MRP Inventory Management stands for “Material Requirements Planning”, and is an inventory control system used by production managers to establish more efficient production, manufacturing
What Is Material Requirements Planning?
There are several phases to an MRP plan. One, MRP ensures a flow of products for manufacturing, while it also ensures products are quickly delivered to customers. Two, MRP allows you better organization, so your inventory doesn’t pile up, creating inefficiencies in the workplace. Three, MRP creates a framework where you can plan purchasing, manufacturing and delivering schedules.
The material requirements planning system was developed in the 1960s and perfected in the 1970s after several American manufacturers studied the manufacturing practices of the Toyota Company. By the mid-Seventies, over 150 corporations were using the MRP Method. That was just the start, though, because some 8,000 companies had adopted materials requirement planning just six years later, in 1981. By the end of that decade, MRP II software was a billion dollar industry, comprising (at the time) approximately 1/3rd of the business software.
How Does MRP Work?
The MRP system is a system of “inventory control” through simple planning. When a company orders more materials than it needs, that is wasted capital that could be used for better commercial purposes. Also, shipping unneeded supplies wastes on manpower and shipping costs, while an over-packed plant or warehouse means the workers are working around materials that are in the way, often forcing them to move the excess products and materials several times, instead of once. If orders for work materials are consistently short, this creates lag times in manufacturing, which loses the company money.
Therefore, establishing simple planning procedures, inventory efficiency and skilled used of elementary statistics allows a company to maintain peak production. MRP is about more than just getting orders right, though. MRP inventory management is about selecting the right time to begin production, so deadlines are met and peak production occurs.
What Does MRP Inventory Software Do?
When you start to calculate MRP inventory requirements, you’ll want to know things like the time required to manufacture, the shelf life of the materials you store, the net materials you have in stock, when you need more quantities to meet continuing demand, material production requirements, and a whole of lot of other data: testing standards, storage size, labor standards, quality testing, loss percentages and so on. Since there’s a whole lot of moving parts to keep track of, it’s generally better to have software that does a lot of the work for you.
What Are MRP Inventory Outputs?
After getting an overview of your resources, production challenges and deadlines, you’ll eventually arrive at a couple of output reports: a recommended purchasing schedule and a recommended production schedule. That is, you use material requirements planning to decide when new materials need to be at your plant (and what these materials are), and you then set up a peak production schedule that your company sets as its goal.
Are There Drawbacks to MRP Inventory Management?
The drawback of MRP is you need good data. As the saying goes: “garbage in, garbage out”. If your data isn’t close to 99% accurate, your production efficiency is going to suffer. As with most procedures, human error factors into the MRP.
When you create inventory data, this will produce a “bill of materials” or BOM. A bill of material is a list of all the parts, raw material, assemblies, components and sub-components you need to manufacture products. If the data you put into the MRP inventory software is flawed, then the BOM is going to be flawed, too.
If you’re in business, you already know how invaluable a good manager is, though. MRP Inventory Management helps a good manager become a better manager; it does not turn a bad manager into a good one, or at least not without a transformation through retraining and good understanding of the process.
Material Requirements Planning Inventory Management
That being said, MRP Inventory Management has made thousands of American corporations more efficient, which has helped make the overall economy more efficient. This is a technique that many companies have adopted, and some of your competitors probably use MRP principles. It’s worth your time to read more about MRP inventory management, to study the concept and determine whether it’s right for your business model.