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Material Requirement Planning (MRP)

Discover the features of a Materials Requirement Planning (MRP) system and how it will help you with your decision making 

What is a materials requirement planning (MRP) system?

A Material Requirements Planning (MRP) system is a planning and decision-making tool used in the production process. The tool enables you to analyse current inventory levels vs production capacity and the need to manufacture goods, based on forecasts. MRP schedules production as per bills of materials, all whilst minimising inventory. The technique is computerised and looks at requirements within a fixed period.

 

What are the main features of an MRP system?

An MRP system has several handy features to help you with your planning. Here are just a few listed below:

  • A master production schedule:
    A statement of what final products need to be made and when. This drives the entire MRP system. It’s based on forecasts, customer orders, production capacity, and prioritisation of work.
  • Bill of materials (BOM):
    All the raw materials and components required to make the final product.
  • Inventory status file:
    This keeps a record of what is in stock and allows the gross requirements to be adjusted to net requirements. The idea is to avoid excess stocks, if possible, but if inventories do come into existence, the system will ensure that they are used in the right sequence.
 

How does an MRP system work?

If you’re thinking of implementing an MRP system into your organisation, it’s key to get to grips with how it works before it’s in place.

  • Step 1 - Exploding:
    Achieved by using the Bill of Materials (BOM), i.e., how many components are needed to prepare one item of manufacturing.
  • Step 2 - Netting:
    The net quantity of material calculated through the difference between the stock available in the factory from the overall gross requirement. This figure is provided by exploding.
  • Step 3 - Offsetting:
    The lead time is estimated for the entire operation which helps practitioners to compute the expected time for manufacturing. It also advises when the manufacturing process should begin so that items are available on the promised date. 
 

MRP Flow chart

The MRP Flow chart demonstrates how MRP systems generate requisitions. Based on planned orders or sales demand, the system will ‘know' how many finished products are required. Using this information, the Bill of Material (BOM), the amount of stock already in production, and the lead times, the system can generate a requisition for procurement to act on.

Master production schedule Material requirements planning (MRP) Capacity planning Works order Productionrun Production Purchasing Bill of materials(BOM) Purchase order Raw materials in transit Raw material inventory on hand Finished goods inventory on hand Lessons learned feeds into identification of needs / specification 9 11 Anti-bribery andanti-corruption Lessons learned feeds into identification of needs / specification 9 10 Governanceconsiderations Lessons learned feeds into identification of needs / specification 9 9 Value for money Analysis of historic performance 8 8 The environment End of life disposal / recycling 7 7 Sustainability Performance / downtime monitoring 6 6 Ethics 5 Maintenance costs 5 Socialaspects 4 Operating costs 4 Whole-lifecosting 3 Installing and commissioning costs 3 Big dataanalytics 2 Acquisition costs 2 Collaboration and cooperation 1 Pre-acquisition costs 1 Engaging withstakeholders
 

What are the advantages of an MRP system?

A Material Requirements Planning (MRP) system helps organisations to stay on top of their scheduling, planning, and inventory. It’s a useful tool in helping to balance the load across various departments.

  • Inventory
    The MRP system is widely credited for playing a crucial part in decreasing factory inventory.
  • Reduce costs
    MRP focus is on what materials are required and when they need to be sourced. As it generates a minimum requirement, this can help reduce overall costs.
  • Complex products
    Assists in manufacturing industrial products that are more complex.
  • Customisation
    Helpful in product customisation
  • Schedule and track
    MRP systems schedule and track every order whether they’re for production or to procure from a supplier.
 

What are the disadvantages of an MRP system?

Like all systems, an MRP system does have its challenges.

  • Variables
    As there are many variables in the production process, any slight change in the bill of materials means the entire MRP system needs to be re-run.
  • Demand
    MRP is demand driven. So, if a company is not dependent on demand forecast, it can cause challenges.
  • Accuracy
    There is a high dependency on accurate input information, any error will cause issues with quantities and scheduling.
  • Costs
    With a high spec system, there are heavy costs. MRP systems are particularly expensive when implementing the system in your organisation.
 

What is operations management?

Operations management is a key area within any organisation. It plays a key role in keeping supply chains operational in today’s challenging environment. Discover the key to success when thinking about operations management. Find out more about Operations Management

Operations management key themes

Inventory Types & Costs Operations management Demand forecasting
Pareto analysis Bullwhip effect Demand management
Demand management strategy Economic order quantity Capacity requirements planning

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