Of all the elements of a supply chain, the planning of manufacturing is the area that is probably most mired in confusing language and acronyms. MRP, MRPII, DDMRP, RCCP, MPS… the list goes on.
Manufacturing is a complex beast and trying to grasp the basic planning processes can be challenging if you’ve not been exposed to manufacturing before.
It Starts with MRP (Material Requirements Planning)
MRP is the top-level term now commonly used to describe the complete manufacturing process – from strategic level planning down to execution. MRP is effectively the manufacturing process manual that contains all the sub-processes for demand planning, capacity planning, production scheduling, and execution. MRP is the rule-book and the umbrella under which all the other planning processes sit.
MRP is not, in its traditional sense, software. MRP is a process and, although that process is now facilitated through many ERP (Enterprise Resource Planning) systems such as Oracle, SAP and Infor, MRP remains a process for planning manufacturing operations. It could, potentially, be operated manually without a system if required (although this would be a challenge in any large-scale manufacturing operation).
MRP as a concept has been with us for more than 50 years. In that time, it has seen a series of modifications and, along with those modifications, there have been proposed name changes such as MRPII and DDMRP. Before we get to the planning processes that sit within MRP, here’s a quick potted history on the development of MRP.
At First, It Was Just Called MRP…
MRP was first conceptualised in the 1960s to provide a simple and logical process for planning manufacturing operations so that the execution of the manufacturing schedule could be as smooth as possible.
Up to that point, manufacturing operations had not typically organised themselves under a cohesive plan and expediting was the order of the day.
MRP was introduced to bring order to the chaos through controlled planning of material requirements around production orders to ensure that production ran as smoothly as possible.
And Then Came MRPII…
Throughout the 1960s and 1970s, MRP remained manufacturing-centric and focused at an operational and execution level only. Its focus stayed limited to planning production orders and the process did not encompass wider functional areas that directly influenced production, such as finance, sales forecasting, and strategic planning. MRP was effectively a manufacturing ‘silo’.
However, by the 1980s it was increasingly recognised that this silo approach was a weakness of MRP and this led to an evolution of the process which was termed MRPII (Manufacturing Resource Planning).
MRPII sought to build on the traditional MRP processes by encompassing other functional areas that had a potential impact on the manufacturing plan. This included business strategy planning, Sales and Operations Planning (S&OP) and finance. With these inclusions, MRP no longer operated solely at an operational and execution level, but it now encompassed strategic and tactical planning.
And Then Along Came DDMRP…
Roll-forward another 30 years and, as book sales of MRPII started to dry up (joke!), an evolution of MRPII started to be discussed – DDMRP (Demand-Driven Manufacturing Resource Planning). DDMRP, which in our humble opinion would have been better-named MRPIII, seeks to make the manufacturing process slicker and more adaptive to changes in actual market demand.
DDMRP recognises that sales forecasts are rarely accurate and that manufacturing to an inaccurate forecast generates excess inventory and potential service issues. Consequently, DDMRP aims for manufacturing to be triggered, wherever possible, by confirmed orders. Of course, this has the potential for manufacturing lead times to exceed the lead time in which the customer expects delivery.
To help mitigate this issue, DDMRP places dynamic inventory targets at each decoupling point in the supply chain and then deploys process improvements via Lean, Six Sigma, and Theory of Constraints approaches to make the manufacturing operation as quick and slick as possible.
Whilst DDMRP is a logical, common-sense development of MRPII, it would be fair to say that it does reflect an approach that many manufacturing operations were already undertaking before the evolution was academically discussed.
In Practice, It’s All Simply Called MRP
MRP remains the descriptive term for planning manufacturing operations, and MRPII and DDMRP are simply concepts that reorganise the MRP rulebook – they are variations on a theme. In the real world, in manufacturing plants and production operations, you will simply hear the term MRP when referencing manufacturing planning, regardless of whether they operate to the rules of MRP, MRPII or DDMRP.
As we said at the start, MRP is the rule-book and the umbrella under which all the other planning processes sit. These planning processes follow a tiered structure, starting with high-level planning as the top tier and ending with execution as the final tier. Below we introduce the process at each tier in a typical MRP approach.
Planning Tier 1: S&OP (Sales & Operations Planning)
S&OP is a planning process that takes a view on the mid-to-long term horizon on what the business is likely to sell and how it can meet those sales. S&OP typically won’t be considering individual SKUs, but more likely product families and key accounts that will drive a large proportion of the businesses activities.
S&OP occurs in five steps which you can read more on here. The second step of S&OP is building a picture of likely demand over the planning horizon and then the third step is reviewing capacity to see how you can meet this demand. It is this third step that is the first tier in MRP.
S&OP kicks off the MRP process by supplying it with high-level demand requirements with which the MRP process can then start to undertake Rough-Cut Capacity Planning (RCCP).
Planning Tier 2: RCCP (Rough-Cut Capacity Planning)
The RCCP builds a high-level resource profile that will be required to meet the demand coming from the S&OP process. The resource profile will typically be an assessment of hours of production time versus the number of production hours available.
The RCCP gives the manufacturing team visibility on potential capacity constraints on the horizon and, with a feedback loop into the S&OP process, allows the team to develop mitigation plans, either by extending capacity or managing potential demand spikes by building advance inventory (one of the issues that the DDMRP variation sets out to avoid).
Once resources are levelled in the RCCP, then the demand and capacity information is fed into the Master Production Schedule (MPS).
Planning Tier 3: MPS (Master Production Schedule)
The MPS is a schedule of what the business anticipates making. It is not a production schedule per se, but rather a guiding plan considering all the demand and supply on the current horizon. It is normally expected that the MPS on the short-term horizon, typically one or two days, will be accurate enough to issue as a production schedule, but beyond those one or two days, it is simply a guiding plan.
The MPS will consider the pipeline of confirmed orders, alongside short-range forecasts at SKU level, and it will attempt to balance the demands on capacity, materials, and time with the demand of the marketplace. MPS provides the opportunity for the manufacturing team to test scenarios and develop an immediate schedule for execution that meets demand in the most efficient way possible.
If there are conflicts in the MPS, then these can be fed back up to the RCCP and into the S&OP process to seek rectification or they can be addressed through a more detailed assessment in Capacity Requirements Planning (CRP).
Planning Tier 4: CRP (Capacity Requirements Planning)
CRP looks at capacity planning at a lower level of detail than RCCP – it’s a drill-down to specific issues identified in the MPS. CRP will tend to look at capacity issues on specific pieces of equipment or for specific materials. Many companies with relatively simple manufacturing operations don’t use CRP – they find that RCCP is perfectly sufficient to plan and mitigate resource conflicts or bottlenecks.
CRP tends to be used in more complex manufacturing environments or where a very specific issue needs to be assessed. Where RCCP looks at resource profiles such as hours of production time, CRP looks at the full routing through work centres and down to the level of labour skill where appropriate. Amended plans will then be sent back to the MPS.
Planning Tier 5: Production Schedule and Execution
The production schedule is effectively a snap-shot of the MPS covering the next day or two. It is anticipated that, through the processes of S&OP, RCCP, MPS and CRP where required, the MPS, at least for the next few days, has been sufficiently developed to allow the plan to be executed.
Of Course, It Gets More Complicated…
There are, in reality, a huge number of variations to the tiers we’ve discussed in this article and the feedback loops between them. Variances in the types of manufacturing operation – from batch processors in the chemicals sector to discrete manufacturing operations for retail goods – drive different approaches, especially in the final production schedule.
However, what we have provided is a clear and simplified view of the core planning activities within most manufacturing operations. Hopefully, this also gives a better understanding of the host of acronyms used in manufacturing and what they mean in the context of manufacturing planning.