Material requirements planning

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well.

An MRP system is intended to simultaneously meet three objectives:

History Of MRP

Prior to MRP, and before computers dominated industry, reorder point (ROP) / reorder-quantity (ROQ) type methods like EOQ (economic order quantity) had been used in manufacturing and inventory management.[1]

In 1964, as a response to the Toyota Manufacturing Program, Joseph Orlicky developed material requirements planning (MRP). The first company to use MRP was Black & Decker in 1964, with Dick Alban as project leader. Orlicky's 1975 book Material Requirements Planning has the subtitle The New Way of Life in Production and Inventory Management.[2] By 1975, MRP was implemented in 700 companies. This number had grown to about 8,000 by 1981.

In 1983, Oliver Wight developed MRP into manufacturing resource planning (MRP II).[3] In the 1980s, Joe Orlicky's MRP evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master scheduling, rough-cut capacity planning, capacity requirements planning, S&OP in 1983 and other concepts to classical MRP. By 1989, about one third of the software industry was MRP II software sold to American industry ($1.2 billion worth of software).[4]

The scope of MRP in manufacturing

Dependent demand vs independent demand

Independent demand is demand originating outside the plant or production system, while dependent demand is demand for components. The bill of materials (BOM) specifies the relationship between the end product (independent demand) and the components (dependent demand). MRP take as input the information contained in the BOM.[5]

Functions

The basic functions of an MRP system include: inventory control, bill of material processing, and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities.

"Manufacturing organizations, whatever their products, face the same daily practical problem - that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required."

Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below:

MRP is a tool to deal with these problems. It provides answers for several questions:

MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.

Data

The data that must be considered include:

Outputs

There are two outputs and a variety of messages/reports:

Messages and Reports:

Methods to find order quantities

Well-known methods to find order quantities are:[6]

Mathematical formulation

MRP can be expressed as an optimal control problem:[7]

Initial conditions:
x'_{i}(0)=x'_{i0} i=1,...,J

Dynamics:

x'_{i}(t+1)=x'_{i}(t)+z_{i}(t)-d'_{i}(t)-\sum_{j\epsilon Suc(i)}z_{j}(t+L'_{ij}-1)
t=0,...,T-1,i=1,...,J

Constraints:

x'_{i}(t)\geq0 t=1,...,T,i=1,...,J
z_{i}(t)\geq0 t=0,...,T-1,i=1,...,J

Objective:

min \sum_{i}\sum_{t=0}^{T-1}\left[ k_{i}(t)\delta(z_{i}(t)) + c_{i}(t)z_{i}(t) \right]+\sum_{i}\sum_{t=1}^{T} h'_{i}(t)x'_{i}(t)

Where x' is local inventory (the state), z the order size (the control), d is local demand, k represents fixed order costs, c variable order costs, h local inventory holding costs. δ() is the Heaviside function. Changing the dynamics of the problem leads to a multi-item analogue of the dynamic lot-size model.[7]

Problems with MRP systems

Solutions to data integrity issues

Demand driven MRP

In 2011, the third edition of "Orlicky's Planning" introduced a new type of MRP called "demand driven MRP" (DDMRP).[9] The new edition of the book was written, not by Orlicky himself (he died in 1986) but by Carol Ptak and Chad Smith at the invitation of McGraw Hill to update Orlicky's work.

Demand driven MRP is a multi-echelon formal planning and execution technique with five distinct components:[9]

  1. Strategic inventory positioning – The first question of effective inventory management is not, "how much inventory should we have?" Nor is it, "when should we make or buy something?" The most fundamental question to ask in today's manufacturing environments is, "given our system and environment, where should we place inventory to have the best protection?" Inventory is like a break wall to protect boats in a marina from the roughness of incoming waves. Out on the open ocean the break walls have to be 50–100 feet tall, but in a small lake the break walls are only a couple feet tall. In a glassy smooth pond no break wall is necessary.
  2. Buffer profiles and level – Once the strategically replenished positions are determined, the actual levels of those buffers have to be initially set. Based on several factors, different materials and parts behave differently (but many also behave nearly the same). DDMRP calls for the grouping of parts and materials chosen for strategic replenishment and that behave similarly into "buffer profiles." Buffer profiles take into account important factors including lead time (relative to the environment), variability (demand or supply), whether the part is made or bought or distributed and whether there are significant order multiples involved. These buffer profiles are made up of "zones" that produce a unique buffer picture for each part as their respective individual part traits are applied to the group traits.
  3. Dynamic adjustments – Over the course of time, group and individual traits can and will change as new suppliers and materials are used, new markets are opened and/or old markets deteriorate and manufacturing capacities and methods change. Dynamic buffer levels allow the company to adapt buffers to group and individual part trait changes over time through the use of several types of adjustments. Thus, as more or less variability is encountered or as a company's strategy changes these buffers adapt and change to fit the environment.
  4. Demand-driven planning – takes advantage of the sheer computational power of today's hardware and software. It also takes advantage of the new demand-driven or pull-based approaches. When these two elements are combined then there is the best of both worlds; relevant approaches and tools for the way the world works today and a system of routine that promotes better and quicker decisions and actions at the planning and execution level.
  5. Highly visible and collaborative execution – Simply launching purchase orders (POs), manufacturing orders (MOs) and transfer orders (TOs) from any planning system does not end the materials and order management challenge. These POs, MOs and TOs have to be effectively managed to synchronize with the changes that often occur within the "execution horizon." The execution horizon is the time from which a PO, MO or TO is opened until the time it is closed in the system of record. DDMRP defines a modern, integrated and greatly needed system of execution for all part categories in order to speed the proliferation of relevant information and priorities throughout an organization and supply chain.

These five components work together to greatly dampen, if not eliminate, the nervousness of traditional MRP systems and the bullwhip effect in complex and challenging environments. Many claim have been made by the consultancy company that is marketing DDMRP, including the following: In utilizing these approaches, planners will no longer have to try to respond to every single message for every single part that is off by even one day. This approach provides real information about those parts that are truly at risk of negatively impacting the planned availability of inventory. DDMRP sorts the significant few items that require attention from the many parts that are being managed. Under the DDMRP approach, fewer planners can make better decisions more quickly. That means companies will be better able to leverage their working and human capital as well as the huge investments they have made in information technology. One down-side, however, is that DDMRP can not run on the majority of MRPII/ERP systems in use today, so companies that wish to use it have to replace their current system with a 'certified' system, only one of which currently exists.

DDMRP has been successfully applied to a variety of environments including CTO (configure to order), MTS (make to stock), MTO (make to order) and ETO (engineer to order).[9] (Some DDMRP consultants, however, believe that DDMRP only produces better results that standard MRP in MTF (make to forecast) environments.) The methodology is applied differently in each environments but the five step process remains the same. DDMRP leverages knowledge from theory of constraints (TOC), traditional MRP & DRP, Six Sigma and lean. It is effectively an amalgam of MRP and kanban techniques. As such, it shares the strengths of both but also the weaknesses of both and, in consequence, it has not been widely implemented.

See also

References

  1. ↑ Uday Karmarkar, Getting Control of Just-in-Time, Harvard Business Review 1989
  2. ↑ Joseph Orlickly, Materials Requirement Planning, McGraw-Hill 1975
  3. ↑ WJ Hopp, ML Spearman Commissioned Paper To Pull or Not to Pull: What Is the Question? Manufacturing & Service Operations Management, 2004
  4. ↑ IE. 1991. Competition in manufacturing leads to MRP II. 23 (July) 10-13.
  5. ↑ J.Orlickly, Net Change Material Requirement Planning, IBM Systems J. 1973 in Jos Peeters, Early MRP Systems at Royal Phillips Electronics in the 1960s and 1970s, Annals of the History of Computing, IEEE 2009
  6. ↑ Malakooti, Behnam (2013). Operations and Production Systems with Multiple Objectives. John Wiley & Sons. ISBN 978-1-118-58537-5.
  7. 1 2 Zipkin Paul H., Foundations of Inventory Management, Boston: McGraw Hill, 2000, ISBN 0-256-11379-3
  8. ↑ Waldner, Jean-Baptiste (1992). "CIM: Principles of Computer Integrated Manufacturing". Chichester: John Wiley & Sons: 46. ISBN 0-471-93450-X.
  9. 1 2 3 Ptak, Carol & Smith, Chad (2011). Orlicky's MRP 3rd edition, McGraw Hill, New York ISBN 978-0-07-175563-4.

Further reading

External links

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