MRP: what is material requirements planning?

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October 8th, 2024
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As companies now have to fend for themselves an increasingly competitive market, they need the right tools and methods to successfully address the challenges they face. Material Requirements Planning (MRP) is one such management solution. It aims to optimise production resource planning by integrating key aspects such as managing inventory, planning future material needs, and scheduling production to reduce costs, improve adherence to deadlines, and adapt to market fluctuations to meet demand.

What is MRP?

MRP is a fundamental method for production management that enables companies to effectively plan their resource needs and coordinate their manufacturing operations.

Definition of MRP

Material Requirements Planning (MRP) is a production management system that determines the quantities of materials needed to meet production demands and plans their procurement.

By relying on accurate data concerning available inventory, ongoing orders, and demand forecasts, MRP helps companies optimise their resource management and avoid stockouts. It gives them great flexibility to adapt to demand variations. This adaptability is essential for maintaining a high level of customer service and seizing market opportunities.

History and evolution of MRP

MRP emerged in the 1960s in response to the growing needs of manufacturing industries to better plan their operations. The first MRP system was developed by Joseph Orlicky at Black & Decker in 1964. Since then, MRP has evolved to include increasingly sophisticated features, culminating in MRP II (Manufacturing Resource Planning) in the 1980s.

Difference between MRP and MRP II

While MRP focuses primarily on material requirements planning, MRP II expands this concept by including the planning of other production resources such as labour and equipment.

MRP II aims to provide a more comprehensive view of all the resources needed for efficient production, integrating financial aspects and simulation capabilities for more holistic management.

The foundations of MRP

MRP is based on several essential components that enable companies to plan and manage their production resources effectively.

Managing inventory

Inventory management is at the heart of MRP. It involves maintaining an optimal stock level to meet production needs without overburdening warehouses.

Once implemented, MRP enables:

  • Real-time stock level tracking and control;
  • Forecasting future needs;
  • Reordering supplies at the right time.

This leads to reduced storage costs and prevents both overstocking and stockouts.

Planning material requirements

This systematic method determines the quantities of materials needed to produce finished goods. Based on sales forecasts, ongoing orders, and existing stock levels, MRP calculates net material needs and schedules their procurement. Companies can ensure that the necessary materials are available at the right time and in sufficient quantities for production.

Scheduling production

To master production scheduling is another crucial component of MRP. It involves creating a detailed production schedule that specifies when each production task should be performed.

This helps to:

  • Coordinate the various stages of production;
  • Avoid bottlenecks;
  • Optimise resource use;
  • Minimise delays so that finished products are delivered on time.

By synchronising production with material availability and production capacities, MRP improves overall efficiency and productivity, leading to better customer satisfaction and enhanced company reputation.

Marc, a warehouse manager, shares his experience implementing MRP in his company: “We decided to optimise our processes to improve our productivity, not by working more, but by working better, by better understanding our work and that of others in order to improve our organisation.”

How does MRP work?

MRP includes several key steps that help determine material needs and schedule production operations efficiently.

Bill of materials

The bill of materials is a fundamental element of MRP that details all the components and raw materials required to manufacture a finished product.

It includes the required quantities for each component and their hierarchical relationship. By providing a detailed view of material needs, the bill of materials allows MRP to accurately calculate the quantities needed for each production order.

Net requirements calculation

Net requirements calculation determines the exact quantity of each material needed to meet production demand, considering existing stock and ongoing orders.

To perform this calculation, MRP subtracts available stock and ongoing orders from gross requirements to obtain net requirements. This helps companies identify materials to order and plan replenishments optimally.

Scheduling of manufacturing orders

The scheduling of manufacturing orders is the final phase of the MRP process. It involves creating a detailed schedule for each production stage, specifying start and end dates for each task.

MRP uses bill of materials and net requirements information to establish this schedule, making sure materials are available at the right time and production capacities are used efficiently. This minimises production delays, optimises resource use, and ensures finished products are delivered on time.

Limits and challenges of MRP

While Material Requirements Planning (MRP) offers many advantages, it also has certain limitations and challenges that companies must consider:

  • Implementation complexity and initial costs: Installing MRP requires a detailed analysis of production processes, software configuration, staff training, and investment in adequate IT infrastructure.
  • Need for regular data updates (stock levels, sales forecasts, ongoing orders, delivery times): Without this, the system can produce inaccurate results, leading to problems such as overstocking or stockouts.
  • Dependence on ERP (Enterprise Resource Planning) software for complete integration: MRP is often more effective when integrated with an ERP system, but this integration can be complex and require additional time and resource investments. Moreover, dependence on these software systems can make the company vulnerable to technical issues and system failures.

Thus, companies must carefully take these aspects into account before deciding to adopt an MRP system.

Production resource planning is crucial for any company looking to optimise its procurement and improve production management efficiency. By enabling precise and real-time management of material needs, MRP helps reduce costs, avoid stockouts, and improve customer satisfaction.

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