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What You Need to Know About Material Requirements Planning (MRP)

Now, dear reader, let this tale of Material Requirements Planning (MRP) ignite your curiosity. Seek the hidden depths of this symphony of industry, for there’s a world of melody beyond these mere stanzas. Dive into the script of creation, tap into the heartbeat of operations, and trace the faithful scribe’s ink. Feel the rhythm, sense the balance, and understand the song of efficiency and fiscal wisdom. For in the grand theatre of manufacture, every beat counts, and every note matters.

So, venture forth, and let MRP’s song be your guide. Discover more, learn more, for the maestro’s symphony awaits your keen ear.

What is MRP?

Material Requirements Planning (MRP) is a strategic system used in manufacturing to manage production planning, scheduling, and inventory control. Its aim is to ensure materials and products are readily available for production and delivery when needed while maintaining minimal inventory levels.

MRP revolves around three main components:

  1. Bill of Materials (BOM):
    BOM is essentially a recipe for manufacturing a product. It is a comprehensive list detailing all the raw materials, components, sub-assemblies, and their quantities that are required to manufacture an end product. The BOM also specifies the sequence in which the components should be assembled, offering a structured view of what is needed to create a product. The accuracy of the BOM is critical because it directly impacts the efficiency of production and inventory management.
  2. Master Production Schedule (MPS):
    MPS serves as the company’s plan for production, staffing, inventory, and more. It specifies what is to be produced, when it is to be produced, and how much is to be produced, based on factors like sales forecasts, demand, and capacity. The MPS is a forward-looking plan, typically covering the planning horizon, which could range from a few weeks to a few months. By setting out the quantity and timing of finished goods, the MPS provides the framework for all scheduling and planning activities in a manufacturing company.
  3. Inventory Records:
    Inventory Records provide a detailed account of all the materials and products that a company has in stock or on order. They indicate how much of each material is currently available, where it is located, and when more is expected to arrive. This information is critical for avoiding overstocks or stockouts, and for planning procurement and production. Inventory Records need to be regularly updated and accurate to ensure they correctly reflect the reality of the company’s physical inventory.

By accurately forecasting the need for raw materials and components, MRP aids in avoiding production delays and overstocking, thereby optimizing the manufacturing process. However, its effectiveness hinges on precise and timely information.

The History of Material Requirements Planning (MRP)

The genesis of Material Requirements Planning (MRP) can be traced back to the 1960s, in an era marked by intense technological advancements and the space race. Companies were searching for methods to improve production efficiency, fuelled by rising competition in the manufacturing sector. Joseph Orlicky, a systems analyst at IBM, is credited with the development of the first computerized MRP system. He posited that if one could forecast demand, production could be planned accordingly, which led to the creation of this revolutionary approach.

In the 1970s, the oil crisis forced businesses globally to rethink their strategies and optimise resources. During this period, MRP started to gain popularity as a method to control inventory and manage production schedules effectively. It helped companies navigate the turbulent economic conditions by minimising waste and maximising efficiency.

The 1980s and 1990s saw the advent of MRP II and eventually ERP systems, driven by the computer revolution and globalisation. MRP II extended MRP to include additional business processes, like finance and human resources, enhancing its effectiveness.

Today, in the 2020s, amid the rise of Industry 4.0 and the IoT revolution, MRP systems have become more intelligent, interconnected and integral to manufacturing. They now incorporate real-time data analysis and forecasting tools, illustrating the continual evolution of MRP since its inception.

What Is the Difference Between MES and MRP?

MES is a Manufacturing Execution System that handles the manufacturing process’s execution, keeping plant operations running smoothly while coordinating between the office and the floor. MRP software deals with the planning processes, keeping track of everything used and built in the manufacturing processes. It shortens delivery times through resource planning, machine scheduling and labour load planning.

Some MRP Software to Ease You In

As with all technology, there is quite a bit of new terminology you’re going to need to familiarise yourself with before diving in. Here’s a quick dictionary of MRP.

– Low-Level Code

This is the lowest level code for any item in your bill of materials (BOM), determining your MRP itemisation sequence. This way, the MRP can plan system demands in the product chain.

– Product Structure Tree

This visually displays your BOM, including all the parts needed to manufacture a product.

– Lot Size

This is the number of units you will be ordering for the manufacturing process.

– Scheduled Receipts

These are all the open orders for products that your company has but has not fulfilled as yet.

– Projected On Hand

This refers to the amount of inventory that should be available once your gross requirements are met.

– Lead Time

The time that’s required to manufacture an item from start to finish. Ordering lead time refers to the time from starting the purchase to receiving the purchase, while manufacturing lead time is the time it takes from start to end of product manufacture.

– Cumulative Lead Time

This is how long it takes to develop a product, calculated looking at the BOM.

– Past Due

This is when your orders are suddenly behind schedule.

– Gross Requirements

This is the total demand item for a specific period, calculated by forecasting the number of units, material requirements, current and ordered stock.

– Net Requirements

Using the gross requirements and inventory, you get the actual quantities for a specific time.

– Planned Order Receipts

To ensure the inventory doesn’t drop below a certain threshold, you’ll have planned order receipts to determine the number of orders needed in a time.

– Planned Order Releases

This is the amount you are planning to order for a specific period.

– Master Production Schedule

This is the schedule of finished products which drives the MRP process.

Everything you need to know about Inventory (Stock) Control

What Are the Benefits Of MRP For Your Business?

If you’re considering investing in a Material Requirements Planning system but are still weighing up the options, then here’s a look at the advantages of this innovative system.

1. Inventory Control

Using data sourced from the production schedule, MRP can determine exactly how much inventory your business requires so that you’re meeting the actual demand. You’re benefiting because the MRP system will reduce the carrying costs while ensuring you always have the optimum inventory level.

2. Resource Management

In the manufacturing industry, you have to have up-to-date information about what raw material is available and what resources are needed for manufacture. MRP systems can provide businesses with this information, including when extra staff are required to have absolutely no delays.

3. Saving on Time

Using an MRP system, you’re able to automate operations, thereby minimising reliance on manual labour. This reduces the risk of ‘human error’ in the system and saves valuable time. The management and storage of production data eliminate the need for extra staff and, in some cases, entire departments.

4. Saves on Costs

Your MRP system will assess exactly how much material is needed for manufacture, so you’re not over-ordering, but it will also determine the cost of the materials required as well, from shipping and storage through to transport. MRP provides you with the most cost-effective selection, further saving you money.

5. Data Handling

All businesses work with vast amounts of data daily, manufacturing industries included. Fortunately, MRP systems will assist manufacturers in handling all of this data, including data related to document purchase, inventory, delivery and cash flow. It will then present this in a visually accessible way through reports and lists.

6. Work Scheduling

Your MRP system can analyse all the available inventory and then use this information to create an overview of your work scheduling. This includes management of equipment, labour tasks and daily operations and predicting labour and operational costs.

7. Purchase Planning

The MRP system will track all the production steps, schedules, and deliveries to identify when purchases need to be made. By knowing what is available and what to buy, and when you’re able to streamline the entire production process.

8. Production Planning

You’re now able to prevent any delays in your production line as Material Requirements Planning detects bottlenecks and then re-routes production to streamline operations. This is particularly important when there are material availability constraints.

What Are the Best Features Of MRP?

It’s clear that MRP is hugely beneficial to all businesses, but you must discuss your particular requirements with the MRP vendor. They’ll be able to outline exactly what features you’ll need for your business operations, but to give you an idea, here are some of the top features.

– Enterprise Resource Planning (ERP)

ERP is a type of software that manages your day-to-day business activities, including accounting, procurement, project management, risk management, compliance, and supply chain operations. If you’re investing in MRP, you’re going to benefit hugely from ERP capabilities as it provides you with the foundation for tracking all major business processes, from production to distribution. Using ERP in MRP, you can monitor the materials, cash flow, budgets, inventory, purchase order and schedules.

– Accounting and Financial Management

If you don’t have existing accounting software or you’re looking to upgrade, then consider an MRP system that has accounting and financial management features. Using a simplified all-in-one system will allow you to plan your budgets, check revenues, and allocate money to resources.

– Forecasting

Using MRP forecasting, you’re able to predict the demand for your products, as well as your material requirements and forecasted sales. By assessing how well certain products are selling, you’re able to pick up on market trends and better plan for future business operations. If you can get an MRP with a reporting feature, you’re able to benefit from charts, graphs and other visual forecasting material.

– Customer Relationship Management (CRM)

While most MRP systems have a CRM feature, it’s not always the case so you must check ahead of time. CRM will help your sales staff when it comes to analysing customer trends and requirements, thereby improving customer relations. For large companies that deal with several customers at once, CRM can even automate customer-related issues for more streamlining while freeing up employees.

– Purchase Planning

This feature allows you to determine which materials must be purchased for the manufacture of a product. With purchase planning, you’re able to plan and account for all resources needed accurately, so there’s no missing of deadlines or oversubscribing on raw materials. It takes all the guesswork out of purchase planning, so there’s no expiration or waste.

– Demand Forecasting

You’re able to accurately fill your production orders using this MRP feature which identifies manufactured items dependent on other manufactured items. The current and future demand for products allows you to accurately staff and supply your warehouse with the required resources to fulfil demand.

– Master Production Scheduling

This feature will use your sales and service orders to create a detailed production plan that fulfils your production needs. The master production schedule knows how much of a product needs to be made so that there’s sufficient staffing, raw materials, tooling and other resources. Once again, you’re benefiting from waste reduction and streamlined operations.

– Cloud-Based Software

With remote accessibility vital these days, a cloud-based MRP will allow you to access your system from anywhere. This gives your team much more flexibility while also offering continued customer support. Your team can also seek assistance at any time.

– Ease of Use

You’re going to need an MRP system with a friendly interface so that everyone, from all departments, can access and use the software easily. This will also reduce miscommunication between teams because when a system is simple to use, people will use it.

– Integrations

For manufacturers that rely on direct sales, the MRP must be integrated into an e-commerce platform and accounting software for business scalability. If your MRP software has accounting features, you won’t need to worry about integration.

What to Consider When Choosing MRP Software

It’s evident that Material Requirements Planning is a hugely effective tool for the manufacturing industry, but there are so many to choose from you have to know what your business needs are first. Here are some crucial points to consider before investing in this software.

– Strategic Requirements

Depending on your business size and plans, you will have different MRP strategic requirements. You’ll need to consider whether you’ll be introducing new product lines or services as this will have to be taken into account.

– Data Security

With data breaches a growing concern for businesses, it’s important to check with your MRP vendor what the level of security offered is.

– Functionality Needs

Do a thorough business analysis to determine your current needs and consider future needs for growth. While you want to invest in MRP software that is scalable, you don’t want to be investing in software with excess features you’re never going to use.

– Updating Software

Cloud-based MRP software can provide off-site hosting and ongoing updates so that you’re always benefitting from the latest version. Check that your vendor will provide upgrades to the system – whether on-site or cloud-based – as well as ongoing support for new features.

– Other Users

It would help if you spoke to other manufacturers about their software choice, as this will give you real-world insights into its operational efficacy. Your potential MRP vendor should be able to put you in touch with existing customers so that you can ask about customer service, learning curves and actual operation.

– Do a Trial Run

Most vendors will offer you a full-feature trial of the MRP software so you can try it out in a real-world environment. This way, you can quickly determine whether it’s user-friendly and has the features you require for ongoing operations.

In conclusion, Material Requirements Planning stands as a testament to the power of effective planning and resource management. It underpins the operational success of countless manufacturing businesses, and with the ongoing advancements in technology, its role and influence will continue to expand and evolve.

Finally, the most important thing to do when choosing MRP software is to ensure you’re working with vendors with industry-specific experience and will provide ongoing support. They should be willing to take the time to walk you through the options available and explain exactly how the system will be implemented and integrated into your business. Omni Accounts, a leading MRP software vendor, will provide you with all the necessary information and support that makes this a seamless, business-enhancing process.