Material requirement planning (MRP) is a scientific way and computer based planning inventory designed to assist production managers in scheduling and placing orders for dependent demand items and organize manufacturing processes.
Definition of MRP
MRP is product oriented computerized technique aimed at minimizing inventory and maintaining delivery schedules.
Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well.
History or Evolution of Material Requirement Planning
1940s and 1950s: First MRP systems
Use of Mainframe computers to explode information from a bill of materials for a certain finished product into a production and purchasing plan for components
MRP II (manufacturing resources planning) is the next generation of MRP. In this system planning process functions are incorporated with marketing, finance, accounting, engineering, and human resources.
1980s: MRP II (manufacturing resources planning) is the next generation of MRP to create a new approach. In this system planning process functions are incorporated with marketing, finance, accounting, engineering, and human resources.
Better planning and control over inventory through valid production schedules
The improvement in Customer delivery commitments, cash flow projections, and personnel management projections helps to improve the other areas like marketing, finance and personnel management.
We cannot say the MRP II is replaced or improved version of MRP but it increases the scope of production resource planning and also the involvement of other functional areas of an organization in the planning.
Main difference is MRP II is all of the functional areas of firm (i.e. Marketing, finance, HR) have input into the master production schedule. It always uses simulation capabilities so managers can evaluate various available options.
ERP (Enterpris resources planning) is another related concept which links computer technology to the other functional areas of whole business enterprise.
The process of MRP is backward process and starts from a production plan for finished goods and on the basis of this develop requirements for the raw materials and other components required for final production.
We can divide it into 2 steps
1. Schedule of finished goods and its production
2. Schedule of requirements for raw materials, other components, and the subassemblies to produce final product (Finished Goods) at specified time.
Simply MRP is the answer of following 3 questions
1. What is needed?
2. How much is needed?
3. When is it needed?”
Three basic components to make up material requirements planning
1. Is to make sure that all products and materials are all in line.
2. Company needs to keep tabs on is making sure they have very low inventory.
3. Planning the manufacturing scheme. Should know exact production place and where shipped to.
Lack of MRP leads to-
Ill planned purchasing
Increase workload of purchase dept. receiving stores & primary inward inspection
To analyze inventory requirements and break it into planning periods to complete production timely
To maintain or reduce inventory levels and related carrying costs
Proper Implementation and utilization to plan capacity needs and allocate production time
Factors affecting on materials planning
Direct and indirect taxes
Foreign exchange regulation
Market demand and supply
Procurement lead time
Working capital management
Nearness to sources of supply
Management policy towards stocking
Buyer seller relationship
Corporate financial position and image
Ensure materials are available for production and products are available for delivery to customers.
Maintain the lowest possible level of inventory.
Plan manufacturing activities, delivery schedules and purchasing activities.
Functions of MRP
Bill of material processing
To maintain low inventory levels
To plan manufacturing, purchasing and delivering activities
Scope of MRP
Techniques of Materials Planning
For direct materials
1. Bills of Materials/ explosion chart
3. Inventory control
1. Inventory control
For Indirect Materials
Past consumption analysis technique
Limitations and Disadvantages of MRP
Costly to implement
Information output of MRP system is totally depends on the information input.
Accurate bills of materials, part numbers, and inventory records is required
MRP Information Input
Three main sources
Bill of materials
Inventory records file