Material Requirements Planning Performance Improvement due to Safety Stock Relaxation

Material Requirement Planning (MRP) is a broadly applied production planning method. One problem reported by practitioners and identified in research is that capacity constraints are not included in the planning algorithm. In this paper, the implementation of a simple capacity balancing function into the MRP run by allowing to temporarily relax the safety stock is investigated. Since such a safety stock relaxation method can be implemented in different ways, three specific implementations are developed and tested in a simulation study. For a simple production system structure with uncertainties in processing and customer demand, the performance improvement of the different safety stock relaxation methods is tested when a rolling horizon MRP planning is applied. A detailed analysis of planning parameter effects is presented and a broad set of scenarios provides further insights in the performance of the developed methods. In general, all three methods reveal a significant potential of improvement in comparison to MRP. Managerial insights are that too low production lot sizes and too low safety stocks should be avoided and the interaction between these two planning parameters cannot be neglected. Furthermore, very high and very low production system utilization reduce the improvement potential.