MRP: A Brief Guide
Estimated reading time: 10 minutes
Planning is vital to achieving the success of a goal. For example, suppose you plan an event or
a trip in advance, even with daily activities such as cooking. In that case, you need the
organization to have the right amount of ingredients and all the necessary tools to avoid
spending extra money and to be able to carry out as planned. Now, these activities are more
straightforward to arrange than the processes of the manufacturing and service industries.
In today’s business world, knowing the quantity of the necessary inventory and equipment is
essential. On the other hand, having a stock out can lead to bottlenecks and late deliveries,
making a company neither efficient nor competitive. Today there is Material Requirements
Planning, which will help in this predicament, and other functions, besides this system will
make these processes a piece of cake.
Let’s find out Material Requirements Planning works and how this system can take a business
to the next level.
What is Material Requirements Planning?
Material Requirements Planning (MRP) is a software that calculates the inventory needed
and elaborates the most efficient production schedule to manufacture a product at the
lowest possible cost without sacrificing quality.
This planning helps to coordinate purchasing orders and an optimal production schedule, maintain adequate levels of available inventory according to current and even future demand, and helps to adjust production plans, avoiding stockout. An MRP also supervises that the production processes are fulfilled without errors in the established time.
Material Requirements Planning is an excellent tool to help companies respond more efficiently to increased demand, preventing delays or lack of availability. This tool is mainly used for product-based businesses.
As a whole, an MRP calculates inventory requirements for manufacturing, creates a strict production plan, forecasts customer demands, and helps manage inventory to fulfill an order.
MRP system achieves this efficiency by considering several factors, such as the amount of inventory available, a company’s production capacity, lead times, and customer demands. In this way, a company works as efficiently as possible. MPR’s primary goal is to reduce inventory levels and use them most efficiently without neglecting production demand.
MRP Types
There are two types of Material Requirements Planning in the market, which are:
MRP I
The MRP I calculates the number of raw materials and components, carries out organized inventory management and bill of materials, and creates a detailed production schedule that the company uses to manufacture a specific product. This system uses information from the company’s previous experience to determine the needs of the production process.
MRP II
The successor to MRP I. Manufacturing Resource Planning (MRP II) is a more sophisticated system since, in addition to fulfilling the MRP I functions, MRP II also creates customer demand forecasts and considers the needs and requirements of other departments as finance and quality. This option is ideal for small and medium-sized businesses.
MRP I and MRP II are considered the direct predecessors of Enterprise Resource Planning (ERP), which supports other key function processes of a company, such as supply chain management, marketing, human resources, and accounting. A company can integrate MRP systems with an ERP one to have greater visibility of information flow and have better control of the manufacturing process, identifying possible bottlenecks and taking care of inventory levels.
An ERP is essential for large companies because this software can centralize various processes within manufacturing and keep them streamlined, and share more transparent information about various departments.
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Processes of MRP
MRP follows various procedures to ensure that the exact amount of raw material and components are available for production and that set goals are successfully met. Material Requirements Planning also considers market trends to be prepared for a growth in demand or when to stop buying if the stock goes down. To achieve this, an MRP follows these procedures:
- Calculates required material according to demand: The first step this tool performs. According to the purchase order and customer specifications, an MRP estimates the raw materials necessary for the company to manufacture the order.
- Manages inventory: Material Requirements Planning allocates the stock in the right place. Suppose a company has several locations and resources in different areas. In that case, MRP will dictate where the raw materials and components should be placed to avoid bottlenecks in production and make the manufacturing process more agile. In addition, you can view the status of the resources and see which ones are in transit or have already been ordered.
- Creates a scheduled production: After determining the amount of raw material and components needed, an MRP calculates the estimated time and labor required to manufacture a product or service. This work plan facilitates meeting the objectives established to guarantee customer satisfaction.
A production schedule also includes which machinery should be used and on which workstations. If a machine has to be adapted and assembled with other parts to create a specific product, MRP considers this time to give a realistic time frame. - Keeps track of the processes: With a tool as useful as Material Requirements Planning, a company can keep the manufacturing processes under control as MRP alerts in cases of delays and even creates contingency plans if necessary.
MRP Inputs
Updated information is necessary to have better results and more efficient production. In addition, managers can even add more data, known as MRP Inputs; among the most important are:
- Bills of materials (BOM): This is a precise list, usually arranged in a hierarchical way, of the raw materials, components, and detailed instructions of the assembly process to manufacture a product or provide a service.
- Master Production Schedule (MPS): A realistic production plan, determining what, how, when, and how many products should be manufactured by analyzing the demand and production capacity of the company.
- Inventory Status File (ISF): The up-to-date information on the status of available inventory and how much is needed to fulfill a purchase order.
- Forecast Demand: An MRP makes a forecast considering the number of confirmed orders, sales history, market circumstances, and trends. This forecast helps always have production resources available to meet anticipated demand.
MRP Outputs
There are some outputs generated by your MRP program that your manufacturing process can
use, such as:
- Purchase orders: A detailed purchase scheduling that must be followed. With this schedule, a company can place a purchase order for the supplier to supply the raw materials and components required for production.
- Material plan: This plan incorporates details like the raw material specifications, assembly parts, and components required to finish the end product. The material plan also includes the quantities of each one and the schedule for when these resources will be needed.
- Work orders: This includes the work concerned with producing the end product. The work order details the raw materials and components required, the start and finish dates of the end product, and all the department-wise responsibilities to work cohesively.
- Primary and secondary reports: MRP elaborates two types of accounts. The first includes the purchase order, material plan, and work order, while the secondary reports show performance details, errors, and customer demand forecasting.
Benefits of Material Requirements Planning
Many types of companies, like technology manufacturing, furniture producers, the food industry, or even the service industry; there are multiple reasons why a business can benefit from having an MRP system in their manufacturing processes, such:
- Better inventory management: The availability of accurate raw materials and components is essential for product manufacture and prevents delays. An MRP calculates inventory costs and helps to maintain the resources at an optimal level according to the data determined by the production schedules and forecasting customer demand, preventing shortages and bottlenecks due to a lack of resources.
- Purchase planning: An MRP dictates what, how much, and when to buy raw materials and components. This system is an excellent tool that makes the work of purchasing managers flow more efficiently since the MRP can be configured to contact suppliers automatically when the software detects that a purchase must be made, matching the production plan.
- Creation of contingency plans: Despite good inventory control management and predicting buyer demand, a company can have intermittent problems. If this situation arises, an MRP can suggest a new production redirection to detect bottlenecks in the manufacturing processes due to resource reduction or lack thereof to mitigate the setbacks generated.
- Optimizes productivity: By scheduling manufacturing and ensuring the availability of required raw materials and components, production processes become more efficient, making better use of machinery and workforce. This work schedule also helps managers better manage the manufacturing operations to be carried out, calculate more precise operating costs and determine an accurate delivery time.
- Efficient resource management: The function of an MRP is to guarantee the availability of raw materials and components for production, including the equipment and labor necessary to carry out the manufacturing process. An MRP system allows a company to have accurate data for better resource management, preventing bottlenecks and delays.
- Provides data organization: Manufacturing processes generate a large amount of information, such as available inventory data, deliveries, invoices, purchases, and other reports that must be analyzed and documented in an organized manner. An MRP will help to process this tedious task, better managing the information being collected within the company.
- Reduces purchasing costs: When an MRP calculates the quantity and costs necessary for manufacturing, this also includes storage, transportation, and storage costs, making Material Requirements Planning an exact tool that seeks the best, most useful, and economical option, avoiding over-purchasing raw materials and components.
- Better use of time: Material Requirements Planning helps save time and makes a company more competitive. An MRP system is fully automated, so this software streamlines the production of goods with little human intervention. Otherwise, inventories would be done by hand, contact suppliers individually, calculate delivery times, and estimate a production time prone to errors and bottlenecks.
- Increases customer satisfaction: Using good production planning and avoiding the risk of raw materials and components shortages, an MRP helps reduce delivery times, creating customer loyalty and building a good reputation for the company, making the business more trustful for future customers.
However, an MRP has some disadvantages; among the main ones is the lack of flexibility in the production plan since the system assumes that the lead time will always be the same for a specific product, the increase in inventory costs, and above all, updated data entry dependency to create the schedules and to be able to determine the raw materials and components.
Yet an MRP system takes the arduous task of calculating the necessary raw materials and components and managing production plans more proficiently and efficiently than guessing by hand and using tedious spreadsheets.
Make your company more efficient in no time!
MRP is a tool that will facilitate the work of SME businesses to keep inventory under control without having too much or missing stock, carry out an effective work plan according to the company’s capacity and maintain customer satisfaction. At Skyplanner, we can tailor an MRP system according to the company’s needs or advise if you want to upgrade to an ERP system. Our team is ready to help you.
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