Manufacturing Concepts: MRP Based Systems vs. Order Driven Systems

Written by Andy Pratico of Synergy

There are many theories and concepts about manufacturing control systems. One such concept is the immortal MRP method of planning. A mathematical calculation for time phased purchase orders and work orders, based on inventory quantity on hand, lead time to replenish and future demand.

This concept was originally designed for manufacturing facilities that value material as their most precious resource.

The mathematical equation is quantity on hand x lead time x demand = suggested PO’s and WO’s. Being a mathematical calculation, the resulting planning forecast can only be as accurate as the data input. Most companies boast of having inventory accuracy of 95%. If the input to MRP is only 95% accurate, how accurate can the results be once it goes through its numerous computations? Besides the fact that inventory will only be accurate immediately after running the MRP formula, because it is a batch transaction.

An article in APICS magazine written by Jeff South stated, “Typical MRP systems are structured around certain assumptions imbedded in the logic of the planning program. MRP assumes that every item is an inventory item which goes into and out of stock. MRP also requires every item to be started and completed on it’s own and not to be contingent on the existence or progress of some other activity.” It further stated “An ODS creates a master schedule as a function of actual and planned backlogs …”.

This leads into a second manufacturing concept named Order Driven Systems (ODS). ODS were developed specifically for manufacturers whose demand was generated from specific orders (actual demand). ODS recognizes the resource interdependencies of material and labor throughout each work order and value each simultaneously. There isn’t much sense scheduling a piece of material to the shop if the resource (work center) isn’t available.

Another article in APICS magazine stated, “If both capacity and material are critical in making planning and scheduling decisions, make sure that the planning and scheduling systems you are considering can handle both simultaneously.”

In conclusion, as industries are forced by market and competition to become more responsive, their systems will need to change as well. MRP based systems are typically incapable of scheduling demands within the confines of capacity-constrained environments. Whereas ODS’ are designed for constraint based manufacturers where a majority of the demand is derived from actual customer orders, not a forecast. Want to learn more? Please contact us.