Material Requirements Planning (MRP)

The success of any manufacturing company is determined by its ability to manage inventory to meet demand. MRP is a planning and control tool that uses bill of material (BOM) data, inventory records and the master production schedule to calculate the amount of dependent demand items such as raw materials, components and subassemblies needed to produce a finished good according to its demand-driven production schedule.

MRP answers the following three essential manufacturing questions:

- What do I need?

- How much do I need?

- When do I need it?

The objective of MRP is to keep as little on-hand inventory as possible to minimize carrying costs and waste, but enough to satisfy current and future demand and fulfill planned orders. While the MRP calculation can be carried out by hand, it is most commonly performed electronically, either by a homegrown, hybrid or dedicated MRP software solution.

By calculating the optimal balance between inventory and demand, MRP gives companies a competitive advantage by allowing them to increase productivity and efficiency, thus reducing overall manufacturing costs. But the effectiveness of MRP is also affected by several limitations:

Data integrity – Since MRP relies on input data, the accuracy of that data is critical to the accuracy of MRP output data. If there are errors in the inventory records, BOM data or master production schedule, the MRP calculations cannot be relied upon.

Sales variance –MRP is highly useful for planning future inventory and production needs based on demand forecasts, but is vulnerable to variance in actual sales.

Blind spots – MRP fails to account for constraints in staffing, machine or supplier capacity. It also does not consider the physical location of facilities or inventory stock, nor the potential benefits (e.g., price discounts) of ordering a material in bulk versus for each individual job.