MRP was a huge leap forward because for the first time what was required could be calculated based on what was already there compared with what was needed, with the net result time-phased even through many bill of material levels. The objective of MRP was to precisely timephase requirements and replenishments to dramatically reduce inventory from the previous order point approach where some of everything was kept around all the time. This ability to calculate dependent demand through a bill of material was a significant development. It was no longer necessary to forecast dependent demand—it could be calculated based on the expected time-phased demand for the parent part. The APICS Dictionary defines dependent demand as:
Demand that is directly related to or derived from the bill of material structure for other items or end products. Such demands are therefore calculated and need not and should not be forecast. (p. 46)
MRP systems are capacity-insensitive in that they will call for the production of items for which capacity may not, in fact, exist. This might appear to be a shortcoming of material requirements planning, but on a moment’s reflection, it can be seen that this is not really accurate. A system can be designed to answer either the question of what can be produced with a given capacity (i.e., what should the master production schedule be) or the question of what capacity is required given a master schedule, but not both simultaneously. Process industry tends to ask the capacity question first and then develop the MPS, whereas discrete manufacturing companies tend to ask the latter question first. Current MRP systems are designed to answer both questions iteratively. Advanced planning and scheduling systems were designed to provide a mathematically optimized result to both questions.
MRP Outputs
An effective MRP implementation assumes that capacity has been considered in the development of the master production schedule. An MRP system obeys the master production schedule, and the validity of MRP outputs is always relative to the validity of that schedule. Another way of stating this is to say that the master production schedule can be invalid (vis-á-vis available capacity) but that the outputs of an MRP system will be computationally correct.
The primary information outputs of an MRP system are the following:
• Order-release notices, calling for the placement of planned orders
• Rescheduling notices, calling for changes in open-order due dates
• Cancellation notices, calling for cancellation or suspension of open orders
• Planned orders scheduled for release in the future
Secondary or by-product outputs come in great variety and are being generated by the MRP system at the user’s option. These outputs include:
• Exception notices reporting errors, incongruities, and out-ofbounds situations
• Inventory-level projections (inventory forecasts)
• Purchase commitment reports
• Traces to demand sources (so-called pegged requirements reports)
• Performance reports and analytics
While the output of an MRP system is always computationally correct, it is not necessarily always realistic in terms of lead time, capacity, and availability of materials, particularly when the system plans requirements for an unrealistic master production schedule. MRP simply provides information for what you would have to be able to do in order to implement the provided schedule. The MRP calculation assumes that the demand it is given is valid and takes it from there.
This means that for most large enterprises, the MPS and MRP are critically linked. Each has specific roles and attributes. In isolation those roles and attributes have isolated effects. In combination, however, the effects become quite dramatic. This will be further discussed in Chapter 3. In this book, the term “conventional planning” is specifically about an MPS-MRP approach. Figure 2-1 depicts the conventional MPS-MRP planning schema connecting to a manufacturing execution system (MES). It focuses on the MPS-to-MRP link observed in Figure 1-1 (shown in Figure 2-1 at the left side of the graphic).
MPS and MRP have already been defined, so let’s define the other critical components of this schema.
Product Structure File
Also known as a bill of material, the product structure file is the cornerstone of MRP systems. The APICS Dictionary defines this as:
FIGURE 2-1 The conventional MPS-MRP planning schema
A listing of all subassemblies, intermediates, parts and raw materials that go into parent assembly showing the quantity of each required to make an assembly. (p. 15)
The product structure file depicts what it takes to make something. It is a hierarchal view starting with an end item and descends component level by component level. At each level there is a “parent-to-component” connection. The parent part is the upper level of the connection; the components are at the lower level. Thus, components can also be parents further down a product structure. As well, the bill of material contains component-to-parent ratios, also known as quantity per parent. These ratios define the quantity of a particular component that is required for a single immediate parent. In many manufacturing environments, component quantities increase at greater and greater ratios deeper in the bill of material. Finally, the product structure must also contain a lead time for each part number in the product structure file. Figure 2-2 is a simple example of a product structure file.
FIGURE 2-2 Product structure file example
In Figure 2-2 all the critical elements of a product structure are evident: part name, ratio, lead time, and product structure level. In this example the boxes, each with a unique item label, are connected in a hierarchal order beginning at the top box labeled “FPA.” FPA simply stands for “finished product A.” which is an end item. SAA and SAB stand for, respectively, “subassembly A.” and “subassembly B” ICB stands for “intermediate component B,” while PPB and PPC stand for, respectively, “purchased part B” and “purchased part C.” Each unique part for fit, form, or function must have a unique part name.
The numbers contained in parentheses in each box (except FPA) represent the ratio of a part to its respective parent. For example, it takes two SAAs to make an FPA. As we move down the product structure, component requirements tend to increase in many environments. For example, one FPA requires two SABs. Those two SABs will then require four ICBs (two ICBs per one SAB). Those four ICBs will then require eight PAGs (two PAGs per one ICB). Thus, producing one FPA ultimately requires eight PAGs.
Lead time for each part number is expressed in days as the white numbers in black circles at the side of each part. Most MRP systems utilize fixed lead times. For manufactured items these lead times are a fixed estimation of time (typically in days) about how long it will take to build the item when all materials and components are available. This is called a manufacturing lead time. For example, the product structure depicted in Figure 2-2 says that FPA will take two days to build if two SAAs and two SABs are available at the same time. For purchased items these lead times are a fixed estimation of time (typically in days) about how long it will take to