Understanding MRP (Material Requirement Planning) and Purpose of Application– To ensure the smooth production, the timely receipt of raw materials and other supporting materials by the production is a very important factor. Without careful planning and strict control, the risk of timeliness in supplying and receiving materials (raw materials and supporting materials) will be higher which results in production being unable to produce the number of product units needed by the customer / consumer.
Therefore, we need a technique or system that functions to plan the schedule of material requirements needed. The technique or system is usually called the Material Requirement Plan or abbreviated as MRP.
According to Stevenson (2005), Material Requirement Planning (MRP) is a computer-based information system that translates the Master Production Schedule for finished goods into several stages of sub-assy, component and raw material requirements. Thus we can say that the MRP is a production plan for a number of finished products using a grace period so that it can be determined when and how much is ordered for each component of a product to be made.
Please to also read Definition of Material Management and its Scope.
The Purpose of Implementing MRP (Material Requirement Planning)
The following are some of the objectives of implementing MRP (Material Requirement Planning) in a manufacturing company.
- Reducing the amount of inventory: MRP can determine the number of components / raw materials needed and when those components / raw materials are needed for a Master Production Schedule. Thus, the manufacturing company concerned only needs to buy the material (components / raw materials) when needed so that it can avoid the excess supply of material.
- Reducing production and delivery lead times to customers: MRP identifies the amount and time of material needed so that the purchasing party can take appropriate action to meet the specified deadline. Thus MRP can help to avoid production delays caused by the material.
- Realistic delivery commitments to customers: By using MRP, Production Personnel can provide fast information on possible delivery times.
- Improving Operational Efficiency: With the MRP, each work unit can be well-coordinated so as to improve the operational efficiency of each work unit in companies that implement the MRP.
MRP system (Material Requirement Plan)
A system generally has INPUT and OUTPUT elements. Inputs from the MRP system are the Master Production Schedule (MPS), Inventory Status File and Bill of Materials (BOM) or Material List while the Output is the Order Release Requirement, the Order Scheduling (Schedule of Material Orders) and Planned Orders (Planned Orders in the future).
Please to also read what is Supply Chain Management (SCM).
The following below are 3 important INPUTs on Material Requirement Planning (MRP).
Master Production Schedule (MPS): A Master Production Schedule is a plan that consists of time stages and the number of finished products that will be produced by a manufacturing company.
This MPS is generally based on customer orders and estimated orders (Forecast) made by the company before the start of the MRP system. As mentioned earlier, MRP is the translation of MPS (Master Production Schedule) for Materials.
Inventory Status File: Inventory Status File is related to the results of inventory calculations and net requirements for each planning period. Each inventory must provide clear and up-to-date status information regarding the current amount of inventory, the schedule for receiving materials, or the purchase plan to be submitted to the supplier. This information must also include the Lot Size, Lead Time, Safety Stock Level, and also the amount of material that is damaged / defective.
Bill of Materials (BOM): BOM is a list that contains the amount of each raw material, supporting material, and sub-assy (semi-product) needed to make a finished product.