Manufacturing Resource Planning (MRP 2)
This article describes how MRP2 typically works, and what stops it working well. It should be read in conjunction with the two companion articles "MRP1" and "Capacity Management". MRP2 is MRP1 plus capacity planning and control & costing at both aggregate / long term and detailed / short term levels. As such it is very difficult to make work at both levels. It can be simpler to split these functions and implement low level systems as appropriate in each separate area, co-ordinated by a high-level master production schedule and material plan. Master Production Scheduling takes on even more importance in setting a do-able plan.
Links to other best practices and training at bottom of page.
MRP 2 which is the acronym for Manufacturing Resources Planning is sometimes denoted as MRPII or MRP II. It is the underlying principle for most Enterprise Resources Planning (ERP) software.
The success rate of MRP 2 implementation is appalling:
Operation of MRP2
In additional to those parameters mentioned in MRP1, essential data which needs maintenance are:
Routes
The method of manufacture must be specified and maintained. A process planning manager once said to me "We tell them how we think they should make it. They know better!" This is not a problem to an MRP2 system provided they tell us how they make it. That company was ISO accredited! Clearly the New Product Introduction Process must define the method of manufacture and there must be an effective specification change procedure for the Process method as well as the Bill of Material.
Operation times
If we are to do effective capacity planning and shop loading the times on the routes must be reasonable (+/- 10%). The best way of achieving this is to feedback the actual time taken. However even this has some difficulties:
- If the operator tells you how long it took you may use it as a stick to beat them. If you do they will not tell you the truth again.
- Some operators are better than others.
- With individual incentive schemes comes the need to maintain earnings. This gives rise to the phenomenon called "Back of the book" where the operator saves some bookings for a rainy day. . You will never know how long the job took! This scheme is also known to exist at various levels in the organisation, where if they are having a bad week the works director will often empty all the cupboards, drain WIP and despatch everything he can to maintain the monthly output figure, and cover up the real problems (and leave nothing to do on Monday morning because all the work is in the wrong places. (See Previous Malpractice of the Week 006: "Hitting the Numbers, the worst way to run operations")
Work centres
Capacity Data
These need to define each separate resource or process that is significant from a capacity viewpoint. It can be a group of similar machines, a group of people, a skill, or a subcontractor. The important consideration is which resources are interchangeable and which are not, i.e. which can be treated as a single unit of capacity. Often these can carry default operation times (which can be overridden by specifying an operation time for an item).
Cost Data
The work centre usually holds cost rates for the item. The provision for different rates varies considerably between different software, but in principle the time on the routing is multiplied by these rates to calculate an operation cost for the item at this work centre.
Optional Extras
In some more sophisticated (complex) MRP2 systems and Advanced Planning & Scheduling Systems there are other parameters such as:
Often these can be set as defaults for a work centre rather than specified on each individual routing (and it is our preference to use these defaults). They can also be used in combination to calculate &/or override the default fixed lead-time for the item held on the Bills of Materials. These additional parameters can be used to further refine the scheduling of each operation. This topic is covered in more detail in Previous Technique of the Week T020: Close Scheduling (Reducing Throughput Time).
Capacity Planning
MRP2 systems contain some form of Capacity Requirements Planning (CRP) system. These vary in sophistication but generally work by calculating the total load generated on each resource in each time period by the Master Production Schedule, and working backward from the MRP due date for each work order or forward from the planned start date for each work order. Working backward from the due date will identify any work that may be already late starting. With "infinite capacity planning systems" that is the end of the story, a loading report is produced for you to re-schedule work to make the plan "do-able" by changing MRP due dates or lead-times. A characteristic of a backward scheduled process being delinquent is if many dates are in the past! With finite capacity planning systems the load is compared to the capacity available in each period and work is forward scheduled using available capacity from the work order planned start date. A "work-to" list is produced which in theory tells you when the work will be complete, if you do what the work-to list tells you to do. Of course using forward scheduling this may be later than when the work order is required (the MRP due date).
Recognition by a number of software suppliers that this process was in their view weak, spawned the resurgence of more sophisticated capacity planning processes such as "Advanced Planning & Scheduling Systems". (Further information on capacity planning is contained in the article Capacity Management.)
Product Costing
Most MRP2 systems contain some form of standard or actual costing system. Again these vary in sophistication but in principle the cost of each operation above is accumulated to give a cost of the complete routing and then via the Bills of Materials to give a total product cost (adding materials costs at each level) to produce a "rolled up cost". We cover this subject in more detail in M13 Manufacturing Accounting.
Operational Objective
The key operational objective of an MRP2 system is to produce a "work-to list", which is achievable in terms of both materials available and capacity available.
Key success factors
The single most beneficial method of avoiding degeneracy in MRP / ERP systems is to ensure that education and training is refreshed periodically. If people understand why they are doing things they will generally help, or at least avoid hindering.
Other factors include:
The Forrester Effect (See Lean Supply Chains)
To alleviate the Forrester Effect:
End of the month
Wily old production managers know that if they build WIP, they can pull despatches out of the hat at the end of the month to meet the month end figures. Unfortunately having done it once they have to keep doing it, which completely destroys the flow of work. There are two solutions to this problem:
(See "Demand Management", but this problem is discussed in detail in Previous Malpractice of the Week 006: Hitting the Numbers (The worst way to run Operations)
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The following further best practice articles were also mentioned in this paper:
The following public training courses and in-house workshops cover MRP2:
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M09 Manufacturing Resources Planning (MRP2) |
You may also be interested in the associated courses:
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M03 Bill of Materials and Routings Design & Data Management |
M16 Enterprise Resource Planning (ERP) Implementation |
To discuss your consulting or training needs with one of our independent consultants or trainers please Contact Us.
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Summary: Best Practice Business Processes |
© SM Thacker & Associates (Consultancy and Training Specialists) Version 3 August 2007