Incorrect MRP Calculations Can Cause Both High Inventory and Frequent Missing Parts

Missing parts continue to be one of the most common disruptions in production – regardless of industry. However, at the same time many manufacturing companies struggle with high inventories. What is the reason for this discrepancy?

The scheduling for material requirements is determined by an MRP run in the ERP system. How does the ERP system calculate the requirement dates? The start times for component / parts production is calculated from the delivery date backwards – taking into account buffer times.

• Error no. 1: Start times for production orders are calculated based on fixed lead times, and do not consider that lead times may vary, even for the same product (depending on the capacity utilization of all processes and resources).
• Error no. 2: ERP systems calculate production plans with infinite capacities. However, this only works with very simple production processes (e.g. a continuous process over a lengthy period of time). Today there are few companies that have such simple production processes. Most manufacturers have complex parallel production processes – that merge and branch.

Consequently, the ERP output (with imprecise / unrealistic start times) is being used as the basis for material requirements scheduling (MRP calculation), although it is wrong from the outset. The deviations can run in either direction – too early or too late – and not just for a matter of days, but weeks.

Incorrect scheduling can have a massive effect on inventory levels. It’s a vicious circle that results in a company having both excessively high inventory and missing parts simultaneously.

ERP systems or simple MES planning modules do not have the functions necessary for calculating realistic production plans/schedules and are easily overwhelmed when it comes to determining optimal sequence planning for multiple synchronous processes.

For precise MRP calculation manufacturing companies require powerful APS and SCP systems which include the following functions:

• Optimal sequence planning for parallel, merging, and branching processes – to optimize lead times
• Planning for all resources that take into account multi-level finite capacities per process step (machines, employees, devices, molds, …)
• Checks the material availability and fluctuations for each process step
• Sequence optimization functions, which help to reduce changeover times and increase resource productivity

A high-performance APS and SCP system calculates precise production times for all production orders (final assembly, pre-assembly, parts production, …) that are accurate to the day / hour / minute. Master data (work schedules, parts list, customer orders, production orders, inventory level, purchasing plans, …) are first imported from the ERP system into the planning system and there the data is “processed” considering all rules / restrictions for each product, process and resource. Finally, the optimized planning result is exported into the ERP system. A correct MRP calculation can only be achieved on this basis.

Without a solid foundation (i.e. realistic and optimal production start-times) for MRP calculation, there is little hope of escaping the dilemma of “co-existing high inventory and missing parts” –  in spite of all efforts to improve supplier management, inventory management, installing new ERP / MES systems, etc.

The Asprova orchestrated end-to-end APS and SCP systems were developed in cooperation with some of the world’s leading practitioners of Lean. Many of our customers have exceptionally high material turnover ratios which testifies to the efficiency of Asprova’s precise and realistic planning.