One of the biggest challenges in the manufacturing industry is determining the right amount of raw material for the current demand of the product you sell. Underestimating these amounts can lead to late or unfulfilled orders, causing customers to seek the products elsewhere, and overestimating can lead to extra costs due to waste or a need for additional storage.
Material requirements planning (MRP) is a system for calculating the materials and components needed to manufacture a product. By calculating all the components and materials needed, based on real data and accurate forecasts, companies can streamline their supply chain and improve productivity.
An MRP gathers all the data from the production processes and converts it into a detailed schedule, facilitating the timely purchase of raw materials and components and reducing delays, shortages and excess stock. Although MRP was originally intended for the manufacturing and fabrication industries, in actual fact it is applicable to many other industries, including the service industry.
The two main areas an MRP focuses on are customers and resources. If you provide the MRP with the right information, it can really help to reduce waiting times and improve production, which will result in improved customer satisfaction and, in some cases, it can even increase revenue.
How to set up a good MRP
The key steps to setting up a good MRP are:
- Carrying out an accurate inventory.
- Creating Bills of Materials (BOM) for all products (BOMs include all the parts that make up a product, as well as the quantities required of each component and their cost).
- Understanding and predicting purchasing trends and customer demand.
- Calculating reserve stock requirements for each product.
- Establishing accurate lead times from each supplier.
- Determining the cycle times for each product.
Once the MRP has accurate information about customer demands and a company’s resources, it then carries out the following three steps:
- Inventory of available materials and components.
- Identification of additional materials and components required.
- Scheduling of their production or purchase.
An MRP system takes into account the whole production process, from current inventory levels to production capacity and customer demand, based on forecasts, and helps with both planning and decision-making. It focuses on what materials are required and when they need to be sourced, and schedules and tracks each order. It can track several variables including:
- Purchase orders
- Bill of material
- Delivery dates
- Customer demand trends
An MRP system schedules production according to the BOM for each product, and therefore stock is kept at a minimum, and shortages are avoided. However, it is important to bear in mind that an MRP will only be successful if the data it is provided with is accurate. Data that is either not up to date or is incorrect will result in an inaccurate output.
When managed correctly, an MRP system can transform a company’s operating procedures and streamline production, resulting in a smoother workflow for all teams involved and better service to customers. While collecting all the data you need may create an additional workload at the outset, it is clear that the benefits of a well-managed MRP are considerable.
So, there is really only one last question to ask: How would your company benefit from an MRP?