MRP made easy.
The term MRP--it stands for material requirements planning--strikes fear and loathing in the hearts of uninitiated manufacturers everywhere. Whether or not you've ever used an MRP system, there are several things you think you know for sure about MRP:
. It's more complicated than calculus or brain surgery.
. It will take 12 to 18 months to implement, and then nine times out of ten, it will fail to live up to expectations.
. It will cost your company between $20,000 and $500,000.
If your company is like over 90 percent of manufacturers in America (i.e., with annual sales under $10 million), you probably believe that MRP is out of the question, because it is too costly, too time-consuming, and too complex.
Having spent many years working with manufacturing systems of all shapes and sizes, however, I've come to a startling conclusion: MRP is simple! Most of MRP's apparent complexity derives from the way the software is written, and especially from the manner in which MRP is presented to potential users. But the fundamentals of MRP are known intuitively to every small manufacturer.
For example, let's take an imaginary Mr Jones, who owns the $5-million Widget Mfg Co. He's convinced that MRP is far beyond his capabilities. But just listen to how he responds when I ask him this question: "If I order 500 of your widgets today, could you deliver them in eight weeks?"
After some hemming and hawing, the answer comes back, "Yes. In fact, I could deliver them in seven weeks."
"And how did you come to that conclusion?" I ask.
"Well," replies Jones, "I've got 200 on hand, so I still need to make 300. They'll take about a week to build. But I haven't got enough subassemblies to make 300 widgets, so I need to make some of them, and they take about two weeks.
"Today, I'll order components that take about four weeks to get before I can build the subassemblies. So altogether, it will about seven weeks to complete the order."
Without knowing it, Jones has just performed MRP. He has subtracted his on-hand quantity from his order quantity. He has mentally exploded his bill of materials (BOM) for the 300 he still needs to build. In addition, he has added lead-times for manufacturing and purchasing of raw materials, and come up with a total lead-time for the entire job. And he has determined rough dates for ordering raw materials and starting work orders, for building both the subassemblies and final assemblies.
Unfortunately, his mental calculations often are only rough approximations, and they're likely to contain errors. This is especially true if he's thinking about 40 orders for 17 different products having many common components. Nevertheless, like almost all other small manufacturers, Jones comprehends the principles of MRP, and in fact uses them every day without knowing it.
Answers four questions
Boiled down to its essentials, MRP is a methodology for answering four questions:
1. What do I have to make?
2. When should I make it?
3. What do I need to buy?
4. When should I buy it?
The more quickly, easily, inexpensively, and accurately you can get answers to these four basic MRP questions, the more successful you'll be. This is where a PC-based MRP system comes in.
At the heart of a computer-based MRP system is the calculation program. First, this program looks at all demands in the system: Sales orders, forecasts for finished goods, independent demands from engineering, warranty, service, and so on.
The the program takes into account when each demand is scheduled, and how due-dates are spread out over time. (In MRP jargon, this is called "time-phasing".) These demands can be for components, subassemblies, spare-parts kits, and the like.
Next, the calculate program looks at supplies against those demands: On-hand raw materials and finished goods, work-in-process, open purchase orders, planned work orders, and so on. The program then considers the dates on which these supplies are due.
The calculate program knows (just as Jones knows) that merely having enough supplies available to meet demand is not enough. To be useful as supplies, they must be available on or before the date they are needed by demand.
So, the calculate program matches demand with available supplies over time, and comes up with a list of what Jones needs to make and buy. The program also determines when these make or buy activities must take place.
Reports that display results of these calculations have many different names. For the sake of simplicity, I call them the make report and buy report. They tell you, every day, whether or not you need to take an action--that is, begin making something, or place an order to buy something. These actions are required to create supplies that satisfy your time-phased schedule of demands.
The BOM, incidentally, is a cornerstone of the MRP process. When the calculate program determines that there is an independent, unsatisfied demand for a widget, the program uses a BOM to determine which subassemblies need to be manufactured and which components need to be procured.
The WDG-000 is composed of six COMP-1s (pieces of smoked glass), two SA-1 subassemblies (black boxes), and one SA-2 subassembly (white box). The SA-1, in turn, is composed of six mirrors (COMP-2), 10 gear sets (COMP-3), and 100 pieces of wire (COMP-4). The SA-2 has just one component, gear sets (COMP-3).
Six gear sets are required for each widget. On the BOM report, the quantities of components in the SA-1 are doubled, because it takes two SA-1s to make a widget.
Now the order for 500 widgets, due on July 1, 1989, is entered into your MRP system. (In this case, we're using E-Z-MRP from C R Smolin Inc.) The calculate program is then run, and it does precisely and accurately in about four seconds what it took Jones over a minute to approximate in his head.
To answer the four basic MRP questions listed earlier, we look at the MRP make schedule, and the MRP buy schedule. These should reveal all actions that Jones must perform to deliver our 500 finished widgets.
Referring to the make schedule, we see that the last item on the report is the widget, part number WDG-000. Reading across, we see that lead-time in working days is five (under the column headed "Lead"). There are 200 of these jewels on hand (under the column headed "QOH').
The next line shows the demand from Smolin for 500 widgets, being supplied partially from inventory. This leaves a quantity remaining (under the column headed "Qty Rem") of -300. This -300 is what generates the ** Action ** message at the far right-hand side of the report. This message tells Jones he needs to take action to create a supply for the unmet demand.
Since the due date is July 1, and the lead time is five working days (the system automatically skips weekends), Jones must open a work order for 300 more widgets on June 26 (under the left-hand column headed "Order By").
Of course, a requirement to build 300 widgets means that Jones will need 300 SA-2s and 600 SA-1s (two SA-1s per widget). Further, these parts must be on hand by June 25 if he is to start building widgets on June 26.
Actually, since June 25 is a Sunday, and the 24th is a Saturday, these parts need to be in stock by the end of Friday, June 23. (E-Z-MRP, like most MRP systems, has an internal calendar. This tells the system which days are working days and which are non-working days, holidays, weekends, and the like.)
If you look on the MRP make schedule, at data for the SA-1 and SA-2, you see that 600 and 300, respectively, are required. Since these parts have a lead-time of 10 working days, Jones must order them to be built starting on June 12 if they are to be finished by June 23.
The MRP buy schedule, shows the corresponding information for all the "buy" parts Jones needs to build the 300 widgets. This schedule shows quantities on hand and quantities short, the dates on which they are needed, and--given lead-times required to procure these parts--the order dates for purchasing.
For example, the shortage of 5500 COMP-4s (the wires), as shown on the last line of the buy schedule, is required for the 550 SA-1 shortage on the make schedule. These wires need to be in stock no later than Friday, June 9, if the work order for the SA-1s is to begin per the make schedule on Monday, June 12.
COMP-3 on the buy schedule shows a consolidated demand of 7300 gear sets. There are 5500 for the 550 SA-1s (10 gear sets per SA-1), and 1800 gear sets for the 300 SA-2s (six gear sets per SA-2).
The make schedule is routed to production control, and the buy schedule to purchasing. Work orders are scheduled by production control, and purchase orders are placed by purchasing. Then everything is fed back into the MRP manufacturing database.
The next time the calculate program is run, the make and buy schedules will have no action (** Action **) items. All demands for all parts will be satisfied by scheduled orders.
As you can see, a computer-based MRP system simply mimics (albeit more quickly and accurately) what humans in almost every manufacturing company are struggling to do daily. There are no arcane or hidden processes, no sophisticated algorithms. Nor is higher math involved--just addition and subtraction, and counting days on a calendar.
So why doesn't Jones have an MRP system? The problem is not with his knowledge or capabilities. Rather, the problem lies with the software he is normally forced to use to get these answers.
Technical complexity and high prices for MRP are unnecessary today for the small manufacturer. If you can't understand the entire system from the demo package and manual, don't buy it.
What's more, don't get caught up in all the modules many software people want you to buy. Figure out exactly what you need; chances are, you can do nicely without accounting functions and many other fancy modules that only complicate your MRP system and inflate its price.
If you've been intimidated by MRP's cost and complexity, I urge you to take a fresh look at PC-based systems. You'll be pleasantly surprised.
PHOTO : 1. At Precision Metal Products Inc (PMP), El Cajon, CA, an operator inserts a titanium
PHOTO : preformed part into an impact forging machine. To keep track of die maintenance and
PHOTO : inventories, the company installed a PC-based MRP package called E-Z-MRP from C R Smolin
PHOTO : Inc, La Jolla, CA. PMP's package includes modules for bill of materials, material
PHOTO : requirements planning, capacity requirements planning, and batch processing. Hardware in
PHOTO : PMP's system consists of an IBM PC/XT with 20 MB hard disk, and an Epson Fx-100 dot-matrix
PHOTO : printer. Amongh other tasks, E-Z-MRP calculates how many more forgings a die set can make
PHOTO : before it needs, refurbishing. According to Jerry Hoaglund, PMP's production control
PHOTO : manager, "the MRP system has given us significant savings in both time and money."