Materials Requirement Planning (MRP) is a computer-based inventory management and production planning system used by organizations to ensure that they have the right materials on hand to meet production demands while minimizing inventory carrying costs. MRP is in essence a massive calculator – what do I have, what do I need, when do I need to get it. Materials Requirement Planning (MRP) is the core module within the Enterprise Resource Planning (ERP) systems. When MRP is integrated into an ERP system, it becomes an integral part of the broader suite of functionalities that an ERP system offers.
The primary goal of MRP is to help organizations answer the following questions:
- What materials are needed? MRP identifies the specific materials, components, and raw materials required to meet production schedules or customer orders.
- How much is needed? MRP calculates the quantity of each material needed based on the production schedule, forecast, order quantities, and lead times.
- When are they needed? MRP determines when materials need to be ordered and delivered or produced to ensure they are available when required, considering factors like lead times, production cycle times, and customer demand.
Key components and concepts of Materials Requirement Planning (MRP) include:
- Bill of Materials (BOM): A BOM is a list of all the components and materials required to manufacture a finished product and their hierarchical relationship. MRP uses the BOM to determine the materials needed for each product and subassembly.
- Master Production Schedule (MPS): The MPS is a plan that outlines the production schedule for finished products over a specific period. MRP uses the MPS as a starting point to calculate material requirements.
- Inventory Levels: MRP considers current inventory levels of materials and components to avoid overstocking or stockouts. It calculates net requirements by subtracting the available inventory from the required quantities. MRP is also considered any safety stock and min/max requirements.
- Lead Times: Lead times represent the time it takes to receive materials after placing an order. MRP takes lead times into account to ensure that materials arrive on time to meet production needs.
- Order Point: The order point is the minimum inventory level at which an order for more materials should be placed. MRP calculates when to reorder materials based on order points and expected usage rates.
- Safety Stock: To account for variability in demand or lead times, organizations may maintain safety stock—an extra quantity of materials beyond what’s calculated by MRP.
- Open Orders: MRP tracks existing purchase orders and work orders for materials. These open orders are considered when calculating net material requirements.
The MRP process typically involves the following steps:
- Determine Demand: Identify the demand for finished products from the MPS and customer orders. Some ERP systems can also factor in the Sales Forecast
- Bill of Materials (BOM) Explosion: Use the BOM to break down the requirements for each finished product into materials and components.
- Net Requirements Calculation: Calculate the net requirements for each material by subtracting current inventory and open orders from the total requirements.
- Planning and Ordering: Generate purchase orders or production orders for materials with insufficient inventory to meet demand.
- Monitoring: Continuously monitor inventory levels, update demand, and adjust planning based on changes in demand, lead times, or other factors.
MRP systems automate and streamline these processes, helping organizations optimize their inventory management, reduce carrying costs, and ensure that they can fulfill customer orders on time. This is especially valuable in industries with complex supply chains and production processes. MRP plays a crucial role in ensuring the efficient use of resources, minimizing costs, and meeting customer demands. For more information on how an MRP can improve your business, feel free to schedule a demo. Remember B1 – BWISE!!
