The four critical questions answered. For decades, manufacturers have used material requirements planning (MRP) to coordinate the resources needed for production and synchronize their supply chains. In this book chapter, two experts on the demand- driven supply chain explain why MRP must be modernized to reflect the new realities of complex global manufacturing. The excerpt is from the recently revised and updated "Orlicky's Material Requirements Planning," considered by some to be a landmark book by a pioneer of MRP. QUESTION 1: RELEVANCE OF MRPIs manufacturing requirements planning (MRP) still relevant in an industrial world< obsessed with supply- chain management and enterprise resource planning (ERP)? At the core of every MRP application is the calculation designed to tell companies what they have, what they need to make and buy, and when they need to make and buy it. Every nerd loves a good tech war: Windows vs Mac, Apple vs Android, Intel vs AMD. They give us something to armchair argue about over beers with friends—or to rant. The mission of the Stanford Graduate School of Business is to create ideas that deepen and advance the understanding of management, and with these ideas, develop. Oracle acquired Sun Microsystems in 2010, and since that time Oracle's hardware and software engineers have worked side-by-side to build fully integrated systems and. Solaris is a Unix operating system originally developed by Sun Microsystems. It superseded their earlier SunOS in 1993. In 2010, after the Sun acquisition by Oracle. If this were the only definition for MRP, then the answer to this question would be obvious. MRP may not be perceived as leading edge at this time, but accurate answers to the simple questions of what a company has, what it needs to make and buy, and when it needs to make and buy it can spell the difference between success and failure for any company. When taking into account the increased complexities in the twenty- first century, the failure to answer these questions accurately will cause a company to fail more quickly. In this case, “failure” is not necessarily bankruptcy. It is often a difficult middle ground where some companies perpetually teeter on the brink without actually failing, whereas others are also- rans that never can break their way into sustained growth. In reality, MRP is critical and more relevant than ever. Unfortunately, the truth is that the core MRP concepts and rules around them have been neglected and left to stagnate for a long time. In addition, there is a complete lack of understanding that this stagnation is even a problem. Many newer operations approaches even advocate abandoning MRP completely. Some lean and theory of constraints (TOC) implementations measure their success by unplugging the formal MRP system. In the last 5. Consider that the first container ship was introduced in 1. The cost to load one ton of cargo in 1. Today, the cost to load one ton of cargo in a shipping container is 1. ![]() ![]() ![]() At the same time, communication technology has evolved dramatically. In 1. 91. 5, Bell’s first transcontinental call from New York to San Francisco took 2. The first self- dialed long- distance call in the United States took place on November 1. Today, the Internet and 4. G cellular and satellite- enabled phones make communication instantaneous almost anywhere in the world. In the last 2. 0 years, there has been significant attention and emphasis from the software companies on developing supply- chain solutions from both methodologic and technological perspectives. The development of these highly integrated systems has enabled a revolution in distribution and logistics between consumers and suppliers. Information about distribution and logistics is no longer a limitation worldwide. Now it can be well known what items were sold, when items move, and where those items are at any point in time. A logistics company can provide real- time updates as parts move around the world. However, at the heart of any supply chain is manufacturing. In most supply chains, there are several different manufacturing sites and processesthat must be coordinated and synchronized effectively to bring a finished item into thedistribution pipeline. At the heart of every supply chain is manufacturing. At the heart of manufacturingis MRP. In an attempt to understand supply chain many writers have simplified the supplychain structure into a straight line. However, supply chains are not the simple linearstructures normally represented as the supplier’s supplier to the customer’s customer. Supply chains are web- like entities that are difficult to represent graphically. Each companyis linked to several other companies depending on the product and the customers. These linkages and relationships change as market conditions change. Information flowsacross and throughout this web. The heartbeat for that information is the MRP system. Each node in the web is a different MRP system. An excellent graphic representation of asupply chain is the cover of this book. Therefore, a primary limitation of any supply chainwill be how well MRP systems perform not just individually on each node but also collectivelythroughout the web. Simply put, MRP has more impact on and is more relevantto the effectiveness of today’s supply chain than ever before. A previous challenge within supply chain management was not having visibilityinto what is being moved and its status; now warehouse management and logistics toolshave solved that problem. Now the problem is fundamentally about which specific itemsare actually being moved, transported, located and made. What gets put on lathes, weldingjigs, assembly lines, trucks, boats and airplanes is a response to a demand or supplyorder generation signal. Today, due to the increasing complexity of the global manufacturing and supplylandscape the supply order generation signals that move down through our supplychains have become more and more out of alignment with actual demand. The traditional planning rules and tools (including forecast based demand generation)employed by most manufacturers and distributors do not fit the highly volatile andvariable world we live in. Those rules were constructed under a “push and promote”mentality fueled by production efficiency metrics and a market that was more tolerant oflonger lead times and shortages. In order to get smarter and more agile supply chains, we must take a fundamentallydifferent approach were demand is at the center of planning and not inventory. This isnot just about speeding up what we already have. QUESTION 2: MRP—FLAWED APPROACH OR POORLY APPLIED? Is MRP failing in today’s environment because it is inherently flawed or because it ispoorly implemented? The case can be made that MRP is both a flawed approach and an approach that hasbeen poorly applied. MRP has many well- known shortcomings, and it is commonlyimplemented and/or supported in an inadequate fashion. Frequently, there are finger pointingmatches within companies about which is the real problem. The truth is thatboth are reality. MRP has critical shortcomings and often is implemented and supportedpoorly. Fixing only one issue will not improve the situation dramatically. Thus companiesthat “reimplement” MRP do not get the fix they were expecting or leave a lot of possiblebenefit on the table without realizing it. The result of MRP’s shortcomings and/or poor implementation is that companieshave chronic and frequent shortages at various stages of the production, procurement, andfulfillment cycles. These chronic and frequent shortages tend to lead to three main effects: 1. Unacceptable inventory performance. This is identified as having too much of thewrong material, too little of the right material, high obsolescence, and/or lowinventory turns. Companies frequently can identify many of these problems atthe same time. Unacceptable service- level performance. Customers continue to put pressure on thecompany, which quickly exposes poor on- time delivery, low fill rates, and poorcustomer satisfaction. In addition, customers consistently attempt to driveprices down. High expedite- related expenses and waste. In an attempt to fix the preceding twounacceptable business results, managers will commit to payment premiums andadditional freight charges or increase overtime to fulfill promises. Typically, thiseffect is undermeasured and underappreciated in most companies. As research for writing this book, we surveyed over 1. While a minority of companies reported all three of theseeffects simultaneously to a severe degree, 8. Figure 3- 1 presents theresults of the survey. To address these undesirable effects, the shortcomings inherent in conventional. MRP must be fixed, and the MRP system must be implemented and supported properly. Only one part of the solution is not sufficient. MRP is defined as: FIGURE 3- 1. Survey results. material requirements planning (MRP): A set of techniques that uses bill of materialdata, inventory data, and the master production schedule to calculate requirementsfor materials. It makes recommendations to release replenishment orders for material.
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