De-Mystifying MRP in Microsoft Dynamics GP

Written By: Ajit Tulpule

from July 9, 2013

One of the most powerful features of the Microsoft Dynamics GP Manufacturing Suite, is MRP – Materials Requirements Planning. Paradoxically, it may also be one of the least understood functionalities in the Microsoft Dynamics GP world! While MRP can work wonders for a manufacturing organization in controlling inventory, there is a certain level of hesitation with users and the consulting community when it comes to implementing MRP.

Some of the hesitation may stem from the users’ experiences with MRP in a legacy ERP system, and some is simply due to a lack of understanding of the mechanics and the functioning of MRP. Others might just feel intimidated by the plethora of new terminology that gets introduced in relation to MRP.

What is MRP?

Very simply put…

MRP encompasses “a set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials.” (APICS definition of MRP)

The primary objective of MRP is to balance out the supply and demand for purchased and/or manufactured items in a “time phased” manner. It thus strives to ensure the supply (availability) of items (products) to the demand for those items (products) over a defined time span (‘horizon’). The outcome of a “well-oiled MRP machine” is a well-coordinated production and purchasing plan.

Very loosely put…

MRP has at its core the objective of ensuring the equality in the very simplistic equation   “Supply = Demand” for all inventoried products, across the entire planning time-span (horizon).

Demand for a product is derived from the sales orders placed by customers and sales forecasts (independent demand for finished products) as well as the manufacturing picklists (dependent demand for raw materials and components). It also includes the safety stock levels that must be maintained.

Supply of a product includes purchasing and manufacturing receipts and the inventory on hand. MRP tries to establish a balance in the Supply Demand equation. Where an imbalance exists (a shortage or an excess) MRP will recommend a corrective action based on the nature of the imbalance and the replenishment method of the part.

For example, where the supply is less than demand (shortage), MRP will recommend a purchase order for buy parts and a manufacturing order for make parts to meet the shortage. It may also recommend moving-in an existing purchase order or a manufacturing order. Where supply is in excess of demand (overage) it would recommend the cancellation or moving-out of a purchase order or a manufacturing order as the case may be.

As mentioned above, there are three basic outputs of an MRP run:

1.       Recommended purchase orders.

2.       Recommended manufacturing orders.

3.       Warnings/notifications (called ‘exceptions’ in Microsoft Dynamics GP).

In recommending the corrective action identified, MRP will further reinforce this very simple and intuitive math with rules (‘order policies’) and quantity modifiers: Minimums, maximums, and multiples batch sizes.

For example, a shortage of 527 units of a part may result in a recommended purchase order for 550 units if the order multiple is set to 50 (let’s say that the vendor sells this part in multiples of 50 only). To make the planning sensitive to time, MRP will incorporate purchasing lead times as well as manufacturing lead times. Thus MRP can be modeled to perform a comprehensive math based on real-life situational rules. This significantly adds to the power of MRP.

In spite of the power of MRP and its usefulness in the production and materials planning, apprehensions and misconceptions about MRP abound in the un-initiated user space.

“Will MRP force me to create and schedule manufacturing orders according to its plan?”

“Will it cause a build-up inventory based on unmet forecasts?”

“The MRP recommendations do not make sense.”

“MRP is not working right.”  

…These are some of the commonly expressed misconceptions. In fact, MRP is not the be-all and end-all of manufacturing. It is only a tool which only makes recommendations.  It does not perform any self-initiated actions, it is a deterministic mathematical model that is sensitive to the settings and data parameters. The age-old adage of “Garbage in Equals Garbage Out” holds especially true about MRP.

In order to remove the apprehensions and misconceptions, what is needed is a clear understanding of MRP, its objective, and its functioning – a detailed knowledge of the data elements that MRP is dependent upon, how they are treated, and where they are stored in the labyrinth of GP screens. This will enable the user to correctly interpret the results of MRP, take appropriate actions, and overall boost confidence in MRP.

The MRP Workshop

At Turnkey, our approach to de-mystifying MRP involves conducting an “MRP Workshop.” This workshop is conducted either as part of a Microsoft Dynamics GP Manufacturing implementation, or as a stand-alone session. It thus addresses the needs of new users (new implementation) as well as Microsoft Dynamics GP users who may actually be using MRP but still need to get a sense of confidence in the MRP results (stand-alone session).

The objective of the workshop is to gain such a deep understanding of MRP that the workshop participants can predict the outcome of MRP. To facilitate this, a simple “control environment” is created.

·         The setup requirements are and data that provides the inputs to MRP are reviewed. Some example situations are reviewed – such as the impact of checking an in-obtrusive check-box and how that would affect the MRP suggestions.

·         Various “what-if” scenarios are conducted.

·         Changes are made to the data and – based on the changes made – users try to predict the quantitative output of MRP. If the MRP return results are not in line with the expectation, the results of MRP are analyzed and substantiated and the prediction is reconciled with the actual results. When the MRP results are exactly per expectation or prediction, the next scenario is tackled.  

By the end of the workshop, the participants have a thorough understanding of MRP and its functioning. Apprehensions and misconceptions about MRP are eliminated and the participant’s ability to predict MRP results is strengthened along with their confidence in the results.  The workshop has demystified MRP.

By Ajit Tulpule, Turnkey Technologies