Material requirements planning
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Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes. Although it is not common nowadays, it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet 3 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.
[edit] The scope of MRP in manufacturing
All manufacturing organizations, whatever it is they produce, 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 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. However, some purchased items will have a minimum quantity that must be met, therefore, purchasing excess is necessary.
- 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.
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.
Outputs
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 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 companies, 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 Joseph Orlicky in the late 1960s. Oliver Wight contributed the evolution to MRP II, to include more than the factory production and material needs. ERP evolved with the change in hardware / software capability and "Interface" interpretations between software.
[edit] 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 schedule then the output will also be incorrect. Most vendors of this type of system recommend 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 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 no 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 intercommunicate needs so that each factory can redistribute components to serve the overall enterprise.
This means that other systems in the enterprise need to work properly both before implementing an MRP system, and into 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' 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 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.
