CHAPTER

Overview

OR Ll CKY'S VISION
Joe Orlicky was truly a giant. There are very good reasons why the first edition of this
book sold over 140,000 copies. What he defined and articulated had a profound impact
on the modem global rnanufacturing landscape, and much of his writing remains rele
vant, even visionary, to this day. This is more remarkable when you consider a rather lirn
ited set of technological concepts and tools at his disposal (the first computerized manu
facturing requirements planning system was written in 8 kB of memory!). If you have not
read the first edition of this book, you should. The update you hold in your hands began
from Orlicky's original work rather than from the second edition because of this amaz
mg VlSlon.
In 1975, in the first edition of this book, Joe Orlicky's first written words were,
"5omeone had to write this book." This book represented the first significant and exten
sive definition of manufacturing requirernents planning (MRP). Just how new was MRP
at that time? Not really all that new. People such as Joe Orlick George Plossl, and Ollie
Wight had been pioneering the installation of cornputer-based P systems before 1960. 1
Additionally, APICS was founded in 1956 in Cl eveland, Ohio, to support the practition
ers at the time and to share best practices and insights.
Why was there such a lag between 1960 and 1975? Orlicky explains it: "In the field
of production and invent management literature does not lead, it follows. The tech
niques of modem material requirements planning have been developed not by theoreti
cians and researchers but by practitioners. Thus the knowledge remained , for a long time,
the property of scattered MRP system users who normally have little time or inc1 ination
to write for the public." In addition, many of these early-adopter companies viewed this
new technology as a competitive advantage and were reluctant to share this knowledge.
1 Joseph

Orlicky, Material Requirements Planning (New Yor k: McGraw-Hill, 1975), Preface, p. ix

3

PART 1

Perspective

Orlicky's preceding statement about literature still rings true today. Generally, acad
emia continues to research and write about what is already written rather than develop
ing new insights and thought leadership. The practitioners who use technology and tech
niques remain in the best position to properly and practica l1y define the tool and tech
niques that actually produce sustainable positive results. Howeve very few will take the
time to write those techniques into a book. .
After the rst edition of this book was written, the use of MRP in industry literally
exploded. If you are interested in a detailed history, refer to Appendices A and D. Consider
the fo l1owing statement from the second paragraph of the Preface of the first edition:
As this book goes into print, there are some 700 manufacturing companies or
plants that have implemented, or are committed to implementing, MRP sys
tems. Material requirements planning has become a new way of life in pro
duction and inventory management, displacing older methods in general and
statistical inventory control in particular. 1, for one, have no doubt whatever
that it will be the way of life in the future.
MRP did become the way of life in production and inventory managemen t. This
planning approach is still the standard across the globe for determining what to buy and
make, how much to buy and make, and when to buy and make it. The number of MRP
implementations today worldwide is estimated to be in the hundreds of thousands (if not
millions) of companies using it in some form. An Aberdeen Group Study showed that 79
percent of companies that bought enterprise resource planning (ERP) systems also
bought and implemented the MRP module.2
What is important to note is that since its articulation in the first edition of this book,
the definition of MRP has not really changed. The concept has evolved as technology has
improved , as detailed in Figure 1-1. This evolution included closed-loop MRP, manufac
turing resource planning (MRP 11), advanced planning and scheduling systems (APS) ,
and fina l1y enterprise resource planning (ERP). An in-depth explanation of this evolution
is chronicled in Chapter 21 , as well as in Appendix D.
Throughout this entire evolution, the core MRP calculation kernel stayed the same.
MRP fundamentally is a ve big calculator using the data about what you need and
what you have in order to calculate what you need to go get-and when. This has grown
from the fst ability to track inventory. At its very core, even the most sophisticated ERP
system of the day uses these basic calculations. Typically, these calculations are imple
mented in a push system based on a forecast or plan with the assumption that all the
input data are accurate. In the most stable of environments, this assumption may be
somewhat possible, but how does the twenty-first-century global economic environment
t with this approach?

Aberdeen Group ERP Study, 2006, Table 3, p. 17.

CHAPTER 1

Overview

FIGURE 1-1

Planning tool
evolution.

19205: Inventory Management

1961: BOMP
1965: MRP
1972: Clo5ed-Loop MRP
1980: MRPII
1990: ERP
1996: APS

One of the most remarkable passages in the first edition was Orlicky's description
of the vast changes and removal of limitations taking place in the 1970s. These changes
and more degrees of freedom allowed fundament a1 changes to the way companies
planned, ordered, and manufactured. Consider the following passage:
Traditional inventory management approaches, in pre-computer days, could
obviously not go beyond the limits imposed by the information processing
tools available at the time. Because of this, almost all of those approaches and
techniques suffered from imperfection. They simply represented the best that
could be done under the circumstances. They acted as a crutch and incorpo
rated summa~ shortcut, and approximation methods, often based on tenu
ous or qte unrealistic assumptions , sometimes force-fitting concepts to real
ity so as to permit the use of a technique.
The breakthrough, in this area , lies in the simple fact that once a com
puter becomes available, the use of such methods and systems is no longer
obligatory. It becomes feasible to sort out, revise, or discard previously used
techniques and to institute new ones that heretofore it would have been
impractical or impossible to implement. It is now a matter of record that
among manufacturing companies that pioneered inventory management
computer applications in the 1960s, the most significant results were
achieved not by those who chose to improve, refine, and speed up existing
procedures, but by those who undertook a fundamental overhaul of their
systems [Orlicky, Material Requirements Planning , p. 4] .
Almost 50 years later we are at another time of reexamination and transition.
Shortly after the turn of the millennium, the world of manufacturing turned upside
down. Production became more efficient in the United States. Eastern Europe was incor
porated into the European Union, putting low-cost production very close to a lucrative

PART 1

Perspective

marke t. China became the manufacturing powerhouse of the world. Manufacturing

capacity now far exceeds market requirements. Customers have become increasingly
fickle. Product life cycles have plummeted. The Intemet now allows global sourcing with
a few clicks of a mouse. Manufacturing companies worldwide are faced with more
volaity than ever before. Exacerbating this situation is the global economic slowdown
of 2008201 1.
No longer can a company achieve a sustainable competitive advantage using the
old business rules. These fundamental shifts taking place in the current global manufac
turing environment are forcing companies to reexamine the rules and tools that manage
their business. The world has changed, and additional technology barriers have been
removed. Companies will succeed not because they improve, refine, and speed up the
enforcement of obsolete rules and logic but because they are able to fundamentally adapt
their operating rules and systems to the new global circumstances. A new approach to
planning is required .

FOCUS AND ORGANIZATION OF THIS BOOK

This book is not meant to serve as a basic text on the general subject of production and
inventory management or even invent contro l. At least elementary knowledge of
these subjects on the part of the reader is assumed , particularly knowledge of the funda
mentals of conventional (statistical) inventory contro l. (See the Bibliography at the end of
this chapter.) The book is written primarily for users and potential users of material
requirements planning systems, that is, for manufacturing managers, materials man
agers, production control managers, invent planners systems analysts, and interest
ed industrial engineers. It also can serve the needs of students of production and inven
tory managemen t. More universities will need to include the subject of demand-driven
material planning and scheduling techniques in their business curricula to better prepare
their students to enter this demand-driven world.
This book' s scope is lirnited to the system of logistics planning in a manufacturing
environment (as contrasted with the pure project environment). Fi gure 1-2 shows the
continuum of production from the extremely high variety of the project to the consisten
cy of the flow shop. The scope of this book will include job shop, batch, assembly-line,
and continuous-flow organizations. This matrix provides the framework for the industry
application in Chapters 15 through 19.
This book does not extend to traditional execution subsystems, although it stresses
that a high quality of the outputs generated by the planning system is a prerequisite for
the effective functioning of such subsystems. The book will, however, propose an execu
tion approach that can be used by these subsystems. A simplied chart, applicable to any
manufacturing operation, of the relationships between the planning system and the exe
cution (contro l) subsystems is presented in Figure 1-3. This is a closed-loop system where
the execution subsystems have a direct effect on the planning system. However, the mul
tiple linkages and feedback loops would quickly overwhelm this snple diagram.

CHAPTER 1

Ov erview

FIGURE 1-2
Wheelwright and Hayes productlprocess matrix.
Pross Structure
Process Life
Cycle Stage

Product Structure
Product Life
CycleStage

LowVolume
Unlque(One
f a Klnd)

LowVolume
Multiple
Products

Higher Volume
Standardized
Product

Very High Volume

Commodity
Product

project
Jumbled Flow
(Job Shop)

Job Shop

Disconnected Line
Flow (Batch)

Batch

Connected Li ne Flow
(Assembly Line)

Assembly Line
Continuous

Continuou5 Flow
(Continuous)

FIGURE 1-3
Planning.
execution. and
control syste 1S.
Planning

Execution

Control

PART 1

Perspective

The focus of this book is on the new rules required to effectively support a manu
facturing operation using material requirements planning systems in the twenty-first
century. The objective is an exposition of procedurallogic, function , and use of these sys
tems rather than programming and other considerations of system implementation. All
considerations that are of a purely technical data-processing nature are excluded because
they are amply documented in manuals published by computer manufacturers and soft
ware providers. The software aspect of MRP is intentionally downplayed so as not to
divert the reader's attention from the really important subject matter. As far as MRP is
concerned , the computer's contribution lies solely in its power to execute a host of rather
straightforward calculations in a very short time and display nearly instantaneous visi
bility to relevant information and priorities to the appropriate personnel. A comprehen
sive understanding of the computer aspect is not essential to an understanding of the
subject in question.
The discussion of 1RP concepts, principles, and processing logic is expanded to
encompass system inputs and system uses re f1 ected in functional outputs. The input-out
put chart depicted in Figure 1-4 can serve as a map of the topics that constitute this boo k.
We have tried to avoid a case-study approach to the core subject so as not to obscure the
general validity of the principles involved and the universal applicab ty of the MRP
approach. However, at times in this book some real-life examples w i11 be used.
Additionally, at the end of this book, two case studies have been provided with the
results achieved by these companies as a demonstration of what is now possible. Abstract
FIGURE '-4
MRP

system: input-output relationships.

Inventory
Transactions

To Capacity
Requirements Planning
System

CHAPTER 1

Ov erview

examples are used as much as possible, and there are no pictures of actual forms , docu
ments, and computer printouts.
The book consists of four parts. Part 1 describes our overall perspective on the cur
rent manufacturing world. Part 2 examines the detailed MRP concepts as they exist in
reality toda y. Part 3 details how these concepts are used in different industries and appli
cations. Finally, Part 4 details the roadmap for the near and distant future for this critical
manufacturing management too l.

It is interesting to note that the number of pages written on independent

demand-type inventory systems outnumbers the pages written on material
requirements planning by well over 100 to 1. The number of items in invento
ry that can best be controlled by material requirements planning outnumber
those that can be controlled effectively by order point in about the same ratio.
It is a sign of the adolescence of our field that the literature available is in
inverse proportion to the applicability of the techniques.
-O LIVER W. WIGHT, "DESIGNlNG AND IMPLEMENTlNG A MATERIAL
REQUIREMENTS PLANN lNG SYSTEM," IN PROCEEDINGS OF
THE 13TH INTERNATIONAL CONFERENCE OF APICS, 1970

BIB Ll OGRAPHY
Brown, R. G. Decision Rules [or Inventory Management. New York: Holt, Ri nehart and Winston, 1967.
Buchan, J. , and E. Koenigsberg. Scientiic Inventory Management. Englewood Cliffs, NJ: Prentice-Hall,
1963
Hadley, G. , and T. M. Whitin. Analysis o[ Inventory Systems. Englewood Cliffs, NJ: Prentice-Hall, 1963.
Magee,1. F., and D. M. Boodman. Production Planning and Inventory Control , 2d ed. New York: McGraw
Hill , 1967.
Melnitsky, B. Management o[ lndustrial lnventory. New York: Conover-Mast Publications, 195 1.
Plossl, G. W. , and O. W. Wigh t. Production and lnventory Control. Englewood Cliffs, NJ: Prentice Hall,
1967.
Prichard , J. W., and R. H. Eagle. Modern Inventory Management. New York: Wiley, 1965.
Wagner, H. M. Statistical Management o[ lnventory Systems. New York: Wile 1962 .
Welch, W. E. Tested Scientic Inventory Control. New York: Management Publishing Corp. , 1956.
Whi tin, T. M. Theory of Inventory Management. Princeton, NJ: Princeton University Press, 1957.