Fear of MRP

By Mike Hart

Many companies invest in a manufacturing software package, yet choose to enter jobs and POs manually instead of generating them automatically through MRP. Why is there such a widespread fear of MRP?

I think this fear stems from a perception that MRP is highly complicated. Before manufacturing software packages started labeling themselves "ERP systems" in the late 1990s,they were called "MRP systems" and were commonly felt to be too complicated and costly for smaller companies.

Yes, those old MRP packages were costly and complicated and the MRP process itself required considerable setup and computer firepower to run. Old style MRP systems were geared for make to stock companies with standardized products.

Today, most manufacturing environments are make to order, just in time, with customized products. MRP has evolved to where it is essentially just a time-phased shortage list that generates jobs and POs when they are needed. Any company that chooses not to use MRP is severely limiting its efficiency potential.

No human being can possibly be as efficient as a computer program when it comes to determining what and when items need to be made and purchased, especially in manufacturing environments where hundreds or thousands of materials, components, and subassemblies are required.

Not only does MRP determine these requirements, it also automatically generates the jobs and POs in a fraction of the time and without the errors associated with manual entry.

MRP uses the exact same logic that any planner or buyer uses when determining requirements. It looks at stock on hand, demand from sales orders and other jobs, any incoming supply that may be on order or being made in the shop, and decides whether an item needs to be purchased or made.

When it comes to item settings, all MRP needs to know is each item's reorder level (which can be zero for items purchased to order) and lead time. On some items there might also be a minimum order and an order multiple for items that must be purchased in certain packaging sizes or increments.

As stated earlier, MRP is essentially just a "time-phased" shortage list. Unlike shortage lists used by distributors and retailers where you reorder whenever stock falls below a specified level, MRP looks into the future and only generates jobs and POs when they are actually needed to conform with sales order and job required dates.

Without MRP, three consequences are inevitable: overstocking, shortages, and expediting. Overstocking is caused by purchasing items earlier than needed and by using excessive safety stock to avoid shortages. Shortages are common because manual planning is error-prone and items fail to get ordered on time or for the correct quantity. Shortages are remedied though costly expediting.

Fear of MRP is costly indeed.

Mike Hart is the co-founder and President of DBA Software Inc., a leading provider of manufacturing software for small businesses.