ERPAG 5.1

Functions of the MRP system


What are the functions of MRP system? What are its objectives, basic functions and problems?

In this blog post, I will talk about the MRP system, what it is, what kind of questions it answers and why it’s a good tool for production planning.

WHAT IS MRP?

Material requirements planning (MRP) is a production planning, scheduling, and stock control system, used to manage manufacturing processes. It’s also possible to perform MRP manually, but most MRP systems are managed by software, depending on the number of parts to be organized.

MRP OBJECTIVES

An MRP system must meet these three objectives:

1. Ensure that materials are available for production and products are available for delivery to customers.
2. Try to maintain the stocks levels of materials and finished products at all times.
3. Plan manufacturing activities, sales orders, and purchases.

The ultimate goal of any company is to deliver their product to their customers in the shortest possible time. To achieve this, some kind of planning is necessary and MRP optimizes this objective.

On the other hand, the list of materials (or Bill of Material -BOM-) relates the final product with the components: lists of materials, detail of the materials, components and sub-components necessary for manufacturing each product. This also includes all directions for manufacturing items, such as: roadmaps, labor and machine hours, jobs, assigning batch/lot and serial numbers… Based on this, an MRP system will also specify how long it will take a company to manufacture a product from its components (assuming they are all available) and it will calculate the estimated cost for manufacturing.

MRP PRODUCTION PLANNING

The basic functions of an MRP system include: 

stock control, 
management of material lists and 
supply chain. 

Therefore, MRP helps companies maintain inventory levels and to plan manufacturing, purchasing and delivery activities. In addition, companies need to control the amount of material they buy, plan what products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, and all this at the lowest cost possible.

Making a bad decision in any of these areas will cause the company to lose money, such as:

If insufficient quantities of a material (or the wrong material) are purchased, the company may be unable to meet the deadlines.
If excessive quantities of a material are bought, the money stays in the warehouse. As long as this stock is kept in the warehouse, that money cannot be used.
If the manufacturing process is started at the wrong time, it may cause delivery deadlines to be missed.

The MRP solves these problems by offering answers to the following questions:

What materials are needed?
How many are necessary?
What products must be delivered?
When are they needed?

Material requirements planning can be applied both to items purchased from external suppliers and to sub-components manufactured internally, as components of more complex items. The answer to all of these questions can be found in only one option – fulfillment: https://blog.erpag.com/2018/10/fulfillment-backorders.html

PROBLEMS WITH MRP SYSTEMS 

If there are errors in the inventory data, in the bill of materials (BOM) or in the production plan, the output data will also be incorrect. The integrity of the data is also affected by inaccurate stock adjustments, errors in receiving of incoming and outgoing products, errors in stocktaking, etc. 

All these types of errors can be avoided by implementing a global ERP system to manage all this data, flows and processes, to organize inventory and shop floors, and intercommunicate needs, so that each warehouse can redistribute the components to serve the entire company.

To this end, ERPAG ( https://www.erpag.com/ ) has made notable efforts to provide an MRP as efficient and integrated with the nature of the company, i.e. oriented to the activity of the company with special focus on the productive activity.
ERPAG 5.1

Reverse BOM (Bill Of Materials)

camera pieces

What is reverse BOM? When do I need to reverse a Bill Of Materials? Can I reverse a BOM in ERP/MRP software solution?

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1. Introduction

In some types of manufactures, it is possible to separate the previously assembled (or received) final product into its constituent components. Such disassembled components may be used to build new products or sell them.

If materials or semi-finished products in the manufacturing process have changes (physical, chemical, etc.) that make it impossible to return them to their original state, then the "reverse BOM" will not be applicable. Example: if we have a pipe that is bent in the process, if we "disassemble" the product we will get a bent pipe, not the straight one that it was at the beginning. In these cases, the "bent pipe" goes to write-off or some additional processing (eg correcting if possible) if the bent pipe cannot be sold.

We will explain the reverse BOM in the simplest cases where the material can be "restored" to its original state.

We will take an example where a customer returned us a bicycle that we sold him.
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2. Bill Of Materials example

Our "Bike Speedy" consists of several sub-components, while sub-components consist of different components.

bill of materials

We manufactured the item and sold it to our customer.

sales order customer return

After that, we did a "customer return", our finished product 'appeared' back in our stock.

product list ERPAG
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3. Work order - reverse BOM

To reverse a BOM, we have to go through the "Standard - Work Order" option.

create standard work order

When you want to add the BOM based item in the Work Order manually, we have 'reverse' and 'reverse (raw materials) options.

reverse bom
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4. Reverse

"Reverse" option will form only the first level, in case you have the multi-level BOM. In our example, that would be the sub-components.

reverse bom to sub components

The final product will now be in the Work Order as an input item, while the sub-components will be in the output items (as products). If you select this option, the sub-components will come back to stock, so if necessary, if you need to "disassemble" them again, you must re-do the work order. We can add “Bill of materials” items indefinitely in one work order. If the same items exist, the quantities will be summed up.

Example of adding sub-components.

adding sub components

And our stock after the work order is completed will look like this:

stock list
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5. Reverse (raw materials)

We use this option if we have a multi-level BOM that needs to be disassembled to component levels, and we are too lazy to form work orders separately for each level.

reverse bom raw materials

The components will be automatically summed up in the 'output items'.

The result in our stock list would be the same as in our previous example.
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2019. ERPAG Inc.