Understanding MRP Basics

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used by companies to manage their manufacturing processes. MRP systems are designed to ensure Raw Materials are available for production and to ensure Finished Goods are available for delivery to customers. In addition, MRP helps companies maintain the lowest possible material and product levels, plan manufacturing activities, and manage delivery schedules. MRP looks at the demand for items, based on Sales Orders, production Jobs, or reorder points, and projects the usage of intermediates and Raw Materials based on that demand and the active default Bills of Materials for all items.

There are three distinct ways in DEACOM to satisfy material demand for an item:

  1. Make - Accomplished through creating a new Job for that item.
  2. Buy - Accomplished through creating a new Purchase Order for that item.
  3. Transfer - Accomplished through creating an Inter-Company Transfer for that item.

MRP aggregates all supply and demand to provide a single view of expected inventory levels. The table below shows what makes up supply and demand.

Supplies

Demand
On Hand Sales
Reserved Forecasts
Issued Indirect requirements
QC Job requirements
Purchase Orders  
Jobs  
Inter-Company Transfers  

Configuration

Refer to the Configuring Options for Use in MRP page for setup information.

Process

Optimizing product availability

DEACOM’s MRP approach is to provide a filtered list of only those items requiring action by the user. These items include those that are purchased from outside suppliers and Subassemblies that are components of other items produced internally, as well as Finished Goods. The MRP functionality calculates demand based on scheduled Sales Orders, scheduled production Jobs, and indirect requirements. Indirect requirements are defined as the quantity of materials required to satisfy suggestions for the displayed item in the Bill of Materials. As an example, a Raw Material used to make a Finished Good will have an indirect demand showing in MRP if a Sales Order for the Finished Good is entered. Production Jobs are not required in order to see the material requirements for a specific Raw Material because DEACOM takes scheduled Sales Orders into consideration when calculating MRP.

Comparing Instant vs. Time-Phased MRP

In DEACOM, the MRP transaction provides a benefit to users by offering two different views of the supply and demand for items.

  • Instant MRP - A single bucket (which may be run “wide open” or filtered for a specific date range) that displays all the supply and demand for items including unscheduled Purchase Orders, Jobs, and Sales Orders, even if they do not have a due date assigned. This approach may be useful for troubleshooting or high-level analysis. The ability to add additional fields to the grid for quick sorting and filtering may be a plus.
  • Time Phased MRP - Multiple time buckets (days, weeks, and months) based on the due dates assigned to Purchase Orders, Jobs, and Sales Orders in the system. This approach is critical to ensure that incoming material receipts and production orders are scheduled to occur on time. This approach is also useful when dealing with items requiring a significant lead time.

In an Instant MRP report, the overall status of all items is visible. In this view, it is also possible to have several different views by leveraging any of the four Instant MRP reports. Each report may have a different default setting or grid layout.

In a Time Phased MRP report, there is a much different view. With the choices selected on the pre-filter, the grid may only showing items that require attention. In addition to what items need Jobs, the user sees when they need to take action

Using MRP in DEACOM

The typical method for running MRP is from the Inventory > MRP menu however, DEACOM also provides buttons to run MRP on the Sales Order, Job, and the View BOM forms.

  • When viewing a Job, the "Job MRP" button is available.
  • When viewing a Sales Order, the "Order MRP" button is available.
  • When viewing a Bill of Materials, the "BOM MRP" button is available.

While there are some valid use cases for running MRP directly from a Sales Order, Job, or even a BOM, a typical path for daily activities would be to run MRP from the Inventory menu. The steps necessary to run MRP reports are included below followed by sections dealing with the fields available on MRP forms and the definition of what type of information is contained in the various MRP report columns. The focus for this page is production, not purchasing.

Saving MRP pre-filters

As with many pre-filter forms, DEACOM provides the ability to save the field settings. For example, if one user is tasked with running MRP to create production Jobs but not responsible for creating Purchase Orders, the settings should probably be changed so that the pre-filter defaults to manufactured items only. There may also be different settings used for Subassemblies versus Finished Goods. To save MRP pre-filter settings:

  1. Navigate to Inventory > MRP.
  2. Enter the settings and values to be saved.
  3. Click the "Settings" button then, on the Settings form, click "Add".
  4. Enter a Name for the saved settings, such as "Production - Finished Good MRP".
  5. In the "Save For" field, determine if the pre-filter will be saved for only the current user or all users.
  6. Checking the "Default" flag will use these settings automatically whenever the form is opened.
  7. Click "Save" and close the Edit Saved Pre-Filter form.

Typically, when MRP is run directly from a Sales Order, Job, or BOM, the user will be presented with the Instant MRP results grid. If saved MRP pre-filters have been created and are available for all users, they may be used as default views for several Production Options fields. To set these defaults, navigate to Production > Options > Other tab and select the desired records in the "SO MRP Pre-Filter", "Job MRP Pre-Filter", and "BOM MRP Pre-Filter",

Viewing the MRP report form

Once MRP pre-filter selections have been made, clicking the "View" button generates the report. The MRP results screen is comprised of four main areas.

  1. MRP Part information - The first section contains information about the item, such as the Part Number, description, lead time, UOM, Minimum and Maximum stock levels, etc.
  2. Supply vs. Demand - The next section shows how MRP calculates Supply and Demand. Values that are preceded with + are calculated as Supply while values that are preceded with – are considered Demand.
    1. Note (-M) Sales and (-M) Forecast. This is used to signify that MRP will use the greater of the Forecast or the Sales figures. If there is a forecast of 1,000 pieces, but only have 800 in sales for an item for a bucket, MRP will use the greater of the two (1,000) for calculating demand. This ensures that MRP is not double-dipping.
    2. QC does not have a + or – sign. Depending on the settings chosen in the pre-filter, inventory currently in QC is shown for information only. There are additional settings on the pre-filter that determine how inventory in QC will affect the Supply and Demand calculations.
    3. Finally, the last entry for each item is the Suggestion. This is the result of the calculation of adding all Supply and subtracting all Demand.
  3. Time-based information - The next section lists the time “buckets”. The number of buckets selected on the pre-filter determine how many columns are displayed along with the time frame represented by each column. The total net quantity is the sum of all the part supplies minus the sum of all the part demand (the calculation is laid out in more detail below).
    1. If there is any value under 1, the system rounds the suggested value to 1.
    2. The "MRP Decimals" field in Inventory > Options is available to display 0, 1, or 2 decimal places on MRP results. A description of the information in these three sections is included in the MRP page.
  4. MRP buttons - At the top of the form, there are buttons that are used for executing the suggestions shown on the grid. These buttons can be used to provide additional details regarding selected items or to create the necessary sales, production, purchasing, and inter-company transfers to satisfy the demand for these items. For information on using these buttons, refer to the Using the "Create Job" and "Auto Job" Functions, Using the "Create PO" and "Auto PO" Functions, and Using Inter-Company Transfers pages.

Evaluating transaction dates

Several transaction dates and other fields are evaluated by MRP when calculating when what demand exists, when supplies will be available, and in what buckets suggestions should be made.

  1. Due To Ship - The "Due To Ship" date is maintained on the Dates tab of Sales Orders and represents the date by which products must be completely finished and ready for shipment, including any packaging or shipping prerequisites. Sales Order and Forecast orders use this date to determine into which bucket the demand based on this order will be displayed. If a sales or forecast order does not have a "Due To Ship" date it will not appear in MRP unless the MRP report is run with a "Bucket Type" of “All” and starting and ending dates are not selected.
  2. Safety Days - Safety days are maintained on the Item Master MRP tab and represent the number of days that products must be completely finished and ready for shipment before the Due to Ship date. Safety days will set the "Planned Finish" date of a Job to be earlier when a Job is created via MRP. This is the safety factor.
  3. Lead Time - Lead time represents the total time required to manufacture an item. For make-to-order products, it is the time taken from release of an order to production and shipment. For make-to-stock products, it is the time taken from the release of an order to production and receipt into Finished Goods inventory. Lead time will set the "Planned Start" date of a Job to be earlier when a Job is created via MRP. In DEACOM, an item’s lead time determines in which bucket or time period the suggestion(s), and in certain cases the indirect requirement(s), will appear.
    1. Items may have Facility-specific lead times. If an item has a Facility Part Cross Reference, and the cross reference is flagged to "Use Reorder Points", creating a Job from MRP in that Facility will use the Facility lead time instead of the Item Master lead time.
    2. Sales Orders and Jobs that occur in the future and outside of the date range of the MRP report will have their requirements included if the lead time of the component would push it into the date range of the report.
  4. Due to Dock - Inter-Company Transfers - Used in connection with Inter-Company Transfers only, the "Due To Dock" date defines the date the order is expected to arrive at the destination Facility and used by MRP to determine when the inventory is scheduled to arrive. If this field is left empty, the "Shipped" date is used. If the order hasn't been shipped, the "Due To Ship" date is used instead.
    1. Note: "Due To Dock" date may be changed after an order has been shipped, but not after its been received, via the "Modify Info" button when viewing the order in Sales > Order Reporting.

Analyzing and acting on MRP reports

When run with the default display setting of Suggested > 0, the Time-Phased MRP report contains items Suggested by MRP for action. Each column will display the information used to calculate the suggested quantity considering inventory and job minimum/maximum quantities.

Interpreting Suggestions for Finished Goods

When running an MRP report, the report assumes that you are going to take action on all the parts based on the suggested quantity. For example, if MRP suggests you purchase 1,000kg of a part in the first week of the MRP run, the on hand bucket for the subsequent week will include the suggested 1,000kg because it assumes the purchase order was created for this part. Suggestions can be ignored in the MRP report by setting the "Suggestions" pre-filter option to "Exclude". This option would exclude suggested quantities from impacting the quantity shown in the on hand bucket in future periods on the MRP report. However, this is not a best business practice and should be used sparingly by organizations. The reason why suggestions should be included is best illustrated through examples.

Impact of Suggestions on Raw Materials

MRP makes a suggestion to purchase in the first bucket (an item with zero lead time), and includes that suggestion into the on hand quantity of the first bucket. Demand in the second, third, and fourth bucket reduce that original on hand quantity (with suggestion included) to below the reorder point in the fourth bucket, so MRP makes another suggestion to purchase more in the fourth bucket. If the suggestion were not included in the first bucket’s on hand quantity, each of the four buckets would be below the reorder point, and you would get four suggestions instead of just the two.

Impact of Suggestions on Finished Goods

A finished goods example - MRP makes a suggestion to produce something in the fourth bucket. MRP then assumes that when that time comes, someone will create a job for that quantity. The raw materials needed have a three week lead time, so MRP is going to take that suggestion, explode its BOM, and include those demands as indirect requirements for the raw materials. That may or may not create suggestions for those raw materials, depending on on hand quantities and other demands. Without the assumption that the suggestion will be followed, when the time comes, there is no way to plan for the raw materials to be purchased, if necessary.

Impact of Suggestions on the MRP Setup

The realization that the system assumes that the suggestions will be used, as is, is critical to the way that you set up your items to create correct suggestions. If a suggestion is made in the fourth bucket to make 1000 lbs of a product, MRP makes suggestions for raw material purchases to support that future planned job. When the time comes to actually create the job, when the suggestion is either in the first or second bucket (but not four weeks in advance), if the production planner increases the job quantity, they are attempting to produce a quantity for which the raw materials have not been planned for. If they decrease the job quantity, then excess raw materials may be on hand which would not have been necessary if the original production suggestion was correct in the first place. The second situation means excess inventory, which is certainly not desirable, but the first situation results in the possible inability to produce the job, and arguments between production and purchasing as to who is at fault. The fault is in the setup of the MRP variables on the finished good, which resulted in an incorrect suggestion in the first place.

Impact of not reacting to Suggestions in a timely manner

The example above points out how last-minute changes to quantities may impact perceived MRP performance. An even larger danger is not reacting soon enough. In this scenario, MRP sees a demand cause by a Sales Order that is outside your window. MRP is aware of the lead time based on the item master and makes Purchase or Job suggestions. Since the material requirements show up as Indirect, the planner does not react to them. Later, when time has past and the demand is visible, when the Job is created there is not enough time to order the materials and/or produce the finished good. A Job is created, but MRP sees that the job won’t finish until the day after the SO is Due to Ship. MRP sees the shortfall and makes another suggestion. Creating more Purchase Orders or Jobs will not satisfy the suggestion.

Viewing details (drilling down)

Recognizing the source of the supply and demand for materials

Users can drill down to see the supporting information for the values in the rows by double clicking the appropriate value on the MRP report.

Acting on suggestions

The buttons at the top of the form may be used to view additional information or edit Item Master settings. Once the MRP report is reviewed, suggestions reviewed, and details drilled into if necessary, it is time to act on the suggestions.

  1. Simply clicking on the Suggestions line will change it from No to Yes.
  2. The "Select All", "Select None", "Create Job", and "Auto Job" buttons may be used to create the appropriate Jobs to satisfy demand for these items.
  3. Once items have been selected, via double clicking or using the "Select" or "Select All" buttons, click the "Create Job" or "Auto Job" button.
  4. DEACOM will prompt for a Facility selection and once it is confirmed, the Auto Job Setup form is displayed.
  5. Double clicking on the item will allow the user to edit the Job information, including selecting a different Revision or updating the quantity.
  6. Save any changes then click "Continue" to display the Job.

Once users have completed the necessary analysis or performed the necessary transactions, they may click the "Exit" button to close the report. In some cases, users may choose to leave the MRP report displayed for longer periods. In these cases, the "Refresh" button located on the DEACOM toolbar may be used to update the report without re-running the pre-filter. Keeping on top of MRP Suggestions and even running MRP iteratively with different views makes analysis easier and provides a better outcome.