Material Requirements Planning (MRP) and Effective Use

Material Requirements Planning (MRP) was initially created in 1964 as a response to the Toyota Manufacturing Program. Black & Decker was the first organization to use it and by 1975, more than 700 organizations were using it. Essentially, MRP is a system which brings together various aspects of supply and demand to give the viewer (usually the production planner) the bigger picture for making planning related decisions like –

1. What needs to be purchased?
2. When the raw materials need to arrive?
3. What changes need to be made in the production runs to effectively utilize capacity?

So, as a concept, Material Requirements planning has been around for a while but with the introduction of computers and ERP (Enterprise Resource Planning), it has grown into a field of its own. Although, it may now be identified by several different names, the essential concepts of MRP remain the same.

MRP applications whether standalone or part of an ERP implementation make life easy, but some key elements are should be considered for effective use –

1. Historical data: To make an accurate plan, the MRP application needs to be fed historical data so that the production plan can take this into consideration. Any seasonal peaks or troughs can be taken into account to make an accurate plan.
2. Production Capacity: A manufacturing facility’s ability to produce completed units is an important input to the MRP application. The production capacity, current planned units, any breakdowns, under-maintenance equipment, etc. would be taken into account while planning the schedule.
3. Sales Forecasts: Sales forecasts are an important source of demand for the quarter- /half-yearly plan to be created by your MRP system. Depending on the lifecycle of products and the length of forecasts, sales forecasts can improve the accuracy of the MRP.
4. Current inventory: inventory and storage costs make up a significant part of an organization’s operational costs. Tracking the current inventory as part of the MRP gives the input needed to plan out the capacity, having minimal impact on operational and storage costs.
5. Material Lead Times: The supplier material lead times affect production planning and control. Just in time, material delivery strategies have been perfected over the past few decades and work well with all MRP applications & ERPs.

From the time when MRP was created, it has come a long way. Nowadays, with advanced concepts like Collaborative Planning & Forecasting (CPFR), Advanced Supply Chain Planning (ASCP), Just in Time (JIT) etc., MRP systems can do a lot more than they used to.

An organization which uses its MRP system effectively can definitely get that much needed competitive edge. More to come on this topic later..

References

1. Joseph Orlickly, Materials Requirement Planning, McGraw-Hill 1975