What is Materials Requirements Planning (MRP)
Materials requirements planning (MRP) is one of the first software-based integrated information systems designed to improve productivity for businesses. A materials requirements planning information system is a sales forecast-based system used to schedule raw material deliveries and quantities, given assumptions of machine and labor units required to fulfill a sales forecast.
BREAKING DOWN Materials Requirements Planning (MRP)
Materials requirements planning was the earliest of the integrated information systems dealing with improvements in productivity for businesses with the use of computers and software technology to provide meaningful data to managers. With the advent of such systems, production efficiency could be greatly improved. As the analysis of data and the technology to capture it became more sophisticated, more comprehensive systems were developed to integrate MRP with other aspects of the manufacturing process.
Materials Requirements Planning in Manufacturing
Bill of materials (BOM) is a key input for MRP. BOM specifies the relationship between the end product (independent demand) and the components (dependent demand). Independent demand is demand originating outside the plant or production system, while dependent demand is demand for components.
Companies need to strategically manage the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand – all at the lowest possible cost. MRP helps companies maintain low inventory levels by helping them plan manufacturing, purchasing and delivering activities. Making a bad decision in any of these areas will make the company lose money. By maintaining appropriate levels of inventory, manufacturing organizations are empowered to better align their production to rising and falling demand.
MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.
Types of Data Considered by Materials Requirements Planning
The data that must be considered in an MRP scheme include:
- The final product being created. This is sometimes called independent demand, or Level "0" on BOM.
- How much is required at a time.
- When the quantities are required to meet demand.
- Shelf life of stored materials.
- Inventory status records: Records of net materials available for use already in stock (on hand) and materials on order from suppliers.
- Bills of materials: Details of the materials, components and sub-assemblies required to make each product.
- Planning data: This includes all the restraints and directions to produce such items as: routing, labor and machine standards, quality and testing standards, pull/work cell and push commands, lot sizing techniques (i.e. fixed lot size, lot-for-lot, economic order quantity), scrap percentages, and other inputs.