Material requirements planning
Encyclopedia
Material requirements planning (MRP) is a production planning 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.
An MRP system is intended to simultaneously meet three objectives:
(MRP II). Orlicky's book is entitled The New Way of Life in Production and Inventory Management (1975). By 1975, MRP was implemented in 150 companies. This number had grown to about 8,000 by 1981. In the 1980s, Joe Orlicky's MRP evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master scheduling, rough-cut capacity planning, capacity requirements planning
and other concepts to classical MRP. By 1989, about one third of the software industry was MRP II software sold to American industry ($1.2 billion worth of software).
"Manufacturing organizations, whatever their products, face the same daily practical problem - that 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 make the company lose money. A few examples are given below:
MRP is a tool to deal with these problems. It provides answers for several questions:
MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.
The data that must be considered include:
Outputs
There are two outputs and a variety of messages/reports:
Messages and Reports:
(commonly referred to as 'BOM') data, or the master production schedule, then the output data will also be incorrect (colloquially, "GIGO": Garbage In, Garbage Out). Data integrity is also affected by inaccurate cycle count adjustments, mistakes in receiving input and shipping output, scrap not reported, waste, damage, box count errors, supplier container count errors,production reporting errors, and system issues. Many of these type of errors can be minimized by implementing pull systems and using bar code scanning. Most vendors in this type of system recommend at least 99% 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 for a factory to make a product from its 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.
A manufacturer may have factories in different cities or even countries. It is not good for an MRP system to say that we do not need to order some material, because we have plenty thousands of miles away. The overall ERP
system needs to be able to organize inventory and needs by individual factory, and inter-communicate the needs in order to enable each factory to redistribute components, so as to serve the overall enterprise.
This means that other systems in the enterprise need to work properly, both before implementing an MRP system and in the future. For example , systems like variety reduction and engineering , which makes sure that product comes out right first time (without defects), must be in place.
Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently. The overall ERP
system needs to have a system of coding parts such that the MRP will correctly calculate needs and tracking for both versions.
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' stock intake 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 supplier capacity constraints. However this is largely dealt with by MRP II
.
Generally, MRP II refers to a system with integrated financials. An MRP II system can include finite / infinite capacity planning. But, to be considered a true MRP II system must also include financials.
In the MRP II
(or MRP2) concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. A more general feature of MRP2 is its extension to purchasing, to marketing and to finance (integration of all the function of the company), ERP has been the next step.
Cycle count - The best practice is to determine why a cycle count that increases or decreases inventory has occurred. Find the root cause and correct the problem from occurring again.
Scrap reporting - This can be the most difficult area to maintain with any integrity. Start with isolating the scrap by providing scrap bins at the production site and then record the scrap from the bins on a daily basis. One benefit of reviewing the scrap on site is that preventive action can be taken by the engineering group.
Receiving errors - Manual systems of recording what has been received are error prone. The best practice is to implement the system of receiving by ASN from the supplier. The supplier sends an ASN (Advanced Shipping Notification). When the components are received into the facility, the ASN is processed and then company labels are created for each line item. The labels are affixed to each container and then scanned into the MRP system. Extra labels reveals a shortage from the shipment and too few labels is an over shipment. Some companies pay by ASN reducing the time in processing accounts payables.
Shipping Errors - The container labels are printed from the shipper. The labels are affixed to the containers in a staging area or when they are loaded on the transport.
Production reporting - The best practice is to use bar code scanning to enter production into inventory. Product that is rejected should be moved to an MRB (material review board) location. Containers that require sorting need to be reversed received.
Replenishment - The best replenishment practice is replacement using bar code scanning, or via pull system. Depending upon the complexity of the product, planners can actually order materials using scanning with a min-max system.
Inventory
Inventory means a list compiled for some formal purpose, such as the details of an estate going to probate, or the contents of a house let furnished. This remains the prime meaning in British English...
control system used to manage
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
processes. Most MRP systems are software
Computer software
Computer software, or just software, is a collection of computer programs and related data that provide the instructions for telling a computer what to do and how to do it....
-based, while it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:
- Ensure materialMaterialMaterial is anything made of matter, constituted of one or more substances. Wood, cement, hydrogen, air and water are all examples of materials. Sometimes the term "material" is used more narrowly to refer to substances or components with certain physical properties that are used as inputs to...
s are available for productionManufacturingManufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
and productsProduct (business)In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
are available for deliveryDelivery (commerce)Delivery is the process of transporting goods. Most goods are delivered through a transportation network. Cargo are primarily delivered via roads and railroads on land, shipping lanes on the sea and airline networks in the air...
to customers. - Maintain the lowest possible material and product levels in store
- Plan manufacturing activities, delivery schedules and purchasing activities.
History
Prior to MRP, and before computers dominated industry, reorder-point/reorder-quantity (ROP/ROQ) type methods like EOQ had been used in manufacturing and inventory management. In the 1960s, Joseph Orlicky studied the TOYOTA Manufacturing Program and developed Material Requirements Planning (MRP), and Oliver Wight and George Plossl then developed MRP into manufacturing resource planningManufacturing resource planning
Manufacturing resource planning is defined by APICS as a method for the effective planning of all resources of a manufacturing company...
(MRP II). Orlicky's book is entitled The New Way of Life in Production and Inventory Management (1975). By 1975, MRP was implemented in 150 companies. This number had grown to about 8,000 by 1981. In the 1980s, Joe Orlicky's MRP evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master scheduling, rough-cut capacity planning, capacity requirements planning
Capacity planning
Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time...
and other concepts to classical MRP. By 1989, about one third of the software industry was MRP II software sold to American industry ($1.2 billion worth of software).
The scope of MRP in manufacturing
The basic function of MRP system includes inventory control, bill of material processing and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities."Manufacturing organizations, whatever their products, face the same daily practical problem - that 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 make the company lose money. A few examples are given below:
- If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.
- If a company purchases excessive quantities of an item, money is wasted - the excess quantity ties up cash while it remains as stock and may never even be used at all.
- Beginning production of an order at the wrong time can cause customer deadlines to be missed.
MRP is a tool to deal with these problems. It provides answers for several questions:
- What items are required?
- How many are required?
- When are they required?
MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.
The data that must be considered include:
- The end item (or items) being created. This is sometimes called Independent Demand, or Level "0" on BOM (Bill of materialsBill of materialsA bill of materials is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end product...
). - How much is required at a time.
- When the quantities are required to meet demand.
- Shelf life of stored materials.
- 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 sub-assemblies 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, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs.
Outputs
There are two 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 dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the Master Production ScheduleMaster Production Schedule- What is Master Production Schedule or MPS? :A Master Production Schedule or MPS is the plan that a company has developed for production, inventory, staffing, etc. It sets the quantity of each end item to be completed in each week of a short-range planning horizon. A Master Production Schedule is...
(MPS). - Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the purchased items should be received into the facility AND the dates that the Purchase orderPurchase orderA purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services...
s, or Blanket Order Release should occur to match the production schedules.
Messages and Reports:
- Purchase orderPurchase orderA purchase order is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services the seller will provide to the buyer. Sending a purchase order to a supplier constitutes a legal offer to buy products or services...
s. An order to a supplier to provide materials. - Reschedule notices. These recommend cancelling, increasing, delaying or speeding up existing orders.
Problems with MRP systems
The major problem with MRP systems is the integrity of the data. If there are any errors in the inventory data, the bill of materialsBill of materials
A bill of materials is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end product...
(commonly referred to as 'BOM') data, or the master production schedule, then the output data will also be incorrect (colloquially, "GIGO": Garbage In, Garbage Out). Data integrity is also affected by inaccurate cycle count adjustments, mistakes in receiving input and shipping output, scrap not reported, waste, damage, box count errors, supplier container count errors,production reporting errors, and system issues. Many of these type of errors can be minimized by implementing pull systems and using bar code scanning. Most vendors in this type of system recommend at least 99% 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 for a factory to make a product from its 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.
A manufacturer may have factories in different cities or even countries. It is not good for an MRP system to say that we do not need to order some material, because we have plenty thousands of miles away. The overall ERP
Enterprise resource planning
Enterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
system needs to be able to organize inventory and needs by individual factory, and inter-communicate the needs in order to enable each factory to redistribute components, so as to serve the overall enterprise.
This means that other systems in the enterprise need to work properly, both before implementing an MRP system and in the future. For example , systems like variety reduction and engineering , which makes sure that product comes out right first time (without defects), must be in place.
Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently. The overall ERP
Enterprise resource planning
Enterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
system needs to have a system of coding parts such that the MRP will correctly calculate needs and tracking for both versions.
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' stock intake 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 supplier capacity constraints. However this is largely dealt with by MRP II
Manufacturing resource planning
Manufacturing resource planning is defined by APICS as a method for the effective planning of all resources of a manufacturing company...
.
Generally, MRP II refers to a system with integrated financials. An MRP II system can include finite / infinite capacity planning. But, to be considered a true MRP II system must also include financials.
In the MRP II
Manufacturing resource planning
Manufacturing resource planning is defined by APICS as a method for the effective planning of all resources of a manufacturing company...
(or MRP2) concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. A more general feature of MRP2 is its extension to purchasing, to marketing and to finance (integration of all the function of the company), ERP has been the next step.
Solutions to data integrity issues
Bill of material - The best practice is to physically verify the bill of material either at the production site or by un-assembling the product.Cycle count - The best practice is to determine why a cycle count that increases or decreases inventory has occurred. Find the root cause and correct the problem from occurring again.
Scrap reporting - This can be the most difficult area to maintain with any integrity. Start with isolating the scrap by providing scrap bins at the production site and then record the scrap from the bins on a daily basis. One benefit of reviewing the scrap on site is that preventive action can be taken by the engineering group.
Receiving errors - Manual systems of recording what has been received are error prone. The best practice is to implement the system of receiving by ASN from the supplier. The supplier sends an ASN (Advanced Shipping Notification). When the components are received into the facility, the ASN is processed and then company labels are created for each line item. The labels are affixed to each container and then scanned into the MRP system. Extra labels reveals a shortage from the shipment and too few labels is an over shipment. Some companies pay by ASN reducing the time in processing accounts payables.
Shipping Errors - The container labels are printed from the shipper. The labels are affixed to the containers in a staging area or when they are loaded on the transport.
Production reporting - The best practice is to use bar code scanning to enter production into inventory. Product that is rejected should be moved to an MRB (material review board) location. Containers that require sorting need to be reversed received.
Replenishment - The best replenishment practice is replacement using bar code scanning, or via pull system. Depending upon the complexity of the product, planners can actually order materials using scanning with a min-max system.
Demand Driven MRP
In 2011, the third edition of "Orlicky's Material Requirements Planning" introduced a new type of MRP called Demand Driven MRP(DDMRP). Demand Driven MRP is a multi-echelon formal planning and execution technique with five distinct components:- Strategic Inventory Positioning
- Buffer Profiles and Level
- Dynamic Adjustments
- Demand Driven Planning
- Highly Visible and Collaborative Execution.
See also
- Capacity requirements planningCapacity planningCapacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time...
(CRP) - CONWIPCONWIPCONstant Work in Process are pull-oriented production control systems. Such systems can be classified as pull and push systems . In a push system, the production order is scheduled and the material is pushed into the production line...
- Theory of ConstraintsTheory of ConstraintsThe theory of constraints adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the...
- Enterprise resource planningEnterprise resource planningEnterprise resource planning systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application...
(ERP) - Just-in-time (JIT)
- KanbanKanban, also spelled kamban, and literally meaning "signboard" or "billboard", is a concept related to lean and just-in-time production. According to Taiichi Ohno, the man credited with developing Just-in-time, kanban is one means through which JIT is achieved.Kanban is not an inventory control system...
- Manufacturing resource planningManufacturing resource planningManufacturing resource planning is defined by APICS as a method for the effective planning of all resources of a manufacturing company...
(MRP II) - Bill of materialsBill of materialsA bill of materials is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts and the quantities of each needed to manufacture an end product...
(BOM) - Modular BOMModular BOMA modular bill of materials is type of bill of materials and a critical element in defining the product structure of an end-item....
- Configurable BOMConfigurable BOMA configurable bill of materials is a form of bill of materials used by industries that have multiple options and highly configurable products...