Lean Vs MRP

Any organization would like to save costs and earn more profits. Organizations chose methodologies like Lean manufacturing and Material Requirement Planning to achieve their goals. Lean and Material Requirement Planning or MRP are both looking at optimizing the resources we have in order to produce certain results so that the cost involved in will be less and value addition will be higher. This will mean more profit for the organization.

We have discussed about the origins of lean in our earlier posts. Lean revolves around certain simple set of concepts. Similarly, MRP is very simple in concept. As its name suggests MRP is meant for Material Requirement Planning so that organizations can plan both in-house and external requirements according to the demand an organizations have to fulfill. If you need to produce 100 bicycles within next week MRP will tell you that you need to have 200 rims, 200 tyres in-house before the start of next week and 80 handles apart from the 20 which are already in stock by the 2nd day of next week for an example.

Although seems simple enough in theory, it is not easy to calculate all these requirements for an organization which will produce 100s of items with 1000 or tens of thousands sub assembly parts. And specially there are number of variables to take into considerations. Among them are Minimum Stock Levels, MOQ or the Minimum Order Quantities of the suppliers, lead times and through put time of the internal assemblies and forecasted demands are few. This means you will not be able to use a simple spread sheet or a calculator to do all these complex calculations. So you would need computing power especially for the organizations operates in multiple locations.

MRP concept is pioneered by “Joseph Orlicky” in early 1960s in US. It spread around the world in breeze and helped many entrepreneurs and managers to make their decisions with much more accuracy. Stock levels went down and resources were managed much more efficiently making organizations much more profitable and successful. It is widely used even today and for many of the organizations MRP is a must have and they cannot live without it.

As mentioned earlier MRP is a predictive system. Its demand is mainly from a forecast which can change day to day. Its lead times are fixed. There will be some safety stocks to cover up any deviations of the predictions with the actual. In other words MRP is about building a system where we work in the existing scenario efficiently. For an Example MRP driven companies will purchase their raw materials even long before they are actually required for manufacturing if the lead times are longer for those raw material. They will not question the longer lead times nor will they look for the ways of reducing those lead times.

On the other hand lean manufacturing techniques are more reactive to the actual demand. This takes the requirement for long term forecasts and planning based on that forecast out of the equation since you will mainly deal with the actual demand. Generally people will not have to wait till good are produced after placing their order even in lean context. So there will be certain levels of stocks with retailers to satisfy the demand instantly. But this stock will not be a buffer to hide behind for the manufacturer.

With the reactive nature of lean, it needs to act quickly in order to satisfy the demand. This requires greater deal of flexibility both in-house and with the external vendors. This cannot be achieved with traditional means. You will have to build a system where you can respond to your customer demand on time. Unlike MRP it is not enough to organize what you have in an efficient manner, it is required to question existing systems and continuously improve. Below video explains this.

Although MRP is mainly about forecasts and demands as explained above, MRP can be used even in lean context to manage its resources effectively. MRP in a MTO or Make To Order system will be much closer to lean. Unlike MTS or a Make To Stock system where demand is not real but a prediction, MTO work with actual demand. This will help manufacturers to plan their real demands accurately and efficiently. So lean while removing wastes from the system can be greatly benefited by MRP in achieving the final goal of satisfying your customer and making healthy profits.

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