What is MrP

How Does Materials Requirement Planning work?

An MRP system uses the master production schedule as its base or starting point. Next, it pulls information about the schedule of finished goods. After acquiring details about the finished goods schedule, it takes the information to the bill of materials (BOM) it creates the gross requirement for all components parts. 

The MRP system cross-checks this bill of material against the inventory status file, which contains all the stock on hand. It then subtracts the gross requirement from the on-hand balances and open orders, yielding the components’ net requirements. If the IFS falls short of some components, new purchase orders are opened for those components and allocated to the job automatically. 

You have information about the number of components needed and when required to complete finished goods production on time. By subtracting lead time from the due date for each part, the system determines when the order needs to be placed for each component to avoid delays in the MPS. 

Why does your company need a Materials requirement planning system?

Materials requirement planning helps to give visibility into the inventory requirements to meet the demand efficiently. Without a system to track these items, visibility and responsiveness decreases leading to:

1. Overstocking leads to holding or ordering too much inventory, increasing carrying costs and cash stuck in inventory, reducing liquidity and free cash flow for the company. 
2. Understocking would lead to stockouts, lost sales, and panic buys leading to higher raw material costs in the long run. 
3. Disruptions in the production process causing an increase in productions costs and decreased out and capacity utilization. 

Materials Requirement planning helps to:

1. Reduce in-stock level and release cash tied up in inventory, thereby reducing hold and storage costs. 
2. Use demand planning to improve procurement cycles to ensure the availability of resources for production 
3. Minimize disruptions in the production process by providing the right resources at the right time. 

Limitations of an MRP system are

1. Incorrect supplier and manufacturing lead times lead to wrong MRP calculations 
2. It cannot work on unreliable inventory data as it works on garbage in, garbage out systems.
3. Product structure must be assembly oriented
4. The success of an MRP system depends on the accuracy of the input data. 

Manufacturing Resource Planning (MRP II)

Manufacturing resource planning builds on the concept of materials requirement planning by integrating materials and inventory management with all dynamic functions such as finance, sales, and human resource management to give you complete control over the manufacturing process. As a result, MRP systems help companies understand operational capabilities, speed up production, and get the product out the door faster and in a more efficient manner. 

While the initial MRP systems mainly focused on materials planning, MRP II systems have much high functionality and help create more helpful forecasts, What If scenarios (sensitivity analysis) and plan more effectively for contingencies. In addition, MRP II systems can handle larger data sets, more variables, and information to aid in more effective decision-making to control costs and become more productive. 

Manufacturing resource planning can integrate the output from these functions into financial reports, such as the business plan, purchase commitment report, shipping budget, and inventory projections. In addition, this integrated information system speeds up the decision-making process for top management by integrating centralizing and processing information related to the manufacturing process. 

Manufacturing resource planning is especially relevant in industries where there is volatile customer demand, unpredictable customer requirements, and complex product structures. 

Objectives of a Manufacturing resource planning system

• Ensuring availability of raw materials for production at the right time at the right place
• Making sure products are ready and available for delivery to the customer 
• Planning manufacturing activities, delivery schedule, and purchasing-related activities. 

What is a closed-loop MRP system?

A closed-loop MRP system incorporates a feedback loop from the executive functions to ensure that planning is valid. It allows for plans to be checked against capacity and availability of materials to identify whether the planning is viable and realistic. 

Inputs of MRP II

The essential inputs to create an accurate closed-loop MRP system are:

• Materials requirement planning 
• Rough Cut capacity planning 
• Work Progress feedback
• Resource Availability
• Resources allocation schedule 
• Batch and lot-sizing rules 
• Sales order/ Work orders/ Job orders
• Costing details 
• Inventory details 

Outputs of MRP II 

• Purchase orders
• Material plans 
• Production schedule 
• Work orders
• Reports 

Why does your company need a Manufacturing Resource Planning system?

Manufacturing Resource planning takes materials requirement planning to the next level by integrating other essential functions like sales, finance, and human resource management. This provides better visibility into the manufacturing process and helps create an integrated system that increases connectivity between the front office and manufacturing unit. MRP systems help to:

• Assure you that materials and components will be available when needed
• Minimized inventory levels
• Reduced customer lead times
• Optimized inventory management
• Improved overall customer satisfaction

How does MRP help your business?

1. Manage Resources 

MRP systems help to ensure the timely availability of raw materials. They also help manufacturers make informed decisions about labour requirements, equipment planning, and operational asset management

1. Real-Time Inventory and Stock overview

Inventory management systems help companies improve their stock levels and manage inventory effectively. They help determine the minimum and maximum stock level, reorder points, and inventory consumption protocols to prevent understocks, overstocking, stockouts, and wastage. It also helps automate stock and inventory-based transactions like allocation, balance calculations, costing and inventory analysis. 

1. Purchase planning 

Purchase planning requires an automated system to track production steps and identify purchase requirements. Purchase planning also helps improve purchase cycles and maintain healthy cash flow. 

Manual purchase planning often leads to panic buying, increased raw materials cost, and problems in logistics. Our MRP system balances short and long-tail supply chain components to reduce purchase-based risks.  It helps to eliminate expedited charges by calculating production based on the balance of variables. Optimize workflows by supplying the production process with necessary materials. MRP systems help reduce the complexity of the modern supply chain by aiding in vendor relationship management, track landed and associated costs, and vendor POS systems. Purchase planning helps make informed purchasing decisions as well as negotiate favorable contracts with the vendors. 

1. Data Management 

MRP systems can record and process a large volume of data, enabling you to make informed business decisions based on hard facts and data rather than guesswork. 

1. Improve Production planning  

MRP systems aid in detecting bottlenecks in the production line due to scarcity of materials and reroute production according to availability of materials. It helps to keeps the production line running even with material constraints. 

1. Saves Time

MRP systems help automate purchases, inventory management, and production management tasks. In addition, high levels of accuracy of the system minimize human intervention and save time. 

Advantages of an MRP system

Manufacturing planning and control 

• Better control of inventories
• Improved scheduling
• Productive relationships with suppliers to reduce component shortages 

For design/engineering:

• Improved design control
• Better quality and quality control

For finance and Business

• Reduced working capital for inventory 
• Improved cash flow through quicker deliveries
• Accurate inventory records. 
• Improve customer satisfaction 
• Better cost estimation 

Manufacturing performance 

• Reduce production and delivery lead time
• Meet the delivery promise 
• Reduce overtime 
• Reduce manufacturing cost 

Disadvantages

• Reliance on input data accuracy (garbage in, garbage out)
• Costly to implement
• Lacks flexibility when it comes to the production schedule.

MRP I vs. MRP II vs. ERP 

• MPR II is a complete replacement for an MRP I since it contains all the functionality of its predecessor like inventory management and core scheduling, plus more critical functions like forecasting, capacity management, quality, and reporting. 
• MPR I systems are focused on managing orders and purchasing. In contrast, MRP II systems focus on addressing the flow of materials and production capacity while considering the relationship between these two variables. 
• MRP 1 is simply about ensuring materials management in relation to providing specific components in a specific volume at a particular time. MRP II systems handle all aspects of manufacturing, such as ordering, tracking, and ensuring capacity. 
• ERP systems were built on the functionality of MRP II systems and are generally more expansive in terms of functionality and modules. ERP typically includes modules well outside the scope of manufacturing, whereas its predecessors solely focus on manufacturing systems. ERP systems are usually viable for large companies compared to small manufacturers due to their cost and functionality. For small manufacturers where there aren’t a lot of moving parts, ERP systems might be unnecessary, and MRP systems will be a better option. 

	MRP I	MRP II	ERP
Master Production Scheduling
Bill of Materials
Inventory Management
Machine capacity scheduling
Demand Forecasting
Quality Assurance
General Accounting
Core Financials
Customer Relationship management
Supply chain management
Human Resources
Enterprise asset tracking
Marketing Automation
Project Management

Implementing an MRP system

MRP implementation is complex and time-consuming, so many companies fail to implement an MRP system successfully. Implementing an MRP system is all about planning and executing using agile methodologies. Fitting your systems to off-the-rack software takes time and complex integrations.

Step-by-Step implementation guide

1. Ask critical questions. 
• What are my requirements?
• Why do I need an ERP system?
• What is my timeline?
• How much disruption can the production process handle?
• How much time can we spare for training and education?
• What are the key issues we are facing?
• Can an MRP system solve these issues?
• How much will this solution cost?
• Do we have the capacity and resources to implement this solution?

Answering these questions will help you with your current position.  

1. Educate management on the benefits and costs of implementing an MRP system

It is crucial to have all the people on board when implementing an MRP system as it will affect the working of the entire company. C-suite officeholders are concerned with achieving organizational goals on a higher level and hold the decision-making power. The middle-level managers are responsible for the implementation of the system. The shop floor workers are the ones who will be using the system, and hence they need to be educated and consulted about the procedure. Most failures can be attributed to a lack of management involvement and poor attitudes toward the system [20] in which the management is unable to maintain the implementation project at the highest priority

1. Create an MRP project management team 

Creating an MRP project management team requires people from all levels of the company. The person running this project should be the one most closely involved with managing the manufacturing process in its entirety. 

The facilitator of this project should be someone from the C-suite level to provide all the resources needed. A qualified candidate for this would be a COO or a CFO with operations management experience. It is crucial to involve the production managers, engineering heads, and operators to understand the critical production issues since they best understand the manufacturing system. 

1. Determine the best MRP system that fits your needs

An MRP system comes in all shapes and sizes. Therefore, it is essential to understand which is the best solution for your problems. Not all off-the-rack systems will solve the same issues. For example, the best inventory management solution for a small business will differ from a large corporation’s best inventory management solution. Therefore, it is vital to study the system or hire an MRP consultant to help you find the best system that fits your scale and capacity. 

1. Create a list of inputs for the system 

MRP systems follow the garbage in garbage out principle, meaning that the system output will be the same quality as the input. Therefore, it is important to ensure that the MRP system’s inputs are decided and organized in advance. Furthermore, a company working on a legacy system often faces difficulties connecting to an MRP system to pull information from these legacy systems. Therefore, it is essential to decide whether to keep these legacy databases or upgrade to newer ones for information management. Therefore, auditing and optimizing all databases and business processes for an MRP system are crucial for successfully implementing an MRP system. 

Suppose the company cannot maintain a 95%-98% accuracy of inventory and bill-of-material (BOM) records. In that case, it will become impossible to complete the critical elements of MRP II, such as the master production schedule (MPS).

1. Plan and execute test runs

Do not jump into implementation of the new system and turn off your legacy systems. It is essential to run both these systems side by side to see how well the new system can handle the transactions and load. Planning and executing test runs simultaneously helps identify errors and issues in the system without causing disruptions to the current system and lead to the smoother implementation of the system. 

Performing the tasks will help the company understand if the software can solve its problems and is useable by the staff. 

1. Training and Education 

Training the staff to use the system in the testing stage is key to a successful implementation system. Since these people are the ones who are going to be the ones using the software daily, it is crucial to get their feedback on the usability, productivity, and efficiency of a system. Training will also help the company manage this change more efficiently rather than sending out a last-minute memo about a difference in the system. 

1. Create a project plan with strict deadlines and budgets

Like all complex projects, MRP implementation projects need a detailed project plan with accountability, milestones, deadlines, and budgets.  Project planning gives you an idea of timelines and the required resources to implement the system. 

1. Commit time and resources 

The next step is to assign time and resources to the project to ensure that the team has the necessary support. 

1. Modular Implementation 

The quickest and most efficient way to implement an MRP system is in a step-by-step manner. Modular implementation gives time to train the staff and educate them about the system slowly. However, implementing the system in one go will cause massive disruptions and resource drain. 

1. Systems Review 

Once you have implemented the modules, it is essential to test and review the performance of the module against the goals and KPI’s. Reviews help identify if the system can deliver the desired performance levels, user issues, and, if required, further training