MRP Pitfalls and Missteps

The evolution of Manufacturing Resource Planning (MRP) software has vastly improved the efficiency of today’s global manufacturing supply chains.  At the core, MRP systems are a collection of databases, interfaces, rules and information.  These software systems focus on optimizing the production planning and execution process.  This typically begins with customer or forecast demand (independent demand) for finished products.  This forecast demand then drives the detailed acquisition and production of all subassemblies and parts (also know as dependent demand).

MRP II takes a more holistic view of the company-wide manufacturing environment.  It expands the focus beyond individual production planning to include both operational and financial planning as well as “what-if” simulation capabilities.  It typically involves a combination of expanded software modules, business skills, focus on data accuracy, market feed-back loops and human resources management practices to improve overall productivity.  Both MRP and MPR II are most applicable in complex manufacturing environments where there is dependent demand or where customers are allowed to configure products.

In general, MPR solutions are designed to control inventory levels, assign operating priorities, and plan capacity to load the production system.  The primary benefits of a MRP system are as follows:

  1. Accurately tracks and maintains inventory levels
  2. Tracks required production materials
  3. Maintains safety stock levels
  4. Automatically manages production timing of manufacturing stages
  5. Accurately predicts raw material requirements

MRP Business Design

The first design decision that any manufacturing business needs to consider is how they want to run their business.  There are basically three fundamental ways to configure an MRP system:

  • Engineer to Order (ETO)
  • Make to Order (MTO)
  • Make to Stock (MTS)

ETO is appropriate for businesses that make new products each time they take an order.  MTO is appropriate when items are sold multiple times with some potential configuration, but without true design and engineering.  Lastly, MTS is where production is creating a stock level buffer to supply larger quantities of goods without modification.  In practice, many businesses deploy all three methods to obtain optimal efficiency.

MRP Components

The structural components that organize the end-to-end manufacturing process include the Master Production Schedule, Inventory Records and Product Structure Records including the Bills of Materials (BOM).  All of these elements are key inputs to specify the manufacturing requirements and schedule necessary to produce the final product.

The output of the MRP system are a series of reports that detail work orders, purchase orders and action notices regarding scheduling, rescheduling and cancelation of elements of production.  Secondary reports include performance control, planning and exception reports.  In addition, inventory transactions are also tracked and managed by the MRP software.

The Bill of Materials (BOM) lists all the raw materials, parts, subassemblies and assemblies required to produce a single unit of the finished product.   It also details how the finished product is put together from all the component parts.  The MRP system displays each of the various levels in a parent child or tree relationship.  As an example, level zero is the parent item and level 1 consists of the component parts.  This type of leveling system is used throughout the Bill of Materials.   It is the task of the Production Planner to explode the BOM to determine the required number, delivery dates and order dates of all subcomponents.

The Master Production Schedule (MPS) is typically based on actual customer orders in conjunction with predicted demand over a 1 to 3 month period.  The MPS details when each ordered item will be produced and in what quantity.   The Inventory Status file specifies the quantity of each item available in stock or on order for various time periods.  The planned order release report indicates if sufficient items are not available.

MRP Pitfalls and Missteps

While MRP systems provide manufacturers an excellent tool to optimize their supply chain, there are also multiple pitfalls and missteps to avoid during system implementation and subsequent operation.  Accurately assessing your team’s abilities and past successes or failures with system implementations is important because it informs key project scoping, readiness and staffing decisions.

Here is a list of common missteps and pitfalls:

  1. If the implementation team is deploying multiple non-system workarounds or spreadsheet solutions that increase head count, chances are that the system is not being utilized or implemented properly.
  2. If the MRP system does not have accurate inventory or production information, it can result in erroneous plans, overstock or understock conditions and a lack of appropriate resources to carry out the plan.
  3. If the Master Schedules are not properly designed, the overall schedule will not be optimized and production times will overshoot or undershoot their targets.
  4. If sufficient Change Management skills are not present during the transition to the new operating environment, MRP user adaption may be limited.
  5. If the MRP business team is making excessive usage of reports instead of relying on system dashboards, end-users may not truly understand the system capability.
  6. If a demo system with live test data is not being used to experiment with configuration changes and optimizations, then the system will not evolve over time.

In each of these scenarios, customer service and efficiency may be significantly impacted by missed delivery dates, poor quality, non-productive supplier conflicts or missed market opportunities.  From a financial perspective, non-optimized planning and production frequently results in increased working capital and cash flow requirements, and inaccurate inventory accounting.

Implementing a MRP solution requires a skilled team and approximately 3-4 months of focused effort.  While system set-up is time consuming and potentially costly, the efficiencies and long-term value provided by MRP systems typically dwarfs the cost within the first year of operation.

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