Material planning lags behind
In the last four decades, very little theoretical or practical innovation has been evident with regards to the planning, control and management of materials and material flows in relation to functions in ERP systems.
The only development I have come across in that area in recent years is a concept called ‘Demand Driven Material Requirements Planning’ (DDMRP). This involves keeping critical production items, materials and components in stock, so that production levels can be maintained. However, the MRP function included is no different from any standard MRP function within any ERP system.
Materials Requirements Planning (MRP) is a standard function in almost every ERP and it is based on the concept and thus the logic of US theorist and IBM engineer Joseph Orlicky[1], who wrote a book on MRP, in 1975.
It describes how in an industrial company the materials from the Bill of Materials (BOM) of the requested products in Customer Orders, and work orders, are checked for availability on a product-by-product basis. Orlicky further elaborated his concept to include forecasting demand, and demand for materials and components, from fixed production schedules called Master Production Schedules (MPS). The production organization enters the prediction schedules and fixed production schedules into the ERP system and maintains them on a periodic basis. A fixed production schedule or MPS is then a schedule in which certain products will always be made in a certain quantity, regardless of whether there is demand for them or not.
Where MRP ‘calculates’ that material shortages will arise, the system has to create so-called Planned orders. Such a Planned order is not a real work order or Purchase Order but a suggestion to create a real work order or Purchase Order in the system so that, theoretically, the intermediate products, materials, components and raw materials will still be available to process the final product work orders in time and deliver Customer Orders on schedule.
A Planned order contains a quantity and the item number, a number with which to fabricate or purchase that item, and the latest date by which the item should be available in order to meet the requirements delivery date.
The quantity in a Planned order therefore represents the sum of all shortages on the respective Part that appear to arise within a certain planning period, from all sales orders and work orders, that should be ready or able to start production in that planning period, and which require the same material or component. A planning period is a time unit, for instance, a week, or number of days.
Orlicky’s concept was based on the capability of the technology in his day. Computers could process multi-level bills of materials (BOM’s); however, the computing capacity and the database storage capacity were very limited and expensive. Therefore, such an MRP run was often carried out only once a week, and, if it was a large database involving calculations of many article numbers, a run could take more than a day or night. That is why this activity was often performed during weekends.
[1] Orlicky, J. (1994). Orlicky’s material requirements planning. McGraw Hill Professional. (2nd edition)