) and materials on order from suppliers. Bills of materials. Details of the materials, components and subassemblies required to make each product. Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routings, Labor and Machine Standards, Pull/Work Cell and Push commands, Lot sizing technique(s) (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs.
There are only two (2) outputs and a variety of messages/reports Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the MPS Output 2 is the "Recommended Purchasing Schedule". This lays out the dates that the purchased items should be both received into the facility AND the date(s) the Purchase Orders, or Blanket Order Release should occur to match the production schedules.
Messages and Reports: Purchase orders. An order to a supplier to provide materials. Reschedule notices. These RECOMMEND cancel, increase, delay or speed up existing orders.
Note that the OUTPUTS are RECOMMENDED. Due to a variety of changing conditions in companys, since the last MRP / ERP system Re-Generation, the recommended outputs need to be reviewed by TRAINED people to group orders for benefits in set-up or freight savings. These actions are beyond the linear calculations of the MRP computer software.
MRP/ERP Systems were first introduced by George Plossl and John Orlicky in the late 1960s. Oliver Wight contributed the evolution to MRP2, to include more than the factory production and material needs. ERP evolved with the change in hardware / software capability and "Interface" interpretations between software.
Problems with MRP systems
The major problem with MRP systems is the integrity of the data. If there are errors in the inventory data, the bill of material data or the master production shedule then the output will also be incorrect. Most vendors of this type of system recomend at least 98% data integrity for the system to give useful results.
Another major problem with MRP systems is the requirement that the user specify how long it will take a factory to make a product from it's component parts (assuming they are all available). Additionally, the system design also assumes that this "lead time" in manufacturing will be the same each time the item is made, without regard to quantity being made, or other items being made simultaneously in the factory.
MRP also tends to want to aggregate several different demands for an item occuring at the same or closely spaced time intervals into a single replenishment activity, thereby either delaying availability of items early on (if the batch is not completed until the date of the latest requirement), or making excess inventory (the later demand is made too soon, resulting in unused inventory that must be warehoused for a period of time).
This means that other systems in the enterprise need to work properly before implementing an MRP system. For example systems to control changes to the parts used to make a product must be in place. Parts must be booked into and out of stores more regularly than the MRP calculations take place. Note, these other systems can well be manual systems, but must interface to the MRP. For example, a 'walk around' stocktake done just prior to the MRP calculations can be a practical solution for a small inventory. (especially if it is an "open store".)
The other major drawback of MRP is that takes no account of capacity in its calculations. This means it will give results that are impossible to implement due to manpower or machine or suppler capacity constraints. However this is largely dealt with by MRP2 II.