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Material Requirement Planning (MRP) and Its Functions

Material Requirement Planning (MRP) and Its Functions

Many companies have developed methods to increase business productivity. Prior to MRP Toyota had made just in time inventory. Not long after, Joseph Orlicky also succeeded in developing Material Requirement Planning or MRP.

Even though they appear close together, the two have quite basic differences. It can be said that MRP is a “push system” because the need for inventory is determined at the outset. After that the production process will run according to the amount of inventory that has been determined in the MRP system.

What is Material Requirements Planning (MRP)?

MRP is a software or application that is useful for knowing the amount of raw materials needed for the production of goods. Since it was first developed until now, this system is often used by the manufacturing industry.

This system will provide solutions regarding the number of items needed, what items are needed, and when they are needed. Just like ERP, this system also requires manufacturing software so that it can run the production process automatically.

Companies that use the MRP system will not experience a shortage of goods or too many goods in stock. Because the system can estimate how to process raw materials into products. It can even make delivery schedules automatically.

Function of Material Requirement Planning (MRP)

MRP is closely related to inventory. This system can place an order correctly, determine the amount of goods, and the right time for production or delivery.

In addition to inventory, MRP is also closely related to scheduling priorities. Because the system will order goods exactly when they are needed and prevent two dates so they don't miss.

Finally, the MRP system is also closely related to the plant capacity or plan capacity. So that this system can make a more complete and precise workload plan.

How Does Material Requirements Planning (MRP) Works

The workings of this application are very simple. This MRP application will retrieve information from the bill of materials in which there is a complete list of all raw materials.

This system will also utilize the data contained in the inventory and the main production schedule to determine the amount of raw materials. From this data, the MRP system will also estimate when the raw materials are needed during the production process.

The workings of the MRP system are very effective for the discrete manufacturing industry and process manufacturing. In fact, many manufacturing industries in the world have used this system.

When first created, to manage the information extracted from the bill of materials, the MRP system only used mainframe computers. But after this system underwent a change into a purchasing plan and a production plan.

Over time, the MRP system has a feedback feature that will make it easier for production managers to update directly into the system if it is really needed.

This system continues to evolve according to industry needs and until now it can be integrated with the marketing, accounting, and human resources departments for making production plans. The MRP that is already in this stage is referred to as the MRP II system.

The MRP system is still a very effective method for increasing the productivity of the manufacturing industry. Since 1964, this system has continued to develop until now it can be integrated with various other aspects of the company. 

Therefore, this system will facilitate the industry in making production plans. In its development, MRP was transformed into an ERP system which is currently very suitable for use by various industrial sectors in various parts of the world.

What is the Function of Material Requirements Planning?

This system can place orders correctly, determine the amount of goods, and the right time to make production or delivery.

The Purpose of Implementing MRP in Companies

Manufacturing companies that use the MRP system must have a goal in their application, and the following are the objectives:

Reducing the Amount of Inventory

When viewed from the main objective, MRP is a system for determining the number of components or raw materials needed and when components/raw materials are required according to the Master Production Schedule.

Well, with this system, the manufacturing company concerned only needs to buy the material (components/raw materials) when needed (estimate).

Thus, this method can be used to avoid excess material supplies.

Reducing Lead Time

The next goal of MRP is to help identify the amount and time of material needed so that the purchasing party can take appropriate action, especially to meet the specified time limit.

Therefore, the use of the MRP system can also help to avoid production delays which are generally caused by material shortages.

Realistic Delivery Commitment to Customers

Companies that use the MRP system, then they can quickly inform the production side to the delivery department so that they can estimate the possible delivery time.

Improving Operational Efficiency

The next goal of MRP is to be able to help each work unit to always be well coordinated. That way, companies can improve the efficiency of their operational activities compared to companies that do not implement the MRP system.

MRP (Material Requirement Plan) System 

Like any other system, of course, there are INPUT and OUTPUT elements. The Input and Output elements in the MRP system are as follows:

Input:

  • Master Production Schedule (MPS)
  • Master Production Schedule
  • Inventory Status File
  • Bill of Materials (BOM) or Material List

Output:

  • Order Release Requirements (Requirements for materials to be ordered)
  • Order Scheduling (Schedule of ordering materials)
  • Planned Orders (planned messages in the future)

To make it easier to understand, take a peek at the chart of the 3 important INPUTs in the Material Requirement Planning (MRP).

Material Requirement Planning (MRP) and Its Functions
credit:https://www.mas-software.com/

MRP System Procedure

Actually, the process of analyzing MRP can be done in two ways, namely manually or with the help of an application program (software).

Here are four basic steps of the MRP system procedure that you can apply:

Netting Process

First, there is the netting process, which is a calculation process to determine the number of net requirements.

Where the value is the difference between gross needs and the state of inventory (which is in stock and being ordered or just waiting for the schedule of receipt).

Lotting

Process The second process is lotting or lot sizing, which is a technique to determine the optimal order quantity for each item of material or material.

Here, the lotting process plays an important role in planning material requirements, especially for companies that have limited facilities or space.

Furthermore, lot size is associated with the number of inventory costs, such as the cost of procurement of goods (set up), storage costs, capital costs, and the price of the goods themselves.

Offsetting Process

The third is the offsetting process, which is useful for determining the time for ordering activities so that efforts to meet the net demand level can be achieved immediately.

Explosion

Process The last process is an explosion which is a calculation of the need for each item, where the calculation assesses the lower level of the available product structure.

This calculation is also based on the order plan that has previously been prepared in the offsetting process.

In fact, since 1964, the MRP system has been successfully integrated into various aspects of the company with the main aim of making it easier for companies to prepare production plans.

So, until now the MRP system remains an important part of manufacturing companies.

As is known, in the preparation of this MRP the company can use the manual method and use manufacturing software.

Meanwhile, so that MRP preparation activities are easier and faster, you should use software instead of manuals.

There are many options that can be used, such as the modern accounting software MASERP, because this software can also be customized according to your company's needs and has more complete features than other MRP systems.

The Difference between ERP and MRP

MRP (Material Requirements Planning) is a technique or system that functions to plan the schedule needed for material requirements. This technique is known as Material Requirements Planning.

In other words, MRP is a production plan for several products using a lead time. So that later we can determine when and how many products to order for each component of a product to be made. 

As described above, most of the MRP systems already use the system or software (software). But some industrial companies use MRP manually. 

The MRP system has 4 objectives, namely as follows:
  • Reduce the amount of inventory.
  • Reducing production and delivery lead times to customers.
  • Realistic delivery commitment to customers.
  • Improve operations to be more efficient.
ERP (Enterprise Resource Planning) is a modular application that functions to integrate the main functional areas originating from the company's industrial business processes into an integrated system.

ERP was created by Gartner in 1990 which describes the evolution of MRP and MRP II which both evolved from manufacturing to other parts of the company.

ERP systems can run almost all business processes in the company's industry. Because this system is supported by sophisticated technology such as databases and hardware. Therefore, currently many industrial companies are using ERP systems.

The ERP system has been integrated with various fields in a company ranging from production, QC, QC, HRD, to marketing. This is of course very different because MRP is usually only for product planning purposes. 

There are several advantages that you will get when using an ERP system, which are as follows:
  • Integration between business and data accuracy will be better.
  • Can do better planning and management of information systems.
  • Productivity and efficiency of business processes can be increased.
  • Procedures in conducting business processes will be following internationally established standards.
The difference between ERP and MRP can at least be reviewed from several aspects below:

1. The Industry

MRP can also be part of the ERP, but it also depends on the industry. MRP is usually used for manufacturing, while ERP can be used for various industrial companies. ERP can be used by manufacturing, retail, and even services.

That way the environment owned by the ERP system is more complex than MRP. 

2. Business Processes

ERP can run almost all business processes in the company's industry from manufacturing, financial planning, order management, distribution, purchasing, and so on. Meanwhile, MRP only functions to carry out the material planning process.

3. Technology

Supporting technology for the ERP system is very complete, for example network, database, and hardware. These three are often considered the most important components to support this system. While Material Planning or MRP refers to software only.

4. Project Scope

Because the ERP system is supported by complete technology, the scope for carrying out projects is also wider than MRP. Because complete technology can run almost all business processes effectively and efficiently.

That's a little review of the differences between ERP and MRP. They both look more the same, but are different. From the above description of course we can know that ERP has more benefits than MRP.

As the conclusion, Material requirements planning is essentially an effective method to boost the productivity of manufacturing companies.

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