Material requirements planning (MRP)

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Material requirements planning (MRP)

Material requirements planning (MRP)

Introduction
The term MRP was suggested by the three US-based researchers - Joseph Orlicky, Oliver Wight, and George
Plossl - In the 1960s (Hopp and Spearman, 2004). Since then it has become a widely popular area of research.
Alfred Sloan referred to his experience with MRP type calculations in his famous book, 'My Years with General
Motors', published in the 1960s. In the 1990s the relevance of MRP was debated but it remains a relevant
subject today as modern MRP systems continue to play an important role in reducing inventory and improving
manufacturing (Schuster, 2000).

According to Browne et al. (1988), three assumptions are made while preparing the MRP schedule: (1) is there
enough capacity to produce? Therefore, MRP is also known as the infinite capacity scheduling; (2) ensure the
time taken for production can be estimated accurately; (3) the date of order can be taken as Day 1 when
estimating the complete date of the order.

Modern ERP systems borrow from the MRP and MRP-II systems that acted as predecessors and were
designed to generate a lot of data and act as the main database. In the 1980s technology was not fast enough
and purchasing MPR systems meant considerable investment for businesses (Shum, 2003). The MRP II and
more modern ERP have enabled companies to plan resources more efficiently than MRP. While MRP was used
predominantly for material planning, MRP II endeavoured to plan as well as control all the resources of an
organisation. In fact, it was so fundamentally different that it was renamed as MRP II, that is, Manufacturing
Resource Planning by Wight (1984). ERP incorporated further functions of even planning, scheduling and
managing resources from the supplier's end, based on the ever-changing nature of customer demands (Chen,
2001).

Definition
Material Requirements Planning (MRP) is a planning and decision-making tool in the production process.
According to Browne et al. (1988), MRP is "a planning tool geared specifically to assembly operations. The aim
is to allow each manufacturing unit to tell its supplier what parts it requires and when it requires them".

Successful Application
MRP sets the production goal and works backwards in order to assess the amount of material and work
required to achieve the pre-determined task. In actual implementation, production planners use MRP the
most. They base their decisions on work allocation, maintaining production schedules and planting foremen
on the output given by the MRP. Customer service staff uses the MRP data to inform customers about the
expected delivery date. Inventory managers and purchasing personnel are also regular users of MRP outputs
(Encyclopedia of Small Business, 2002).

Main features of an MRP system

The Master Production Schedule (MPS)

This is based on the build or assemble programme, and is a statement of what final products need to be
made, and when. It drives the entire MRP system. The MPS is based on sales forecasts or customer orders,
production capacity and the prioritisation of work. It is a matter of some complexity and difficulty to get the
MPS right, yet right it must be, as the whole planning process is based on this document.

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Material requirements planning (MRP)

The Bill of Materials (BOM)

This is a list showing all the raw materials or components required to make the final product. Usually it is a
very complicated and formidable document. If we think about a tractor, we can see that it must be so because
there are thousands of components. We can analyse parts of an imaginary Bill of Materials for a tractor, just
to show how the document is constructed. It is arranged as follows:
1. The complete tractor is divided into major assemblies – say chassis, engine, transmission, steering,
suspension, gearbox, electrical harness, etc.
2. The major assemblies are split up into sub-assemblies. In the case of the engine, for example, that
major assembly will divide into sub-assemblies for crankshaft, engine block, cylinder head, engine gear and so
on.
3. The sub-assemblies are again split into minor assemblies. Taking the crankshaft assembly as our
example, one of the minor assemblies would be the piston.
4. Having arrived at the piston minor assembly, that is then detailed into individual components, such as
the piston head, compression ring, scraper ring, small-end bush, small-end pin, connecting rod, big-end
bearing, big-end nut and bolt, and tab washer. Thus we arrive at the final details of the individual components
which either have to be made in the firm’s own production areas or bought from suppliers. In the instance of
the piston minor assembly, perhaps only the piston head and connecting rod would be manufactured
internally and all the other components bought from an external source.

The inventory status file

This keeps records of what is in stock, and allows the gross requirements to be adjusted to net requirements
by taking into account the current stock position. The idea is to avoid stocks if possible, but if inventories do
come into existence, the system will ensure that they are used in the right sequence.

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Material requirements planning (MRP)

Source: S.Donaldson CIPS

Steps to Successful Application

• Preparing the MRP schedule. Step 1. Exploding: achieved by using the Bill of Materials (BOM), i.e. how
many components are needed to prepare one item of manufacturing?
• Preparing the MRP schedule. Step 2. Netting: the net quantity of material calculated by computing the
difference between the stock available in the factory from the overall, gross requirement. This figure
is provided by exploding.
• Preparing the MRP schedule. Step 3. Offsetting: lead time is estimated for the entire operation that
helps practitioners to compute the expected time for manufacturing. It also tells when the
manufacturing process should begin so that items are available on the promised date.

Browne et al. (1988)

Hints and Tips

• Adequate training of staff is important for the successful implementation and running of MPR
(Encyclopedia of Small Business, 2002).
• It is very important to identify those for whom MRP will be the most effective and convince them
about its importance and efficiency (Sawaya, 1992).

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Material requirements planning (MRP)

• A way to generate motivation and improve the engagement of people in MRP implementation is to
tailor their rewards in a way that reflects their performance on inventory management and
production goals (Sawaya, 1992).

Potential Advantages

• The MRP system is widely credited for playing a crucial part in decreasing factory inventory. It also
assists in manufacturing industrial products that are more complex in nature (Schuster, 2000).
• MRP focus is on what materials are required and when they need to be sourced. It is also helpful in
product customisation (Plenert, 1998).
• MRP has historically been seen as giving additional advantage because it is known to schedule and
track every order whether for production or purchase

Potential Disadvantages
• When there are many variables in the production process and there is even a slight change in the bill
of materials, the entire MRP system needs to be re-run (Schuster, 2000).
• Companies that are more process-oriented turn to other available alternatives as MRP can encounter
a lot of issues in the nature of production (Schuster, 2000).
• For a very long time MRP was neglected as an area of study (Plossl, 1994).

Performance Monitoring

• The MRP attempts to find out what is required? How much of it and when is it required? It is very
measurable and has a scheduled, specified requirement of material to achieve the final outcome.
(Encyclopedia of Small Business, 2002)

Case Studies

• At least 83% of companies were inflicted by at least one of these effects in their MRP systems: poor
inventory performance, poor service level and high expedite expense. Some companies also reported
all of these three effects (Smith and Ptak, 2010).
• In 1984 US$400m worth of MRP II was sold by 16 companies and the number went up to US$1.2bln in
1989. This accounted for almost one third of the entire software industry. In the late 1980s MRP II
was converted into an even more efficient system called the Enterprise Resources Planning, or ERP
(Hopp and Spearman, 2004).
• Sara Lee, a household name in personal care, implemented MRP II in 1994. It included the computer
system CINCOM along with the forecasting package Logol. As a result the Bill of Material accuracy,
that had been between 30-50%, operated at 99% post-implementation. Finished goods inventory
accuracy also rose from 20% to 98.5% (Robinson, 1997).

Further Reading/Reference
Web Resources

• Advantages of MRP (1975 paper) http://hbr.org/1975/09/behind-the-growth-in-materials-

requirements-planning/ar/1
• Examples of MRP http://people.brunel.ac.uk/~mastjjb/jeb/or/mrp.html

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Books
• Material Requirements Planning, Joseph A. Orlicky, ISBN 978-0070477087
• Orlicky’s Material Requirements Planning, Carol A Ptak & Chad Smith, ISBN 978-0071755634
• MRP, Terry Lunn & Susan A. Neff, ISBN 978-1556236563

References

• Aghazadeh, S.-M. (2003) MRP Contributes to a Company's Profitability. Assembly Automation, Vol.
23(3), pp. 257-265.
• Baily, P., Farmer, D., Jessop, D., Crocker, B and Jones, D.(2015) Procurement Principles and
Management.11th ed. Pearson
• Billington, P.J., McClain, J.O. and Thomas, L.J. (1983) Mathematical Programming Approaches to
Capacity-constrained MRP Systems: Review, Formulation and Problem Reduction. Management
Science, Vol. 29(10), pp. 1126-1141.
• Browne, J., Harhen, J and Shivnan. J. (1988) Production Management Systems. Addison-Wesley:
Wokingham.
• Chen, I.J. (2001) Planning for ERP Systems: Analysis and Future Trend. Business Process Management
Journal, Vol. 7(5), pp. 374-386.
• Choi, R.H., Malstrom, E.M. and Tsai, R.D. (1988) Evaluating Lot-sizing Methods in Multilevel Inventory
Systems by Simulation. Production and Inventory Management Journal, Vol. 29(4), pp. 4-11.
• Crocker B, Jessop ,D, Morrison ,A (2012) Inbound Logistics Management Pearson
• Encyclopedia of Small Business (2002) Material Requirements Planning.
• Graves, S.C. and Kostreva, M.M. (1986) Overlapping Operations in Material Requirements Planning.
Journal of Operations Management, Vol. 6(3), pp. 283-294.
• Haddock, J. and Hubicki, D.E. (1989) Which Lot-sizing Techniques are used in Material Requirements
Planning? Production and Inventory Management Journal, Vol. 30(3), pp. 53-56.
• Hopp, W.J. and Spearman, M.L. (2004) To Pull Or Not To Pull: What is the Question? Manufacturing
and Service Operations Management, Vol. 6(2), pp. 133-148.
• Ou-Yang, C. and Liu, H.C. (2001) Developing a Computer-aided Environment to Investigate the
Influences of Design Schedule Changes on Material Requirement Planning. International Journal of
Advanced Manufacturing Technology, Vol. 17(1), pp. 11-26.
• Plenert, G. (1998) Focusing Material Requirements Planning (MRP) Towards Performance. European
Journal of Operational Research, Vol. 119(1), pp. 91-99.
• Plossl, G.W. (1994) Orlicky's Material Requirements Planning. (2nd Ed.) McGraw Hill.
• Robinson, P. (1997) Sara Lee Case Study. [Online] Available at: www.bpic.co.uk/cases/saralee.htm
[Accessed: 14 January 2011].
• Sawaya, W.J., Giauque, W.C., Taylor, S.G. and Bolander, S.F. (1992) Ten Guidelines for Implementing
Manufacturing Systems. Industrial Management, January-February.
• Shum, P. (2003) Knowledge and Innovation Culture as Determinants of Financial Performance in New
Product Development. Australia: The International Journal of Knowledge, Culture and Change
Management, pp. 95-108.
• Sloan, A. (1963) My Years with General Motors. New York: Doubleday

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Video
Materials Requirement Planning by BizTraining
https://www.youtube.com/watch?feature=player_embedded&v=NllqvpWTRno

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Leading global excellence in procurement and supply