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What Is MRP Software?

August 30, 2019
Volodymyr Rudyi

Are you thinking about investing in manufacturing planning software for your business? If so, you may have noticed that there are many acronyms associated with this process. Some of the most well-known are MRP, ERP, and APS, but there are others. This can be confusing for someone who is just learning about all the options.

The MRP meaning is materials requirements planning, not to be confused with MRP II, which means manufacturing resource planning. We are going to look at what you want to know, which is “What is MRP?” as well as look into its benefits and how it might be good for your business moving forward.

What an MRP System Actually Is

Materials requirements planning refers to a system that controls and plans for things like production, inventory, and scheduling. With MRP, you can build a master schedule of production that has detailed information, so it’s simple to purchase raw components and materials.

While this is a system mostly used in fabrication and manufacturing, it can also be used as an inventory control system to determine a forecast of what products and how many will be needed by customers in the future.

As a manufacturing company, forecasting the type and amount of products to purchase is streamlining, as is knowing what materials are needed to create those products. Then the products that customers want can be pushed to the market to make a profit.

This is different from a pull system where a customer needs first to place an order. The problem with the latter system is that it has a vulnerable nature when sales vary to a large degree. This can lead to inaccurate forecasts which can mean too much of a product in inventory or too little of one.

The History of Materials Requirement Planning

The beginning of the 20th century brought out new planning and material control systems that used math to determine lot sizes for manufacturing. The first economic order quantity model was introduced in 1913 by Ford W. Harriss, and it is still being studied today for inventory management.

MRP was developed in 1964 by Joseph Orlicky as a way for IBM to easily perform supply planning by computer. Fifteen years later, the system had been adopted by more than 8,000 companies. In 1983, Oliver Wight took the process and moved it forward to create MRP II. This involves the use of additional data, including finance and employee information.

The last development for the MRP system came about in 2011 when a book was published by McGraw Hill that updated Orlicky’s original work.

Types of Inventory Categories

There are two categories for inventory, including independent and dependent demand. The first has to do with the need for finished products like laptops or automobiles while the other is a demand for parts, assemblies, and components that go into those independent products.

The way that you determine your numbers for dependent demand is by being aware of the numbers for independent demand. So if you expect to sell a specific number of laptops, that tells you how many screens, batteries, processors, and keyboards that you are going to need to meet that demand. The relationship between the finished product and the materials needed can be shown on a bill of materials and calculated using MRP.

MRP looks at different things than consumption-based planning. The former uses information from the sales forecast and the customers to decide what materials are needed based on the dependencies of other unique materials. On the other hand, consumption-based planning just looks at data about consumption. It doesn’t look at what items are dependent on each other, and it assumes the same pattern for consumption at all times.

MRP looks at the flow off components, materials, and parts in an order system using the production schedule. It also tracks dozens or even hundreds of variables ranging from bill of materials to purchase orders, sales orders, data, material shortages, inventory, expedited orders, materials, due dates, the demand of the marketplace, and forecasts just to name a few.

The Goal of an MRP System

No matter what your company is, MRP has a few goals. It looks to be sure that inventory level is at a certain minimum level while also being high enough to meet customer need. It also ensures that all activities are planned for the future from purchasing to manufacturing, and delivering the end product.

MRP Processes and Steps

An MRP system works so well because it is a framework consisting of calculations and processes. It has the capability of transforming a company’s operations procedures in a serious way. All sorts of people within the business can contribute to the process used by an MRP, whether involved in production, sales, receiving, purchasing, stocking, or shipping.

There are three basic steps that MRP consists of that include:

  • Determining the quantity requirements – This involves determining how much of a material or product is available on-hand, in open purchase orders, committed to orders already existing, and forecasted for the future. These requirements are going to vary based on the business itself, each of its locations, and the current date and need.
  • Running the calculations for MRP – Next, suggestions are made for materials that you consider expedited, delayed, or critical.
  • Completion of the orders – Materials are delineated for purchasing orders, manufacturing orders, and other required reporting matters.

MRP can perform a whole slew of calculations based on the data input into the system. Some of the input options include:

  • Bill of materials – This data includes information about the quantities and details of raw materials, components, and assemblies that are used in every end product that goes out.
  • Customer orders – The exact information that you have from customers, including regular ordering patterns and one-off orders.
  • Forecast demand – This is the prediction based on the marketplace about how much demand there might be for a service or product. It is going to be based on both current trend analysis and historic accounting processed.
  • Inventory records – This includes all the completed products and raw materials that you already have at the site or that have already been ordered to come.
  • Master production schedule – This schedule takes into account both orders by customers and forecasted demand. It is a plan maybe by the company to determine staffing, production, or inventory. It offers information about what quantities of products need to be produced for a certain time period. It also takes into account production costs, inventory costs, supply, inventory information, lead time, lot size, and capacity for development.

Once the MRP gets all of this information, it puts out its own information as an output. There are four main outputs to be aware of which include the following:

  • Purchase orders – This offers information about what items the MRP recommends that you send out for from suppliers for them to get to you for your needs. The purchase order will include a schedule that shows quantities along with start and finish dates to meet your needs.
  • Material plans – This gets into what assembly items, components, and raw materials are going to be needed to make the products you need with the quantities and dates required. Attribute settings can be utilized to set up your times and firm up your orders.
  • Work orders – This offers all the detail related to create the end product. This includes what departments are involved, who has responsibility for which parts, what start and end dates are associated with an order, and what materials are needed to create the order.
  • Reports – Both primary and secondary reports are provided by an MRP system. Primary reports are all of the other things on this list dealing with control, production ,and inventory planning. Secondary reports, on the other hand, are the small details like exception data, performance control, predictors of future inventory, deviations, and contracts.

MRP can seem as if it is vague at times since it does calculations without telling you how data is made and provided to you. MRP uses mathematical controls to use formulas to create the results your company wants. It calculates everything from the initial conditions to the constraints, dynamics, and the final objective.

Variables include order size, available inventory, fixed order cost, local demand, local inventory storage costs, and variable order costs. An MRP uses a selection of calculations and methods depending on the information needed. For instance, finding order quantities can use many methods, although the most common are dynamic lot-sizing, silver-meal heuristics, and least-unit-cost heuristics.

Benefits of MRP Software

When you have an MRP system in place, it offers a scalable and beneficial option for manufacturing businesses, supply chains, and others to continue being competitive while preventing inefficiencies in terms of resource management.

However, knowing the benefits of using this type of planning software helps you determine how to boost profits, improve efficiency, and reduce waste.

Ability to Maximize Your Resources

If you are attempting to create efficient processes that help you maximize the resources you have, you need to be aware of what your delivery lead times are, how your suppliers communicate, what your production times are, and what sales demands are present, among other things.

Let’s say you are a company that manufactures a seasonal product. Knowing what spare production capacity you have will make it possible to spread out the workload evenly. Another example might be human resources staff using an MRP system to determine when the seasonal hiring period should be to avoid needing new workers by surprise.

Potential to More Accurately Forecast

Another thing that MRP software offers is the ability to analyze trends. This can help you with improving efficiencies, bringing in more money, and saving time in the long run. With the ability to look at detailed data, your business can predict what customer demand there is to drive your capacity. This can tell you anything from what colors or sizes of items are selling the best, which items sell best at certain times of the year, and other things similar.

On top of that, this software can be used to look at pricing trends so you can determine things like supplier price fluctuations. When you use supplier data and customer trends in tandem, it can give you a better chance to plan ahead. That means you can buy when things are the least expensive to save money during production.

Options to Cost-Effectively Manage Inventory

When you have the option of using a high-quality MRP system, it helps prevent the possibility that unused items hang around your warehouse for long periods of time. It can also ensure that what you need to create your products is not at risk of running out when you need it the most.

This software lets you check or double-check what your inventory levels are and what you need to order to prevent going out of stock. This can prevent downtime caused by lack of components, avoid the cost of delays, prevent excess stock levels, and improve the efficiency of your business.

Capability of Identifying Purchasing Trends

The biggest benefit of an MRP system is probably its ability to look at purchasing trends. It can give you in-depth information about what stock is hanging around not being sold, which can offer you the information you need to decide on new or altered processes.

Maybe you determine that one of your products is something you should remove from production altogether since demand has fallen away. This can lead to savings on component costs, storage, and staff who are involved in that part of the production.

Ability to Integrate with Other Software

You might notice that one of the things that are continuous for MRP systems is that they have a huge reliance on having accurate data. This can be a problem if there are numerous systems in place at one manufacturing company. However, many MRP systems can be incorporated with enterprise resource planning systems (ERP) to help increase the accuracy of data.

This offers even more powerful tools and can help you raise your sales, keep production on schedule, watch your stock, and keep an eye on demand while you work out strategies for the growth of your company.

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