Understanding MRP: A Comprehensive Guide to Material Requirements Planning
The traditional methods of inventory management, which are appropriate when the demand for goods is independent—subject to market conditions and not related to other items—are inadequate in other circumstances. This is particularly true when the demand for items is dependent, meaning it is not directly subject to market conditions but is also related to other items of a higher degree of complexity.
If, in addition, the demand is discrete and discontinuous, classical techniques that work with values representing continuity in application are largely ineffective. This often leads to both the appearance of breaks and the maintenance of unnecessarily high average stocks.
The MRP (Material Requirements Planning) arises from the need to solve the problems presented in the context of irregular, discrete, and dependent demand. Since MRP is based on the fact that the demand for each item is independent—except for those with external demand—and that the needs of each article and the time that must be satisfied can be calculated from independent demands and product structure, it also processes deadlines and provisioning information.
While the MRP system develops inventory management functions, it is much more than just an inventory management technique. It also develops functions such as production scheduling, order planning, and priorities, providing information to other areas of production. The primary goal is to have the necessary stock just when it will be used. The emphasis should be placed more on when to call in the quantum, which makes it necessary to program techniques for managing inventory. The basic objective is not only to monitor stock levels, as in classical management, but to ensure its availability in the desired amount at the right time and place.
Until the advent of computers in the sixties, MRP (Material Requirements Planning) was a simple technique that emerged from practice. Thanks to computers, it now works and renders obsolete traditional techniques regarding the treatment of dependent demand items. MRP systems follow a hierarchical approach and are born as computerized inventory management and manufacturing planning systems capable of generating the Material Plan from a master production schedule (MPS).
The system is based on the explosion of material needs. This process is the concrete translation of purchase orders and production for each of the products involved in the production process of external demands for end products:
List of Materials File
Master Production
Inventory Record File
SYSTEM
MRP
Materials Plan
Secondary Reports
Inventory transaction data
Inputs to the system are:
- Master Production: Quantities and deadlines that must be available to produce the final product, with an indication of the expected delivery dates. This program should be validated to ensure its feasibility.
- Bill of Materials (BOM): The structure of production and assembly of the article in question. It allows the tree to build every one of the items that appear in the master production plan, indicating which components make up each unit and calculating the necessary components for each part.
- Inventory Log File: Collects information and data on the different items (delivery times, stock available in the warehouse, scheduled receipts, and stocks) necessary for the production process.
The outputs of the system are:
Plan of Materials: Contains the quantities of each of the items to be purchased or manufactured by the company for each of the periods in the planning horizon. It includes the production plan and procurement plan.
Information
Can be defined as the MRP planning system for manufacturing components, through a set of logically related procedures, reflecting a master production schedule in real needs of constituents, including dates and amounts.
The system characteristics can be summarized as follows:
- Guidance products. At the beginning of their needs, it plans the necessary components.
- Prospective system, as the planning is based on the future needs of the products.
- Time offset needs items in terms of delivery times, establishing the dates of issue and delivery of orders. It is important to minimize the time of supply (TS) before being accepted as such.
- Does not take into account capacity needs, so the plan does not ensure that the order is viable.
- It is an integrated database, to be used by different areas of the company.
The MRP, in its original form, was not without problems. First, the importance of the accuracy of the MTP (Master Production Plan) to achieve correct results with the MRP resulted in the addition of a Master Production Scheduling module in the software packages. Moreover, the programming was done without considering possible capacity constraints and the difficulties arising from the implementation of material plans in the workshops. This led to the use of Capacity Planning techniques at different levels (e.g., Bills Resource Capacity and Capacity Requirements Planning Profiles). While this improved results, it lacked real integration and the use of a common database. Similarly, management skills in workshops (Shop Floor Control) were developed to control priorities and determine the ranking of different jobs in the production units.
Closed Loop MRP
After 15 years of experience in MRP (1975), the integration of MRP systems with techniques for Capacity Planning and Workshop Management led to Closed-Loop MRP Systems (BC), which perform integrated and coordinated activities, allowing feedback from the level of execution to planning.
Schematic of Closed Loop MRP.
The system starts from an aggregate production plan developed outside the system, which will become an MPS by the Master Scheduling module. This will be the starting point for planning medium-term capacity through Rough-Cut techniques. If the resulting plan is feasible, the master program will serve as input to the MRP module. Ordering plans from MRP providers will go to purchasing management, while the workshop will order from Capacity Planning (CRP). If the short-term plan is viable, it will be deducted from CRP, and the orders will become part of the management workshops, which will monitor system operations and program priorities. The situation in the workshops and plans will serve short-term capacity to the system’s ability to control, usually using Input/Output Analysis.
The characteristics of closed-loop MRP can be summarized as follows:
- It is prospective.
- Includes Master Production Scheduling, materials requirements planning, short and medium-term capacity planning, and Control and Management of Workshop Capacity.
- Integrates all aspects of the holder, as the database and the system are unique to all areas of the company.
- Works in real-time, using online terminals, although some processes will occur in batch.
- Has simulation capabilities to determine what would happen if certain changes occur in the circumstances of departure.
- Acts top-down, as the process must begin with the Aggregate Production Plan.
The closed-loop MRP systems represented a major step towards the integration of business management, but there was still a gap between management—Inventory-Free Production—and other areas of business, mainly Accounting and Finance, which is a vital missing link in connection with the Strategic Plan.
Exercises MRP: Tickets required for the calculations in trouble for a period “i”.
a) Gross requirements, NB.
Amounts needed for components in the respective periods.
Master Plan (independent demand) and the internally generated top-level items to yours (application dependent).
b) Outstanding Orders, PP. Tickets for materials provided for previous programs.
c) Net Requirements, NN.
NN i = Max (O, NB i + SS – (PP i + E i-1)) NN > 0.
d) Expected Receipt of Orders, RP.
RP i ? i NN. Needs corrected according to the type of batch.
e) Release of Orders, LP. When net requirements indicate, LP will occur.
f) Stocks in Storage, EX.
EX i = (E i-1 + PP i + RP i) – NB