SCM Terminology

MRP (Material Requirements Planning)


"MRP (Material Requirements Planning)" is a concept of creating material plans and production schedules based on the lead times of a supply chain. However, even if you create an MRP-based plan based on an ideal factory model, problems may still actually occur.

Traditional MRP (or MRP II: Manufacturing Resource Planning) and DRP-based planning are both techniques of supply chain management. If we collectively call those methods MRP-based supply chain planning, what are the characteristics and what are the differences between MRP-based supply chain planning and constraint-based supply chain planning?

In MRP-based planning, demand plans i.e. sales plans, are created independently from constraints on production and material plans, and production plans are created based on the lead times of the supply chain. If a schedule is created by determining the "product remix", i.e. products to manufacture and their BOM (Bill of Materials) then exploding processes and imposing loads on each operation will result in a schedule that exceeds operation capacity because capacity constraints are not reflected on the schedule. If the operation capacity is sufficient then the MRP-based schedule will be an optimal just-in-time schedule in which the lead time is minimized and throughput is maximized.

However, in reality, it's often the case that materials are input and production schedules are carried out exceeding production capacity. This results in in-process inventory that waits for resources. Even with schedules created for an ideal factory, there will be in-process inventory that waits for resources, a build up of excess inventory occur and some operations that are suspended due to insufficient raw materials. If there is leeway in operation capacity, the MRP can be used as an initial plan and the difference between the schedule and the actual capacity can be solved by the schedule controlled by the shop floor. However, if you try to match MRP directly with actual production then demand should be adjusted so as not to exceed the actual capacity and you should repeatedly execute the MRP over and over again. Therefore, an extremely high-speed MRP system will be required.

Historically, MRP was not as widely spread in Japan as it was in Europe and the United States. This may have been because there was a gap between the ideal factory and the actual factory and that lead to the development of "KKD" ("kan" meaning sense, "keiken" meaning experience, and "dokyo" meaning courage) to respond to the reality of the shop floor. The planning system of supply chain management emerged as a form of planning that replaced the "KDD" part with information technology that furthered scientific planning. JIT (Just-in-Time) is a constraint-based process management system. If we replace the word "constraint" with "reality", most Japanese companies will respond that it makes sense. However, in Europe and the U.S., since the planning system was developed from an MRP-based ideal factory model, the concept of "constraints" is regarded as a fresh and new concept. TOC (Theory of Constraints), is a methodology that caused, together with Japan's TQC (Total Quality Control), a paradigm shift for production management in the U.S. in the 1980s.

Taken with kind permission from the book:
"Understand Supply Chain Management through 100 words" by Zenjiro Imaoka.