What Is Closed Loop MRP?

Closed Loop Manufacturing Resource Planning (MRP) is a software system companies use for production planning and inventory control.

The system contains an information feedback feature that enables plans to be continuously checked and adjusted. Closed Loop MRPs synchronize the purchasing or materials procurement plans with the master production schedule. Inputs to the system include a bio of materials, inventory status files, and master production schedules. The system feeds back information about completed manufacture and materials on hand into the MRP system, so that these production plans can be adjusted according to capacity and other requirements. The system is called a closed loop MRP because of its feedback feature, which is also referred to as "closing the loop.”

Key Takeaways

  • Closed loop MRP is a software system used for production planning and inventory control with a feedback feature that enables dynamic adjustments during the processes.
  • It was developed during the 1970s as a successor to earlier open-loop materials requirements planning systems.
  • Enterprise Resource Planning (ERP) systems and MRP II have supplanted closed loop MRP systems.

Understanding Closed Loop MRP

Closed Loop MRP developed during the 1970s as a successor to earlier open-loop materials requirements planning systems, which could receive information but had no mechanism to receive feedback. Because of that improvement, systems can manage master production schedules (MPS), guide capacity planning and shop floor activities, and generate scheduling changes. Closed Loop MRP systems are useful in the manufacture of a wide range of production types including highly customized products as well as high volume batch products. Closed Loop MRP’s benefits include reductions in inventory (and associated costs), rush orders, and lead-times, greater responsiveness to customer demand, shorter delivery times, and better capacity utilization.

Because they have a feedback feature, closed loop systems also help the manufacturer incorporate the return process into their manufacturing loop. In this context, returns refers to products that are sent back by individual customers and retail channels as well as returns made from the quality process back to the manufacturing floor.

Manufacturers who use MRP systems either design their own, or purchase software they can customize to their production process. When designing or transitioning to one, system complexity can be a stumbling block and implementation times, including training personnel and testing systems, can stretch from months to years depending on the company’s size.

Continued Evolution of MRP Systems

Closed loop MRP systems are considered to be second-generation systems, and have since been supplanted by manufacturing resource planning (MRP II) and enterprise resource planning (ERP) systems. While MRP systems were primarily concerned with materials used in the manufacturing process, MRP II and ERP systems integrated additional aspects including finance and accounting, sale and marketing, and human resources. Building on the functionality contained in closed-loop MRP systems, these newer systems benefitted from advances in computing technology to deploy supply and demand forecasting simulations and what-if scenarios and pair them with just in time (JIT) inventory management systems. The major suppliers of ERP software systems include Oracle, SAP, Microsoft, Sage and, Netsuite with the latter two specializing in systems designed to meet the needs of medium-sized companies.