Garbage-in-garbage-out impact on MRP calculations

Frequently partners and customers call me to have consultancy on failed MRPII projects. Most of the time, the reason why this happens is due to fact that the end users are not able to understand the results of planning calculations and/or the calculactions seem to be completely wrong.

Now, the first point is normally solved by making brief training sessions in which I explain what are the main points to see inside the system (Stockkeeping Unit planning parameters, and other setup issues) and how to read the output in the Planning Worksheet. But the second one (wrong calculations) is due to what is normally called a "garbage-in-garbage-out" problem: if you put garbage into a planning engine, you must expect garbage as an output

In this post I would like to give a practical example on how a possible error in just level 0 of a Bill of Materials can affect the planning of one of the components in lowest levels.

Suppose to have two items, A and B, having some common components into their respective BOM, in particular, for Item A:

and for Item B:

As you can see items A12 and A121 are common to each of them. In the picture below you can see a tree showing the units necessary to manufacture 10 units of A and 10 units of B.

Let's focus our attention on item A121. Now, suppose that due to an error in the input data, we discover that planning for Item A and B were wrong, and the correct units to be manufactured were 12 for Item A and 15 for item B. The scenario changes:

As you can see, gross requirements for Item A121 now is 1.420 units more. In terms of costs for the company, if you suppose a unit cost of 5 euros for each unit of A121, this means 7.100,00 Euros more.

This is just a simple example of what happens into an MRP calculation when wrong or not up-to-date data are pushed into the planning engine. This example considered an error just in level 0 and for just two items.

Now try to imagine what happens when you have errors at different levels (eg. backlog of sales orders that will never be shipped, or purchase/production orders that will never be closed) for different items and if item A121 would appear in ten or more bill of materials.

We can understand that under these scenarios MPS/MRP engines can give completely wrong suggestions to the planner.