Material requirements planning (MRP)
Material Requirements Planning (MRP) is a crucial system used by businesses to efficiently manage the scheduling, ordering, and utilization of materials needed for manufacturing processes. By determining what materials are required, when they are needed, and in what quantities, MRP aims to maintain an optimal inventory level—ensuring that production meets demand without surplus that could incur additional costs. Developed in the 1970s, MRP leverages computer technology to streamline these functions, moving beyond earlier manual methods that often resulted in inventory shortages.
The MRP process begins with an analysis of finished products and works backward to identify all necessary raw materials and components. It compiles and organizes essential data, including a bill of materials, a master production schedule, and inventory records, to create a logical operational plan. Enhanced versions of MRP, such as MRP II and Enterprise Resource Planning (ERP), expand its capabilities by integrating additional functions like marketing and human resources.
In the modern global market, the significance of MRP has increased, enabling businesses to remain competitive by efficiently producing and delivering products. While MRP systems can be complex and costly to implement, they offer substantial advantages to larger businesses by minimizing delays, reducing waste, and optimizing overall production efficiency.
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Material requirements planning (MRP)
Material requirements planning (MRP) is a system that allows businesses to schedule, order, and manage materials needed for manufacturing. This system allows business managers to determine what materials they need, when the materials are needed, and how much of the materials are necessary. The goal is to constantly have enough materials to meet the demand for finished products without having too much material in inventory or creating any other related expenses or delays. Mainly developed in the 1970s and modified in subsequent decades, MRP is generally accomplished using computer programs but may also be performed manually.
Brief History
Accurately and efficiently supplying the manufacturing process has always been a concern for businesses. Since ancient times, businesses have had to balance their inventories of raw materials against the supply and demand of the goods they produced. Having too much inventory could be costly and wasteful. Having too little inventory could hinder the production and sale of goods and services.
Before computers became a common business tool, experts devised several methods for controlling materials used in manufacturing. The main concept in these methods was the reorder point, which is the minimum amount of a product a business can have before it orders a new stock of that product. Under these methods, a business would wait until it had a small amount of a resource remaining before it acquired more of that resource. This practice often led to problems, such as a business running out of a material completely before the new supply arrived.
With the advent of computing and the rise of the modern technological marketplace, business experts sought more efficient means of managing their materials. As early as the 1940s, some economic scientists began using early computers to chart and track information about the materials needed for particular products.
In the 1960s, the developed version of MRP emerged. Its main creator was engineer and financial expert Joseph Orlicky. Orlicky's system embraced the capabilities of the computer to explore many aspects of purchasing and production scheduling. Computer programs allowed business personnel to easily alter and update the figures to maximize the system's efficiency. Orlicky published his work, and throughout the 1970s, businesses worldwide adopted MRP. It soon became a staple concept in manufacturing.
Other engineers and business economists added to and modified the system in different ways. One of these was Oliver Wight, who, in 1983, introduced a system called manufacturing resource planning (MRP II). This system was based on Orlicky's system but added elements such as enhanced scheduling, capacity planning, marketing, engineering, and human resources. Another system, enterprise resources planning (ERP), also extends Orlicky's system by allowing all business departments to contribute to MRP.
Overview
MRP became standard in the 1970s and has become increasingly ingrained in world business since then. In the twenty-first century, economic factors such as liberalized markets and globalization have made MRP even more important.
Modern businesses are challenged to constantly outdo competitors in quality, price, selection, and availability of goods and services. In many cases, this involves producing and marketing large amounts of products very quickly. Businesses must have the needed manufacturing materials to meet this requirement, or they risk falling behind and losing valuable sales. At the same time, they risk inventorying too much material, which will go to waste if demand for the product is poor.
Experts and leaders continue to turn to MRP and its various offshoots, such as MRP II and ERP, to help their businesses succeed. These systems help managers decide what they need, how much, and how soon to operate most efficiently.
Unlike other manufacturing planning systems, MRP works backward. It begins with a study of the finished product and then studies the materials needed to produce the product at different stages. A product as complex as a cellular phone, for instance, might require many levels of assemblies and subassemblies, each with its own list of required elements. These elements, in turn, must be traced back to the raw materials, such as plastic, metal, and glass. The business must account for each material and have enough on hand to keep the manufacturing process running.
To perform this complex task, MRP also arranges information chronologically. It determines periods in which certain materials will be used and reordered. The goal is to constantly have enough material on hand while at the same time keeping inventory and related costs to a minimum.
Businesses must input the correct kinds of information—and with high accuracy—to make MRP work properly. The basic information required includes a bill of materials (a list of all materials needed for a product), a master schedule showing the intended timeline of production and distribution, and a record of the inventories of materials and finished products. The MRP system correlates this complex information into the most logical plan.
When its analysis is complete, the MRP program will create a series of reports. These reports cover topics such as the timing of orders for new materials, orders for finished products, and even notes on making the overall manufacturing system more efficient.
MRP is costly and complex to install and use. It requires large amounts of accurate information, or its output will be faulty. For these reasons, MRP systems may be beyond the scope of many smaller businesses, but they provide great benefits for larger corporations. However, some small businesses may benefit from MRP software created specifically for smaller-scale materials management, like MRPeasy. With a properly used MRP system, businesses can avoid unnecessary delays, waste, expense, and disorganization when creating and selling their products.
Bibliography
Heisig, Gerald. Planning Stability in Material Requirements Planning Systems. Springer, 2002.
Jacobs, F. Robert, et al. Manufacturing Planning and Control for Supply Chain Management: The CPIM Reference. 3rd ed., McGraw-Hill Education, 2024.
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"Material Requirements Planning (MRP)." Inc., www.inc.com/encyclopedia/material-requirements-planning-mrp.html. Accessed 23 Dec. 2024.
"Materials Requirements Planning (MRP)." University of Cambridge Institute for Manufacturing, www.ifm.eng.cam.ac.uk/research/dstools/mrp. Accessed 23 Dec. 2024.
Miller, Jeffrey G., and Linda G. Sprague. "Behind the Growth in Materials Requirements Planning." Harvard Business Review, Sept. 1975, hbr.org/1975/09/behind-the-growth-in-materials-requirements-planning. Accessed 23 Dec. 2024.
"Orlicky's MRP—The Official Page," Demand Driven Institute, www.orlickysmrp.com/index.html. Accessed 23 Dec. 2024.
Ptak, Carol A., and Chad J. Smith. Orlicky's Material Requirements Planning. 4th ed., McGraw Hill, 2024.
Sharer, Elizabeth. Material Requirements Planning: Improving Inventory Control at a Manufacturing Plant. SAGE Publications, 2024.