What is an MRP System? Material Requirements Planning

An MRP (Material Requirements Planning) system is a software-based production planning and inventory management tool used by manufacturing companies to optimise their production processes. It helps businesses ensure they have the right materials, in the right quantity, at the right time to meet production timelines while minimising inventory costs.

Key features of an MRP system include:

• Collating material requirements
• Calculating material costs
• Managing inventory levels
• Generating purchase orders
• Reducing material waste
• Minimising production delays

The primary goals are to improve production efficiency, reduce inventory holding costs, and ensure timely product delivery.

MRP is a material requirements planning and inventory management system designed to help manufacturers determine the exact materials needed for production, ensuring the right materials are available at the right time, in the right quantity.

It helps businesses optimise production, minimise costs, prevent delays, and improve overall manufacturing process efficiency. It does this by calculating precise material requirements based on production schedules, current inventory levels, and bill of materials.

MRP systems are critical tools for manufacturers that optimise material management and production processes. They ensure precise material availability by calculating exact requirements, preventing production delays and minimising inventory costs. These systems enable companies to track current stock levels, reduce excess inventory, and improve cash flow through strategic purchasing.

By coordinating material procurement with production schedules, MRP software helps manufacturers streamline operations and enhance efficiency. They support just-in-time manufacturing principles, allowing businesses to purchase materials exactly when needed, which reduces storage expenses and waste.

MRP provides real-time inventory tracking and data-driven insights, enabling better decision-making across the supply chain.

An MRP system works by analysing three key inputs: bill of materials, current inventory levels, and production schedules. It breaks down the final product into component parts and calculates the exact materials needed for production.

The system checks current raw material stock levels, determines additional material requirements, and generates purchase recommendations and production schedules. It considers factors like lead times and production capacity to ensure optimal material procurement.

By continuously updating its recommendations based on production and inventory management needs, the MRP system helps manufacturers maintain the right materials at the right time. This approach minimises production delays and reduces unnecessary inventory costs.

The three main inputs of an MRP system are:

1. Bill of Materials (BOM): A comprehensive list of components and raw materials required to manufacture a specific product, including quantities and relationships between parts.
2. Inventory Data: Current stock information showing the quantity of materials on hand, including existing inventory, reserved stock, and anticipated deliveries.
3. Production Schedule: A detailed plan outlining when specific products need to be manufactured, including the quantity of products to be produced and their required completion dates.

These three inputs work together to help the MRP system calculate precise material requirements, generate purchase recommendations, and optimise scheduled production.

The key outputs of an MRP system include:

1. Purchase Orders: Detailed recommendations for material procurement, specifying what to buy, how much to buy, and when to buy materials.
2. Master Production Schedules: Comprehensive plans that outline when and how products will be manufactured, including specific timelines and resource allocation.
3. Inventory Control: Detailed reports and tracking of current inventory levels, showing stock quantities, anticipated material needs, and potential shortages.
4. Material Requirement Recommendations: Precise calculations of materials needed for upcoming production, helping prevent delays and optimise inventory.
5. Supply Chain Alerts: Notifications about potential supply chain disruptions, material shortages, or scheduling conflicts.

These outputs help manufacturing operations make informed decisions, optimise production processes, manage inventory efficiently, and maintain smooth operational workflows.

The steps in the MRP process include:

1. Identify Demand: Determine the production requirements, customer demand and orders that will drive material needs.
2. Use Bill of Materials: Analyse the comprehensive list of materials and components needed for production.
3. Compare Inventory Levels: Check existing stock against material requirements.
4. Deduce Material Needs: Calculate what materials need to be ordered based on current inventory and production flows.
5. Consider Lead Times: Evaluate how long it will take to procure materials from suppliers ensuring manufacturing efficiency.
6. Manage Supply Chain: Coordinate material procurement, tracking potential delays or disruptions.
7. Finalise Production Schedule: Adjust and confirm production timelines based on material availability.
8. Generate Outputs: Create purchase orders, production reports, and inventory recommendations.

These steps help manufacturers optimise their manufacturing process and meet customer demand by ensuring materials are available at the right time and in the right quantities.

MRP (Material Requirements Planning) is a subset of ERP. MRP originated in the 1950s and 1960s, with businesses widely implementing these systems in the 1980s. Over time, MRP evolved into a component of ERP systems, becoming more integrated and comprehensive in its approach to manufacturing management.

While MRP focuses specifically on material management and production planning, ERP is a broader system that encompasses all aspects of business operations. 

MRP concentrates on raw material requirements, managing inventory and production scheduling.

ERP offers far more comprehensive resource planning across the entire organisation, covering everything from financial management, labour scheduling, and operations planning, as well as MRP tools.

ERP provides a holistic approach to business management, with MRP serving as a critical module for manufacturing and planning production.

MRP is embedded within the broader ERP system. ERP integrates MRP tools with other business processes like labour scheduling, operations planning, and financials.

The integration allows for sharing information across departments and automating steps between different business processes. It provides for comprehensive resource planning and connects material requirements with broader business operations.

MRP and ERP systems bring functionality together under one platform, eliminating the need for separate systems. This integration enables more efficient management by allowing different business functions to communicate and share data seamlessly. 

Modern ERP software uses MRP as a key component, automating and connecting material planning with broader business management processes.

Capacity planning in MRP helps manufacturers understand and manage production limitations. It identifies constraints like machine availability, employee shifts, and production line capacity.

By analysing these factors, businesses can optimise scheduling, prevent bottlenecks, and ensure efficient use of resources. The goal is to maximise production potential while avoiding delays and inefficiencies.

MRP increases production efficiency by ensuring materials are available at the right time, which prevents production lines from stopping.

By minimising inventory and reducing cash tied up in stock, manufacturers can avoid holding materials for "what if" scenarios. The system helps businesses stock only what they need, when they need it, reducing waste and improving cash flow.

Instead of stocking up on materials based on potential sales promises, MRP allows companies to purchase materials precisely when needed.

This approach prevents wasting money on materials with limited shelf life and reduces the financial risk of holding excess inventory. By consolidating orders and optimising purchasing, businesses can save on freight costs and increase available capital.

In the context of MRP, improved demand forecasting involves calculating future material requirements based on production plans. This means understanding the quantities needed for upcoming production.

The system helps businesses anticipate material needs by analysing scheduled production and predicting the precise quantities of materials required for future manufacturing.

The primary challenge of MRP is data accuracy. Getting the initial information right is crucial, as missing a material in the Bill Of Materials means the system cannot help. This follows the "garbage in, garbage out" principle, where incorrect initial data renders the entire system ineffective.

MRP also struggles with unexpected production disruptions such as workforce illnesses, pandemics, and mid-production design changes.

Another significant limitation is that MRP alone does not account for output capacity. The system cannot automatically manage machinery availability, production line limitations, or employee scheduling.

This means that while MRP can plan material requirements, it cannot fully optimise the broader production environment without additional systems or manual intervention.

IoT and real-time data in MRP are emerging technologies that aim to improve system connectivity and communication. The primary focus is on automating data exchange between different systems, particularly between manufacturers and suppliers.

Systems could potentially connect directly with supplier systems to provide real-time alerts and notifications about order status, inventory, and potential disruptions.

However, not all communications should be fully automated. Some interactions, like delay notifications, might still require personal contact depending on the business context and market expectations.