- MRP is categorized as the initial supply plan as well as the initial production plan.
- MRP has a history that is often little discussed but has important implications for its usage.
- It also means that the definition of MRP frequently misused.
Any MRP definition should both describe what it is, and how it works. In this article, we will begin with the explicit MRP definition and then move on to its history, MRP components as well as how the MRP definition fits with other aspects of supply planning.
What is MRP 1?
MRP is normally just called that and not referred to as MRP 1. However because at one time it was popular to use the term MRP 2, MRP 1 was used to differentiate between MRP 1 and MRP 2. As in someone might say in a meeting
“wait did you mean MRP 1 or 2 when you just said MRP?”
- MRP 2 is just an enlargement to connect and include other systems and did not have very much to do with MRP 1.
- MRP 2 was always poorly named, and MRP 2 essentially became what we now call ERP.
Therefore, while not commonly used anymore, MRP 1 is simply “plain old MRP.”
What is MRP Planning Versus Material Planning?
- Material planning is the more general of the two terms.
- MRP is one type of material planning.
- MRP is a specific procedure that is one of several that can be used to perform material planning.
- Material planning is any procedure or manual activity that manages the material within a supply and or production system.
- MRP planning is the use of MRP software to develop an initial supply and initial production plan.
- MRP planning would be the opposite of reorder point planning as MRP planning is a forecast based planning. That is MRP planning requires a forecast to produce its output. When someone uses the term MRP planning they may be implying “forecast based planning,” and this is because MRP planning is often commingled with the term forecast based planning. But it is not technically accurate as there are other methods of supply and production planning that do not use MRP planning.
Finally, the term MRP planning is a bit redundant. This is because the “P” in MRP stands for “planning” already. Therefore MRP Planning stands for Material Requirements Planning Planning.
What is MRP Categorized As Within Planning?
MRP was the first supply planning method that was incorporated into the software. It fits into the following area concerning supply chain software.
Multiple Methods of Creating a Supply Plan?
MRP is only one method of creating the initial supply plan. A complete supply planning always has two components.
- The Initial Supply Plan: The is the planning of production orders and purchase requisitions to bring into facilities. This brings material into the supply network, and schedules production (more detailed production planning is performed further on in the workflow by a specialized production planning application).
- The Deployment Plan: The second component is the deployment plan where planned stock transfers are created to push material between the internal locations and finally out to wholesale or retail locations. This is performed in systems that use MRP with DRP, or distribution requirements planning.
Supply planning has two other planning runs. One is the capacity leveling which seeks to balance the projected demand with the capacity (for both the supply and production capacity), and the second is redeployment, where stock already in the supply network is repositioned.
The History of MRP
MRP was developed in the 1960’s in the US, and incorporated into software and rolled out to companies in the 1970’s in most the developed countries. Reorder point planning has been integrated into software roughly ten years before MRP applications being sold and used, but given the immaturity of computer systems in the 1960’s, few companies used these reorder points systems.
Therefore the MRP definition can be considered to be the first broadly used computerized procedure for supply and production planning. The actual full leveraging of MRP’s capabilities change depending upon the company, with some companies still having problems correctly using MRP, and with many companies applying MRP incorrectly to unforecastable product locations.
*The concept of forecastability is in my view the most important concept that must be understood to manage any supply planning method, but that gets into another topic.
What is MRP Categorized As Within Planning?
MRP was the first supply planning method that was incorporated into the software. MRP is only one method of creating the initial supply plan. A complete supply planning always has two components.
- The first is the planning of production orders and purchase requisitions to bring into facilities. This brings material into the supply network, and schedules production (more detailed production planning is performed further on in the workflow by a specialized production planning application).
- The second component is the deployment plan where planned stock transfers are created to push material between the internal locations and finally out to wholesale or retail locations.
Where Does Redeployment Fit In?
I could make the argument that there should also be a third component called redeployment, where the stock is repositioned periodically between the internal locations, but as that takes us into a tangential area, I will leave that topic unexplored in this article. Redeployment is not simply a slight tweak to deployment logic but is an entirely different set of logic, which is why companies often get into trouble when trying to use deployment logic/functionality in supply planning applications for redeployment.
Creating the Initial Supply Plan and The Deployment Plan
Sufficed to say, all supply planning methods must be able to create both an initial supply plan and the deployment plan or must be able to perform one or the other. MRP is one of the best-known supply planning methods, but MRP only addresses the creation of the initial supply plan. The various supply planning threads can be described as follows:
- The Initial Supply Planning Thread
- The Deployment Planning Thread
- The Redeployment Planning Thread
- The Capacity Planning Thread (We will skip discussing this here, but with MRP which is unconstrained, a leveling is required to ensure that the plan is consistent with capacity.) For those interested in the topic, I have written the following book on capacity planning.
The deployment plan is not created by MRP but by a related procedure that developed around 15 years after MRP called DRP. Secondly, different methods can be used for the initial supply plan and the deployment plan. There is no rule saying that for instance if a company chooses cost optimization for the initial supply plan, it must use cost optimization for the deployment plan method.
What About the Initial Production Plan?
MRP is a supply planning method. However, it also creates the initial production plan, as is assigns planned production orders to days for the internally produced product. Therefore, is MRP also a production planning method?
Yes, it is.
This lead one resource on a previous client of mine to state that… “
Supply planning and production planning are the same thing.
This is not true, but it is true that many of the methods used for supply planning are also used for production planning (being quite different from production scheduling). Not all supply planning methods are also used for production planning. Inventory optimization and multi-echelon planning, for instance, create undifferentiated (between production and procurement) requisitions, which it then asks the ERP system to sort out.
Returning to MRP, the best way of understanding MRP is that it creates the initial supply and initial production plan.
How the Term MRP is Often Overused and Misused
MRP along with the terms MPS and the optimization are some of the most overused and misused terms in supply chain planning. MRP is commonplace and so widely used that people in companies often fall into the trap of commingling the term MRP with the process it is performing, either supply planning, production planning, BOM explosion or lead time calculation. However, MRP is a distinct method or procedure that has specific logic and is applied by an application, with the process it is performing.
Therefore, I will often find on projects that the term MRP persists even when a different planning method is used.
For instance, I was on a project where the initial supply and production plan was created by CTM. CTM is an order-based method planning method. Its logic and settings are completely different from MRP. However, the two profiles that had been created in SAP APO were named “MRP 1” and “MRP 2.” This created confusion when I told this client that CTM was not performing MRP.
MRP as a Proxy for the Term Initial Supply Plan?
The issue is that MRP is often a proxy for the term “initial supply plan” or “initial production plan.” This is a problem because incorrect terminology interferes with companies properly understanding what the procedures in the system that they are using.
If you don’t know the difference between how an MRP run operates and an initial supply plan created by say a cost optimizer, you are less likely to have success implementing your optimizer application for supply planning. This is a reason I wrote this article. The issue with an understanding of both this issue as well as the even larger issue of companies not fully understanding how the different supply planning methods differ from one another was a motivator for the book “Supply Planning with MRP, DRP, and APS Software.”
The term MRP is frequently over applied and misapplied by many people in companies. While it is often used to mean the initial supply and initial production plan by any method, in fact, the MRP definition is that it is a particular procedure. It is not to say and was never intended to be a generic term to describe a process.
MRP is one of five methods for creating the initial supply and production plan, the others being heuristics, allocation, optimization, and inventory optimization multi-echelon planning.
Learn about the history of MRP at this articles.
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What is the State of MRP?
MRP is in a sorry state in many companies. The author routinely goes into companies where many of the important master data parameters are simply not populated. This was not supposed to be the way it is over 40 years into the introduction of MRP systems.
Getting Serious About MRP Improvement
Improving MRP means both looking to systematic ways to manage the values that MRP needs, regardless of the MRP system used. It can also suggest evaluating what system is being used for MRP and how much it is or is not enabling MRP to be efficiently used. Most consulting companies are interested in implementing MRP systems but have shown little interest in tuning MRP systems to work to meet their potential.
The Most Common Procedure for Supply and Production Planning?
While there are many alternatives to MRP, MRP, along with its outbound sister method DRP, is still the most popular method of performing supply, production planning, and deployment planning. In the experience of the author, almost every company can benefit from an MRP “tune up.” Many of the techniques that the author uses on real projects are explained in this book.
- Chapter 1: Introduction
- Chapter 2: The Opportunities to Improve MRP
- Chapter 3: Where Supply Planning Fits Within the Supply Chain
- Chapter 4: MRP Versus MRP II
- Chapter 5: MRP Explained
- Chapter 6: Net Requirements and Pegging in MRP
- Chapter 7: Where MRP is Applicable
- Chapter 8: Specific Steps for Improving MRP
- Chapter 9: Conclusion
- Appendix A: Calculating MRP