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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) calculates which materials and components are needed, in what quantities and when, using demand, bills of materials, inventory records and lead times.
MRP coordinates material supply with production requirements. Its planned order dates support a production schedule, but do not by themselves prove that machines and people can complete the work on time. Detailed capacity scheduling is a separate check.
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.
MRP turns production demand into time-phased material requirements and planned supply orders. Demand forecasts are inputs to planning, not an automatic result of the MRP calculation.
MRP uses demand, bills of materials, available inventory, scheduled receipts and lead times to calculate net material requirements. Check a company’s production capacity separately before treating planned production dates as achievable.
MRP Types
Distinguish basic material requirements planning (MRP I) from the broader manufacturing resource planning concept (MRP II):
MRP I
MRP I calculates raw-material and component requirements by working through bills of materials, subtracting available stock and scheduled receipts, and using lead times to propose order dates. These dates form a material plan, not a finite-capacity machine schedule.
MRP II
Manufacturing Resource Planning (MRP II) extends material planning to a broader manufacturing plan, including capacity and financial planning. This broader scope does not make basic MRP I a finite-capacity scheduler; check which planning functions your software actually provides.
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 translates production demand into a material plan. It uses the demand supplied to it rather than independently predicting market trends. The main steps are:
- Calculates required material according to demand: MRP uses the planned product quantities and bills of materials to calculate the gross requirements for raw materials and components.
- Checks inventory and scheduled receipts: MRP compares gross requirements with usable stock and incoming supply to calculate net requirements. Accurate inventory records are essential; MRP does not itself decide where materials should be physically stored.
- Plans supply quantities and dates: MRP uses net requirements, lot-sizing rules and lead times to propose purchase or production orders and their release dates.
Assigning operations to machines and workstations requires a detailed scheduling model with routings, operation durations, setup times and available capacity. Basic MRP does not establish a feasible resource sequence. - Flags changes to the material plan: MRP can identify shortages or orders that need rescheduling when supply or demand changes. Resolving a capacity conflict or rebuilding the machine schedule requires separate capacity planning and scheduling.
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): The product structure listing the materials and components required and their quantities. Operation sequences, workstations and setup requirements belong to the manufacturing routing, not the material list alone.
- Master Production Schedule (MPS): An item-level production plan specifying which products to make, in what quantities and in which periods. MRP calculates the component requirements behind those planned builds; detailed scheduling checks the resource sequence.
- 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: Forecasts and confirmed customer orders provide demand information for planning. MRP uses this information to calculate material requirements; it does not itself create the demand forecast.
MRP Outputs
There are some outputs generated by your MRP program that your manufacturing process can
use, such as:
- Purchase order proposals: MRP identifies material quantities and dates that purchasing needs to review. Depending on the system, the output may be a planned order or purchase requisition rather than an automatically placed supplier order.
- 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: Depending on the system, reports show planned supply orders, changes to existing orders, exceptions and planning performance. Demand forecasting and detailed capacity scheduling are separate functions, even when included in the same software suite.
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: Comparing material requirements with stock and incoming supply helps planners identify shortages and avoid unnecessary replenishment. The result depends on accurate demand, inventory and product data.
- Purchase planning: MRP proposes what quantities to buy and when they are needed. Buyers can use these proposals to prepare purchase orders; automatic supplier communication depends on the purchasing software and its configuration.
- Earlier shortage warnings: When demand or supply changes, recalculating material requirements helps planners identify missing components and review supply dates. A material exception is not a machine-level contingency schedule.
- Supports productivity: A material plan helps production teams prepare the components required for work. Machine and workforce utilization still depend on routings, capacity and the detailed schedule.
- Supports resource planning: MRP provides material quantities and dates for purchasing and production planning. Equipment and labor capacity must be checked separately; material availability alone does not guarantee that an order can be completed on time.
- 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.
- Helps avoid over-purchasing: Netting requirements against usable stock and scheduled receipts can reduce unnecessary purchases. MRP does not guarantee the lowest total purchasing, storage or transportation cost.
- Better use of planning time: Software can automate repetitive material calculations and order proposals. Planners still need to maintain accurate inputs, review exceptions and coordinate purchasing and production decisions.
- 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.
MRP depends on accurate bills of materials, inventory records, demand and lead times. Basic MRP typically uses planned lead times without resolving finite-capacity conflicts, so its proposed dates need a separate capacity check. If inputs or supply dates change, recalculate the material plan and review the detailed production schedule.
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 answers the material question: what is needed, how much and when. SkyPlanner APS addresses the detailed scheduling question: which job runs at which workstation, when and in what order, taking material availability, shifts, priorities and delivery dates into account. SkyPlanner is not an ERP replacement; it integrates with any ERP or MES through its open REST API. Planners set the priorities and rules, and Arcturus calculates the schedule.
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Teemu Hakala
Production Planning Specialist, SkyPlanner
