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MRP - Material Requirements Planning

MRP appeared with the advent of computers capable of producing production and inventory plans. Previously manufacturing plans and the supply of raw materials and purchased components were managed by one of two approaches:

  • stock levels could be maintained by Re-Order Point whereby an order for more was placed when the stock fell to a certain level. Basically this level should be defined as the average usage in the item's supply lead time with some safety allowance to provide cover in the event of increased demand or late delivery. The limitations here are obvious in that this is a backward-looking approach - we order based on historic usage rather than on the forward picture. Changes in the market, or perhaps design change activity, could mean that what the business is ordering bears no resemblance to real demand. Furthermore, if usage increases once an order is placed, then the business has no warning system to say that 'you are going to run out of that item before the next delivery.' Where demand was not completely stable businesses had only the alternative approach, whereby . . .

  • . . . large armies of clerks maintained stock ledgers, broke finished product programmes down to their constituent level requirements and decided upon procurement actions. The result was a lot of work, poor response to change and thus low levels of service. To combat this poor service, high levels of safety stock had to be held on items planned in this way and to reduce the clerical effort many items would be controlled on a re-order point basis, with all the problems of poor future visibility preventing long term planning. This then forced further stock into the system by planners seeking protection through high re-order points.

The wide availability of computer processing eliminated the need to manually 'explode' the top level programme. The clerical effort was replaced by Bill of Material Processing (BOMP). As further sophistication (for safety levels, batching rules and scrap allowances) was introduced the phrase Material Requirements Planning was coined. The general willingness to seize and propound acronyms soon brought "MRP" to everyone's lips. The definitive textbook on the subject was Joe Orlicky's offering under this name published by McGraw Hill in 1974.

Recently George Plossl has updated this and it is now available under the title "Orlicky's MRP" from good booksellers or from the UK's Institute of Operations Management (www.iomnet.org.uk, 44 (0)2476 692266).

In the book Orlicky gave what remains a excellent definition for MRP.

"The technique of planned component orders based on the time phased explosion of higher level requirements"

This title explains MRP accurately and concisely. It also explains its attraction - companies adopting this approach no longer had to plan component production and procurement. From now on, if they established the top level plan and bills of material for their products the computer would do everything else for them!

Two key elements in MRP, of course, are the way in which demand is passed down from the top level plan to all constituent levels, and the management of supply at each level. For each item the system develops forward requirements and calculates the stock projection of the item based on the existing supply position, as shown below.

Date Planned ReceiptsPlanned IssuesProjected Stock
Opening stock  16
1st May 12  28
8th May  8 20
15th May  8 12
22nd May  6 6
25th May  4 2
1st June 10  12
6th June  6 6
12th June  8 -2

Having established the projected stock for the item over the planning horizon, the system will then prompt actions to maintain the level of stock within that defined. In this case, for example, if we had established a safety level for the item of 5, then it would suggest to the planner that the receipt currently planned for 1st June should be re-scheduled for 25th May. If we had no safety defined then the next procurement action is simply an additional receipt for 12th June. We may have set the system up to warn us of receipts earlier than required so in this case the delivery on 1st May would be prompted for delaying to the 22nd and that on 1st June to the 6th.

In keeping with the search for three-letter acronyms the top level plan to be used by MRP became the Master Production Schedule, or MPS, and this is where many of the early implementations came unstuck. Establishing a production plan for finished products is not easy. We have to assess likely demand over a range of products with many variables coming into play - for example, which product options will be most in demand in the current market, what are our competitors doing and what economic factors may change our market? We then have to establish an achievable plan. If we set an overall output level greater than our capacity, or in excess of what our key suppliers can support, then we will end in chaos.

Another limiting factor in the use of MRP was the management of change, or rather the establishment of some level of plan stability. If we recognise that our plan was wrong, that model A sales are far outstripping our forecast at the expense of model B, then it is simple to change the finished product plan and re-run MRP to establish new material and component plans. But can we react to change this quickly? Can our suppliers? If we decide to increase the proportion of cast steel housings and reduce the volume of cast iron with effect from three weeks on Tuesday, can our foundries react in time? If they can't what will happen? Well, our machine shop will have production orders they cannot commence as they have no raw material, and shortly afterwards our assembly department too will run out of work. All this, of course, at a time when we may have high customer demand! In short, more chaos!

The early implementations also suffered from a failure to recognise that there is more to making systems work than the installation of hardware and software. The systems could generate hundreds of action messages and if the people faced with these messages did not react then the plan within the system was meaningless. Where MRP prompts for an order on an item with no safety stock to be pulled forward then if we do not follow the recommendation then the higher level requirement will not be fulfilled. For example, if we cannot get that batch of motors delivered earlier then our production line will not be able to build the washing machines we had planned. Or, possibly, the machines would be built and put to one side for 'snagging' - that is, fitting the motors later and getting these units back into the process of testing and packing at a later date. Once more, chaos.

Finally, MRP in the early days was quite a long process. On a large mainframe it could take 36 hours to run through from top level plan to a complete re-statement of requirements at all levels. Typically, this run would be scheduled for once or twice a month. What would happen when something changed between runs? We would have a plan for our assembly shop, for all our component manufacturing units and for our suppliers, but what if one area suddenly hit problems and started falling into arrears? To keep a valid plan requires immediate reaction to change - for example, we may have a problem on 24-inch cathode ray tubes coming into a television plant. We can, perhaps, survive this by an immediate switch to making 22-inch and 26-inch models but this requires that we change not only our own assembly programme but the delivery plans for moulded housings, PCBs, power supplies, and so on. If we cannot do this then we end up with a mismatch - kits of components which do not go together, yet again, chaos.

Sadly, these pitfalls from the early implementations of MRP are still being stumbled over today. Many companies introduce planning systems from reputable suppliers and through failure to commit to maintaining valid plans at all times the systems quickly get wholly out of control. What happens then is a familiar, if depressing, tale:

  • Arrears build
  • Stock levels rise
    • We cannot make finished product because of shortages
    • Materials and components which are available cannot be used
    • (The most common cause of excess inventory is being behind plan)
  • Fire fighting replaces planning
    • The problems of the plan being invalid are compounded
    • Even less attention is paid to what the system is telling planners and supervisors
    • Informal prioritisation becomes the order of the day
  • New performance measurements are put in place to address the problem
    • In fact, they make matters worse
      • We may manage each area on the level of minimising arrears
        • This leads to 'cherry picking' throughout the business
        • This removes attention from getting complete product kits to the assembly area
      • We may look for productivity / output measurements in each area
        • This increases 'cherry picking' with consequent increase in service levels
        • People choose the easy work, rather than focusing on what is required

And this, quite often, is what happened. MRP, the solution to all our problems, was suddenly a nightmare. So, back to the drawing board.

Manufacturing Resource Planning (MRP II)

~ Ian Henderson ~

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