Imagine you’re cooking your favorite meal for dinner — but halfway through, you realize that you’re missing one of the key ingredients. Annoying, right?
It’s even more annoying when it happens in your business’s manufacturing process. Running out of a particular component or production inventory item not only stalls production, but can lead to backorders, lost sales, and a breakdown of your supply chain workflows.
Luckily, a good material requirements planning system (or MRP) can prevent these kinds of problems. Many businesses rely on MRP software to keep production inventory at optimal levels, minimize holdings costs, optimize production planning, and ultimately streamline their supply chain management.
In this article, we’ll delve into what material requirements planning is, why it’s important for retailers, the features to look for in a MRP system, and how inventory management best practices can improve it.
Material requirements planning (MRP) is a crucial production planning system for companies that manufacture products or assemble parts. By managing the logistics of material supply and demand, MRP helps optimize inventory and processes. This guide will walk through the key steps of utilizing material requirements planning to maximize efficiency.
What is Material Requirements Planning?
MRP is a computerized system that uses information from the production schedule to
- Calculate material requirements
- Determine timing and quantities needed
- Plan purchase orders and work orders
The output is a plan for purchasing scheduling and controlling inventory based on sales forecasts and production needs.
MRP helps ensure you have the right materials, at the right time, in the right quantities across a manufacturing process. The goals are to minimize excess stock and costs while avoiding shortages.
Core Components of Material Requirements Planning
Effective MRP relies on several key inputs:
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Bill of Materials (BOM) – The BOM outlines raw materials, sub-assemblies, parts, and quantities needed to construct each finished product.
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Inventory Records – Real-time inventory data for raw materials, work-in-progress, and finished goods.
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Master Production Schedule (MPS) – The MPS translates sales and operation plans into production requirements.
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Lead Times – The purchase and manufacturing lead times for each component and operation.
With these core data inputs, MRP software generates a plan including procurement schedules, planned orders, and more. Now let’s walk through how to utilize MRP in your production environment.
How to Use Material Requirements Planning
Follow this step-by-step process to implement material requirements planning:
1. Identify Requirements
The first stage is using BOMs, inventory data, and the MPS schedule to identify gross material requirements. Calculate the materials and quantities needed for each production run based on the end-item schedules.
2. Verify Resource Availability
Next, cross check that the required resources will be available when needed. Review work center and machine capacity, staffing, inventory stock, and supplier availability.
3. Generate Procurement Plans
With requirements defined, MRP software generates suggested procurement plans including:
- Planned orders – authorizations to purchase material
- Purchase orders – request to suppliers to supply parts
- Reschedule in orders – for re-planning dates or quantities
Review the system recommendations and adjust to optimize the plans as needed.
4. Coordinate with Suppliers
Share finalized procurement plans with suppliers to coordinate delivery schedules. Communicate any changes to POs as the schedule evolves.
5. Manage Inventory and Orders
As material is received, update inventory records in real-time. Monitor planned orders and WIP to ensure output meets production needs.
6. Report on Exceptions
Have the MRP system flag any shortages, delays, capacity issues or other exceptions. Investigate the root causes and adjust MPS scheduling or procurement plans accordingly.
7. Measure Performance
Track key MRP performance indicators like inventory turns, excess stock, and wait times to identify improvement opportunities in the overall system.
Benefits of Using Material Requirements Planning
Implementing MRP provides significant benefits:
- Optimizes inventory investment and turnover
- Minimizes shortages and delays
- Syncs procurement with production schedules
- Uncovers capacity constraints
- Provides visibility into material pipeline
- Surfaces anomalies and exceptions
- Drives data-based supply decisions
Overall, MRP enhances coordination of the end-to-end manufacturing process.
Implementing MRP Software
While MRP can be managed manually with spreadsheets, most manufacturers use MRP software systems for greater speed, accuracy, and real-time coordination.
When evaluating MRP solutions, look for key features like:
- Real-time inventory and supply chain data
- Automated scheduling and optimization
- Collaboration portals with suppliers
- Mobile access and notifications
- Custom reporting and analytics
- Capacity planning capabilities
- ERP and accounting integration
Leading MRP software providers include SAP, Oracle, Sage and others. The system can be implemented on-premise or as a cloud-based application.
Training Employees on MRP Processes
The optimal MRP implementation requires planning not just for the technical system, but also for change management. Thoroughly train employees involved across procurement, production, inventory control, sales and finance.
Employees need to understand:
- How MRP works and integrates across the business
- The importance of data accuracy and timeliness
- How to interpret and use the outputs of MRP
- Protocols for providing inputs and updating the system
- How to identify and flag exceptions or changes
Ongoing training and engagement ensures MRP is leveraged to its full potential. Appoint MRP analysts to monitor the system and continually optimize its performance.
Material requirements planning is an invaluable production planning tool when implemented effectively. By synchronizing procurement and manufacturing schedules, MRP boosts efficiency, minimizes waste, and improves visibility. To maximize benefits, invest in integrated MRP software and the training required to leverage the system across your organization. With robust MRP capabilities in place, you can optimize workflows, reduce costs, and better meet customer demand.
Why is material requirements planning important for retailers?
Whether you order finished inventory from manufacturers or produce your product yourself, material requirements planning matters for retailers.
To produce sellable products, you’ll need to have the right amount of production inventory — but achieving that balance can be tricky. Too much production inventory, and your business’s inventory holdings costs increase unnecessarily; too little, and you cannot manufacture enough end items to meet customer demand.
MRP software makes it easier to achieve that balance. By providing visibility into production inventory levels, MRP enables manufacturers and retailers to:
- Better plan inventory procurement (i.e., determine exactly what manufacturing components to reorder, how many it should reorder, and when to reorder them)
- Always have sufficient production inventory on hand to create enough finished products to meet customer needs, and pivot quickly to respond to shifts in demand
- Schedule the manufacturing process
- Streamline the overall supply chain
- Cut down inventory holding costs
Even if your retail business acquires finished inventory from an outside manufacturer, whether or not your manufacturer uses an MRP can impact your bottom line.
When a manufacturing process is smooth and well-stocked with production inventory, the business it serves is less likely to experience disruptions and delays due to stockouts. This helps to reduce lead time while speeding up fulfillment, which makes for a positive customer experience that encourages repeat purchasing.
Step 4: Start production
Next, it’s time to schedule and begin your production.
You’ll need to use the MRP’s master schedule for production to calculate the amount of time and labor needed for each step of the manufacturing and assembly process. For builds that require subassemblies, you’ll also need to account for the time taken to complete each subassembly.
During this step, you’ll also need to identify the workstations, machinery, and equipment needed for different stages of the production process. Based on this, you can then generate the necessary purchase orders and work orders.
Using all this information, you can determine the completion deadline for each step of the manufacturing and assembly process, and prepare a schedule accordingly so that production is carried out seamlessly and without delay.
What is Materials Requirement Planning (MRP)?
What is material requirements planning?
Material requirements planning (MRP) is a planning and control system for inventory, production, and scheduling. MRP converts the master schedule of production into a detailed schedule, so that you can purchase raw materials and components.
What is material requirements planning (MRP)?
Whether you work in a bakery or in a technology firm, implementing material requirements planning (MRP) concepts can dramatically benefit your company. Although originally intended exclusively for the manufacturing and fabrication industries, MRP is applicable to almost any industry, including the service industry.
Why is material planning important?
Accurate and ongoing material planning is a critical activity for any manufacturer. Without it, you risk higher inventory costs, unhappy customers, inventory shortages, and fewer on-time deliveries. When raw materials or components are late, your production schedule can get out of whack, which will likely result in lower profits.
What is a material requirements planning system (ERP)?
The evolution of Material Requirements Planning systems led to the development of ERP in the 1990s. ERP stands for Enterprise Resource Planning and is considered to be one of the most common categories of business software today.
