A SYSTEMS PERSPECTIVE ON MATERIAL REQUIREMENTS PLANNING*

It is shown that MRP failure can occur in the common situation in which MRP is installed in a manufacturing environment that has evolved around manual methods of material control, resulting in lower average labor productivity and higher manufacturing costs.

Abstract

For many companies, the implementation of material requirements planning systems has failed to produce the expected improvements in manufacturing efficiency. This paper shows that MRP failure can occur in the common situation in which MRP is installed in a manufacturing environment that has evolved around manual methods of material control. A system dynamics simulation model is used to interrelate decision functions (policies) of a manufacturing firm. Simulation runs of the model operating with manual methods of material control show six‐ to seven‐year fluctuations in production, ordering, and labor. A modified version of the model, changed only by the introduction of a requirements explosion to represent MRP, shows that MRP can actually cause more severe production fluctuations, resulting in lower average labor productivity and higher manufacturing costs. The major practical implication of the analysis is that the organizational environment that suits MRP (and utilizes its inherent strengths) is different from the environment that is likely to prevail at the time of implementation.