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MRP SYSTEM – MATERIALS REQUIREMENT PLANNING

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What is MRP Systems - History of Materials requirements Planning

MRP SYSTEM – MATERIALS REQUIREMENT PLANNING

An MRP system, often synonymous with MRP II and ERP software, has differences in terms of time frames and evolution as computer-based software. It assists the production manager in placing orders for items that are dependently demanded. This computer-based inventory management system is also known as Material Requirements Planning (MRP).

An example of an MRP system is to manage the Bill of material which is necessary to create a finished product for eg: A mobile phone which consists of raw materials such as plastic, speakers, microphone, screen, battery, internal chips and so on . . . the amount of these bill of materials inventory available in the warehouse will make the number of products which is why we called it as dependably demanded without which manufacturing the finished products may not be possible.

History of Materials Requirements Planning Systems

The initial MRP system for managing the inventory of a Manufacturing business evolved in the year 1940 to 1950. It actually uses mainframe computers to explore all the detailed information from a bill of materials to understand the creation of finished products. Based on that purchasing plan for buying components was decided. Therefore MRP system was very helpful for production workers or personnel to update and change the inputs into the system as required.

MRP II which came later concentrated on other areas of business including Marketing, finance, engineering, Human resources and so on and then the concept of ERP – Enterprise resource planning software which linked different functional areas and the entire business enterprise in one single computer technology.

MRP system initiated from a production plan for final products towards the development of requirements of raw materials. So basically MRP systems were designed to understand the need, the number and the time the needs to be fulfilled.

The MRP system divides inventory requirements into various periods, aiding timely production completion and maintaining optimal inventory levels. It also minimizes costs. Production managers benefit from MRP tools as they assist in capacity planning and production time allocation. However, developing MRP solutions can be expensive and time-consuming, posing challenges for small businesses in the past.

MRP Components and Working

Materials requirement planning System includes three main sources, Master schedule, inventory files and Bill of materials. The MRP system used information from BOM, Master schedule, and inventory record files to determine the required quantities of raw materials, parts, and sub-assemblies for each planning period. It also calculated gross materials requirements, subtracted them from current inventory, and added them to the buffer stock to ensure precise net requirements.

Advantages and Benefits of Material Requirements Planning 

  1. MRP System offers many benefits to manufacturing units. Some of them were
  2. It helps the production manager to reduce inventory levels and carrying costs.
  3. Track material requirements and provide the most economical lot size for orders.
  4. Provides the quantity required to meet the buffer or safety level.
  5. Allocate production time with different products and offer proper planning for future needs.
  6. Enhances the workflows of other departments such as plant foreman, purchase manager, inventory manager, production planner, service representatives, sales managers and so on.

Disadvantages of MRP system

  1. MRP has a drawback related to inaccurate input and information handling, especially with BOM and inventory records. If these are not correctly added, it can lead to issues in generating the proper output.
  2. Estimations play an important role which in case misses can hurt the other areas such as delivery dates.
  3. Another disadvantage is that MRP implementation is time-consuming and it is sometimes difficult to develop successfully.

How Material Requirements Planning (MRP) Works

MRP works backwards from a production plan for finished goods to help businesses and manufacturers determine what is needed, how much is needed, and when it is needed. Using MRP, a plan is transformed into a list of the components, raw materials, and subassemblies required to complete a project on time. MRP assists producers in understanding inventory needs while balancing supply and demand.

By entering information into the MRP system, managers can determine their need for labour and supplies and increase the efficiency of their production.

  1. Item Name: The title of the completed good, also referred to as Level “0” on the bill of materials.
  2. Master Production Schedule (MPS): How much be produced to meet the demand and When is it needed?
  3. Shelf life of stored materials: The duration of storage materials.
  4. Inventory Status File (ISF): Materials that are readily available in stock as well as suppliers are ordering that are in stock and materials on order from suppliers.
  5. Bills of materials (BOM): details regarding the components and materials needed to make each product.
  6. Planning data: Restrictions and directives such as lot sizing methods, labour and machine standards, and quality and testing standards.

What Are the 3 Main Inputs for MRP?

  1. Bill of Materials,
  2. Master Production Schedule (MPS), and
  3. Inventory Status Files (ISF) are the three fundamental inputs of an MRP system. (BOM).

What Are the Outputs of an MRP System?

The MRP determines what materials are required, how much is required to finish a build, and precisely when materials are required in the build process using the necessary inputs.

This enables companies to schedule production based on the availability of materials and use just-in-time (JIT) production. As a result, businesses can efficiently move materials through the manufacturing process while reducing their inventory levels.

How Does MRP Benefit a Business?

MRP (Material Requirements Planning) software offers numerous benefits to a business, particularly in managing inventory, production, and supply chain operations. Here are some of the key advantages of using MRP software:

  1. Inventory Optimization: MRP software helps businesses maintain the right level of inventory by calculating accurate material requirements based on sales forecasts, production schedules, and lead times. This prevents overstocking or stockouts, reducing carrying costs and enhancing operational efficiency.
  2. Production Planning and Scheduling: It assists in creating production plans and schedules, considering factors like demand, lead times, and resource availability. It ensures that production runs smoothly and resources are utilized effectively.
  3. Cost Reduction: With optimized inventory and streamlined production, Materials Requirements Planning can help reduce costs related to excess inventory, carrying costs, and production inefficiencies. It also minimizes the need for rush orders and associated expediting expenses.
  4. Improved Order Fulfillment: By aligning production and inventory levels with customer demand, MRP software enhances order fulfillment rates. This leads to higher customer satisfaction and potentially improved customer retention.
  5. Accurate Demand Forecasting: MRP software uses historical sales data and other relevant information to generate more accurate demand forecasts. This helps businesses plan their production and procurement activities more effectively, avoiding unnecessary waste or shortages.
  6. Supplier Management: MRP software aids in managing supplier relationships by providing insights into lead times, delivery performance, and supplier reliability. This enables businesses to make informed decisions when selecting and collaborating with suppliers.
  7. Real-time Data and Visibility: Modern MRP systems often offer real-time data and visibility into inventory levels, production status, and supply chain activities. This empowers businesses to make timely decisions and respond quickly to changes in demand or supply.
  8. Streamlined Communication: MRP software facilitates better communication and collaboration among various departments involved in production and inventory management. It helps in minimizing miscommunications and ensures that everyone is working from the same set of data.
  9. Compliance and Traceability: MRP software can track materials and products throughout the supply chain, providing traceability and ensuring compliance with regulatory requirements. This is especially crucial in industries with strict quality and safety standards.
  10. Scalability: As businesses grow, MRP software can scale accordingly to accommodate increased demand, additional product lines, and expanding supply chains. It supports long-term business growth and adaptability. Overall, MRP software plays a vital role in optimizing inventory, production processes, and supply chain management, leading to cost savings, improved efficiency, and enhanced customer satisfaction for businesses of all sizes.

MRP V/S ERP – Which one suit for business 

MRP (Material Requirements Planning) and ERP (Enterprise Resource Planning) are related but distinct systems that serve different purposes within an organization. Let’s explore their differences and how they relate to each other:

MRP (Material Requirements Planning):

MRP is a subset of ERP, focusing specifically on managing the materials and inventory needed for production processes. The primary objective of MRP is to ensure that materials are available when required for production while minimizing excess inventory. It uses factors like demand forecasts, lead times, and inventory levels to calculate the necessary material requirements and create production schedules accordingly. MRP is especially crucial for manufacturing companies to maintain efficient production and manage inventory costs.

ERP (Enterprise Resource Planning):

ERP is a comprehensive software solution that integrates and manages all aspects of a business’s operations and resources. It goes beyond MRP and includes functionalities for various business processes such as finance, accounting, human resources, sales, procurement, customer relationship management (CRM), project management, and more. ERP provides a centralized platform that allows different departments and functions to work together seamlessly, ensuring data consistency and facilitating informed decision-making across the organization.

Relationship between MRP and ERP:

MRP, a core ERP module, specializes in production and inventory management. Integrating it into ERP systems enables manufacturers to streamline production planning, and inventory control, and sync with functions like sales, finance, and procurement on a unified platform, optimizing their overall business processes.

Conclusion:

Companies use material requirements planning (MRP), an integrated inventory and supply management system based on software, to project raw material quantities and plan production. MRP computes the materials required, their quantities, and their timing for use in the manufacturing process based on inputs from the Master Production Schedule, Inventory Status File, and Bill of Materials (BOM).

  Read more articles about Enterprise Resource Planning Software

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