Inventory Management 101 – 4 Reasons Why
Integrated Material Requirements Planning Is Essential


MRP – A Brief Background

While the roots of Material Requirements Planning (MRP) can be traced all the way back to the 1940s and 1950s, it was in the 1970s, with the emergence of increasingly powerful mainframe and mini computers that MRP-focused systems began to appear. These early MRP systems integrated bill of materials and inventory data with master production scheduling functionality to help calculate materials requirements for finished products.

By the beginning of the 1980s, a further development occurred that expanded the concept of Material Requirements Planning to enable manufacturers to plan more effectively for changes to sales forecasts and to better align their production requirements with changes in demand. In addition, this new approach included documentation of other resources that a manufacturing plant requires to successfully build a finished product such as labor and machinery. This more sophisticated model was re-titled Manufacturing Resource Planning or MRP II.

According to Gordon Minty in his book Production Planning and Controlling (1998), “The areas of marketing, finance and personnel were affected by the improvement in customer delivery commitments, cash flow projections and personnel management projections.” He also claimed that MRP II “has not replaced MRP, nor is it an improved version of it. Rather, it represents an effort to expand the scope of production resource planning and to involve other functional areas of the firm in the planning process,” to include marketing, finance, engineering, purchasing and human resources.

MRP – An Overview

Material Requirements Planning or MRP can be defined as “a production planning, scheduling and inventory control system used to manage manufacturing processes.” A few of the most essential functions of an MRP system include:

  • Inventory control and procurement
  • Production forecasting
  • Materials costing
  • Procurement scheduling
  • Process scheduling applications

MRP integrates data from the bill of materials (BOM), the master production schedule and the inventory records file to calculate purchasing and create shipping schedules for the parts or components required to build a product.

Specifically, MRP utilizes the data from the BOM to determine exact quantities for each component required to produce a predetermined number of finished products. The system then subtracts the current inventory level of a component from the quantity needed for production to determine precise ordering requirements.

With input from both internal forecasts and external orders, the master production schedule is able to delineate the forecasted production activities of the plant, including the quantities of each finished product and its associated timeframe for completion.

The inventory records file shows current inventory on hand and/or on order for a particular component, which is then subtracted from the material requirements. It can also be used to monitor item status by time period.

Interestingly enough, in essence, MRP operates in reverse – starting with a production plan for finished goods and then working backwards to develop requirements for components and raw materials. The MRP process commences with a schedule to complete a finished product, which is then converted into a schedule of requirements for the subassemblies, component parts and raw materials needed to complete the job on time.

A fully automated and integrated MRP system can also generate information that is useful to staff across many areas of a manufacturing enterprise, including production planners, production managers, plant foremen, customer service representatives, purchasing managers and inventory managers, just to name a few.


4 Essential Reasons for Integrated Material Requirements Planning

1. Improves Planning and Resource Allocation

Fully automated and integrated MRP systems provide a clear view into actual inventory costs, as well as allocation of labor and equipment. In addition, it provides actual “time costs” for each step of the planning and production process.

2. Ensures Material Availability at All Times

An MRP system can help manufacturing companies prevent shortages in materials that could compromise their ability to produce products to meet customer demand. The ability to measure on-hand inventory against customer demand ensures never getting caught short, even if demand for a particular item suddenly increases.

3. Keeps Waste and Costs to a Minimum

MRP reduces waste by maintaining optimal inventory levels, which means keeping the minimum quantities of materials and products in stock for more efficient manufacturing. The process is aided by MRP’s ability to break down inventory requirements into planning periods, which helps complete production according to a predetermined schedule while minimizing carrying costs associated with inventory.

4. Enables Improved Planning Capabilities Across Factory Functions

An MRP system provides all the necessary tools to conduct expert planning throughout the production process. The ability to effectively plan for material requirements in advance enables manufacturers to schedule all parts of production with optimal efficiency and minimal waste.

If you are looking for automated inventory management solutions, we are holding a free webinar on “Inventory Management 101 – How to Balance Inventory Supply With Demand” on 9th May @ 10.30 am Pacific. Register for Free. We would be delighted to have you attend. There will be a Q & A session where you can ask your questions to the experts directly.

Allan Lessing
Seasoned professional in enterprise business solutions – aligning for success – strategic, tactical and execution with ‘hands on experience’. Making it happen – from business process optimization through implementation to post implementation excellence.

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