Critical success factors for MRP implementation

This article describes the 6 types of Material Requirements Planning (MRP1) system, how MRP 1 systems work, and what stops them working well. For an overview of Materials / Inventory Management and Stock Control see the companion article "Materials Management and Stock Control". A further article on MRP2 also accompanies this article.

Links to related training and further reading on left

Material Requirements Planning (MRP1) is based on the principle:

What you need, minus what you have got, you need to get (in time for them to be used).

MRP1 Inputs & Outputs

MRP1 System Types

There are 3 major groups of MRP1 systems (and we have seen a few oddballs). We will not go into detail on the first two below in this article, except to say that they are valid methods with advantages and disadvantages over the third, and more information is available on request.

"Gross Requirements" (ignoring stock) (Not popularly implemented in modern ERP software, and much simpler than the other methods, whilst having some obvious drawbacks, significantly reduces the "Forrester effect" caused by "nervousness", see below).
Two types of "Net Requirement" systems exist:
1. "Bucketed" systems are best described by the the Period Batch Control process described in Period Batch Control / Cyclic Reordering. Again not popularly implemented in ERP systems (and in most circumstances not needing an ERP system), this type is well suited to Just In Time (JIT) environments.
2. "Un-bucketed" systems.

Within these 3 groups there are two modes of processing making 6 types of system:

"Conversational Planning" which is not widely available and which we view as the next natural development. We will discuss this in a future article.
Non-conversational, which is incorporated into many ERP systems.

The MRP1 system most popularly available in software and therefore most widely implemented is:

Non conversational,
Un-bucketed,
Net Requirements

This type is now described in more detail below:

How MRP 1 Systems work

The Bill of Material (BOM) or parts list / ingredients list (see Previous Best Practice B014: Effective Bill of Material Design) is exploded into its constituent parts and multiplied by the requirements for these parts from the Master Production Schedule (MPS) (derived from order book or forecast). (See Participative Sales and Operations Planning)

Stock is deducted (net requirements) and the lead-times (See Participative Sales and Operations Planning) allowed for, to give start dates for the works and purchase orders / schedules. Further provisions can be made for scrap allowances and batching rules (See Participative Sales and Operations Planning). This acts as the demand for the next level (in the BOM) constituent parts. Requirements are aggregated at each level from all sources to create a total requirement at that level. This calculation is then performed and the result passed down to the next level (in the BOM) where it is added to other requirements for that item generated by other items and the process repeated until the bottom level of the BOM is reached.

The sequence in which this calculation is performed is critical and is controlled by a sophisticated method of calculating the total requirements from all sources for an item at the same time (called "low level code processing"). We have not so far mentioned that there is in fact a fourth category of MRP system ("Project MRP") used in project work where this method of accumulating demand from all sources is not used and each item in effect remains part of it's project. (So for example in this type of system there may be 3 purchase orders for the same item required by 3 projects.)

All of these calculations are conducted as one hit, in a process which is described as "regenerative processing", where every demand is refreshed. Because it may take a little time to recalculate everything using this method, a second method of processing is incorporated into many ERP systems called "Net Change", which simply recalculates only items which are affected by any change at any level.

A further refinement of this calculation is that if an order is "firm" the calculation will not re-plan it. It will however output an "exception message" if as a result of the recalculation the original firm order no longer looks appropriate. Because of this, lower level requirements are not recalculated and in fact can still be driving in raw materials for a requirement which no longer exists! The worst example of a delinquent MRP system implementation we have encountered was spitting out 8,500 exception messages per week!

The outputs of an MRP system are:

Purchase requests (or requests to change existing "firm" purchase orders)
Work order requests "planned orders" (or requests to change existing "firm" work orders)

In our training courses M07 and M08 below we use an MRP 1 simulation tool to demonstrate how this logic works and the implications of the use of different policies and data errors. Useful tips on MRP implementation are shown in "Implementing ERP Computer Systems".

Notes:

1. Nervousness:

"Nervousness" is the tendency of the net requirements to fluctuate alarmingly in response to some higher level changes. E.g. the scrapping of one component can result in a requirement to produce another batch of parts immediately. "Forrester" first investigated this amplification of minor changes in his book "Industrial Dynamics". (Also see "Lean Supply Chains".) There are ways of reducing this effect!

2. Selective Assembly:

Shims in mechanical assemblies and ballast resistors in electronic assembly are good candidates for selective assembly. The demand for a particular shim size is dependent on the size of the gap to be filled, and the demand for particular resistors is dependent on the individual non-standard electrical properties of a circuit, rather than dependent on the number of products produced (although it has some non-linear relationship to this). Therefore this type of usage together with some other types, which we discuss in our course, are not suitable for MRP1 planning. To overcome this problem some people advocate the use of "Planning Bills of Materials", which are "average Bills of Material", (e.g. on average 1.5 x 3mm shims are used per product.). Our experience of trying to use this technique is unfavourable and we believe that there are better methods. We will discuss this in a future article.

3. Compliance:

MRP systems can be measured by "compliance" which simply counts the number of occurrences where the output from MRP cannot be followed and must be changed. We will discuss this in a future article.

Advantages and disadvantages

It is largely assumed by the software industry that this technique is universally applicable. It is not! Indeed there are many situations where it is overkill and other situations where it is positively counterproductive and damaging. Frequently the data structures and recording mechanisms and control processes are not set up correctly, resulting in a degenerate, sub-optimal or faulty operation of the system. We will not go into all our reasoning here but a detailed critique is available on request.

Measures of Performance (MOPS)

(See Focused Improvement Systems)

In order for you to perform the above calculations "what you need, minus what you have got = what you need to get" the system requires a high degree of data accuracy. So data must be captured in such a way that accuracy can be relied upon. (See Previous Best Practice B044: TRAP (Rules for data collection)). Data accuracy is also a key performance criterion therefore. We will discuss how to measure this in a future article, but one of the Key Performance Indicators (KPI's) for an MRP system is on-time delivery. (See Previous Best Practice B045: Measuring on-time delivery or schedule adherence (OTIF))

Operation of MRP 1

The variables inherent in the system are:

Master Schedule (see Participative Sales and Operations Planning)
Bills of Material (BOMs) (see Previous Best Practice B014: Effective Bills of Material Design)
Stocks & Work in Progress (WIP)
Lead-times (see Participative Sales and Operations Planning)
Work orders / schedules
Purchase orders / schedules
Yields / scrap allowance
Working days / times

Master Schedule

(See Participative Sales and Operations Planning)

Probably the biggest single cause of MRP problems, an unstable and "un-doable" Master Production Schedule, will kill your MRP system stone dead. The master schedule is controlled by the Participative Sales and Operations Planning process. What you will make and when, are probably the most important decisions in a manufacturing business. It is therefore surprising that these decision are often left to chance, or that the order is simply accepted with no view of its "do-ability". "Available To Promise" (ATP) (see Capacity Management) is a key requirement of Master Production Scheduling. (Work is scheduled when both capacity is available and long lead-time items can be acquired.)

Bills of Material (BOM)

Bills of Materials must be created as a part of the New Product Introduction process and then controlled via a Specification Change Management process. If picking is performed the pick list acts a form of control. I.e. if it is not on the pick list it does not get picked. This can often be a useful source of feedback for BOM errors.

Bills of Material Design is covered by our M03 Bill of Material & Routing Design & Management training course and paraphrased in Previous Best practice B014: Effective Bill of Material Design. Product Change is covered by our D02 Specification Change Management training and paraphrased by Previous Best Practice B022: Change control.

Stocks and WIP

Stock and WIP accuracy is a major cause of problems in MRP systems. However the concept of stock accuracy sometimes gets lost in the daily life of the operation. Like the sales director who stormed into the stores and demanded an urgent part for a customer. When asked for a requisition he blew his top and removed the part. Stock accuracy at that company died on that day. Procedures must be followed. Leadership is essential. If the prescribed procedures are not a natural way of operating the discipline will quickly break down. This is covered by Previous Best Practice B029: Bin Discipline.

Lead-times

Lead times are often assumed to be fixed in MRP systems. In fact this is most definitely not true. They need to be monitored. (See Previous Best Practice B010 Lead time reduction and Participative Sales and Operations Planning)

Work Orders / Purchase Orders

The other major problem in the day-to-day operation is the problem of ghost work or purchase orders. Orders which have already been complete but because the bookings are not complete there is a residual (sometimes small) quantity still outstanding on the order. (See Previous Best Practice B029: Bin Discipline.)

Yields

Unless yields are significant they should be ignored in MRP systems, because they lead to mysterious movements of work orders and not being able to understand the MRP output. If they are significant the planned yields need to be reviewed regularly and abnormal scrap reported routinely by exception. Rework must be quickly reprocessed!

Calendar

Finally do not forget to maintain the calendar(s) with your working times / days well beyond your lead-times. Set a date for doing it.

Output

The output of an MRP system consists of action messages highlighting exception conditions caused by changes and data errors. Firstly these messages need to be handled in a sequence which we discuss on our course, and secondly these need to be managed and particularly at implementation, need to be controlled.

Data Integrity

All these processes and data need to be owned! (See Previous Best Practice B001: Ownership) Also without some procedures and disciplines over the way the data is collected the data is bound to be inaccurate. We cover this in Previous Best Practice B044: TRAP (Rules for data collection).

________________________________________________________

Bookmarks for this topic above:

Our full range of training

Relevant Training / Workshops

Expert Systems / Tools

Relevant Further Reading

Top

To discuss your consulting or training needs with one of our independent consultants or trainers please Contact Us

Whilst great care has been taken to provide relevant, accurate, practical, advice based on our considerable process design and development experience, this will almost certainly require interpretation into the context of your unique business. Please be careful in doing so and if in doubt seek expert advice. We would welcome your feedback!

SM Thacker & Associates

Independent Best Practice Training & Consultancy

Highlights of our full range of training courses / Workshops:

Bookmarks for this topic below:

Relevant Training Course / In-house Workshop Highlights:

Expert Systems / Tools:

Relevant Further Reading: The following further articles were mentioned in this paper:

Material Requirements Planning (MRP 1)