Manufacturers use MRP to meet production deadlines, improve order accuracy, and achieve financial goals. Learn what it is and how it's evolving for modern manufacturing.
April 13, 2023
Material Requirements Planning (MRP) is a planning process based on the availability and flow of all materials involved in the entire manufacturing process.
Using computerized production and inventory management, MRP focuses on what materials are needed, in what quantities, and when they need to be sourced during the production process.
The goal of MRP is minimum inventory levels and carry costs.
We surveyed 1,350 enterprise decision-makers in the make, move, and sell economy on their ERP needs. Compare their perspectives with small to midsize businesses and discover how the right ERP partnership can boost organizations of all sizes.
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In understanding MRP, it helps to start with the basics. The main features or inputs of an MRP system are the master production schedule, bill of materials (BOM), and inventory records file.
The master production schedule details all materials needed for production, in what quantities, and at what time. It’s based on the BOM, which contains details on all the items that go into creating the end product.
The BOM includes a detailed inventory of all needed items to create the end product and can include: part number, description, quantity per assembly, next higher assembly, lead times, and quantity per end item.
The inventory records file shows the status of all raw materials and all completed products in inventory or already ordered.
Based on those three inputs, the MRP system determines exactly what’s needed in raw materials, components and subassemblies, for each production cycle. This information is compiled in primary and secondary reports as follows:
The most significant advantage of MRP is that it enables your company to eliminate waste, and minimize inventory and carrying costs by ordering and using resources only as needed.
By tracking exact materials requirements, you can identify Economic Order Quantities, or the specific volume and frequency of product orders. MRP also enables your company to schedule production time across multiple products while planning for upcoming production needs.
In addition to generating production and process advantages, you can use and share the insights generated by MRP systems with a variety of people at your manufacturing company. This extends from the plant foreman who creates production schedules to customer service representatives who need to share delivery dates with customers.
The most significant limitation of MRP is data integrity.
Like any software solution, the quality of the output is directly linked to the quality of the input. Outdated data, input errors, and inconsistent record keeping can all limit the potential benefits of an MRP system. The results may include missing parts, missed delivery dates, and order delays.
Varying lead times presents another challenge. When individual components have different lead times, it can be challenging to manage master schedules that assume no variation exists. However, this can be addressed by checking the capacity of critical resources. Even so, it may still result in a “rough” estimate of what can be expected and when.
It takes time, money and patience to adopt new systems, and MRP is no exception.
The success of MRP is linked to the people using it as well as their enthusiasm for new processes that demand attention to detail. Training, education around end results, and incentives may all prove helpful in securing successful adoption of MRP.
MRP and ERP (Enterprise Resource Planning) are both systems used in manufacturing to help with production planning and inventory management. However, there are some key differences between the two systems.
We surveyed 1,350 enterprise decision-makers in the make, move, and sell economy on their ERP needs. Compare their perspectives with small to midsize businesses and discover how the right ERP partnership can boost organizations of all sizes.
Read the Report
MRP is a planning tool that helps manufacturers calculate the materials needed for production based on the production schedule and inventory levels. It considers factors like lead times, order quantities, and production rates to determine the materials needed to meet production goals. MRP is typically used by smaller manufacturers with fewer products and a relatively simple production process.
On the other hand, ERP is a comprehensive business management system that integrates all aspects of a company's operations, including manufacturing, finance, accounting, human resources, and more. ERP systems provide a single database that can be used by all departments, allowing for better collaboration and visibility across the entire organization. In the manufacturing context, an ERP system would include MRP functionality and other modules such as quality control, shop floor control, and maintenance management.
In summary, MRP is a subset of ERP that focuses specifically on materials planning and inventory management, while ERP is a broader system that encompasses all aspects of a company's operations.
As far back as 1975, MRP was getting attention from corporations as its benefits were touted by the American Production/Inventory Control Society (APICS). (Going back even further, the concept of Economic Order Quantity was introduced in 1913 by Ford W. Harris.)
MRP continued to evolve over the years, especially with the introduction of modern computers.
As software solutions became part of production and enterprise processes, MRP also transitioned from the manual work of identifying component parts and lead times into a more streamlined, automated solution performed by software. Manufacturing trends and new technologies continue to impact the progression of MRP.
In 1983, MRP II entered the scene and went beyond the basic functions of materials and production planning. It did so by adding other functional areas into the master schedule, such as marketing, finance, engineering and human resources.
In 2011, Demand-Driven Material Requirements Planning (DDMRP) developed as a methodology that emphasizes customer demand over forecasting. This extension of MRP generates supply according to inventory on hand, stock ordered but not received and qualified sales order demand.
The future of MRP will likely involve five major shifts. Let's take a look at each of them more in-depth below.
The Internet of Things (IoT) refers to devices that can connect and share data.
Average, everyday consumers are already familiar with a wide range of IoT and "smart" devices in the form of:
With the proliferation of this technology, IoT will drive rapid change and innovation across how your industry does business, especially if you work in the retail, distribution, or manufacturing sector.
Your software will become more integrated with IoT devices to offer your business valuable insights into day-to-day operations. Your company will be able to better track the performance of machinery and fleets, identify and mitigate any process bottlenecks, and boost overall efficiencies.
An example of IoT technology already at work in MRP software includes real-time sensors installed on your mechanical equipment to monitor and adjust production. This also serves to prevent energy outages and predict when your machines may need to be replaced (although usage of IoT devices should extend the life of your machinery).
Artificial Intelligence (AI) Machine Learning (ML) technologies, which allow machines to learn and continually improve upon those learnings, are instrumental in analyzing massive data sets and identifying complex patterns often undetectable by humans.
Add machine learning to AI-driven MRP software, and your production efficiencies can get even better yet. MRP systems can learn from past production runs (mistakes) and use this data to make better predictions and suggestions about future events, like increased demand, energy outages, or downtimes for machine maintenance. One clear-cut example: if there's a particular hour of day when your business has more incoming demand (a higher volume of orders), MRP software can automatically increase production to meet any temporary spikes.
Manufacturers increasingly adopt cloud-based MRP software, using applications hosted on servers and accessed over the Internet.
Cloud-based MRP software offers a number of benefits over traditional software including scalability, cost-effectiveness, flexibility, and ease of updates and integrations with other cloud-based applications. As such, using cloud-based MRP software allows for businesses to streamline their operations and improve their bottom line.
Historically, the manufacturing sector has lagged behind in adopting cloud-based software technology due to security concerns, dependence on legacy systems, and general lack of industry-specific solutions. However, manufacturers are increasingly making the shift to MRP cloud-based software due to the ease of scalability and major cost savings. With these increased adoption rates, more industry-specific solutions are becoming available.
Mobile applications have already been a major game-changer for manufacturers, and their usage will continue to grow.
These applications provide your business with continuous, real-time production data. This is invaluable for supervisors and process managers who are continually monitoring and adjusting performance output. Mobile applications easily collect floor data, facilitating remote management.
Additionally, mobile applications help your teams communicate and collaborate more efficiently. All stakeholders can stay informed and on top of production processes, averting any crisis before it becomes a crisis.
Last but not least, MRP software will allow for even more impressive data analytics and visualization.
Digitized MRP systems allow for a production manager to assign quotas, update records, and analyze individual production levels within just a couple of clicks. This means better, more timely data. It also offers a clear audit trail for all implicated persons, products, and machines.
Beyond the data inputs, MRP software has increasingly impressive visualization tools which enable manufacturers to more clearly identify areas of inefficiency, including bottleneck predictors. These data visualizations can reduce lead times and waste.
Simply put, improved data analytics and visualization will help you gain a clear, easy picture of what's happening in production and the ability to quickly spot what has gone–or what could go–awry.
After nearly 50 years in practice, MRP continues to evolve alongside available technology, offering a range of benefits to manufacturing companies. Those that commit to the process, invest in training, and apply the insights gained will be positioned to experience the next era of MRP as well as its advantages.
Bill of Materials (BOM): precise list of all the raw materials needed to create a product, including quantities and instructions.
Bullwhip effect: when errors in the supply chain create false supply and demand. In a bullwhip effect, forecasting accuracy decreases as it moves further away from the final customer and up the supply chain.
Demand-Driven Material Requirements Planning (DDMRP): DDMRP emphasizes demand over forecasting. It generates supply according to inventory on hand, stock ordered but not received, and qualified sales order demand.
Economic Order Quantity: a specific volume and frequency of product orders that minimizes ordering and holding costs.
Enterprise Resource Planning (ERP) : an approach to organizing data in real time and streamlining business processes across an organization.
Inventory Control: one of the primary goals of MRP is inventory control, enabling companies to manage and maintain inventory at lower costs.
Just-in-time (JIT): in manufacturing, a JIT system means purchasing materials and components exactly when needed during production. As the name implies, just in time for the next phase of production. Its goal is zero inventory and maximum ROI.
Lot sizing: determining the quantity of units to order for use in manufacturing.
Master Production Schedule (MPS): the schedule of finished products that determines the materials requirements planning (MRP) process. In the MPS, quantities match the product needed to meet forecasted demand.
MRP (Material Requirements Planning): a computerized planning and decision tool that focuses on what materials are needed, in what quantities, and when they need to be sourced during the production process.
MRP II (Manufacturing Resource Planning): MRP II builds on the process of material requirements planning (MRP) by adding functionality around capacity scheduling, demand forecasting, quality assurance and general accounting.
Supply Chain Management : managing the flow of goods and services from raw manufacturing to when it reaches the end consumer.
We surveyed 1,350 enterprise decision-makers in the make, move, and sell economy on their ERP needs. Compare their perspectives with small to midsize businesses and discover how the right ERP partnership can boost organizations of all sizes.
