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What is Material Requirement Planning (MRP)?

Since a long time ago, a lot of companies have been trying to develop a special method to increase their productivity. The first one to pioneer such a method is Toyota with their just in time inventory. Several years later, IBM successfully developed the material requirement planning (MRP) which their engineer, Joseph Orlicky, initiates.

Even so, these two methods have fundamental differences. Some people consider MRP a “push” system because inventory needs are determined in advance, then the company runs the production based on the predetermined inventory.

Some people consider MRP a “push” system because inventory needs are determined in advance. Besides that, the company runs the production based on the predetermined inventory. In this article, we will discuss material requirement planning  and its benefits for your business.

What is material requirement planning (MRP)?

MRP is a system for calculating the materials and components needed to manufacture a product. Usually, manufacturing company ultilize this system. Orlicky design MRP to answer three questions, what is needed, how much it’s needed, and when it’s needed?

Generally, an MRP system requires computer software to automates the production process, such as manufacturing software. The company utilizes the system to create an accurate estimation of how much material is company need during the production and schedule the shipment.

How it is work

The system uses information from the Bill of Materials (a comprehensive list of materials used, subassemblies, and other components needed to manufacture a product, along with their quantities). MRP also uses inventory data, and master production schedule to calculate the material needed and when those materials required during the production.

This method is highly effective for any kind of manufacturing companies, such as discreet manufacturing or process manufacturing. This is why a lot of manufacturing companies around the world implement this method.

Initially, material requirement planning took advantage of mainframe computers to extrapolate information from a bill of materials for a certain product into a production and purchasing plan. A few years later, MRP integrates feedback feature which enables production managers to input changes or updates straight into the system when needed.

As time goes by, the material requirement planning continues to develop. Today, the company can integrate with marketing, finance, and human resources to formulate a production plan. Because of its complexity, a lot of people call the new version of MRP as MRP II.

Related article: ERP Functions for Enterprise Management Efficiency

From MRP to ERP

Because of its capability to effectively increase the productivity of manufacturing companies, a lot of people start to develop MRP II. Since of MRP II so other industries besides manufacturing can use it. This is the reason why the ERP system starts to gain its name among companies across the world.

If MRP is popular among manufacturing companies, a lot of other industries begin to implement ERP in their company. Industries such as retails, constructions, banking, and professional service are a few among many others. Even so, MRP remains an integral part of manufacturing companies until this day.

Conclusion

Material requirement planning is an effective method to increase the productivity of manufacturing companies. Since its first development back in 1964, the system successfully integrated into many business aspects and make it easier for them to create a production plan.

To this day, material requirement planning proves that it’s still an important part of a manufacturing company. Its development to ERP system makes this method suitable not only to manufacturing companies but also to other industries.

Related article: What is SaaS ERP (Enterprise Resource Planning)?

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