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What is Material Requirement Planning in Inventory Management?

What is material requirement planning

Effective inventory management is not only key to increasing productivity by streamlining operations, it can be the difference between success and failure in business. 

According to Industrial Machinery Digest, even multinational corporations like Walmart have experienced the risk of disorganised inventory. In 2013, poor inventory control cost them a whopping $3 billion with regular stock-outs suffered by consumers. To address this challenge, companies are relying on Material Requirements Planning (MRP) systems that minimise inventory risk. Here’s how.

What is meant by material requirement planning (MRP)?

This is an incredibly useful software system that is able to analyse your current inventory levels and compare them with the production capacity for manufacturing goods based on forecasts. The MRP will schedule production according to the Bill of Materials (BOM) so that there is no over or underproduction of stock. You should effectively have what you need on hand, when you need it, leading to a much happier customer base and lowering the risk to your company. 

What are the objectives of material requirements (MRP) planning?

When it comes to MRP, there are really two key objectives that have to be met. These are:

1. Lowering inventory levels

Your MRP system will consider what is required from vendors, what can be stored in your warehouse, and then optimise this so that you’re not left with a surplus of stock. 

2. On-time production

The MRP process will provide procurement and sourcing teams with the required information to execute their respective tasks effectively. The MRP provides production teams with information to analyse how much to produce, and the vendors with the required materials. 

What are the features of material requirement planning (MRP)?

You can consider many features when implementing an efficient MRP system so that these two objectives can be met. When deciding on the MRP system to choose, it’s worth considering these features and whether they meet your needs.  

1. Purchase planning

This MRP feature provides your purchasing department with what’s needed for ordering or forecasting. This includes a clear list of materials and the quantities for effective scheduling. 

2. Demand forecasting 

This feature is necessary for business owners looking to grow their companies as it shows exactly how well products are selling. This lets you predict demand for materials and products, as well as pick up on trends, whether they’re seasonal or other. Your demand forecasting feature could have the capacity to produce useful charts, graphs and prediction reports. Demand forecasting ensures you fulfil all your orders on time, with production and lead times accounted for so you get your materials in time for production.

3. Accounting and financial management

A holistic MRP system can include this feature that enables businesses to plan budgets and allocate money for more effective resource planning. 

4. Enterprise resource planning (ERP) 

ERP is a great feature for MRP as it provides you with the foundation to track all business processes from production to distribution. ERP will monitor your materials, budgets, inventory, cash flow and production schedule by analysing data. 

5. Customer relationship management (CRM)

Despite the common misconception, CRM and ERP are not package deals, but rather separate features that can be included in MRP. CRM is helpful when you’re dealing with a large number of customers accompanied by a variety of customer-related issues. CRM automates this into the MRP system or it can be integrated into a third-party CRM platform. 

What are the benefits of material requirement planning (MRP)?

Once you have decided on the MRP features you want, and have chatted to a reputable supplier about the best MRP software for your business, you can start to enjoy the huge number of benefits associated with this system. These include:

  • Better internal communication

A good MRP will also act as a communication infrastructure that brings the various departments together in one system. Information from sales can be relayed to other departments so that material and inventory levels can be adjusted accordingly. This continuous data input can be updated on balance sheets which is then converted into useful information for driving business decisions. 

  • Improved material planning

This interdepartmental communication and sharing of updated data allows for more accurate material requirements estimation. This means that, when it comes to stock re-ordering, you’re able to meet the target rather than suffering from over or undersupply. 

  • Enhanced forecasting 

“Across categories, consumer goods companies should understand the factors responsible for growth in demand to determine whether people are actually consuming more or just pantry loading—that is, stocking their pantries in preparation. As manufacturers rethink their commercial plans, these insights are critical to forecast demand after the crisis.” – McKinsey

The system will also automatically analyse historical data for trends that create much better demand forecasting capabilities. In fact, using real-time data, emerging trends and a spike in demand can create a sudden shift in the supply needs. This was made abundantly clear during the Covid-19 crisis, highlighting the need to implement software for increased supply chain stability. 

  • Visibility in the supply chain

One of the real benefits of MRP is the visibility it provides across the supply chain. Every supply chain interaction leaves a software trail which can be incredibly useful for business as it indicates areas of strength – and potential weakness. In industries such as pharmaceuticals and food where regulations are rigid, this level of visibility is essential for future-proofing business. 

  • Scalability 

The major driver of most businesses is growth, but even where businesses have to scale down, it’s necessary to have a system that meets this flexibility. An MRP system is able to scale up (or down) depending on current requirements, managing hundreds of BOMs, customer and supplier communication and other large-scale undertakings without error. 

  • Automate redundant tasks

Every business suffers from mundane administerial tasks that have to be done to keep things operating. Fortunately, with MRP software, these routine tasks can be automated. Duties such as data entry and calculations are done without human input, decreasing error and miscommunication.  

  • Increased customer relations

“Since the emergence of the internet and immense growth of social media, instant gratification has become an expectation, and the norm rather than the exception.” – Forbes

Customers want what they ordered, as they ordered it, in no time at all. This is the age of instant gratification! By using an MRP system, you’re able to meet this need. MRP is able to collate vast data sources, make instant calculations, and make accurate deliveries so you’re working with satisfied customers. If there are any anticipated delays, letting the customer know ahead of time smooths out any potential difficulties along the way. 

  • Optimise resources

This access to updated data empowers you to optimise inventory levels, staff and costs which streamlines operations and improves productivity. MRPs give you such valuable insight that let you monitor the financial well-being of your company.

To find out more about material requirement planning options and enjoy the best features in this software, then Omni is the company to contact. Omni provides you with a customisable system that can be designed to work into your existing operation and maximise workflow.