Material requirements planning (MRP) is a digital inventory management system designed to improve inventory planning, scheduling, production, and management. It identifies what is needed, how much, and when. Using MRP software systems, manufacturers can schedule production requirements to meet demand, check inventory, allocate resources, identify bottlenecks, and find solutions.
MRP depends on accurate inputs, including sales forecasts and customer orders to understand demand, a bill of materials (BOM), a real-time view of inventory, and a master production schedule. Using these inputs, professionals working with the software understand their inventory requirements and can keep supply and demand in balance. Because these systems automate time-consuming processes such as pulling historical sales, your business can maintain this balance without spending hours with manual data entry.
These are five of the most critical benefits your business should achieve with an integrated MRP system:
- Improved production efficiency: MRP software keeps track of the data that determines needs for labor and supplies utilizing raw data, including bills of lading and shelf life of stored materials. Especially when dealing with complex orders requiring multiple sub-assemblies, MRP helps managers avoid timing miscalculations. Managers know all of the components that go into each sub-assembly and the time needed for each step. This keeps production moving and increases production yield.
- Implementation of just-in-time or just-in-case strategies: Ordering too much inventory ties up available capital for investment and payroll. With the just-in-time strategy, MRP minimizes the opportunity for inefficient ordering practices by working with your production plan and schedule and presenting an accurate analysis of what is needed, quantities, and dates. It uses historical data to calculate upcoming requirements, continually monitors inventory, and orders new components and materials in time.
The just-in-case strategy, on the other hand, promotes keeping safety stock on hand to mitigate the risk of supply chain interruptions or increases in either raw material prices or consumer demand for a product. The recent impacts to the supply chain have forced manufacturers to give this strategy a fresh look. MRP in this case allows for setting minimum and maximum stock levels and lets planners selectively boost their safety stock or shift reorder points. - Reduced purchasing costs: MRP software can automate searches for the most cost-effective options for materials and components, factoring in delivery costs. With an effective MRP solution, you consistently get the best deal and minimize purchasing costs.
- Control over inventory: This is one of MRP’s greatest advantages. It accurately monitors and displays in-stock supplies, what is needed, and supply costs to meet demand. It identifies specific materials and components to purchase and dates by cross-referencing stock levels with order requirements, then automatically places orders. Over time, the MRP system aggregates detailed inventory data to ensure efficiency, including invoices, receipts, and timetables.
- Prevention of production bottlenecks: Production bottlenecks are a leading cause of the inability to meet demand, especially when there are national and international supply chain problems. By monitoring problems in the market, including material scarcity and fluctuating demand, MRP software can anticipate potential breakdowns in time to find solutions, while your competitors are left scrambling to fix bottlenecks after the fact.
When so many uncontrollable external variables impact the supply chain, it’s essential for manufacturers and other businesses to control every aspect they can to bring predictability and efficiency to inventory and production management. MRP is the solution.