We may mention the prerequisites or premises on which the MRP system is built:
1. This system, in its pure form, is suitable for ‘dependent demand’ situations – as we saw earlier.
2. The demand for the dependent items is derived from (i) the master schedule for the finished goods, and (ii) the various manufacturing or procurement lead times for these components of the final finished goods. Therefore, proper figures for the respective lead times must be available.
3. And, a firm schedule for the delivery or assembly of the finished goods should be available. Firm schedules can be had if the customers commit orders with enough time to cover the various lead times from the raw materials stage to the finished good stage of the product. The firmer the schedule for finished goods, the more valid will be the MRP system to derive requirements of materials at different time.
MRP is not and should not be a rigid system; it takes into account variations in the materials inventory position and the committed final goods orders at various points of time as the production process continues.
4. Therefore, MRP should have an immediately correcting mechanism for the above mentioned deviations. A quick efficient information feedback system is an essential pre-requisite of an MRP system. Without this, the inventory status figures will be incorrect, the bill of materials will be incorrect (if some design take places), the lead time will be incorrect and, thus the whole detailed calculations which are supposed to indicate correct quantities of inventory(how much?) for correct points of time (when?) will turn out to be a futile effort. A good Management Information System and MRP go hand in hand.
Although firm data is desirable, it may not always be possible to have customer orders committed quite ahead of time. Part of the orders may be so, but not all.
A certain amount of forecasting is inevitable in such cases. The forecasts, being forecasts, will go wrong to some extent and corrections become necessary for the MRP process. Constant (i.e. frequent periodic) updating is essential for the success of the MRP system. It means, a certain amount of uncertainties can be handled by revised planning carried out frequently. Of course, as the uncertainty component increases more and more, the safety stock and EOQ concepts become more and more relevant. When everything is planned by means of uncertain forecasts it is wise to take calculated risk and maintain calculated buffer stocks and conduct calculated size of production runs.
The more the component of uncertainty, the more one needs to plan based on safety stock and other concepts.
One cannot do away with the safety stock (or the related safety time) concept. It must be used along with the MRP to the required degree at requisite places. But, the more there is the component of safety stocks or safety times, the less is the validity of the MRP system. In short, a judicious combination of MRP concept and the statistical/probabilistic concepts have to be used for a good materials and production plan.
It is beneficial to make material available only when required (MRP concept) but it may be additionally beneficial if this material is also procured/produced in batches ahead of time so that carrying costs are offset by the reduction in cost due to economies of scale.
What we saw in the earlier example is called ‘part period balancing’. There are many other economic lot sizing devices such as the ‘Period Order Quantity’ – the order quantity is not in quantity or numbers, but is in terms of the number of periods of supply. One must remember though, that the lot sizes deal with ‘how much which is a question which comes after ‘when?’ Unless the ‘when?’ is solved first, there is little benefit to be gained by answering ‘how much”?
To summarize, MRP is an old system, revisited once again and found to have immense benefits for planning materials whose requirements are generated by higher level materials in which the former are incorporated. With computations being done on a computer the MRP system is dynamic, i.e. it can respond speedily to the changing situations such as customer demand changes, order priority changes, and even design changes. The same old system is made much more dynamic and retains whatever is good in the EOQ, Safety Stock and similar techniques. MRP provides important and calculated information for materials and production planners.