Material Requirements Planning is perhaps the first step to effective and efficient production line-up. This is the key step that assesses the amount of material that would be required and how to go about procuring it. It is only through this planning that the overall inventory control system is established and the scheduling of production happens.
More often then not we see supply chain issues hampering production in a major way. But with a strong material requirements planning in place, that’s a problem that can be easily taken care of. More often than not, you would see that the MRP is software generated. Needless to mention it makes the procedure very simple and easy to follow but sometimes it can also be done by hand.
There are many steps to creating a successful business model. As an entrepreneur, the challenges for you are unending, but it is very important to undertake the right procedure. One such step in that direction is taking forward the right planning module for every step.
From procuring materials to production to ultimate distribution, proper planning is extremely necessary in every step of a manufacturing process to gain the right mix of success in the enterprise.
What Is Material Requirements Planning?
Therefore the question is how you would define material requirements planning? In very simple terms, it is a software based inventory management method that is designed to keep the production managers ahead of the curve. This enables a production manager to keep orders synced with exact demand. In most cases, you would notice that these items that form part of the dependent demand group are actually finished goods. These could be anything from
- Core materials used
Perhaps the following example can help clarify this fact better. Supposing you are drawing up the material requirements plan for a bicycle company, then, in that case, your dependent demand inventory includes stuff like aluminum sheets, seats, tires and even bike chains.
If you trace back the history of MRP, one of the first material requirements planning system was designed as early as the 1940s & 1950s. These plans used information from bills of select finished products and fed the information on mainframe computers. Based on these, the purchase of the components was envisaged.
It was only in the 1960s that the first proper MRP, the way we know it today was envisaged and created. It was created by Joseph Orlicky in 1964 as part of the Toyota Manufacturing Program. Dick Alaban, the then project leader in Black & Decker, was the first to use in 1964. In ten year, by 1975, more than 700 companies have begun to start using this service. The total number of companies using the MRO rose to over 8000 by 1981.
The scope and the ambit of the MRP kept getting broader. Soon enough it also started including feedback loops that helped production managers make these loops more dynamic. They could use the feedback information to change or update the production requirements as and when required.
Many times, the MRP also began to include details like finance, marketing, accounting, human resources and the like. This is what evolved a related concept as well. That is the idea of ERP or enterprise resources planning. This one linked different functional zones in a workplace together to bring about a constructive business plan.
The core idea of the Material Requirements Plan or MRP works backwards. The schedule for the finished good is drawn up, and then it works into schedules for components required to make the finished good.
Why Do We Need a Material Requirements Plan?
The material requirements plan, therefore, strives to achieve three main questions of the production game plan. They are
- What’s needed
- When it is needed
- How much do you need
Therefore in very simple terms, it breaks down the core requirements into various sub-parts as per the provision of the production line-up. This ensures that a production can be undertaken smoothly and delivered promptly. This when tweaked appropriately depending on the production profile, helps production managers to allocate time and supplies properly.
Broadly speaking there are some major benefits of charting a material requirements plan.
- They ensure that the material the material for production is available without delay
- They ensure that the finished products are delivered to customers in the right time
- Ensure there is never inventory oversupply
- Plan the entire marketing and promotional elements that help in final disbursal of the product
Therefore the MRP goes about fulfilling these above-mentioned objectives in a clear and precise manner.
The Key Input For Material Requirements Planning
Some of the key inputs that go on to create the ultimate material requirements plan are
- Material procurement bill
- Master schedule planning
- Comprehensive inventory records
Each product normally goes on to have its own bill of production and the bill of materials are normally kept in hierarchical manner for better panning out of the system.
The fact, however, remains that the implementation of the material requirements planning can be both expensive and time-consuming. This is what makes this type of planning rather an expensive affair for small businesses and they often avoid getting one done. Given the fact they are always trying to manage their finances, a material plan could seem like a luxury rather in the initial days.
Another aspect is the fact that this type of material requirements plan is deeply dependent on the accuracy of information that is fed in. If a company does not maintain proper records, correct numbers and appropriate inventory records to fully take advantage of the material requirements plan. Otherwise, it is impossible to realize the true potential of this elaborate planning.
Another key factor that goes to work towards enhancing the accuracy of the MRP is the fact that they need to be tweaked as per the demands of the industry. We must realize that these plans are essentially software generated. Therefore as a production manager and entrepreneur, it is important for you to keep a hawk’s eye on the actual running of the business.