ERP Basics by Dan - MPS and MRP

With any new subject you are trying to learn, it’s the vocabulary that causes the most difficulty. People like to make up acronyms and use them freely, but they don’t always offer useful definitions. The world of ERP (Enterprise Resource Planning) is no different, so let’s start with that term: ERP is generally used to define
those integrated software systems that can be used to operate your entire company. In earlier times they were called MRP II for Manufacturing Resource Planning, but it was decided that this term was too limited – ERP Software deals with much more than just manufacturing. The core of ERP is the planning, scheduling, and inventory control as it has from the beginning, but it also addresses cost control, order entry, customer relationship management, financial management, distribution, warehouse management, etc.


Two important terms in the world of ERP are MPS and MRP, and both relate to the concept of planning for the replenishment of items, either manufactured or purchased. In very simple terms, MPS (Master Production Schedule) items are those that are sold; the end-item; the finished product. MRP (Material Requirements Planning) items are those that are needed to produce the finished product. If you were making and selling bicycles, the bicycle would be the MPS item and the handlebars, seats, spokes, pedals, etc. are the MRP items. If you think in terms of a structured bill of materials, the MPS item is at the top of the pyramid and the MRP items are everything below that.

The distinction was made based on the traditional world of nuts & bolt assembly manufacturing: you make a finished product that is constructed of many component parts in multiple levels of the Production BOM: spokes go into rims, tires go onto rims, the wheel assembly goes on the bike, etc. The philosophy is that you should do preliminary planning for just the end item before exploding down through the Production BOM; that is, Forecast sales of the end item, perform Rough-Cut Capacity Planning to determine if you have a chance and meeting the optimism of the sales & marketing people, analyze cash flow associated with the plan. Then, when all key decision makers in the company have reached a compromise on the plan, MRP explodes through the Production BOM to plan all the other items to support the Master Production Schedule.

Why is the separation of MPS items from MRP items important? Two main reason: (1) As a company, you want to make sure you have a viable business plan before committing resources for buying and/or producing items, and (2) if you were to run planning all the way through the Production BOM, for every item, while constantly making adjustments to the forecast, schedule, capacity planning of the end item, there would be unnecessary need for computer resources to do all the calculations and the people responsible for buying the items at the bottom of the Production BOM would go insane; every day or several times a day, they would get conflicting and contradictory information as people “played around at the top.” There would be a demand to purchase lots of items and then, a little while later, a message to delete that PO they just released. They used to call this concept a ‘nervous system’ but it was really the buyers who were nervous.

The next subject will be on Production BOMs and Routings.

Dan Ellingson