Chapter 2 - Manufacturing Resource Planning (MRP II)

2.1 What is MRP II and why is it being used?

2.1.1 Definition and History

Manufacturing Resource Planning (MRP II) is defined by the American Production and Inventory Control Society (APICS) as a method for the effective planning of all the resources of a manufacturing company (Higgins, Leroy and Tierney 1996). It is a direct descendant of the Material Requirements Planning (MRP) system, which is a set of techniques that uses bills of material, inventory, data and a master production schedule to calculate the requirements for materials in a manufacturing company.

The MRP system was initiated in the 1960s and was spearheaded by a team of IBM innovators comprising Joe Orlicky, George Plossl, and Ollie Wright who sought to create a structured methodology for planning and scheduling materials for complex manufactured products. Over the past 30 years MRP has spawned an entire industry in manufacturing and professional services. It has evolved hand in hand with technological advancements in the computer hardware industry. Initially, MRP systems were run on large mainframe computers costing thousands of dollars and required large technical staffs to support them. However in the 1970s they underwent refinements that saw disparate modules get included and critical business concerns such as cost accounting and Capacity Requirements Planning get added. This gave rise to a new generation system called MRP II. Continued changes spurred by increased technological advances coupled with the expansion of the global business marketplace has led to changes in MRP II to enable it to facilitate the operations of the entire business enterprise. These changes have given rise to Enterprise Resource Planning (ERP) systems. ERP systems integrate quality, human resources, Information Technology (IT) and payroll systems into the MRP framework.

This paper concentrates on MRP II in the context of the manufacturing shop floor.

The characteristics of MRP II can be summarized as follows:

- The operation and financial system are the same

- It has simulation capabilities that enable predictions to be made beforehand.

- It involves every facet of business from planning to execution

(Higgins, Leroy and Tierney, 1996)

MRP II offers a systematic method for planning and procuring materials to support production. It constitutes relatively simple ideas implemented using a computer.

2.1.2 MRP II hierarchy

MRP II provides a general control structure that breaks the production control problem into a hierarchy based on time scale and product aggregation. One version of an MRP II hierarchy is shown in figure1 (Toomey 1996). Such a structure makes it possible for a manufacturer to address the daunting task of coordinating thousands of orders with hundreds of tools for thousands of end items made up of additional thousands of components.

Figure 1: MRP II hierarchy

There are many different forms of the MRP II hierarchy but generally all of them constitute three major parts: long range planning, intermediate-range planning and short-term control as shown on the right hand side of figure 1. Activities carried out during Shop Floor Control fall under the intermediate planning and short-term control categories. Descriptions of the various items that constitute the three parts of the MRP II hierarchy are given by Spearman, Toomey and Higgins in their various books. An amalgam of these is presented below.

Long Range Planning

The scope for this level of planning ranges from six months to five years while re-planning may vary from a monthly to an annual basis. The level of detail is based on the part family. This level of planning is usually conducted at the corporate level and the decisions made typically impact all the plants belonging to one manufacturing firm. Long range planning constitutes three activities: forecasting, resource planning and aggregate planning. Forecasting predicts demands in the future. It is important for determining capacity, tooling and personnel. Resource planning determines the capacity requirements over the long term. This would help to determine whether to build a new plant or expand an existing one. Aggregate planning determines the level of production, staffing, inventory, overtime over the long term based on months and part families. This information enables management to make decisions such as whether to build up inventory or use overtime, or a combination of the two to meet increased demand for a product.

Intermediate Planning

Intermediate planning involves planning the different functions that take place during production. Intermediate Planning constitutes Demand Management, Master Production Schedule (MPS), Rough-Cut Capacity Planning, Bill of Resources, Material Requirements Planning and Capacity Requirements Planning. Demand Management is the process of converting the long-term aggregate forecast into a detailed forecast while tracking individual customer orders. The Master Production Schedule (MPS) is the source of demand for the MRP II system. The MPS gives the quantity and due dates for all parts that have independent demand. Independent demand refers to the demand for all end items and external demand for spare parts. Rough-Cut Capacity Planning (RCCP) provides a quick capacity check of a few critical resources to ensure the feasibility of the MPS. It uses a Bill of Resources (also referred to as a Bill of Materials when only dealing with materials) for each end item on the MPS. The Bill of Resources gives a breakdown of the time in hours needed at each critical resource required to build a particular end item. One form of this is the Bill of Materials (BOM). The BOM provides the relationship between end items (finished products) and lower level items (the constituent parts of the end item). Material Requirements Planning conducts allocation and carries out the job release function. It does this by releasing materials onto the shop floor and converting them into scheduled receipts. Its output is the job pool, which consists of planned order releases. MRP plays a key role in controlling the shop floor as will be discussed in chapter 4.

Capacity Requirements Planning (CRP) provides a more detailed capacity check on the production plans compared to RCCP. Its inputs are: planned order releases, existing WIP positions, routing data and capacity and lead times for all the work centers. CRP carries out infinite forward loading by predicting the job completion time for each process center using given fixed lead times and then predicting a given loading over time. These loading values are then compared against available capacity without making corrections for overloading. This aspect is one of the key weaknesses of MRP II in shop floor control and will be discussed later in this chapter.

Short Term control

Short Term control comes into play whenever a job is released to the shop floor or when a purchase order is released to vendors, so as to ensure on time completion with the correct quantity and specifications. A purchase order is used with purchased components while Shop Floor Control (SFC) is used with jobs destined for internal manufacture. Short Term control serves two functions: job dispatching and input / output control.

Job dispatching provides rules for arranging the queue in front of each work station on the plant floor such that due date integrity is maintained while machine utilization is kept high and manufacturing times are kept low. There are different job dispatching rules that exist and at least 100 can be found in common use. These include: Shortest Process Time (SPT), Least Slack, Least Slack per remaining operation, Critical Ratio. (Blackstone et al. 1982).

Input / Output control provides an easy way to check releases against available capacity. On the shop floor, it does this by monitoring the level of Work in Progress (WIP) at each work center. Depending on the level of WIP as compared to a predetermined level, the release rate is maintained or adjusted by changing the MPS until the correct rate is achieved for a given set of conditions.

2.2 What are the problems of MRP II?

The fundamental problem with the MRP II system is that it is based on a flawed model. This model relates dependent and independent demand and can be stated as follows:

‘Dependent demand and independent demand are different. Production to meet dependent demand should be scheduled so as to explicitly recognize its linkage to production so as to meet independent demand’.

Dependent demand refers to the demand for components that are used to make independent demand products. Independent demand refers to the demand that originates from outside the system (Spearman).

This model causes MRP to assume a fixed lead time and infinite capacity which are common problems that afflict the system. Another consequence is system nervousness. Lead time refers to the span of time required to perform a process or a series of operations starting from when the need is initially recognized to the moment of completion. In MRP, the responsibility for lead time reduction is removed from the shop floor and consequently the people don’t need to work faster than it. A fixed lead time also assumes that the production environment is constant. This is almost never the case since an entire host of problems constantly arise on the shop floor ranging from machine breakdown to the delay in arrival of various components. Capacity refers to the amount of labor and machine resources needed to accomplish the open shop orders and planned orders on the shop floor. Since the lead time is independent of the process centers, MRP II assumes infinite capacity on the plant floor. Spearman and Hopp point out how this situation is caused by the CRP module discussed earlier in the chapter. Typically, the CRP module will predict the job completion time for each work station using the predetermined fixed lead times. It will then use this to determine a predicted loading over time which will be compared to the available capacity on the shop floor. However they system is not designed to a make a correction for an overloaded situation. The system will usually point out that a problem has occurred but it will not point out what the problem is or suggest a solution to it. Consequently when overload conditions arise no remedy is offered (Hopp and Spearman 1996, 139). System nervousness refers to the large changes encountered in the Planned order releases when small changes are done to the Master Production Schedule.

Karmakar argues MRP II promises manufacturing managers more precision than it can deliver, requires unnecessary information and demands more formal discipline than the shop floor needs (Karmakar 1989, 1). Precision refers to the ability of a manufacturing process or system to deliver consistent performance all the time. These are symptoms of the rigidity caused by the fixed lead time and the infinite capacity assumption. Since MRP II is based on a scheduling system implemented by a computer, it often does not function seamlessly with the dynamic nature of a production system. One would therefore expect to see a proliferation of ad hoc solutions on the shop floor of a company running MRP II. This would occur in instances where the MRP II logic fails to meet the reality of the shop floor. This will be illustrated in the case study in chapter 5.

Other problems of MRP II include the high cost of software and hardware coupled with expenses incurred for training and implementation. An illustration of this is Visteon, the world’s second largest automotive supplier with annual revenues of about $17 billion. Secondly, MRP II has an unnecessarily complex and centralized nature that requires the planning and co-ordination of material flow and the production of order releases to the shop floor. This property results in the central computer being tied up for hours on end depending on how often and how detailed the exploded bill of materials has to be. MRP II generally has very large data requirements with output that is both voluminous and tedious. Consequently some of the information collected usually turns out to be inaccurate.

2.3 What solutions are being proposed to solve these problems?

On a short-term basis the greatest effort has been put into creating more efficient Data Processing techniques and better user interfaces (Karmakar, 1989). However on a longer term, no notable efforts seem to have been suggested to address the problems that plague MRP. Such solutions would call for a complete overhaul of the model described earlier in the chapter. Instead of doing this, a lot of effort has gone into revising and expanding the functionality of MRP II resulting in systems like ERP and APS described in chapter 1. In addition, new advances in the computer industry, primarily processing speeds and storage capacity, have led to a greater emphasis on optimizing the computer related aspects of MRP while completely ignoring the underlying problems with the MRP logic.

For the problem of responsiveness, Rusk in his paper entitled “The Role of Bill of Materials in Manufacturing Systems” proposes the Bill Of Materials as a solution. He points out that better use of the BOM would enable suppliers to estimate part usage of the manufacturers and also increase flexibility. For system nervousness, Benton proposes the elimination of day to day operation failures as a solution. However, he points out that MRP’s rigidity cannot be overcome unless the entire system is changed.

There have been several attempts to integrate MRP II with other systems like JIT and lean leading to various hybrid systems. Typically, such systems combine the strengths of pull and push systems leading to a design that best meets the needs of a given production system. Push and pull systems with regard to the shop floor are discussed in chapter 3. Karmakar proposes that an unlimited number of control methods can be developed in this way and goes on to identify three such systems that combine MRP and other techniques:

1. JIT-MRP – This is a modification of existing MRP II systems that adds pull elements while eliminating problems that are associated to the system’s lack of responsiveness. It is appropriate for continuous-flow or level repetitive processes where production is at a level rate and lead times are constant. In this arrangement, MRP does not handle order releases but instead concentrates on materials co-ordination, materials planning and purchasing. The shop floor on the other hand is operated as a JIT flow system.

2. Tandem Push-Pull – These are characteristic of repetitive batch environments where lead times are fairly stable. These are usually assembly and subassembly environments where the manufacturing cycle time is significantly shorter than parts purchasing and fabrication lead times. Push and pull systems are juxtaposed such that MRP II ensures part availability based on end-item schedules and while kanban handles subassembly and assembly releases.

3. Requirement driven Kanban – In this setting, individual cells within a manufacturing chain are run using kanban control while MRP II runs the remaining processes. This is suitable for settings where final assembly schedules are unstable with respect to volume and mix but fairly stable demand can be predicted by certain portions of the production process. This hybrid system is particularly applicable in manufacturing shops that supply subassembly and assembly operations, where the mix may change significantly while the volume remains fairly constant. Builders of common subassemblies and metal forming operations also fall in this category.