Materials Requirement Planning (MRP) & Manufacturing Resource Planning (MRP II)
Software that will change the way you do business forever
When Henry Ford introduced the assembly line, it changed the way we did things. Nowadays we call this a Disruptive Technology. This has happened many times in human history, and each occurrence obliged us to alter the way we functioned as a society fundamentally.
In Brief – MRP…
Agriculture’s advent led us to give up our nomadic lifestyle and settle in one place. With reliable crops came leisure time; we began to reflect, think, and plan. Animal husbandry, or herding, dramatically increased our Food Supply and the quality of our nutrition. The craft of pottery increased our cooking options. Metallurgy drove us even further forward.
At each stage, some fundamental aspect of human society changed. In more recent memory, the advent of the World Wide Web increased our ability to communicate and share information. Once again it altered our world and society as a whole.
The newest Disruptive Technology is the 3D-printer. Right now it’s slow and cumbersome, but we have the ability to print with atoms of metal, with strings of protein, with cellulose (wood), with concrete, or just about anything you can imagine.
In just a few short years 3D-printers will be able to print food that is virtually indistinguishable from something that was naturally sourced; it will be able to regularly print replacement parts for astronauts on orbit (as was done on December 22nd, 2014); and print un-rejectable replacement organs from a person’s own cells. There is even a Chinese company printing homes (yes, houses) at a rate of ten per day for about $5,000.
MRP was disruptive
Going back to Henry Ford for a moment, his assembly line innovation suddenly required that he had a steady supply of materials for the work. His productivity took a great leap forward, and if you saw a car on the road back then, it was likely a Ford.
This new method required new support techniques. Nowadays we know it as Supply Chain Management. They struggled with it in the early days, to make sure they had sufficient resources available to the function. Forward-thinking companies like Coca-Cola made a point of having dozens of duplicate suppliers for their manufacturing requirements. No one wanted to shut down an assembly line because they were missing one crucial item.
The New Age of MRP
Knowing your production capability, and being a sole supplier of a commodity, left you in the enviable position of being able to make as much as possible knowing that you would sell it. Once the sales curve became obvious to others, it was no longer a foregone conclusion that you would sell everything you made. Competition triggered an increase in quality and the need to persuade people to select your product over others.
Since you could no longer guarantee to sell everything you made, running at full capacity all the time made little sense. It now became a question of creating variety to enhance consumer choice and increase sales. When even that became stale, in many cases focus changed to creating customized items on a one-off basis, or limited run.
Versatility creates unique problems
The most versatile among current manufacturers are Job Shops. Their greatest strength is the ability to perform intimately customized work quickly, and subsequently to swap out and change to a new job, with different materials and techniques.
Their greatest weakness is their Supply Chain. They’re either obliged to keep huge quantities of diverse materials on hand ready to handle any situation or limit their production capability and speed, based on the availability of materials and delivery time.
At least they were until MRP came along…
The First Step
MRP, which stands for Materials Requirements Planning, is the process and technique of providing the right amount of raw materials at the appropriate time to support production. Although it had existed in a less sophisticated form since our caveman days, it only really began to be developed in earnest in the 1970s.
To be economical about production, the MRP system splits the master production schedule into discrete parts such as components, raw materials, and product demand. It then analyzes the Bill Of Materials (BOM) for each order on the schedule and alerts the purchasing group when to order them based on known lead times for each material.
Suddenly the warehouse full of bulk raw materials emptied out. Cash flow increased substantially because money was no longer tied up in undesignated general inventory. MRP reached its maximum usefulness with the invention of Just-In-Time (JiT) delivery so that raw materials arrived just as previous supplies were exhausted. There was no longer any need for significant warehouse space. And that’s where the usefulness of MRP ends – at the receiving doors.
MRP was clearly a useful process, but it didn’t go far enough. It didn’t take too many more years to realize that computers offered a new way to manage the manufacturing process. New technologies, such as Radio Frequency Identification (RF-ID) tags, QR-codes, and Bar Codes, combined with wireless handheld code readers, made up-to-the-minute inventory control simple. The technology was invading the shop floor (in a good way).
The system was designated MRP II to differentiate it from the purely material-oriented MRP. It began by including production planning, introducing process-capacity scheduling to get the most out of each machine, and adding analysis modules because they acquired a better grasp of processes and could forecast demand. More and more was developed and added as time went on.
Soon they could do quality tracking, and the monitoring tools were expanded to cover other aspects. Employees’ attendance was added, which led to tracking their contribution and productivity to and for each process. This new transparency showed that each employee had strengths and weaknesses and they could be matched with individual processes or teams to maximize the effect.
MRP II incorporated everything from the receiving door, where MRP had left off, to the shipping door. Now all the processes from Production to Shipping were defined by the MRP II label.
Synergy of Software
Inevitably people soon began to think of how convenient it would be to combine MRP and MRP II into one integrated system. Fortunately, they didn’t restrict themselves to such a simple plan.
People had already been creating independent, free programs to handle Personnel for business, Shipping and Receiving, Sales, Purchasing, and Accounting. All this automation was certainly helping to simplify many aspects of business management. The problem was all these disparate systems had to be spoon-fed information from one to the other—usually performed by data entry clerks endlessly typing. This was both inefficient and wasteful.
Brave New World
MRP and MRP II were eventually merged with modules for procurement (SRM), production (PLM), distribution (SCM), accounting, human resources (HR), corporate performance and governance, customer relationship management (CRM), business intelligence (BI), E-commerce, and enterprise asset management. All these individual, discrete modules shared a single database. There was no longer a need for jumbled solutions to force external systems to talk to each other.
ERP had been born, and with the increased ability of the late 1990s to communicate more efficiently with all the components of a business, from suppliers to customers, those using this new integrated system had a stunning advantage over their competitors. Goods were produced more quickly, bills were paid on time, and delivery of supplies and end products was faster.
What’s the difference between ERP and MRP?
ERP is supposedly seamless. All modules use the same interface and use data similarly, which requires little cross-training. ERP may be too sophisticated for a given operation, even with modules not purchased or deleted. How many in-ground swimming pools are you going to sell to one family? And you probably won’t need Customer Relationship Software or an accounting package if you make a component for another customer and that is your sole function and only customer. If you have ten employees, you probably don’t need an HR module either. Building rocket engines? You don’t need e-commerce…
MRP, on the other hand, focuses on the processes from quotation, sales, creating works orders, inventory control, purchasing, all stages of manufacturing, and invoicing. It has little or nothing to do with Accounting or Customer Relationship Management. Many businesses use MRP to manage production planning, forecasting, and ordering of materials. If you’re making and selling goods and your operation is simple, MRP (II) will probably be perfectly viable.
For your convenience, please have a look at our Buying Guide which is available for download now.