Material Requirements Planning (MRP)

Material Requirements Planning (MRP)

Material Requirements Planning (MRP) is a software-based system that helps manufacturers determine what materials are needed, in what quantities, and when to meet production schedules while minimizing inventory. It translates a production plan into specific requirements for subassemblies, parts, and raw materials, enabling more efficient purchasing and production planning.

Key takeaways

• MRP converts a master production plan into detailed material and component requirements.
• Core inputs are the Master Production Schedule (MPS), Inventory Status File (ISF), and Bill of Materials (BOM).
• Benefits include lower inventory levels, shorter lead times, and improved production efficiency; drawbacks include dependence on accurate data and potentially high implementation cost.
• MRP evolved into MRP II and later into broader Enterprise Resource Planning (ERP) systems.

How MRP works

MRP runs calculations to ensure materials are available when needed for production while avoiding excess stock. The typical process:
* Take demand from the Master Production Schedule (what finished goods are needed and when).
* Explode the Bill of Materials (BOM) to list all required components and raw materials for each finished item.
* Check the Inventory Status File (ISF) to see what’s on hand and on order.
* Calculate net requirements, considering lead times, lot-sizing rules, safety stock, and scheduled receipts.
* Generate planned orders, purchase orders, and work orders, and schedule production and deliveries.
* Monitor execution and update the system when receipts, scrap, or schedule changes occur.

Core inputs:
* Master Production Schedule (MPS): planned finished goods by date.
* Inventory Status File (ISF): current stock, allocations, and open orders.
* Bill of Materials (BOM): hierarchical list of components for each finished product.
* Planning data: lead times, lot sizes, routing/labor standards, and quality requirements.

Primary outputs:
* Suggested purchase orders and production orders.
* Planned order releases and timing.
* Exception reports (e.g., shortages, late orders).
* Recommendations for rescheduling or expediting.

Integrating MRP into manufacturing

MRP is typically integrated with manufacturing processes via:
* Accurate BOM maintenance to reflect product structure and revisions.
* Real-time inventory updates to keep the ISF current.
* Scheduling that aligns labor and machine capacity with material availability.
* Alerts and exception management to handle delays or shortages and suggest contingencies (expedite, reschedule, or substitute parts).

MRP supports just-in-time (JIT) philosophies by scheduling deliveries and production close to when materials are needed, reducing inventory carrying costs.

Evolution: MRP → MRP II → ERP

• Early MRP (1940s–1950s to 1970s) used mainframes to convert BOM and demand into production and purchasing plans.
• MRP II expanded planning to include capacity, finance, engineering, and HR—linking production planning with broader manufacturing resources.
• ERP (1990s onward) further integrated business functions (finance, sales, CRM, HR) into a unified system, often incorporating MRP/MRP II modules.

Pros and cons

Pros
* Ensures materials/components are available for production.
* Reduces inventory levels and carrying costs.
* Shortens customer lead times and improves on-time delivery.
* Increases manufacturing and labor efficiency.

Cons
* Heavily dependent on accurate and timely data (BOM, inventory, demand).
* Can be costly and time-consuming to implement.
* May lack flexibility for frequent, unpredictable changes in demand.
* Poorly maintained systems can still produce excess inventory.
* Standalone MRP is less feature-rich than full ERP systems.

MRP vs. ERP

• MRP focuses on materials planning and scheduling for production.
• ERP is a broader enterprise system that includes MRP functionality plus finance, sales, CRM, HR, and analytics.
• MRP can be deployed as a standalone module or as part of an ERP; ERP adds integration across departments, centralized data, and additional business functions.

Implementation challenges and best practices

Challenges
* Inaccurate BOMs, inventory records, or lead-time data undermine outputs.
* Resistance to process change from shop floor or purchasing.
* Integration complexity with suppliers, shop-floor systems, and other business software.
* Upfront costs, training needs, and ongoing data maintenance.

Best practices
* Clean and maintain accurate BOMs and inventory records.
* Standardize planning parameters (lead times, lot sizes, safety stock).
* Start with a pilot area and scale incrementally.
* Integrate MRP with procurement, shop-floor data collection, and ERP where possible.
* Establish procedures for exception management and continuous improvement.
* Train users and assign ownership for data quality and planning decisions.

Conclusion

MRP is a foundational planning tool for manufacturers aiming to match production with demand while controlling inventory. Its effectiveness depends on disciplined data maintenance, realistic planning parameters, and integration with broader business processes. When implemented and maintained correctly, MRP reduces costs, improves output reliability, and supports leaner manufacturing operations.