Material Requirements Planning for a modern manufacturing environment
Material Requirements Planning (MRP) is software that helps companies estimate the required quantities of raw materials, maintain inventory levels, and ensure manufacturing has all the items needed to make products to satisfy demand. MRP is one of the early inventory management systems and has been widely adopted by manufacturers.
Compared to the world when MRP was introduced, when it was accepted to take several days for an MRP run, doing it quickly is critical. The difference of course is that business processes are more integrated and the Internet has enabled companies to become connected, both within the organization and between business partners. Therefore the way MRP is implemented and applied needs to reflect these changes.
What is Material Requirements Planning (MRP)
MRP calculates the correct inventory needed for production and drives procurement to ensure that items are ordered in time. It helps manufacturers to define what is needed, how much is needed, and when materials are needed. An MRP run consists of three steps:
- taking inventory of the materials and components on hand;
- identifying which additional items are needed, based on the production schedule, sales orders and forecasts;
- creates a list of requirements for the subassemblies, parts, and raw materials needed to produce the final product for the existing production schedule and suggests supply actions for these requirements.
The value of an MRP as part of an integrated ERP system is that it can automatically get updates from sales orders and forecasts. This can provide a faster response to changing demand and avoid production delays and inventory stockouts.
Challenges of MRP
MRP relies on data accuracy. In the digital era, manufacturers rely on accurate data to operate faster and allocate resources more quickly and efficiently.
For MRP to be accurate, it needs effective and active inventory management. Recommendations from MRP for materials or sub-assemblies can only be as good as the inventory levels it uses to make those recommendations.
Efficient communication and collaboration between the different functions of the business that impact MRP include warehouse management, procurement, production control and sales. These must be done effectively and can only happen if these functions are integrated into an ERP system.
Benefits of MRP
The benefits of an MRP include:
- reduced customer lead times and therefore improved customer satisfaction;
- reduced inventory costs;
- effective inventory management and optimization;
- improved manufacturing efficiency;
- improved labor productivity;
- competitive product pricing.
MRP can activate the replenishment of materials and parts when needed, thereby reducing excess inventory and improving cash flow. It can also highlight critical resources so that the supply chain can be adjusted accordingly.
MRP in era of 4IR
With the evolution of Industry 4.0, inventory management and optimization are being transformed. Digitalization, visibility, connectivity and interoperability are key factors.
Manufacturers that adopt Industry 4.0 are digitizing the purchase process. An MRP function within an ERP system can automatically trigger procurement requests to suppliers using real-time information from inventory and sales order systems. With real-time information about the production schedule, MRP can automatically recommend what inventory will be needed and when it is needed.
In an Industry 4.0 environment, all the parties share information in real time. Factors that used to complicate MRPs, such as supplier lead-time and material arrival, can be included in MRP calculations now through the integration of supplier information with the ERP system.
Inventory information used to be reviewed and updated periodically. However, Industry 4.0 is shifting the periodic inventory review to a continuous inventory review, making the information available to MRP always up-to-date. Therefore, the need to keep inventory as a buffer against supplier uncertainties can be reduced.
MRP with ERP
Using MRP-generated insights within an ERP system, better-informed decisions can be made regarding production, purchasing, and inventory, leading to increased operational efficiency and profitability, leading to several benefits.
- Avoiding overstocking or stock outs, optimizing inventory, and reducing carrying costs.
- Making more accurate production and procurement decisions.
- Improving capacity planning and streamlining production processes to meet customer demands efficiently.
- Making informed decisions about order quantities and delivery timelines.
- Using information from MRP and supplier deliveries to monitor and evaluate supplier performance.
- MRP can use information from complex, multi-level Bills of Materials to improve decision-making for production and material requirements.
- Together with information from production scheduling and capacity planning, MRP can help optimize resource usage.
- By synchronizing data from inventory, MRP and ERP can assist in identifying discrepancies between planned and actual material deliveries, enabling a manufacturer to improve its procurement processes.
MRP software as part of an ERP solution is the way that manufacturers should be operating as the impact of Industry 4.0 grows. Real-time, accurate data being collected from systems around the business can improve and speed up decision-making, which allows the organization to be more agile. Manufacturing operations can be more efficient, and the information can be used to reduce waste and costs.
To learn more about the SYSPRO ERP and MRP, click here.
