Search for Supply Chain.. !

Fundamental Flaws in MRP assumptions?

Materials Requirement Planning is based on several assumptions. When all those assumptions are correct, MRP run will give accurate results ... thumbnail 1 summary
Materials Requirement Planning is based on several assumptions. When all those assumptions are correct, MRP run will give accurate results which can be implemented. We have seen in previous articles, how Manufacturing requirements are planned and recommendations are generated. In this article, let us examine the fundamental assumptions and their validity.

1. Capacity is Infinite: We can produce anything as long as we have material at the right time. This is a major flaw. In a manufacturing set up capacity is a constraint most of the times. It could be skilled labor, a special tool, sophisticated equipment or any other. More over, capacity is never infinite. It is always finite. Having enough material at the right time is no guarantee that schedule can be met with out any delay.

So when we run MRP, we should always cross check with Capacity planning and re run MRP.

2.Lead times are constant :

Either forward scheduling or backward scheduling based on lead times schedules are developed. The major assumption here is Lead times are constant or fixed. Are the lead times really constant? When we say lead times, they are basically two types, fixed lead time and Variable lead time. Fixed lead times do not depend on Lot size of the items (like Set up lead time). And the second is variable lead time which depends on Lot size. So if a lot of 1000 requires, 2 days then, to produce a lot of 5000 requires 10 days. Not less not more. But in reality are they really constant? Meaning does it take exactly 2 days for a lot of 1000? Not more, not less? What if it takes less? What will happen to the material in progress? How accurately these lead times are calculated? How frequently are they reviewed to validate whether the lead times are still valid? How much of safety is loaded into these lead times? What are the basic assumptions with which they were initialized? Are those assumptions still not valid? Answers to some of these questions will tell us the REAL lead times. The lead times have cascading effect as the material gets converted from Raw material to finished products through various levels in the BOM. In spite of all the things, is there a provision for Murphy's entry?

3.Accurate Stock Status/ On order status

MRP accuracy depends on accuracy of stock status. So the assumption is the perpetual inventory status matches with the actual on hand quantity. It is every body's guess that Stock status is not accurate at any given point of time. Reasons can be many. A few manageable reasons and a few non manageable reasons. In such cases, the output of MRP is not practical at all. What do we do about the results? The problem gets compounded because of the pegging used in MRP calculations. So it is a Herculean task for the planner to cross check the status. Many a times the Purchase order due dates get modified over phone or fax. The system does not get updated at all. In such a case the result is again the same.

4. Demand is fairly constant

MRP starts with independent demand for the end products. Though there are many software applications available to predict the demand, it is very difficult to get accuracy in demand.

Now when there is uncertainty there should be a provision for incorporating that uncertainty into the planning. Another important thing is NOT to plan for all materials through MRP.
Response time dictates how frequently you should run your MRP and how many items should be included for planning run.

Response Time is the time taken to implement the MRP recommendations and update the transactional data. It is not always easy to respond to MRP recommendations. Based on the revised demand, there could be a few order cancellations, move in orders or move out orders. In the shop floor when the work is already in progress, or the set up is already completed for an order, it is NOT prudent to just ignore all that and start working on the new order. The response time is a measure of how quickly the shop floor can implement these changes as recommended by MRP? Another link in the entire chain is suppliers. Suppliers also need some time to respond. Each change or response is also COST to the company. So this needs to be accounted for.