What Is MRP (Material Requirements Planning)
Product shortages can happen to even the best-run businesses. During the American Revolution, paper was in short supply as the popularity of books and newspapers exploded. Fast forward to 2018, when KFC ran out of chicken in the UK. And who could have predicted the great toilet paper shortage of 2020?
Manufacturers have been trying to prevent these experiences since the dawn of products. Today, they’re asking, “What is material requirements planning (MRP)? And do I need to use it?” While MRP software can’t fix all your inventory challenges, it is an essential piece of the production planning puzzle for most manufacturers.
What Is MRP?
The meaning of MRP is simple: Material requirements planning is a system for managing production inventory. It helps manufacturers ensure they have the raw materials they need, in the right amounts and at the best time and place to efficiently build the product. The first MRP systems were developed in the 1950s and ’60s and used old-fashioned pencils, ledgers, and slide rules to calculate and predict inventory levels.
Today, we have MRP software, which uses inputs like bills of materials (BOM), inventory lists, and production schedules to help businesses balance supply and demand and optimize their inventory. Manufacturers of all sorts use this software to make their lives and production processes easier.
MRP vs. ERP
There’s a lot more that goes into manufacturing than material requirements planning. That’s where enterprise resource planning (ERP) comes in. ERP is a more comprehensive system that covers many different functions of a business, including not only inventory control but also customer relationship management (CRM), sales planning, supply chain management, product lifecycle management (PLM), shop floor control, and even human resources.
So what is MRP compared to ERP? Simply put, MRP is specific to materials planning management while ERP covers the entire manufacturing process. Many manufacturers have MRP software that’s integrated with their ERP system. For example, DELMIAWorks’ manufacturing ERP solution has an MRP module, as well as many other features and automation capabilities that can help streamline the entire production process.
Examples of MRP
MRP is used in many types of manufacturing, including discrete, which produces distinct final products that can be counted as individual items, and process, which produces mixtures like detergent or chemicals that can’t be counted individually or broken back down into their original parts once they’re made. Even service providers, like mechanics and engineers, use MRP software to improve their processes.
MRP is especially important in lean processes, like just-in-time manufacturing, where products are created on-demand rather than in advance of demand. The short lead times of these processes are a prime example of where MRP shines.
What Does MRP Software Do?
To really understand the definition of MRP, we need to look at what it does. What is material requirements planning and what does it entail? There are three main things that MRP software does: manage inventory, predict and control lead times, and set production schedules.
Inventory Management
In order to know what materials are needed and when, MRP first inputs sales forecasts and customer orders to determine current demand and predict future demand. It then inputs the bill of materials (BOM), which is a list of all the components needed to build each product, and breaks them down to determine what’s needed to create each order and potential future orders.
MRP software can then check your inventory records to see what you have in stock, what’s in transit, and whether any materials are already committed to be used in another order. It compares this to the demand forecast and prompts you to order the required materials and reorder when needed.
Lead Time Predictions
Lead time is the amount of time from when a customer places an order to when the product is delivered. It can also refer to material lead time, which is the time from when you place an order for materials to when you receive them. MRP can help you predict both of these lead times.
Using its analysis of demand for your product balanced against the materials you have, as well as your production schedule, MRP software can figure out how much time and labor you will need to complete orders. It can even break down each order into subassemblies and tell you how long those will take and how that will affect your lead times.
Production Scheduling
Your production schedule lists where and when every product will be made. It assigns a particular person or workstation to create a product, so you know how many workers or machines are free or in use at any given moment. It stores plans for delays or inventory issues. And it helps you manage your shop floor.
It also gives you visibility into the materials you need, where they’ll come from, and when they’ll arrive. That’s the information that your MRP software feeds into the system. It can link raw materials to purchase and work orders and generate transfer orders to complete builds as efficiently as possible.
Benefits of MRP
The definition of MRP is clear, but what about the benefits? If you manufacture any type of product, MRP can streamline your production processes and benefit your business.
Accurate Inventory
MRP helps you track your inventory more accurately. By keeping track not only of finished products, but also of each component that makes up a product, it can help you avoid both stock-outs, which is when you don’t have enough inventory, and extra inventory costs, which occur when you have too much inventory. Accurate inventory also means you can predict accurate lead times, which keeps customers happy.
Shorter Lead Times
MRP doesn’t just predict lead times more accurately. It can help you shorten them by alerting you to disruptions in the production cycle, including subassembly builds that can have a huge impact on your main assembly line. When you understand exactly what goes into building each product, you can prevent delays and shorten your lead times.
Increased Efficiency
There’s no question that the deeper meaning of MRP is to optimize your production planning and increase your manufacturing efficiency. It automates manual processes like production scheduling and sales and inventory input. It eliminates the need for Gantt charts and process diagrams, replacing them with easy-to-understand schedules and flows. That frees up your time to fix the problems, instead of trying to spot them.
Ultimately, what is MRP to your company? It’s just one piece of the puzzle when it comes to the manufacturing software you need. While material requirements planning is essential, you’ll realize many more benefits if you integrate it into your ERP system.
That’s why DELMIAWorks provides plenty of functionality including MRP and beyond, eliminating silos and third-party data integration. Contact us to learn why businesses like yours trust DELMIAWorks as their ERP software.