MRP and production planning

What to produce and buy? How much to produce and buy? When to produce and buy? Non-trivial questions to which the MRP system helps to answer, ensuring the coordination of material logistics and allowing you to benefit from the minimization of stocks and the maximization of the service level. Learn how this production management system works.

Whatis MRP

The abbreviation MRP stands for Material Requirements Planning and represents a production management system that is based on inventory control. Through the coordination of material flows and the allocation of resource production times, the MRP system decides when to place orders to avoid interruptions in the production process.

At one time inventories and inventory counting were done by hand, with a whole host of inefficiency problems. In the early 1950s, the first MRP system was computerized and in 1964 Black & Decker was the first company to use it. A decade later, more than 700 companies used MRP to manage inventory and in the following years it was continuously updated making it more and more efficient. Today it is one of the most used inventory management systems in the world.


The inputs of the MRP system

The MRP system has the task of keeping stocks at certain values established and considered optimal, thus reducing costs related to the warehouse and increasing productivity and the level of customer service. The algorithm on which the MRP is based uses a series of inputs to output two important pieces of information relating to when and how much to order. The inputs from which it starts are instead three:

  • The production schedule: indicates how many units of each reference must be produced in a given time interval, usually of a short period. To establish the quantities to be produced on a regular basis, it is necessary to take into account demand forecasts, orders already received and any constraints on the production system.
  • The bill of materials: specifies from which and how many elements a finished product is formed. It is structured in several levels, usually “level 0” for the finished product, “level 1” for the components, “level 2” for the components of the components. It allows you to move from the production program of the finished product to that of its components.
  • The status of stocks: it reports in real time the stock in stock of materials and components.


An example of an MRP system

Let’s consider as an example a yo-yo manufacturing company that, according to the master schedule, must deliver a yo-yo to the customer in seven weeks. The bill of materials indicates the parts needed to make the product, therefore: two side parts and a wooden peg, a piece of string and a cardboard box with instructions.

From a check of the status of the inventory, it emerges that only one of the wooden parts is available, while for the other components there are no stocks or open orders. The supply times are as follows: for the side parts, five weeks; for the rungs, one week; for the twine, one week; for the boxes, four weeks. It will then take an additional week to assemble the product, so that it can be shipped to the seventh week as planned.

At this point you have to decide how to order the various parts. By ordering everything at the same time, you would end up having the rope and peg stationary in the warehouse for five weeks. Which could be an issue for bulk orders. Since the important thing is to have all the components in the sixth week, the one dedicated to assembly, you can calculate when to order the other parts by subtracting the delivery times from this date.


The disadvantages of the MRP system

The main disadvantages that can be found with MRP depend on the need to collect and update the necessary data on an ongoing basis. In addition, for the system to give useful results, the data integrity must be at least 99%, otherwise errors in the input data would produce incorrect output data. Pull systems and barcode scanning can be used to reduce these errors.

There is also little flexibility, because when the MRP system requires the production time of a product to be specified from its components, the system then assumes that the lead time is always the same, regardless of the quantity produced or other items made at the same time.

In addition, if some components have been updated, but there are orders for both the new and the old version, the MRP needs a part coding system to properly monitor and calculate the requirements for both versions.

Another limitation is that the MRP system does not take into account the maximum capacity, thus returning results that are difficult to implement due to constraints related to labor, machines or supplier capacity.

This limit has been largely exceeded with MRP II, which uses integrated financial data and takes into account fluctuations in forecast data, creating long-term control. In addition, MRP II can be extended to other departments, such as purchasing, marketing and finance.


Differences between MRP and ERP

MRP and ERP (Enterprise Resource Planning) are both software for the management of business activities, but they differ from each other both in terms of functionality and structure.

The main difference between the two is that MRPs have been designed and developed specifically for the manufacturing sector and to progressively increase inventory efficiency. ERPs, on the other hand, extend the functionality of MRP while supporting many other activities of different departments, such as planning and control, finance and accounting, purchasing, sales and marketing. ERP systems, born after MRP systems, are now recognised as a standard.

From a facility standpoint, the MRP system is a unique system focused on providing few solutions, but which can be easily combined with other inventory software. Instead, ERP is an integrated system that can provide multiple solutions together.


The evolution of MRP: DDMRP

In 2011, in the third edition of the manual “Orlicky’s Materials Requirements Planning” a new type of MRP was introduced, the Demand Driven MRP (abbreviated DDMRP). It is a multilevel planning and execution technique that is based on five components:

  • Strategic inventory positioning: It is more important to ask yourself where to place inventory, rather than how much inventory to have or when to buy something.
  • Buffer profiles and level: once the strategic positioning has been defined, the actual levels of these buffers must be set. Considering that different materials and different parts behave differently, DDRMP groups in the buffer profiles those parts and materials chosen for strategic replenishment and that behave similarly. Buffers take into account elements such as lead time; demand or supply variability; whether the part is produced, purchased, or distributed; and whether multiple significant orders are involved.
  • Dynamic adjustments: over time individual and group characteristics may change, especially if suppliers, materials, markets change. Dynamic buffer levels allow you to adapt to these changes in the environment and business strategies.
  • Demand-driven planning: Leverage the computing power of modern hardware and software and take advantage of new demand-driven approaches. In this way, the system helps to make faster decisions at the level of planning and execution.
  • Visible and collaborative execution: Purchase, production, and transfer orders must be managed effectively to synchronize with changes occurring during the execution horizon. DDMRP allows you to define a modern and integrated execution system that accelerates the proliferation of relevant information and priorities.

These five elements work together to reduce the limitations of traditional MRP systems and the bullwhip effect that can be generated in complex environments. The DDMRP provides useful information on parts that are likely to have a negative impact on planned inventory availability.


MRP and SAP system

Major management systems offer MRP capabilities, including SAP. Specifically, through SAP it is possible to directly set the calculation functions of the MRP system from the screens of the material registry.

The MRP analyzes the inventory of available materials, any outgoing orders and incoming orders. Following this processing, the system generates messages, so-called exception messages. Some of these are informative, while others require the intervention of the production planner, who also has the task of ensuring the correctness of the scheduling data. Procurement messages are intended for the buyer, who ensures that this process reflects the real needs in operational terms.


MRP software

MRP software helps to plan production quickly and reliably, ensuring total visibility of the production process. Like CyberPlan, which encapsulates in a single tool the possibility of having complete control over the entire factory.

An efficient production process allows you to have a reliable delivery plan that responds to market demands. The level of service is also maximized thanks to the complete visibility on resources and their availability. Contact now an expert ready to support you in this evolution of methods and processes!


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