One of the most powerful features of the Microsoft Dynamics GP Manufacturing Suite, is MRP – Materials Requirements Planning. Paradoxically, it may also be one of the least understood functionalities in the GP world! While MRP can work wonders for a manufacturing organization in helping control inventory, there is a certain level of hesitation, in the user *and* the consulting community, about implementing MRP. Some of the hesitation may stem from the users’ experiences with MRP in a legacy ERP system, or sometimes it is simply due to a lack of understanding of the mechanics and the functioning of MRP. And then some folks might just feel intimidated by the plethora of new terminology that gets introduced in relation to MRP.
What is MRP?
Very simply put, MRP encompasses “a set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials.” (APICS definition of MRP) The primary objective of MRP is to balance out the supply and demand for purchased as well as manufactured items, in a “time phased” manner. It thus strives to ensure the supply (availability) of items (products), to the demand for those items (products), over a defined time span (‘horizon’). The outcome of a “well-oiled MRP machine” is a well-coordinated production and purchasing plan.
Very loosely put, MRP has the core objective of ensuring the equality in the very simplistic equation Supply = Demand, for all inventoried products, across the entire planning time-span (horizon):
Demand for a product is derived from the sales orders placed by the customers and sales forecasts (independent demand, for finished products), as well as the manufacturing pick lists (dependent demand, for raw materials and components). It also includes the safety stock levels that must be maintained. Supply of a product includes purchasing and manufacturing receipts, and the inventory on hand. MRP tries to establish a balance in the Supply/Demand equation. Where an imbalance exists (i.e. a shortage or an overage / excess) MRP will recommend a corrective action, based on the nature of the imbalance and the replenishment method of the part. For example, where the supply is less than demand (shortage), MRP will recommend a purchase order for buy parts, and a manufacturing order for make parts, to meet the shortage. It may also recommend moving-in an existing purchase order or a manufacturing order. Where supply is in excess of demand (overage), it would recommend the cancellation or moving-out of a purchase order or a manufacturing order as the case may be.
As mentioned above, there are three basic outputs of an MRP run: recommended purchase orders, recommended manufacturing orders, and warnings / notifications (called ‘exceptions’ in GP).
In recommending the corrective action thus identified, MRP will further reinforce this very simple and intuitive math with rules (‘order policies’) and quantity modifiers: minimums, maximums, and multiples, batch sizes. For example, a shortage of 527 units of a part may result in a recommended purchase order for 550 units, if the order multiple is set to 50 (let’s say that the vendor sells this part in multiples of 50 only).To make the planning sensitive to time, MRP will incorporate purchasing lead times as well as manufacturing lead times. Thus MRP can be modeled to perform a comprehensive math, based on real-life situational rules. This significantly adds to the power of MRP.
In spite of the power of MRP and its usefulness in the production and materials planning, apprehensions and misconceptions about MRP abound in the uninitiated user space. “Will MRP force me to create and schedule manufacturing orders according to its plan?” “Will it cause me to build up inventory based on unmet forecasts?” “The MRP recommendations do not make sense.” “MRP is not working right.” These are some of the commonly expressed / misconceptions. In fact, MRP is not the be-all and end-all of manufacturing. It is only a tool, which only makes recommendations, it does not perform any self-initiated actions. It is a deterministic mathematical model that is sensitive to the settings and data parameters. The age old adage of “Garbage in Equals Garbage Out” holds especially true about MRP.
To remove the apprehensions and misconceptions, what is needed is a clear understanding of MRP, its objective, it’s functioning. A detailed knowledge of the data elements that MRP is dependent upon, and how they are treated, and where they are stored in the labyrinth of GP screens. This will enable the user to correctly interpret the results of MRP, take appropriate actions, and overall boost their confidence in MRP.
The "MRP Workshop"
Our approach to de-mystifying MRP involves conducting an “MRP Workshop.” This workshop is conducted either as part of a GP Manufacturing implementation, or as a stand-alone session. It thus addresses the needs of new users (new implementation) as well as GP users who may actually be using MRP, but who still need to get a sense of confidence in the MRP results (stand-alone session). The objective of the workshop is to gain such a deep understanding of MRP, that the workshop participants can predict the outcome of MRP. To facilitate this, we create a simple “control environment”. We go over the setup requirements, and the data that provides the inputs to MRP. We go over, for example, the impact of checking an unobtrusive check-box, and how that would affect the MRP suggestions. We do various “what-if” scenarios. We make changes to the data, and based on the changes made, try to predict the quantitative output of MRP. If the MRP returns results are not in line with the expectation, we analyze and substantiate the results of MRP, and reconcile the prediction with the actual results. When the MRP results are exactly per expectation / prediction, we move on to the next scenario.
By the end of the workshop, the participants have a thorough understanding of MRP and its functioning. We have eliminated their apprehensions and misconceptions about MRP, strengthened their ability to predict MRP results and increased their confidence in the results. We have demystified MRP.
To schedule an MRP Workshop or to learn more about what Dynamics GP can do for your organization, please contact us today:
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