Incorrect MRP calculations lead to excess inventory and shortage of materials

No matter what industry you’re in, insufficient materials are one of the major causes of line stoppages. On the other hand, you’ll also find shelves and floor spaces filled with excessive inventory while production is halted due to lack of materials. What causes this seemingly contradictory situation?

Why are MRP Results inherently flawed?

Material requirements planning is done by the MRP module within the ERP system. How does this system calculate the timing of requirements? Decisions are made by adding production lead times or procurement dates backward from the order’s due date. This approach contains two major flawed assumptions.

• Flawed assumption #1: Production lead times are fixed. Production and supply lead times are entered into ERP systems as fixed values as if they are not affected by any factors. However, we know that these times can vary greatly even for the same product depending on factors like the characteristics of the preferred machine or capacity utilization.
• Flawed assumption #2: Resources have infinite capacity. According to the ERP perspective, this may be the case, but in many production processes, this is not true.

As a result, the material requirement timing calculated by MRP, which takes unrealistic start times provided by ERP, is inherently wrong from the beginning. The plan can be highly erroneous in both directions, either too early or too late. This deviation can even be on the scale of weeks, not just days.

Incorrect planning has a direct and significant impact on inventory levels. As a result of these errors, a company can find itself unable to produce due to both having high levels of inventory and part shortages simultaneously.

A flawless production planning is required for accurate MRP calculations!

ERP systems or MRP modules do not have the functionality to derive a realistic production plan and schedule, and they should not be expected to perform optimum job sequencing in complex production processes.

Factories need Advanced Planning and Scheduling (APS) systems for accurate MRP calculations. A robust APS should have the following capabilities:

• Optimize job sequencing not only for sequential production processes but also for parallel processes, branching, and merging processes,
• Perform finite capacity planning for not only primary production resources but also for sub-resources like molds, fixtures, operators,
• Control material availability at each process step,
• Perform scheduling optimizations to reduce setup times and ensure efficient utilization of resources,

A high-performance APS can schedule timings with minute precision for all production orders (final assembly, sub-assembly, part manufacturing, etc.). Master data (product trees, shift and leave calendars, inventory levels, production and purchase orders, etc.) is automatically imported from the ERP system into the APS, eliminating redundant data entry and double-record-keeping systems. All rules and constraints that make up the reality of the production floor should be modeled completely and exactly within the APS. This way, a realistic calculation is made based on the data taken from ERP, and an optimized production plan is sent to either ERP or MES systems. Accurate MRP calculation is only possible on such an infrastructure.

If the foundation for MRP calculations (optimum and realistic production start times) is not strong, it is very difficult to avoid the paradox of high inventory and part shortages in a factory, regardless of which ERP or MES system you use.

Advanced Planning Software optimizes your inventory levels.

Asprova APS software, which combines advanced technology products and the birthplace of lean manufacturing philosophy, Japan, is now available to the Turkish industry with Dijitalis support. With Asprova’s ability to make precise and realistic planning, you can minimize your downtime due to material reasons and increase your inventory turnover rate.

To learn the details and watch a real demo with your own factory data, you can contact us at asprova@dijitalis.com.

We’ve prepared a mini-video series to show you how we solve important planning problems. You can subscribe to our YouTube channel to watch.