An analytical framework for comparing Material Requirements Planning to reorder point systems

Material Requirements Planning (MRP) and reorder point (ROP) systems represent two alternative approaches for planning production and managing inventory in multi-stage manufacturing environments. In MRP, the more recent of the two, requirements for components are derived from production orders placed at successor stages; whereas in ROP systems, requirements for components are forecast from each component’s previous requirements. Partly because the information provided by MRP better captures the actual assembly requirements, many firms have converted from ROP to MRP-based systems. Many, but not all, of these conversions have yielded benefits that have justified the relatively large change-over expenses. The purpose of this research is to provide an analytical framework for determining which operating environments will provide the largest benefits from implementing MRP. Previous studies have addressed this issue; however, this research represents the first time that the effects of timing and lot-sizing on system performance have been analytically analyzed. The results of this study corroborate and extend the previous findings of Miller et al. and Ritzman and Krajewski. From this analysis, an analytical framework is developed that can be used to predict the relative merits of converting to MRP in various operating environments.