Table of Contents
- What Is Material Requirements Planning (MRP)?
- Key Takeaways
- How Material Requirements Planning (MRP) Works
- MRP and Manufacturing
- BOM
- The MRP Process
- History of MRP
- Advantages and Disadvantages of MRP
- MRP vs. ERP
- What Are the 3 Main Inputs for MRP?
- How Does MRP Benefit a Business?
- What Are the Outputs of an MRP System?
- The Bottom Line
What Is Material Requirements Planning (MRP)?
Let me explain Material Requirements Planning, or MRP, directly to you: it's a software-based integrated inventory and supply management system designed for businesses.
You use MRP to estimate quantities of raw materials, maintain inventory levels, and schedule production and deliveries.
Key Takeaways
MRP stands as the earliest computer-based inventory management system. It helps you develop a production plan for finished goods by defining inventory requirements for components and raw materials.
With MRP, you ensure that materials and components are available when needed, minimize inventory levels, reduce customer lead times, and improve customer satisfaction. Remember, MRP relies on data accuracy, comes with a high implementation cost, and sticks to a strict production schedule.
How Material Requirements Planning (MRP) Works
MRP assists businesses and manufacturers by defining what is needed, how much is needed, and when materials are needed, working backward from a production plan for finished goods.
It converts that plan into a list of requirements for subassemblies, parts, and raw materials to produce a final product within the established schedule. MRP gives you a grasp of inventory requirements while balancing supply and demand.
As a manager, you can determine your needs for labor and supplies and improve production efficiency by inputting data into the MRP system, such as the item name or nomenclature (the finished good title, sometimes called Level '0' on the BOM), the Master Production Schedule (MPS) which covers how much is required to meet demand and when it's needed, the shelf life of stored materials, the Inventory Status File (ISF) for materials in stock and on order from suppliers, the Bills of Materials (BOM) detailing materials and components required for each product, and planning data like restraints and directions including routing, labor and machine standards, quality and testing standards, and lot sizing techniques.
MRP and Manufacturing
Manufacturers manage the types and quantities of materials they purchase strategically and cost-effectively to meet current and future customer demand. MRP helps you maintain appropriate inventory levels so you can better align production with rising and falling demand.
BOM
A bill of materials (BOM) is an extensive list of raw materials, components, and assemblies required to construct, manufacture, or repair a product or service.
The MRP Process
The MRP process starts by estimating demand and required materials; after determining customer demand and using the bill of materials, MRP breaks down demand into specific raw materials and components.
It then allocates inventory of materials into the exact areas as needed. Next, it schedules production by calculating time and labor requirements to complete manufacturing and creating a timeline.
Finally, MRP monitors the process, automatically alerting managers of any delays and even suggesting contingency plans to meet build deadlines.
History of MRP
Material requirements planning was the earliest integrated information technology system aimed at improving business productivity through computers and software.
The first MRP systems for inventory management evolved in the 1940s and 1950s, using mainframe computers to extrapolate information from a bill of materials for a specific finished product into a production and purchasing plan. These systems expanded to include information feedback loops so production managers could change and update inputs as needed.
The next generation, manufacturing resources planning (MRP II), incorporated marketing, finance, accounting, engineering, and human resources into the planning process. Building on that, enterprise resources planning (ERP), developed in the 1990s, uses computer technology to link various functional areas across an entire business enterprise.
Advantages and Disadvantages of MRP
On the advantages side, MRP ensures materials and components are available when needed, minimizes inventory levels and associated costs, reduces customer lead times, increases manufacturing efficiency, and boosts labor productivity.
However, it has disadvantages: there's a heavy reliance on input data accuracy, it's expensive to implement, it lacks flexibility in the production schedule, it tends to hold more inventory than needed, and it's less capable than an overall ERP system.
MRP vs. ERP
Enterprise resource planning (ERP) is an extension of MRP systems. While MRP is a planning and control system for company resources, ERP serves the enterprise as a whole with advanced functionality in financial, customer relationships, and sales order management.
MRP can stand alone or be part of an ERP, which is a single solution addressing all business needs beyond just resource scheduling. It decreases information redundancies and adds elements like user-level security.
Benefits of an ERP system include increased efficiency, integrated information, customized reports, and higher-quality customer service.
What Are the 3 Main Inputs for MRP?
The three basic inputs of an MRP system include the Master Production Schedule (MPS), Inventory Status File (ISF), and Bill of Materials (BOM).
How Does MRP Benefit a Business?
MRP ensures that materials and components are available when they're needed, optimizes inventory levels, improves manufacturing efficiency, and increases customer satisfaction.
What Are the Outputs of an MRP System?
Using required inputs, the MRP calculates what materials are needed, how much is needed to complete a build, and exactly when materials are needed in the build process. This allows businesses to use just-in-time (JIT) production, scheduling based on material availability, which minimizes inventory levels and moves materials through the manufacturing process efficiently.
The Bottom Line
Material requirements planning (MRP) is a software-based integrated inventory and supply management system that companies use to estimate quantities of raw materials and schedule production. By inputting information like the Master Production Schedule, Inventory Status File, and Bill of Materials (BOM), MRP calculates the materials needed, how much are needed, and when they are needed in the manufacturing process.
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