Material Requirements Planning, or MRP in short, is a scheduling, inventory control system and production planning control system that is used to maintain manufacturing processes. It is an inventory management system that is designed to help production managers in placing orders or scheduling for products of independent demand. Such dependent demand items consist of finished goods like raw materials, subassemblies and component parts and the amount of items needed depends wholly on the production level for the final product. A simple example of this would be a company that manufactures bicycles may list demand inventory materials of tires, bike chains, seats and aluminum to make a finished product. While most of the MRP systems are based on software, it is also possible to execute MRP manually by hand. A functional MRP system is designed to meet three objectives simultaneously- First, it maintains the lowest product level and materials available in-store. Second, it can plan delivery schedules, purchasing activities and manufacturing activities. Lastly, MRPs ensure that materials are always available for production and inventory products are readily available to be delivered to customers. Computers are used to collect information from a list of materials for a finished product and they are broken down into purchasing plans and production for components. A related concept called the ERP or the Enterprise Resource Planning also expands on the MRP by using computers to link various areas of function along the entire business enterprise.
Material Requirements Planning works in retrospect from making a production plan for completed goods to developing requirements for raw materials and components. It begins with a timeframe of finished goods and is then converted to various requirement schedules for the component parts, the raw materials and the subassemblies that are needed to create the final product within boundaries of the established schedule. It basically answers the three questions: How much do we need, When do we need it and What is needed?
MRP also breaks down requirements for inventory in to planning periods so production is finished in a timely manner while costs and inventory levels are kept at a minimum level. MRP can greatly assist managers but they can be expensive to implement and time consuming. These factors put them out of the question for small businesses. Additionally, the information that the MRP provides is directly related to the quality of information that goes in. Information such as part numbers, inventory records and bill of materials must be accurate and current for the full benefits of MRP to be realized.
A Quick History for MRP
Before MRP, and before computers managed most of our tasks and became a staple in any business and industry, ROP (Reorder Point) and ROQ (Reorder Quantity) methods such as EOQ (Economic Order Quantity) were used in inventory management and manufacturing. As a direct response to Toyota Manufacturing Program in 1964, an individual named Joseph Orlicky developed the method that is widely used today, the MRP. Black and Decker was the first company to utilize the MRP system in the same year, and Dick Alban spearheaded it as the project leader. A book on MRP titled Material Requirements Planning was produced in 1975 with a subtitle that reads The New Way of Life in Production and Inventory Management. The system worked and soon MRP was implemented in approximately 700 companies and ballooned to about 8000 companies by the year 1981. MRP II was soon developed in 1983 by Oliver Wight and was renamed Manufacturing Resource Planning. It had taken Oliver Wight’s MRP and evolved it to include rough-cut planning, S&OP, master scheduling, capacity requirements planning and many other MRP concepts. By the year 1989, MRP II had sold about 1.2 billion worth of software to the American industry.
What Does the Future Look Like for MRP?
Demand Driven MRP, or DDMRP in short was introduced in 2011 for the third edition of the concept of “Orlicky’s Planning” and was authored by Chad Smith and Carol Ptak by request of McGraw Hill. Demand Driven MRP provides an overview of the next generation MRP in multi-level planning and techniques of execution with five components:
Strategic Inventory Positioning- the first question in managing inventory effectively should be “provided our current environment and system, where do we place inventory to be given the maximum optimal protection?” Inventory in this case is likened to a break wall that shields boats from rough waves. In an open ocean, break walls needed to be about 150 feet tall. In lakes and small bodies of water they only needed to be a few feet, while in ponds there is no break wall needed.
Buffer Level and Profiles- Once the location is set and established, DDMRP groups the parts and materials based on behaviors into “Buffer Profiles”. It takes into consideration the material’s variability(supply and demand), lead time(environment-relative), if the part is bought, made or distributed and if there are multiple significant orders involved. The profiles make up “zones” that show a picture of how each individual part are applied to the whole.
Dynamic Adjustments- Each group and individual factors change over time as new materials are produced and new suppliers are called in, new markets are found, and manufacturing methods and capacities change. Dynamic Adjustment allow the company room to adapt and fit the constant environment by using several types of adjustments.
Demand Driven Planning- This specific factor takes full advantage of the great computational power of computers, either through software or hardware. It also factors in pull-based or demand driven approaches. The two elements combined give the best results; a routine system that gives faster and better decisions, planning actions and the level of execution, plus a relevant approach and the harnessing of modern tools for adapting how the world works in this day and age.
Collaborative and Highly Visible Execution- This component is used to manage and synchronize Manufacturing Orders (MO), Transfer Orders (TO) and Purchase Orders (PO) in relation to the changes in the “execution horizon”. The execution horizon is the span of time that a MO, TO or PO is opened until the closing time in a system of record. DDMRP clearly defines a much needed integrated and modern system of execution in all parts categories to hasten the gathering and spreading of relevant priorities and information throughout the supply chain, and ultimately the organization.
These five specific components were produced to eliminate and hamper the nervousness of the old MRP systems in challenging and complex environments. DDRMP creates an environment where fewer planners can think and create faster and better decisions. DDMRP has been integrated and applied effectively in a wide variety of environments like MTS (Make to Stock), MTO (Make to Order), CTO (Configure to Order), and ETO (Engineer to Order). The methodology varies for each environment but the five components remain the same. DDMRP is labeled as an important innovation in synchronization and material planning that uses information and knowledge of the Theory of Constraints (TOC), Six Sigma and Lean, and traditional DRP and MRP into a breakthrough transformation and innovation for a better future.