Systems mrp materials requirement planning (material resource planning)

MRP - MATERIALS REQUIREMENT PLANNING

1. INTRODUCTION.

World War II, when the US government used specialized programs running on the huge and complex computers that just emerged in the early 1940s to control the logistics or organization of its units in warfare. These technological solutions are known as the first systems for material requirement planning (Material Requirements Planning Systems or MRP Systems).

By the end of the 1950s, MRP systems jumped the army trenches to find a place in the productive sectors, especially in the United States of America. The companies that adopted them realized that these systems allowed them to keep track of various activities such as inventory control, billing, and payment and payroll administration.

In parallel, the evolution of computers favored the growth of these systems in terms of the number of companies that opted for them. Of course, these computers were very rudimentary but they had the capacity to store and retrieve data that made it easier to process transactions, that is, to handle information and channel it appropriately to those areas that, by integrating it, could execute much faster actions.

In the 1960s and 1970s, MRP systems evolved to help companies reduce inventory levels of the materials they used, this because, by planning their input requirements based on what they really demanded, the costs were reduced, since only what was necessary was purchased.

The main objective of these systems is to control the production process in companies whose activity takes place in a manufacturing environment. Production in this environment involves a complex process, with multiple intermediate stages, in which industrial processes take place that transform the materials used, assemblies of components are carried out to obtain higher-level units that in turn can be components of others, up to the completion of the final product, ready to be delivered to external customers. The complexity of this process is variable, depending on the type of products that are manufactured.

The basic systems for planning and controlling these processes all consist of the same stages, although their implementation in a specific situation depends on the particularities of the same. But all of them address the problem of ordering the flow of all types of materials in the company to achieve production objectives efficiently: adjusting inventories, capacity, labor, production costs, manufacturing deadlines and workloads in the different sections to the needs of production.

MRP (Materials Requirement Planning) techniques are a relatively new solution to a classic problem in production: that of controlling and coordinating materials so that they are ready when they are precise and at the same time without the need for have excessive inventory.

The large amount of data that must be handled and the enormous complexity of the interrelationships between the different components meant that, before the 1960s, there was no satisfactory way to solve the aforementioned problem, which led companies to continue using the safety stocks and classical techniques, as well as informal methods, in order to try to avoid as far as possible problems in compliance with the schedule due to lack of stocks, unfortunately, they did not always achieve their objectives, although they almost always incurred high owning costs.

We had to wait until the sixties for the appearance of the computer to open the doors to MRP, this being more than just a simple inventory management technique. MRP is not a sophisticated method that emerged from the university environment, but, on the contrary, it is a simple technique, which comes from practice and which, thanks to the computer, works and renders the classical techniques obsolete as regards treatment of dependent demand items. Its appearance in academic programs is very recent. The growing popularity of this technique is due not only to the indisputable successes obtained by it, but also to the publicity work carried out by the APICS (American Production and Inventory Society), which has devoted a considerable effort to its expansion and knowledge, led by professionals like J.Orlicky, O. Wight, G. Plossl, and W. Goddard. All this has led to the number of companies that use this technique has grown very quickly.

2.- DEFINITION.

MRP is a production planning and stock management system that answers the questions: WHAT? HOW MUCH? And WHEN? It must be manufactured and / or supplied.

The objective of MRP is to provide a more effective, responsive and disciplined approach to determining the material requirements of the company.

The MRP procedure is based on two essential ideas:

1. The demand for most items is not independent, only that of finished products is. The needs of each item and the time when these needs must be satisfied can be calculated from some fairly simple data:

• Independent demands. Product structure.

Thus, the MRP essentially consists of a calculation of the net needs of the articles (finished products, sub-assemblies, components, raw materials, etc.) introducing a new factor, not considered in traditional inventory management methods, which is the term of manufacture or purchase of each of the items, which ultimately leads to modulating needs over time, as it indicates the opportunity to manufacture (or supply) the components with due planning regarding their use in the phase next manufacturing.

At the basis of the birth of MRP systems is the distinction between independent demand and dependent demand:

Independent claim. An independent demand is understood to be that which is generated from decisions outside the company, for example the demand for finished products is usually external to the company in the sense that customer decisions are not controllable by the company (although they can be influenced). The demand for spare parts would also be classified as an independent demand.

Dependent claim. It is generated from decisions made by the company itself, for example, even if a demand for 100 cars is forecast for next month (independent demand), the Directorate can determine to manufacture 120 this month, for which 120 carburettors will be required., 120 steering wheels, 600 wheels, etc. The demand for carburettors, steering wheels, wheels is a demand dependent on the decision taken by the company itself to manufacture 120 cars.

This distinction is important, because the methods to be used in the management of stocks of a product will vary completely depending on whether it is subject to dependent or independent demand. When demand is independent, statistical methods of forecasting this demand are applied, generally based on models that assume continuous demand, but when demand is dependent, an MRP system generated by a discrete demand is used. Applying classic inventory control techniques to products with dependent demand (as was done before MRP) generates certain inconveniences.

3.- MANAGEMENT OF STOCKS OR INVENTORIES BASED ON THE POINT OF ORDER SYSTEM.

Through an example we will see the difference between dependent and independent demands and what it implies, when applying the order point.

The finished product P is made up of three components H, A and B. The demand for P is homogeneous over time, that is, it has a constant level to which random oscillations are added. The management of P through a reorder point system does not offer major drawbacks, the stocks of P vary following the traditional sawtooth curve, and each time these stocks are reduced to the reorder point value a production order is issued of a predetermined batch (Economic batch) of product P. However, the behavior of the stocks of the components is totally different. Take H, for example. If it is an exclusive component of P, the consumption of H will not be distributed over time, but will be concentrated in very specific moments (those that correspond to the manufacture of a batch of P).Therefore, the stock of H, assuming a management by order point, will not follow a sawtooth curve, but a toothed curve with sharp drops and rises above and below the order point. All this will lead to having a significant quantity of component H in stock for most of the time.

Management of stocks or inventories based on the point of order system

An MRP system will only launch a replenishment of H when the manufacture of P is planned, consequently most of the time the stock of H will be reduced (if not zero), and will only reach an appreciable value immediately before said component goes to be needed to make P.

The MRP I Concept, therefore, is very simple: as said, it is about knowing what must be supplied and / or manufactured, in what quantity, and at what time to fulfill the commitments acquired.

Another interesting consideration can be observed in the disruption of the flow of materials, when different components are needed, it should not be done in isolation (classical techniques, order point), but in a coordinated way.

Naturally, an MRP system, although it is simple from a conceptual point of view, is not so simple from the point of view of its practical realization: in particular, the large amount of data to be handled simultaneously and the volume of calculations involved in them, require the use of computers for efficient manipulation. In fact, although the basic ideas and conceptual design of MRP date back to the 1950s, they have had to wait 20 years for their practical implementation due to the lack of computers of adequate capacity and price, sufficiently flexible packages (software), and of the necessary mentalization and business culture.

4.- THE MRP SYSTEM.

The MRP system comprises the information obtained from at least three main information sources or files, which in turn are usually generated by other specific subsystems, and can be conceived as a process whose inputs are:

• The master production plan, which contains the quantities and dates when the products of the plant that are subject to external demand (mainly final products and possibly spare parts) must be available. The inventory status, which collects the quantities of each of the references of the plant that are available or in process of manufacture. In the latter case, the date of receipt must be known. The bill of materials, which represents the manufacturing structure in the company. Specifically, the manufacturing tree of each of the references that appear in the Master Production Plan must be known.

Based on these data, the explosion of needs provides the following information as a result:

• The production plan for each of the items to be manufactured, specifying quantities and dates on which the manufacturing orders are to be released. To calculate the workloads of each of the sections of the plant and later to establish the detailed manufacturing program The supply plan, detailing the dates and sizes of the orders to suppliers for all those references that are acquired abroad The exception report, which allows you to know which manufacturing orders are delayed and what their possible repercussions are on the production plan and ultimately on the delivery dates of orders to customers. The importance of this information is understood with a view to renegotiating these if possible or, alternatively,the launching of urgent manufacturing orders, acquisition abroad, hiring of overtime or other measures that the supervisor or production manager deems appropriate.

Thus, the explosion of manufacturing needs is nothing more than the process by which the external demands corresponding to the final products are translated into specific manufacturing and supply orders for each of the items involved in the production process.

These entries are processed by the MRP program which, through the explosion of needs, gives rise to the so-called Material Plan or Production Program, indicative of manufacturing and purchasing orders. This plan is part of the so-called primary reports, which constitute one of the outputs of the MRP. The others are the so-called secondary or residual reports and inventory transactions. The latter serve to update the Inventory Record File based on the data obtained in the calculation process developed by the MRP.

With what has been explained so far, the original MRP system can be defined and its basic characteristics listed. Perhaps the most widespread definition is the one that conceptualizes it as a manufacturing component planning system that, through a set of logically related procedures, translates a master production schedule into actual component needs, with dates and quantities.

Regarding the characteristics of the system, they could be summarized as:

1. It is product-oriented, since, based on their needs, it plans the necessary components. It is prospective, since planning is based on the future needs of the products. It makes a time arrangement of the needs of items in depending on the supply times, establishing the dates of issue and delivery of orders. In relation to this issue, it must be remembered that the MRP system takes the TS (Time) as a fixed data, so it is important that it is reduced to a minimum before accepting it as such, it does not take into account capacity restrictions, Therefore, it does not ensure that the order plan is viable. It is an integrated database that must be used by the different areas of the company.

5.- MASTER PRODUCTION PLAN PMP OR MPS (MASTER PRODUCTION SCHEDULE).

Detailed production master plan, which tells us based on customer orders and demand forecasts, what final products must be manufactured and within what timeframe it must be finished. Which contains the quantities and dates on which the plant's products that are subject to external demand (mainly final products and, possibly, spare parts) must be available.

As indicated, the master production plan consists of the quantities and dates when the company's distribution inventories must be available. The master production plan is only concerned with products and components subject to external demand from the production unit. These are the so-called final products that are delivered to customers, understanding the latter concept in a broad sense. Thus, other companies that use said products as components in their own production process, other plants of the same company are considered clients, if the management of the materials of both companies is independent, and the components of the products that are sold as spare parts. This is the sense in which the concept of distribution stocks should be interpreted.

The other basic aspect of the production master plan is the calendar of dates that indicates when the final products have to be available. For this, it is necessary to discretize the time horizon that is presented to the company in intervals of reduced duration that are treated as units of time. The use of the workweek as the natural time unit for the master plan has been proposed as a common practice. But it should be taken into account that the entire programming and control system responds to said interval once it is set, the sequence in time of the events that occur during the week being indistinguishable for the system. Due to this, you must be very careful in choosing this basic interval, and there must be another subsystem that orders and controls the production in the company during said interval.

Another proposal, which at first seems more realistic, is to select the working day as the unit of time. Although the reduction of the interval facilitates the subsequent adaptation of production orders to it, this requires a more powerful and sophisticated scheduling and control system, since the information that has to be kept updated as well as substantially expanded will be much higher. the planning horizon. Any circumstance that affects the practical execution of the master program by modifying it (breakdowns, breakages, quality rejections, etc.) must be collected immediately, on the same day, to evaluate its consequences on the rest of the production program and adapt the same. If this immediate response capacity of the system does not exist,One of the great problems of production control systems arises as a disparity appears between what the system proposes and the reality that is imposed in the factory. In these circumstances, distrust is created in the programming and the factory tends to be governed by informal autonomous operating methods, over which the company management does not have enough control, losing the programming and production control system all its reason for being.losing the system of programming and control of production all its reason for being.losing the system of programming and control of production all its reason for being.

And even in the case in which the system is capable of promptly picking up the modifications that reality imposes, when these seem very frequently, we find a programming that appears to the executors as nervous and incoherent, due to the continuous counter-orders and modifications.

Ultimately, the decision of the basic programming interval is a fundamental decision on which the success in the implementation of a system with the characteristics described may depend. It seems desirable to start the implementation with longer intervals and gradually reduce their duration in line with the adaptation of the actual production to the resulting programs, without reducing the final interval that will be used stably to very short durations. The current trend is to try very stable production schedules to eliminate modifications and counter-orders as much as possible. The more stable the master schedule, the easier it is to reduce the basic schedule interval.In the limiting case, an equal production schedule would be obtained for all the intervals, so there would be no great difficulties in descending to the working day as the scheduling interval.

The time horizon is related to the duration chosen for the scheduling interval, which the master production schedule must cover. The fundamental concept to take into account is that said horizon should never be less than the maximum production time of any of the final products included in it. Thus, if the manufacturing and assembly time of a product is ten weeks, considering all the components involved and the assemblies that have to be carried out, all under the control of the system, the programming horizon must at least cover the ten weeks. Under this assumption, using one-week intervals will result in a master schedule with at least ten periods. And if the interval is one business day (considering the five business day week),at least fifty periods will be required. The system must have control over the scheduling, it must simultaneously consider the entire calendar that includes supplies, manufacturing and assemblies to evaluate its consequences in the execution.

The function of the master plan is usually compared within the basic system of programming and control of production with respect to the other elements of the same, the whole system has the purpose of adapting the production in the factory to the dictates of the master program. Once this has been set, the role of the rest of the system is its compliance and execution with maximum efficiency.

6.- STOCK MANAGEMENT.

The inventory status, which collects the quantities of each of the references of the plant that are available or in process of manufacture. In the latter case, the date of receipt must be known.

To calculate the material requirements generated by the realization of the master production program, it is necessary to evaluate the quantities and dates on which the materials and components involved must be available, as specified in the bills of materials. These needs are compared with the stocks of said items in stock, deriving the net needs for each one of them.

In order for the production scheduling and control system to be reliable, a very precise description of the stocks at each instant of time is essential. For this reason, the information system referring to the status of the stock must be very complete, the theoretical stocks coincide at all times with the real ones and knowing the status of the orders in progress to monitor compliance with the supply deadlines. Likewise, in the event that some of the stocks in stock are compromised for other purposes and should not be considered to satisfy the production program, this fact must be recognized. In short, there must be a perfect knowledge of the situation in which the stocks are,both materials purchased from external suppliers and intermediate products that are involved as components in the preparation of higher-level assemblies.

The information that must be kept up to date, in each period, of all the references that intervene in the bills of materials is:

1. Stocks at the beginning of each horizon period considered in the master schedule Committed quantities: The reverse lists of materials indicate in which sets each of the references intervenes. The launch of a production order brings with it the allocation of the appropriate quantities Quantities and dates of receipt of orders in progress: When preparing the manufacturing calendar, the period in which each order begins, the maturation interval and the processing process are programmed. the same and the interval in which the result of it will be available. Safety stock: The products that intervene in the master program are subject to external demand, usually anticipated. This forecast usually has a probabilistic component, using the concept of safety stock to cover it. Lot size:This is done by series, the size of which must be set Procurement deadlines and total manufacturing times: The establishment of the manufacturing calendar requires knowledge of the time interval elapsed from when an order is initiated until the material is available to be used in higher-level sets or meet external demand.

This requires higher fidelity, because intermediate level items in bills of materials are not managed by a point-of-order system. The programming and control system intends that the required quantities are available exactly at the programmed times. And not before, so as not to incur costs associated with the existence of avoidable inventories, nor afterwards so that there are no delays.

7.- LIST OF MATERIALS, BOM (BILL OF MATERIALS).

The breakdown of any complex assembly that is produced is a basic tool for design engineering departments to carry out their tasks. Both for the specification of the characteristics of the elements that make up the set and for studies to improve designs and production methods. From the point of view of production control, the detailed specification of the components involved in the final assembly is of interest, showing the successive stages of manufacturing. The manufacturing structure is the precise and complete list of all the materials and components that are required for the manufacture or assembly of the final product, reflecting the way in which it is carried out.

There are several requirements to define this structure:

1. Each component or material that intervenes must be assigned a code that identifies it in a one-to-one way: a unique code for each element and each element is assigned a different code. A process of rationalization by levels must be carried out. Each element corresponds to a level in the manufacturing structure of a product, assigned in descending order. Thus, the final product corresponds to the zero level. The components and materials involved in the last assembly operation are level one.

The level assigned to an item is the lowest that corresponds to it according to the manufacturing tree of all the products to which it belongs. In this example we have only considered a final product, but this lower-level coding has to be done with the bill of materials of all the products involved in manufacturing being described under the supervision of the production scheduling and control system.

The presentation of bills of materials is usually done through single-level lists. Thus, in the case of the product in the figure we would have three lists of a single level: those of products A, B and C, They would be the ones that are reflected below

The bill of materials indicates what parts or components each unit is made of, and therefore allows calculating the quantities of each component that are necessary to manufacture it. As well as the Engineering changes, which reflect the modifications in the product design, changing the bill of materials that represents the manufacturing structure in the company. Specifically, the manufacturing tree of each of the references that appear in the Master Production Plan must be known.

The situation or status of Stocks allows knowing the available quantities of each item (in the different time intervals) and, by difference, the quantities that must be purchased or supplied.

Reverse lists provide the information necessary to modify the manufacturing schedule when any production contingency prevents all scheduled quantities of components from being available on the scheduled dates. Or when modifications are introduced in the design of the products or in the manufacturing process of these. Through the reverse lists, you will have immediate information that indicates the higher-level products that have been affected by these changes.

Finally, we review a set of recommendations on the characteristics of the database to which the set of bills of materials gives rise. These recommendations are intended to make the bills of material easier for the scheduling and control system to meet your objectives.

The lists should be structured to facilitate the forecasts that are made about the introduction of new options in the final products that intervene in the master program. The product catalog of a company tends to change continuously, due to the substitution of some products for others, elimination of products, incorporation of new ones and, what is more frequent, expansion of the product range by introducing new options to the already existing. In any case, lists of the final products should be kept, but in order to facilitate the scheduling indicated by the final assembly plan, both when production is in a make-to-order environment and when there is a wide range of options.

The bill of materials must be kept up-to-date, including information on production times for each manufacturing operation and on procurement times in the case of materials or components that are purchased from external suppliers. Likewise, it must allow studies to be carried out to estimate production costs (of materials, direct and indirect labor, and allocation of general costs).

In summary, the bills of materials should constitute the fundamental nucleus of the information system on which the production scheduling and control system is based. They must be organized to immediately satisfy all the needs of the same, including among these, the one to facilitate the permanent and exact knowledge of all the materials used in the manufacture, the production deadlines, their cost and the control of the stocks.. In short, all the aspects that intervene in the daily decisions in which the production program is specified.

8.- GENERAL SCHEME OF A MRP SYSTEM I.

The figure shows the three basic files of an MRP I system (MPS, BOM and stocks), with an indication of the information received, stored and transmitted in each of them. The MPS receives the orders (coming from marketing) and, based on the demand from the fixed customers and the forecasts of the random customer demand, the master plan is determined, which essentially answers the questions of what should be manufactured and when, within a policy of an aggregate production plan. This master plan is combined with the product structure, and with the inventory list files, being processed in the MRP file, which in turn issues the production and / or supply schedules. This cycle is modified according to the feasibility of the programs issued by the MRP.

9.- MECHANISM OF THE EXPLOSION OF NEEDS.

The first step to be carried out in the needs explosion process is the calculation of the dependent demand and its accumulation with the independent demand to obtain the gross needs. Since an item can appear at several levels in the manufacturing structure, it is understood that its dependent demand cannot be calculated until the production plan of all those higher-level items in which it directly intervenes has been established. Hence, for the purposes of the explosion of needs, each item is considered only once and associated with the lowest level at which it is present in the bill of materials.

As might be expected, the needs explosion process is carried out starting from the final products (zero level) and descending in the manufacturing structure until eventually reaching the raw materials or items purchased abroad.

The second step consists of subtracting from the gross needs in each period (previously calculated) those units that are in inventory or whose reception is scheduled in that period. In this way, the net needs are obtained, which are the units that necessarily have to be manufactured (or purchased if supplied from abroad) to, together with the available inventory, satisfy the gross needs. Thus, if in a period the net requirements of an item are positive, it means that it is necessary to launch a production order so that:

• The batch to be manufactured covers, at least, the units corresponding to the net needs, and these units are available in the period considered.

Regarding the first point, the determination of the lot size is one of the parameters that the user of the MRP system has to set.

Suppose that the batch to be manufactured contains a number of units equal to the corresponding net requirements. This provisioning policy is the simplest (and therefore one of the most common) and is called batch by batch.

Since the manufacture of a batch (or the supply of an order) is not instantaneous but normally requires a certain number of periods, the second condition implies that in fact the production or supply order has to be launched beforehand. The magnitude of the advance depends on the item in question and in the MRP approach it is assumed constant and known. The manufacturing or supply term of each item is another of the parameters whose value must be established by the user. Given the great importance that the correct estimation of manufacturing times has for the success in the practice of an MRP system.

The existence of net needs requires the launch of a manufacturing order that must be advanced in time to have the manufacturing deadline.

The set of production orders corresponding to each item constitutes its production plan, which is itself one of the output information of the needs explosion module and, on the other hand, is used to calculate demand dependent on lower-level items that are directly involved in their manufacture or assembly.

The needs explosion process consists of performing the following steps for each item, starting with the higher-level ones:

1. Calculation of the dependent demand due to manufacturing orders for all those items that directly require said component. Determination of gross needs by adding the independent demand (Master Production Plan) to the dependent demand (calculated in the previous step). of the net requirements by subtracting the available inventory (and scheduled receipts of previous production orders) from the gross requirements Calculation of the size of the necessary production (supply) orders and advance of them, a number of periods equal to the term of manufacturing or sourcing.

As you can see, the process is extremely simple, although its implementation without the help of the computer is quite tedious (impossible in a real situation).

In the programming of an MRP system, the relevant information of each item must be taken into account, which is basically:

1. Reference or identification code Lowest level of the item in the manufacturing structure Policy for determining the lot size Supply period (manufacturing or procurement) Initial on-hand inventory Committed units (to be discounted from initial inventory Safety stock (if any).

Likewise, the following calculations should be carried out at least during the explosion of needs:

1. Gross requirements = independent demand + dependent demand. Scheduled receipts corresponding to orders in progress whose receipt is known at the initial moment. Inventory on hand = inventory on hand at the end of the previous period + scheduled receipts + receipts of production orders - gross requirements. Needs net = safety stock + gross needs - previous inventory - scheduled receipts Receipts of production orders, Launch of production orders that will be subsequently received a number of periods equal to the supply period and always in a period in which there are net needs.

10.- PROCESSING LOGIC OF THE MRP.

The MRP processing logic accepts the master schedule and determines the component schedules for successive lower-level items throughout the product structures. Calculates for each of the periods (usually weekly periods) in the scheduling time horizon, how many of each item are needed (gross needs), how many units of the existing inventory are already available (Availabilities), the pending orders to receive, the net quantity (net needs) to plan for when new deliveries are received (planned receipts) and when orders for new shipments (planned orders) should be placed so that materials arrive exactly when they are needed.This data processing continues until the requirements have been determined for all items that will be used to meet the master production schedule.

The information provided by the MRP makes it more than an inventory management technique, simultaneously constituting a production scheduling method, since it not only tells us when orders should be issued to suppliers and in what amount, but also when we must begin the manufacturing and / or assembly between the different batches that must be produced in the company.

11.- BIBLIOGRAPHY.

Administration with the Japanese Method - Agustín Cárdenas - CECSA –1993

The Toyota Production System - Yasuhiro Monden - Macchi Editions - 1993