How to Best Understand MRP

Executive Summary

  • 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.

Introduction

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.

common-supply-chain-software-application-categories-with-aps

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.”

Conclusion

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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References

Brightwork MRP & S&OP Explorer for Tuning

Tuning ERP and External Planning Systems with Brightwork Explorer

MRP and supply planning systems require tuning in order to get the most out of them. Brightwork MRP & S&OP Explorer provides this tuning, which is free to use in the beginning. See by clicking the image below:

Repairing the MRP System Book

MRP System

Repairing your MRP System

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.

Chapters

  • 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

Software Ratings: Supply Planning

Software Ratings

Brightwork Research & Analysis offers the following free supply planning software analysis and ratings. See by clicking the image below:

software_ratings

How to Best Understand the Problems with MRP Software

Executive Summary

  • Wikipedia has an interesting listing of the problems with MRP software.
  • We provide an analysis of the commonly listed problems with MRP software.

mrp-question

Wikipedia’s Listing of Problems with MRP Software

Many companies complain that the MRP software functionality within their ERP system is challenging to implement. There are articles written on why MRP is a problem for many businesses, and Wikipedia has a section on its MRP software entry, a synopsis of which is provided below.

While they are not listed this way in Wikipedia — I have added a “name” in parentheses for each problem:

Problem 1: Data Integration

“First problem with MRP software – the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as ‘BOM’) data, or the master production schedule, then the output data will also be incorrect (“GIGO”: Garbage In, Garbage Out).”

Problem 2: Lead Time Estimation

“Systems is the requirement that the user specify how long it will take for 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.”

Problem 3: Multi-Plant Planning

“A manufacturer may have factories in different cities or even countries. It is not 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 inter-communicate the needs in order to enable each factory to redistribute components, so as to serve the overall enterprise.”

Problem 4: Other Systems

“This means that other systems in the enterprise need to work properly, both before implementing an MRP system and in 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.”

Problem 5: Alternate BOMs

“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’ stock intake done just prior to the MRP calculations can be a practical solution for a small inventory (especially if it is an “open store”).”

Problem 6: Lack of Constraints

“The other major drawback of MRP is that takes no account of capacity in its calculations.”

An Analysis of the Commonly Listed Problems with MRP Software

Below I provide an explanation as to the nature of each problem, and how it applies to other supply/production planning methods.

Analysis: (Data Integrity)

This is listed by Wikipedia as an issue for MRP, but in fact, it’s an issue for any method of planning — either computerized or even if planning is performed manually. Most companies reduce their ability to plan as accurately as they could because they are unaware that software exists to help them manage the BOM, and think that a combination of Excel & ERP is BOM (or recipe if in the process industry) solution. I have yet to see a consulting company understand this. They are hired to bring knowledge; that is simply too often not evident.

Analysis: (Lead Time Estimation)

Inaccuracy exists both for suppliers and for production lead times. Production lead times can auto adjust in constraint-based methods such as cost optimization, however, unless the supplier is modeled as an internal plant, lead times will not change for volume from vendors.

The synopsis on this is the most sophisticated supply planning systems have very similar issues to MRP on lead time inaccuracy. In fact, few companies are meticulous about reviewing their lead times and adjusting them to the current reality.

Analysis: (Multi-Plant Planning)

This is a true limitation of MRP. However, to be able to do this, it is necessary to use a method that “can see the entire supply network.” MRP cannot see outside of a single location — that is its design. Multi-plant planning is rated by SCM Focus as one of the two most sophisticated functionalities in supply planning. The only known application which performs multi-plant planning is PlanetTogether, and this is one of the three Superplant functionalities. Turning on multi-plant planning is a desirable goal, but it is a more involved activity than simply using MRP functionality.

Analysis: (Other Systems)

Yes, MRP relies upon other systems, as do all other supply planning methods.

Analysis: (Alternate BOMs)

This is performed by having alternate BOMs or recipes in the application with different effectivity dates — something most vendors that offer MRP has mastered — although there are considerable differences in the usability and maintainability of this functionality, and therefore which changes the real-life capability that companies have with this functionality. Furthermore, a true BOM or recipe management solution should feed the new BOM or recipe information, as was discussed in the first bullet point. This takes the recursive complexity of BOM/recipe management both away from the ERP system and the external planning system. Both of these systems are simply designed to represent BOMs and recipes, not to actively manage this master data.

New BOMs/receipts are brought over in an interface when released from the BOM/recipe management system when they are production ready. They should be coded with their priorities at this time. The highest rated BOM solution by SCM Focus is Arena Solutions. For process industries where recipes are used, our recommended solution is Hamilton Grant. This overall topic will be discussed in the next section.

Analysis: (Lack of Constraints)

Yes, MRP is unconstrained. This means that planners must capacity level the plan either manually (by moving orders around by hand) or by using a capacity leveling method. Many vendors provide a procedure for capacity leveling which can be configured. This brings up the related issue of the accuracy of resource capacity information, but while this issue is often directed at methods that perform capacity constraining, it affects all of the supply/production planning methods. Here again, not all applications are created equal — because the existence of constraining functionality says nothing about how easy or difficult it is to maintain resources. SAP APO has an extraordinarily ineffective and time-consuming resource management functionality, which results in data not being updated as frequently, and a heavy maintenance load. Overall the techniques for constrained planning have had a high failure rate on projects, something that promoters of things like cost optimization frequently leave out of their presentations to customers and at conferences.

Executive decision makers generally cannot see the distinctions between applications in this area, and will often end up with a heavy maintenance application that is not able to effectively keep capacity information updated, even though the application can perform capacity constraining within the procedure. This has given capacity constraining a black eye generally when in reality it is just as much a function of the application selected.

Conclusion

One of the dimensions which are not well explored in this list from Wikipedia is the actual MRP software itself. MRP software can be well designed or poorly designed — which can directly relate to the “problems with MRP.”  This seems to be left out of many discussions of what can make it difficult to get MRP software to work. This is covered in detail in this article which describes the many benefits of Demand Works Smoothie which has very strong MRPs software.

Learn about the history of MRP at this link.

Search Our Supply Planning Articles

Supply Planning Research Contact

  • Interested in Our Supply Planning Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

Brightwork MRP & S&OP Explorer

Improving Your Supply Planning, MRP & S&OP Software

Brightwork Research & Analysis offers the following supply planning tuning software, which is free to use in the beginning. See by clicking the image below:

References

https://en.wikipedia.org/wiki/Material_requirements_planning

Repairing the MRP System Book

MRP System

Repairing your MRP System

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.

Chapters

  • 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

Supply Planning Book

SUPPLY

Supply Planning with MRP, DRP and APS Software

Showing the Pathway for Improvement

Supply planning software, and by extension supply planning itself, could be used much more efficiently than it currently is. Why aren’t things better?

Providing an Overall Understanding of Supply Planning in Software

Unlike most books about software, this book showcases more than one vendor. Focusing an entire book on a single software application is beneficial for those that want to use the application in question solely. However, this book is designed for people that want to understand supply planning in systems.

  • What methods fall into APS?
  • How do the different methods work and how do they differ in how they generate output?
  • What is the sequence of supply planning runs?

These types of questions are answered for readers in this book.

This book explains the primary methods that are used for supply planning, the supply planning parameters that control the planning output as well as how they relate to one another.

Who is This Book For?

This book as a practical primer for anyone looking to perform a supply planning software selection, any person beginning a supply planning project, or anyone who just wants to understand supply planning software simply better.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: Where Supply Planning Fits Within the Supply Chain Planning Footprint
  • Chapter 3: MRP Explained
  • Chapter 4: DRP Explained
  • Chapter 5: APS Supply Planning Methods
  • Chapter 6: APS for Deployment
  • Chapter 7: Constraint-based Planning
  • Chapter 8: Reorder Point Planning
  • Chapter 9: Planning Parameters
  • Chapter 10: How MRP, DRP, and APS Relate to One Another
  • Chapter 11: Supply Planning Visibility and Master Data Management
  • Chapter 12: Understanding the Difference Between Production Versus Simulation

 

How to Best Understand The Limitations of MRP ERP Systems

Executive Summary

  • MRP has significant limitations in ERP systems.
  • We cover the problems of running MRP from within ERP.

Introduction to MRP in ERP Systems

When MRP systems were first implemented they were stand alone. But in the 1980s most of the MRP vendors were purchased by and incorporated into ERP systems. This is normally presented as a positive development due to the benefits of integration. However, a review of MRP based ERP implementations calls this conclusion into question. In this article you will learn the real story of how MRP works within ERP.

How Does MRP Work?

MRP ERP systems can perform the basic functions of material requirements planning.

  • They can explode the bill of material
  • Connect demand elements to supply elements
  • Perform inventory netting and so on.

Commoin Problems Encourntered in ERP Based MRP Systems

Most companies that use an MRP ERP system, or MRP from within ERP systems, run into common problems that can be easily found by visiting most any company that use this software.

Some examples of this are the following:

  • Have problems with maintaining the master data for these systems.
  • Run into issues with inventory visibility due to the limited user interface of most ERP systems for planning.
  • Do not remove invalid product location combinations from the system leaving large numbers of unarchived combinations.
  • Lack the ability to effective group product location combinations.
  • If one looks at specific systems that perform supply planning, they outperform ERP MRP in how the user interface is designed for performing supply planning by a wide margin. ERP vendors essentially live off the integration argument, not feeling the necessity to improve, particularly the supply chain/operational aspects of their software versus the financial aspects of their software.
    This is why it is far easier to get a better plan from a specialized external planning system over ERP MRP.

This article will compare ERP MRP systems versus specialized ERP MRP systems as well as to APS systems. The majority of manufacturing companies perform production planning and scheduling in their ERP systems. The primary reason for this is that most ERP systems have this capability, or ostensibly have this capability as part of their manufacturing ERP software functionality.

How MRP ERP System Are Used in Reality

When MRP is implemented within ERP, so-called ERP MRP, it is more difficult to use and gain value from than when MRP is implemented from within a specialized MRP application. ERP was greatly lauded as an integrated system (but which in reality made integration to other systems more complicated), but it had the unfortunate consequence of getting companies to accept standard functionality to have an integrated system.

As a result companies with ERP MRP often end up with a complicated to use and difficult to troubleshoot the system. That is IT benefits, but the business loses out.

Many companies, on balance, think this is perfectly fine. When reviewing articles in CIO magazine, it is interesting how frequently costs savings are listed. But how infrequently the actual capabilities of applications are discussed.

ERP MRP and Production Planning

ERP MRP will do a poor job of creating the initial production plan. Is this surprising? It shouldn’t be.

ERP vendors do not make MRP a focus of development. After the planning run, the production plan will have to be manually adjusted on a continual basis. This is the role of the production and or supply planner.

The Problem with ERP and Production Scheduling

Supply and production planning is often at one level of weakness within an ERP system. The story takes a turn for the worse when one moves to production scheduling. ERP MRP can only create an initial production plan (i.e., the starting place for further work), never the final production plan. Just a few of the reasons for this are listed below:

  1. Mathematical Limitations: The mathematics of Material Requirements Planning is quite simple, and cannot account for the detailed work required to manage a production schedule unless the environment is extremely stable.
    1. Algorithms don’t take production realities into account at the same level as in APS systems, often ignoring things like simultaneous resource usages, material production and consumption rates, resource preferences, and alternate routing trade-offs to name just a few.
    2. Schedule changes made by users require massive, rapid recalculation to determine the impact on other orders. ERP databases were designed for transactional work like order entry and therefore are architecturally incapable of doing the job.
  2. Dimension Limitation: Material Requirements Planning has no other objectives aside from meeting dates. This means it cannot prioritize – however when two production orders vie for the same capacity, who receives this capacity? Material Requirements Planning cannot answer this question with any nuance because it will merely allocate the capacity to the first production order it processes.
  3. Unconstrained Output: MRP cannot constrain, so it assumes that the plant is an infinite bucket where for example five production orders can be scheduled on the same line at the same time. Optimization with constraints will only allow the load to be placed where there is capacity. This is incredibly detailed work, and because Material Requirements Planning requires the manual movement of the production orders to create the production schedule and to schedule to the hour with as few open gaps as possible. This means that companies that exclusively use MRP end up nearsighted – that is they only create a production schedule for as far out as they need to for the needs of the factory floor.

How to Improve the Use of MRP

A company can begin with just one or a few licenses of a specialized MRP system to run MRP and see the results before taking the plunge and implementing the system. This approach has little risk. We estimate that a typical company can get a fast payback on this investment both regarding better planning output as well as better planner productivity.

External application specialized MRP/DRP provides the following advantages over ERP MRP/DRP:

MRP Weakness 1: A Better User Interface

It is essential to find an MRP environment that is easy to use, providing a high degree of transparency and find-ability to the results.

MRP Weakness 2: Master Data Parameter Management

Companies often declare an interest in master data, but they do not include how easy or difficult it is to maintain the master data in the applications which they purchase. Large consulting companies attempted to tell companies they could only look to a single system — the master data management system (MDM), to maintain their master data — and that has been one of the more significant misallocations of resources in recent memory in the enterprise software space.

MRP Improvement 3: Implementation Time

It’s essential that the system can be brought up and run “offline” quickly.

MRP Weakness 4: Simulation

As soon as the second MRP system is up, one can begin performing a simulation to see what occurs when changes are made to critical inputs like lead times, stock levels, etc..

All of this can be done without impacting the production system.

MRP Weakness 5: Aggregation and Grouping

Rather than looking at product location combinations one by one, one needs an MRP system that allows for heightened understanding and a more efficient analysis of the results. The following quotation from a colleague on MRP output is the following:

“One other issue that MRP has is that when BOMs are complex, and inventory is stored in various phases of manufacturing the reporting of components availability is awful and has to be custom developed. This should be standard in MRP applications, but it is not.”

MRP ERP System Versus APS for Scheduling

As poor a job as ERP MRP does for the production plan, any MRP system, either from within ERP or a specialized system, has no functionality for production scheduling. Production scheduling deals with the minute level scheduling of production orders and must take into account production constraints. After production scheduling applications being available for years, the dominant tool for production scheduling as of the time of this writing is the spreadsheet.

Many APS systems have the functionality to account for many of the limitations of MRP systems. The mathematics of APS systems can account things like

  • Simultaneous resource usages
  • Material production and consumption rates, etc..

Accounting for Multiple Dimensions in Production Scheduling

Regarding being able to account for multiple control dimensions, second-generation APS based optimizers allow for multiple aspects to be accounted for. Secondly, some dimensions can be emphasized over other dimensions during the planning run. (see footnote)

  • If a company is more focused on keeping costs down, an optimization scenario can be created for this.
  • A company may like to test the effect on the production schedule from emphasizing machine utilization, or setup times. All these things are possible with the right application.
  • There is even an application that can optimize the plan based upon financial key performance indicators.

Regarding constraining capacity, when a company uses an APS solution that automatically moves production orders to where they can be produced. The length of the scheduling horizon becomes a simple matter of computer processing capacity.

At one production planning and scheduling vendor, their clients often create a production schedule for three months, which is called the schedule horizon.

The production planning horizon is often created for a year. Will the schedule change? Of course, however, it is quite beneficial to have at least a first cut production schedule for a three-month horizon. This is because the production schedule serves more than the needs of the factory floor.

Constrained production planning and scheduling provide the foundation for implementing one of the most desirable functionalities. This is capable to promise. The white unicorn of supply chain planning.

Advanced planning & scheduling (or APS for short) systems not only provide superior methods of planning. They also have many other attributes that improve planning. One example of this is user interfaces that, unlike ERP MRP systems, are designed for planning and master data maintenance designed (which vary depending upon the specific software) to provide the flexibility manufacturing environment require.

The Black Box Effect of ERP Based MRP

One reason for this is that the way an MRP ERP system is implemented tends to be a black box. It is a rare ERP system where much thought has gone into making the MRP ERP system screens usable. By usable we mean where the system’s output can be reviewed efficiently by planners.

With respect, the MRP parameters the following should be controllable from the “overall” perspective.

  • They should be alterable for a group of plant and material combinations simply by filtering the plant and material database.
  • The changes applied then only apply to that subgroup.
  • We have never seen any ERP system with this functionality. We have exposure to most of the larger ERP systems on the market, and even many of the smaller ones.

MRP ERP System + Excel

MRP from within ERP systems is not flexible enough to provide planners with what they need.

  • Companies that lack a specialized production planning applications tend to use a combination of MRP and Excel.
  • This means shuttling data between the MRP ERP system to Excel for analysis. Then they either upload the data to ERP or making the changes in ERP manually. This means that companies that run an MRP ERP system take a productivity hit as their planners are consumed with data manipulation.
  • For complex forms of planning such as rough-cut capacity planning, it is quite common for companies to have complex spreadsheets. These are spreadsheets that no MRP system can come close to modeling. This is another time-consuming activity. At several clients, we have seen custom adapters that then pull in the spreadsheet into the ERP system.

Intelligently Improving an ERP MRP System

We have analyzed this issue for decades. The problem is that the traditional approach, which is to implement a complex external supply planning system does not have a very high success rate. Both cost optimization and inventory optimization arrived as major trends and then faded from prominence.

Cost Optimization and Inventory Optimization to the Rescue?

We have written in detail about how cost optimization never made any sense for supply planning. Inventory optimization, while at least consistent with the goals of supply planning, has been the subject of high failure rates.

Allocation Based Supply Planning to the Rescue?

Other packaged solutions such as allocation can work well but only apply to narrow segments of companies that perform supply planning that want to plan based upon customer, and prioritize some customers over others (predominantly high tech).

And all of this also left companies that could not tolerate the complexity and expense of these systems with no way to improve their MRP systems.

Conclusion

An MRP ERP system tends to do very little regarding helping a company master MRP.

  • Only a small percentage of companies attempt to implement, and then even fewer successfully implement non-ERP based planning systems.
  • An MRP ERP systems need to tuned by external systems to even develop a reasonable supply and production plan. This tuning should be performed before a company thinks about migrating to a complex external supply and/or production planning systems to help ameliorate the limitations of an MRP ERP system.
  • After reviewing the limitations of both an MRP ERP system and problematic external/advanced planning systems Brightwork has developed a system that allows companies to get more out of their MRP ERP system and quickly and at low cost.

There are all types of inefficiencies caused by an MRP ERP system. ERP systems were always designed to provide just the basic capabilities concerning MRP. This became the dominant approach, but it was never actually effective.

Even at this point, most companies primarily use MRP ERP system for their supply and production planning.

Learn about the history of MRP at this link.

Search Our Supply Planning Articles

Supply Planning Research Contact

  • Interested in Our Supply Planning Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

Brightwork MRP & S&OP Explorer

Improving Your Supply Planning, MRP & S&OP Software

Brightwork Research & Analysis offers the following supply planning tuning software, which is free to use in the beginning. See by clicking the image below:

This topic is covered in depth in the following book.

Repairing the MRP System Book

MRP System

Repairing your MRP System

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.

Chapters

  • 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

Software Ratings: Supply Planning

Software Ratings

Brightwork Research & Analysis offers the following free supply planning software analysis and ratings. See by clicking the image below:

software_ratings

How to Best Understand Reorder Point Versus MRP

Executive Summary

  • Reorder points have a poor reputation and they are underused, but they are appropriate under certain circumstances.
  • It is critical to understand how reorder point contrasts with MRP or a non-forecast based planning versus forecast based planning.

Introduction: MRP and Reorder Points

MRP is a forecast based planning method. Reorder point is a non-forecast or consumption based planning method. You will learn the comparison on and contrast MRP versus reorder point planning.

What is ROP Inventory?

Our ROP definition will cover what reorder points do.

A reorder point is very simply a quantity of stock or an interval at which a “reorder,” or order is to be created. In reorder point planning, orders are not triggered by a specific requirement (such as a forecast or dependent requirement), but instead by the depletion of stock over time, eventually triggering the minimum stock level or reorder point. Reorder points can be used with any of the supply planning methods, or they can be used to exclusively control the supply plan without any of the methods. However, when it is used exclusively to control the supply plan, the company is said to be performing reorder point planning, as opposed to forecast-based planning. MRP/DRP and APS (heuristic, allocation, cost optimization, inventory optimization) methods are forecast-based planning.

A ROP definition can be derived from reviewing a ROP formula. Our interactive calculator is available at this article. 

Why Reorder Points Have a Poor Reputation

Reorder points frequently are criticized for not providing foresight. However, many of the arguments used against reorder point planning don’t hold up under scrutiny when one considers products with certain demand history characteristics (I provide this scrutiny to specific anti-reorder point planning quotations taken from other books). Having worked in, and implemented, every supply planning method that is available in software: reorder points have their place, and many of the critics of reorder point planning have unfounded reasons for resisting them.

This following quotation will use the term “requirements planning.” To most readers, it will not be apparent what this is.

  • “Requirements planning is the process of taking the forecast and exploding the bill of materials — which then drives orders.”

This quotation which will be discussed in this article is from 1967. This is before MRP became a commonly implemented application.

Before MRP software existed, some people in companies calculated requirements this way. They did this primarily by doing the math with calculators and using a table. This logic of requirements planning was then migrated to software.

When to Use Reorder Point Planning

Items placed on a reorder point methodology could be placed there for the following reasons. • Forecastability: They are difficult or impossible to forecast… or they have a level forecast because their demand history is so stable. • Lead Times: Their supply is relatively unconstrained and their lead times are short. Any products in these categories are essentially either not worth the effort to plan with more advanced methods, or advanced methods do not add value to their planning over the simpler method of reorder point planning. This does not seem to be a very well understood point by those that work in MRP/procedural planning. As is pointed out by E. A. Silver in his well-regarded paper on ideas related to inventory control for items with erratic demand patterns:

“Most useable inventory control procedures are based upon assumptions about the demand distribution (e.g., unit sized transactions or normally distributed demand in a replenishment lead-time) that are invalid in the case of an erratic item. If this is not the case, the procedures tend to be computationally intractable.”

This paper was written back in 1970. However, an enormous increase in computational power since that time has not made the problem more “tractable.” Although often overlooked, all supply planning methods are designed to be used with products that can be forecasted within a certain accuracy range.

When the Forecast Accuracy is Simply Too Low

If the forecast accuracy is too low, the procedural methods of supply and production planning is undermined. If the forecast accuracy is extremely high, then reorder point planning can provide results of equal quality, but with much less effort. Procedural planning is the best fit for product location combinations with accuracy levels that are neither too low nor too high. Paradoxically, the understanding of where value can be added by supply planning procedures is different than this, with the concept being that the worse the forecast accuracy, the more a sophisticated planning system can add value.

There is a strong orientation within companies to create forecasts for all items in the product database. However, this does not necessarily mean that the forecast should actually be used for every product location combination in the supply planning system where a forecast is created in the demand planning system. However, for most companies at least, some portion of the product database cannot be reliably forecasted. Thus, forecasts are emphasized by demand planning for some product location combinations that add no value to the supply planning process.

Improving Problematic Demand History with Complex Forecasting?

Specifically, not all product location combinations can have their forecast improved by a more complex forecasting method (which is the continual hope of many) than a simple long-horizon moving average resulting in a level forecast. This applies equally to very stable products, as they also will use a level forecast. Reorder point planning for the finished good (as the associated finished and raw material supply plan is driven from the finished good supply plan) is an effective and low effort/low cost approach for product location combinations that fall into this category.

Reorder Point Planning for Deployment/Outbound Supply Planning

Up until this point, we have discussed reorder point planning for the initial supply plan, which generates the purchase requisitions and the planned production orders. However, replenishment/reorder parameters are available at all the locations in a supply network. Therefore, there is nothing to say that reorder point planning cannot be used throughout the entire supply network, both inbound to the plant or regional distribution center and outbound for deployment.

In this way, reorder point planning can be used for deployment, which would simply mean removing them from the product location combinations from the planning procedure that is used. With most supply planning applications that I have used, this is simple to do.

The business should be given the task of re-determining the reorder point parameters for the product locations that are to be transitioned off the active planning track. If they are new to doing this, they may need some outside help from someone with a strong mathematical understanding of how to create intelligent reorder points.

ROP Inventory Calculator

The reorder point calculator we have embedded into our website uses the following values.

  • Average Lead Time Estimate as a Percentage of a Month
  • Average Monthly Demand
  • Economic Order Quantity
  • Desired Service Level – Case Fill Rate
  • Historical Forecast Error

Thus, a ROP definition would include that a reorder point needs to account for variability, the order size, the lead time and a service level. A ROP definition would explain that the reorder point is the trigger when a new order is generated.

ROP Inventory

ROP inventory is the inventory that is associated with the reorder point. Therefore the ROP inventory will be that portion of stock that is based on using the ROP. If we look at Lean principles, they often assume more frequent ordering.

Therefore, under Lean, the reorder point will tend to be higher. Thus, the ROP inventory can be considered the portion of inventory that is carried for setting a particular reorder point. The term ROP inventory is very infrequently used within companies.

Developments in Supply Planning after MRP

While many more sophisticated methods of planning have arisen since MRP.

This is of course very different than reorder point planning — where the reorder point determines the reorder date and reorder quantity. Reorder point planning is called consumption based planning because inventory is consumed until a trigger — the reorder point is hit — and then the order is generated.

“This type of simple “requirements planning” technique has been used for many years. While its users often feel that it is superior to an order point system for ordering components (that is not the finished good or the raw material  by the intermediate product), its use often results in excess inventory unless it is refined substantially. The explosion of the sheet (the BOM) can only show the total quantity required over a period of time, and this period must be long enough to cover the longest manufacturing or purchasing lead time of any component. Many companies do their planning on a quarterly basis, and must plan more than one quarter ahead, showing “firm requirements,” for the following quarter. This is necessary because any component requiring more than a week or two of manufacture could well be in short supply at the beginning of the next quarter if not planned for.

Further problems occur because the planning period is so long. Planning “firm requirements” for a thirteen week period requires a forecast of anticipated requirements for each end item; the farther out into the future this forecast is extended, the less accurate it will become.”  – Production and Inventory Control: Principles and Techniques

Issues with This Quotation

The first part of the quotation is interesting because it points out the issue of the planning horizon. In this case, it is a horizon as calculated on paper. This is not a problem now as planning horizons can be extended with the computer performing the calculations automatically.

However, the second paragraph is still a problem. It is mitigated by the fact that the forecast can be changed up until the lead time. In the past before computers, re-computation was not so simple, the author’s point is that performing the calculations before necessary would result in a less accurate plan.

When Requirements are Firmed with ROP Inventory Decisions

Mainly the requirements should not be made firm until before the lead time of the components as it makes sense to maintain flexibility up until an order must be created. After this point, no forecast changes should be accepted or even discussed because the time for forecasting has passed.

Reorder Points Versus MRP or Forecast Based Planning

When a reasonably accurate forecast can be generated, MRP has advantages over reorder point planning. However when this is not the case, and with growing product proliferation and the overall decreasing level of forecastability of most product databases that companies maintain, the reorder point is the most efficient method of performing supply planning.

This can be determined by using forecastability to segment the product location database so that some of the product location databases can go out on MRP or other forecast based supply planning methods, while the other part of the database can go out or be assigned reorder points.

Conclusion

It is interesting to think at one time that the planning horizon was calculated entirely with a table and a calculator. This lack of both a perpetual inventory system and permanent way of updating the forecast made the timing of the calculation quite important. Now all calculations are instantly performed whenever a change is made.

The overall question of MRP versus reorder point mainly comes down to the ability to provide a forecast that is of low enough accuracy that there is a benefit to using MRP.

Reorder point planning is an early approach to supply chain planning; however, while often dismissed as passé, it actually has applicability in a number of circumstances. Reorder point planning can be used effectively for products that are both easy and difficult to forecast. What works well for products with erratic demand history works equally well for products with extremely stable demand history. It is a relatively simple matter in a supply planning system to convert some product location combinations to pure reorder point planning and other product location combinations to being processed with a supply planning method. Furthermore, a product may be planned in one way at one location and planned a second way at a different location. In fact, customizing the supply planning approach per the demand history at a product location rather than applying a blanket approach to all products will produce superior results.

Search Our Supply Planning Articles

Supply Planning Research Contact

  • Interested in Our Supply Planning Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

Brightwork MRP & S&OP Explorer for Order Optimization

Order Sizing and Optimization

Order optimization is necessary in order to get the predicted value from ERP and other supply planning applications. The Brightwork MRP & S&OP Explorer does exactly this, and it is free to use in the beginning until it sees “serious usage.” It is permanently free to academics and students. See by clicking the image below:

References

Plossl, George W. Production and Inventory Control: Principles and Techniques, Second Edition. Prentice Hall, 1985.

About ROP Inventory

Harris. Ford W. How Many Parts to Make at Once. Factory, The Magazine of Management. 1913.

I cover reorder points in the following book.

Lean and Reorder Point Planning Book


Lean and Reorder Point 2

Lean and Reorder Point Planning: Implementing the Approach the Right Way in Software

A Lost Art of Reorder Point Setting?

Setting reorder points is a bit of a lost art as company after company over-rely upon advanced supply planning methods to create the supply plan. Proponents of Lean are often in companies trying to get a movement to Lean. However, how does one implement Lean in software?

Implementing Lean in Software

All supply planning applications have “Lean” controls built within them. And there are in fact some situations where reorder points will provide a superior output. With supply planning, even within a single company, it is not one size fits all. The trick is understanding when to deploy each of the approaches available in software that companies already own.

Are Reorder Points Too Simple?

Reorder points are often considered to be simplistic, but under the exact circumstances, they work quite well.

There are simply a great number of misunderstandings regarding reorder points – misunderstandings that this book helps clear up.

Rather than “picking a side,” this book shows the advantages and disadvantages of each.

  • Understand the Lean Versus the MRP debate.
  • How Lean relates to reordering points.
  • Understand when to use reorder points.
  • When to use reorder points versus MRP.
  • The relationship between forecastability and reorder points.
  • How to mix Lean/re-order points and MRP to more efficiently perform supply planning.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: The Lean versus MRP Debate.
  • Chapter 3: Where Supply Planning Fits Within The Supply Plan
  • Chapter 4: Reorder Point Planning
  • Chapter 5: Lean Planning.
  • Chapter 6: Where Lean and Reorder Points are Applicable
  • Chapter 7: Determining When to use Lean Versus MRP
  • Chapter 8: Mixing Lean and Reorder Points with MRP-Type Planning

Software Ratings: Supply Planning

Software Ratings

Brightwork Research & Analysis offers the following free supply planning software analysis and ratings. See by clicking the image below:

software_ratings

How to Select The Appropriate Time Bucket for the MRP Process

Executive Summary

  • The MRP process requires the selection of a planning bucket.
  • The planning bucket changes based upon the application.
  • When selecting a planning bucket for MRP users face a trade-off that must be considered.

Introduction to Selecting the Right Planning Bucket

The planning bucket is one of the primary control areas of the planning system. You will learn about the planning bucket and its interactions in this article.

What is the Planning Bucket?

The planning time bucket is how the timeline is divided for planning purposes.

It should not be confused with the storage bucket. The storage bucket is how the planning data is stored by the system which is a different relationship to the MRP process. Of course, the storage bucket must always be smaller than the planning bucket.

How the Planning Bucket Changes Depending Upon the Application

Some typical timings in different planning systems are listed below:

  • In demand planning, it is normally a week.
  • In supply planning, it is either a day or a week.
  • In production planning and scheduling, it is normally the day.

Plossl’s Observations on the Timing of the MRP Process

George Plossl had an interesting observation on the planning bucket from his book Orlicky’s Material Requirement’s Planning..

“When selecting the size of the MRP time bucket, users face a trade off between the desire to have planned events pinpointed in time and the need for clear and simple ordering data. Specifying order completions by month is less than helpful to shop supervisors. They need to know what next to produce for this week or better yet today. When several hundreds or thousands of shop orders are due in October, but MRP schedules provide no relative priority information, shortage lists and expediting will replace the formal system and performance will deteriorate. Planning is not an exact science, in spite of the apparent rigor of MRP calculations. A one week time bucket is most common, except in a few businesses like food, pharmaceuticals and fine chemical manufacturing, where production times are very short. In other types of manufacturing, one week is reasonable for order releases, completions, priorities, lot sizing and load reporting.”

This indicates important trade-offs for the MRP process and the setup of the MRP system. It is important to acknowledge that these trade-offs exist and their implications on the timing settings of the MRP system.

Conclusion

George Plossl is correct, this is the most common planning bucket for the MRP process. However, it is interesting to hear the positives and negatives laid out by a person quite experienced in the area.

Learn about the history of MRP at this link.

Search Our Supply Planning Articles

Supply Planning Research Contact

  • Interested in Our Supply Planning Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

Brightwork MRP & S&OP Explorer for Tuning

Tuning ERP and External Planning Systems with Brightwork Explorer

MRP and supply planning systems require tuning in order to get the most out of them. Brightwork MRP & S&OP Explorer provides this tuning, which is free to use in the beginning. See by clicking the image below:

Plossel, George. Orlicky’s Material Requirement’s Planning. Second Edition. McGraw Hill. 1984. (first edition 1975)

I cover MRP in the following book.

Repairing the MRP System Book

MRP System

Repairing your MRP System

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.

Chapters

  • 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

How to Set Up Your MRP System

Executive Summary

  • MRP use supply planning parameters that are ordinarily set in a dysfunctional way in companies that run MRP.
  • We cover how MRP parameters should be set.

Introduction to MRP System Parameters

MRP system parameters are some of the least emphasized, but the most important areas of control in MRP systems. You will learn the setting of MRP parameters in this article.

What Are MRP System Parameters?

Supply planning or MRP system parameters are found on the product/material/location master within supply planning applications. Examples of supply planning or MRP system parameters are:

  • Reorder Point
  • Lot Size
  • Planning Time Fence
  • Rounding Value
  • Safety Stock

Sometimes people will refer to these values as MRP system parameters. They apply to any supply planning method used.

What Do Books Say About Setting MRP System/ Supply / Production Planning Parameters?

Books on MRP and supply and production planning offer explanations of parameters. They also provide the various methods of calculating them as if they are providing a toolkit. They do not say which combination of parameters should be set.

How MRP System Parameters are Ordinarily Set

Companies will often spend a good sum of money on their MRP system. But they usually do so without investing the effort into setting their parameters.

  • When a new system is implemented, it is more common than not that the parameters from the old system are only taken and placed into the new system.
  • Software companies provide little guidance regarding parameters. Typically this means proposing that the business has all the answers in this area. Next, the software company has made all of the fields available in their application, so they feel their job is done (which there is a good amount of truth to this position).
  • The common problem is that often the business lacks the tools to set the supply planning parameters appropriately, and will also often not centrally control the settings.

At one of my previous clients, which had a high forecast error, a big part of what supply planning did was to look at the forecast. If they disagreed with the forecast, they would change the coverage profile. This coverage profile controls safety stock. The safety stock and other parameters should be changed on a periodic basis, not as a way to adjust to the forecast.

Lack of Consideration for Relative Inventory

Calculation of the inventory available for safety stock and cycle stock. The next step is the assignment of the inventory on a relative basis. A weakness of many of the inventory parameters when they are calculated individually by the system.

  • All inventory parameters should be calculated based upon the relative consumption of whatever the resource limitations are.
  • In some cases this will be inventory dollars, in other cases, this will be pallet spots.

Asking the Right Question on Relative Inventory

The question is not so much what is the optimal inventory parameter setting (PLC) for a particular PLC. The question is given a limited amount of resource — how should that resource be allocated or spread over the overall product location database.

The fact that the vast majority of companies do not set their inventory parameters leads to manual intervention. The result is too much inventory first proposed.  The values are often decreased in a piecemeal fashion. If a policy cannot consistently adhere then, it is not efficient, and a new policy should be considered.

The reason for this is that the supply plan is generated assuming there are infinite inventory resources. All is necessary is to calculate to inventory resources required for a single PLC.

Infinite Versus Constrained Planning

Constrained planning is a desired capability at many companies. In fact, it is a primary motivator for businesses that purchase supply and production planning software. However, while some applications allow for constraints, in practice it is extremely rare for supply planning systems to incorporate anything but production constraints. More detail on this is covered in this article.

How Supply Planning Parameters Should be Set

However regardless of the system used, MRP system planning parameters can be set in a constrained fashion, although they must be calculated outside of the system (unless a company uses an optimizer — and optimization is not a silver bullet in this regard which is itself another topic.)

Search Our Supply Planning Articles

Supply Planning Research Contact

  • Interested in Our Supply Planning Research?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

Brightwork MRP & S&OP Explorer

Improving Your Supply Planning, MRP & S&OP Software

Brightwork Research & Analysis offers the following supply planning tuning software, which is free to use in the beginning. See by clicking the image below:

References

Repairing the MRP System Book

MRP System

Repairing your MRP System

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.

Chapters

  • 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

Software Ratings: Supply Planning

Software Ratings

Brightwork Research & Analysis offers the following free supply planning software analysis and ratings. See by clicking the image below:

software_ratings

How to Best Use The Brightwork Research MRP Calculator

Executive Summary

  • We cover MRP and how it works, as well as material requirements planning in production systems.
  • We have an MRP calculation form and calculate an MRP example.
  • This article is for anyone who wants to validate their assumptions around MRP calculation.

Introduction to the MRP Requirements Calculator

MRP stands for “materials requirements planning.”

“Material requirements planning software (MRP) is used to describe the process of planning manufacturing inventory – what products to make and what items to buy, when, how much, and from who – all based on supply and demand.”What is MRP Software

What is MRP?

MRP is one of the most important methods in supply chain planning. In performing research for this book, I found that MRP is the most commonly used term in supply chain planning, the next closest one being inventory management. This is true even though MRP is an old planning method, and more advanced methods of creating the initial supply and production plan have been created. However, MRP, and its cousin DRP (MRP used for bringing material into the supply network, while DRP pushes material through the supply network), while old, are still the most common methods of performing supply, production and deployment planning. Interestingly, MRP is a much more commonly used term than DRP, or distribution resource planning, which is almost always used in conjunction with MRP and is the other topic covered in this book. In most instances, when a company talks about their MRP system, they actually mean their MRP/DRP system. But while both methods are used, I will be focusing on MRP for this book.

How Does MRP Work

MRP is a procedure for calculating dependent requirements based upon a bill of materials working backwards from the demand (also called “independent requirements”) of a forecasted item (MRP is emphatically a forecast-based planning method) along with sales orders which, when combined with lead times, creates a series of planned production orders and purchase requisitions which are all timed to allow the demand to be met with the planned supply. MRP has these frequently unstated prerequisites:

  1. “Every inventory item moves into and out of stock.
  2. All components of an assembly are required at the time the assembly order is released.
  3. Components are disbursed and used in discrete lots.
  4. Each manufacturing item can be processed independently of any other.” – Orlicky’s Material Requirements Planning.

Material Requirements Planning MRP does some things in one procedure. It is a great time saver because of this ability, and of all the supply planning methods, it is the easiest to understand.

  • It explodes the bill of material.
  • It then assigns production and procurement quantities to the appropriate time buckets.

However, one of its main calculations is the creation of gross requirements and net requirements, which is the topic of this calculator.

Using MRP Calculation in Supply and Production Planning Systems

Material Requirements Planning MRP is still the most common method used in supply and production planning. It does both supply planning because it creates the planned purchase orders (called purchase requisitions).

It also does production planning, because it creates planned production orders.

How the MRP Calculation Form Works as an MRP Example

It is almost always combined with DRP with Material Requirements Planning creating the production and procurement plan and with DRP creating the deployment plan.

  • This is because Material Requirements Planning only brings material into the supply network.
  • It does not move the material through the supply network. This is another method also uses the same calculation approach to gross and net requirements and is often called DRP, but is broadly known as the deployment planning thread.
  • In SAP it also tends to show the same rows as Material Requirements Planning with forecast consumption. That is how sales orders consume the forecast, by working the same way.

How the MRP Calculation Form Works as an MRP Example

This MRP calculation form requires input to provide output. However, it also has default values. You can change any input value and the rest of the formula — the output will change immediately. You can continue making changes, and the form will always update without having to press any button or refresh. You can use the MRP calculation form as an MRP example to explain how the calculation in an MRP system works.

For the dynamic safety, stock calculator see this article.

Learn about the history of MRP at this article.

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References

Repairing the MRP System Book

MRP System

Repairing your MRP System

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.

Chapters

  • 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

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