Material planning for the production process is a complex logistical challenge for any facility. How much raw material I require, when I need it, or how many units need to be produced are some of the questions that manufacturers have been answering for decades thanks to the help of the Material Requirements Planning (MRP) system. In this article, we will learn what is MRP and why is it important for Organizations and how does MRP work in supply chain management?
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What Is MRP And Why Is It Important For Organizations?
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We will analyze everything that surrounds the planning of material requirements: that is, how it works, its advantages and why it has been and is so important in the production process.
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What is MRP?
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Material needs planning (MRP) is a production planning, scheduling and inventory control system used to manage production processes. Most MRP systems are software-based, but it is also possible to do MRP manually.
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What are the objectives of MRP system?
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An MRP system aims to find three objectives at the same time:
> Make sure the materials are available for production and that products are available for delivery to customers.
> Maintain the lowest possible level of materials and products in the store
> Plan production activities, delivery programs, and purchasing activities.
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Origin of MRP
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MRP stands for Material Requirements Planning, i.e. material planning required for production. In the United States, in the 1970s, producers concentrated on stock production, and the main problem they faced was the supply of materials and raw materials needed for high production quantities.
In order to solve the problem of raw material supply, the managers of the production organizations began to enter raw material resources, supply route information and estimated sales data into the computer. The computer also determined the amount of raw materials the manufacturer needed and then determined the amount of raw materials to be received by comparing the orders already received with the inventories. This method was later called MRP, i.e. Material Requirement Planning.
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Today, the MRP system is considered the origin of current software aimed at improving industrial processes: MRP II (Manufacturing Resource Planning), ERP (Enterprise Resource Planning), CRM (Customer Relationship Management), SRM (Supplier Relationship Management) or MES (Manufacturing Execution System).
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What is the MRP Concept?
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The MRP organizes manufacturing activities and optimizes stock management based on company needs. With the help of Material Requirements Planning, any manufacturer is closer to achieving its main objective: to have at all times the exact material to produce the products and deliver them to customers in the shortest time and at the lowest possible cost. MRP helps increase productivity and reduce operating costs.
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Why is MRP important?
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The Importance of Material Requirements Planning (MRP) in Manufacturing
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Production Governance context
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In recent years, the economy has developed very strongly in the world in terms of growth rate and brings positive opportunities for businesses to develop breakthroughs. However, along with outstanding development opportunities, integration into the global value chain also brings great challenges for businesses.
Organisations need a production management system, which connects all parts of the production process, standardizes and automates the working process.
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MRP provides production management software solutions
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MRP is the overall production management software system. It fully integrate the divisions in production activities such as production planning, product set, material demand forecast, cost accounting, production order implementation, material warehouse management, finished product warehouse and semi-finished product according to each stage of production.
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MRP helps managers to effectively manage production activities, help streamline operating processes, save costs and improve product and service quality productivity. At the same time, it ensures the accuracy of business data information, accelerate production turnarounds, financial turnarounds, inventory.
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Efficiency when applying MRP to production administration
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Business automation: Your business is automatically operated on the MRP platform. Previously discrete parts now have a close connection with each other and share a uniform flow of information. It helps engage people and create collective strength, fully exploit the resources of the business.
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Cost savings: Improving productivity and helps you manage supply chain details. Calculate the exact production cost. The production process is automated to reduce dependence on the human factor, minimizing most unnecessary waste, thereby significantly improving productivity and minimizing loss and waste.
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Promoting business development: It brings growth results in the long term.
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Superior features: It is programmed with high-end security in many layers. You can use it remotely, through the internet and on any device. At the same time, many languages are integrated. MRP software is popular in many multinational organisations.
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Instant reporting system: Business health is now completely in your hands through accurate and instant statistical indicators such as: Productivity, product production rate, factory capacity, labour, accounting financial data. It helps you forecast production plans based on the actual situation, contributing to appropriate and effective decision making.
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How does MRP system work?
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The MRP system requires input data that is indispensable:
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Production Master Plan: Known as MPS (Master Production Schedule), it shows how many items will be produced and in what time periods.
Bill of materials: specifies which raw materials, quantity, and production processes required to obtain an end product unit.
Inventory posting: Details stock-related information (on-hand inventory, on-demand stock, cancelled orders, timeout, and so on). The purpose is to know which raw material is available for immediate use.
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With all this input data in hand, the material requirements planning system provides the following output data:
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Recommended production master plan: Prepares a calendar with dates related to the production process (start and end), quantities for each step of the routing, and bill of materials (BOM). All this by seeking to meet the demand specified in the production master plan.
Recommended purchasing schedule: Displays the dates on which purchased materials will be received, as well as the dates on which new orders must originate to match the production plan.
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In this way, the MRP system assures us that we will receive the appropriate materials in order to maintain a minimum level of inventory to supply production and, at the same time, efficient planning of the activities of manufacture, purchase and delivery of the material.
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Features and Benefits of using an MRP
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Within a production process, material requirements planning has the function of calculating the required raw material, the required components, and the finished product quantity to be manufactured.
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Material requirements planning provides the following benefits:
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> Total availability of raw material for production.
> Compliance with delivery times.
> Maintenance of a low inventory level, both raw material and finished product.
> Planning of manufacturing activities, delivery orders and purchases.
> Cost reduction.
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The MRP system solves many of the problems that manufacturers encounter on a daily basis, especially in the purchase of raw materials. Improper or insufficient purchase may delay delivery times and, in the case of purchasing more material than necessary, incurs additional storage fee.
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What do you mean by MRP II?
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Material Requirements Planning is a computer-based inventory control and planning system. It is possible to make deliveries on time, to track product and raw material stocks only by using MRP. Over the years, production based on inventory has been changed according to customer expectations. This meant more product variants and raw materials in addition to supply, problems such as economic production, efficient use of capacity and financing management have arisen. When production management became complicated, Material Requirements Planning was insufficient, resulting in MRP 2 or MRP II, i.e. Manufacturing Resources Planning.
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Features of MRP II
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In the MRP2 production method, the manufacturer effectively plans all the resources at its hand and tests every activity of the manufacturer. With MRP2, you can create a business plan based on information in a shared database, and quickly and easily edit documents such as a purchase report, load budget, inventory report, and so on. By integrating extra modules such as financial planning and capacity planning into the MRP system, an MRP2 system is created that can meet many different requirements.
The MRP2 system is targeted at generating solution proposals that will increase the efficiency of your business and speed up the process of responding to customers. In line with this goal, the MRP2 system reduces inventories, plans without disrupting production and increases production efficiency. Thus, there is absolutely no loss in customer volume as warehouse and inventory costs fall.
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What are the benefits of MRP II?
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MRP2 or MRP II helps you get at least one step ahead of your competitors in a highly competitive market as it will provide a noticeable increase in your business’s production quality. It reduces production costs and helps you grow your business by increasing your productivity as it organizes production processes. By enabling you to coordinate business processes, it increases the ease of working of your employees in the working environment and provides more job satisfaction to your employees.
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What is the difference between MRP and MRP II?
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In the early 1980s, the Material Requirements Planning (MRP) system evolved into MRP II (Manufacturing Resource Planning), a more advanced planning system with a broader scope. Broadly speaking, the main differences between the two systems are:
In addition to planning the management of the materials required for production, MRP2 integrates other departments of the company, such as commercial, finance, etc.
While the MRP works on the basis of the production master plan, MRP2 is based on the study of demand and the market.
MRP2 analyzes the company’s behaviour to execute efficient planning, while the MRP does so through the company’s practice and previous experience.
The MRP is a system open upside down whereas MRP2 is closed. This means that MRP2 has the ability to feedback to the reports it generates, being able to make replan more adjusted to reality.
MRP2 is the modernized version of the MRP. In addition to answering the question of how much and when to produce, it also defines what resources, how much, and when they will be needed to carry out such production.
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