Material Resource Planning (MRP) is a systematic approach to planning, scheduling and executing of manufacturing processes. In MRP, dependent demand items are components of finished product, such as parts, machinery, subassemblies and raw materials. The quantity of these components relies on the production level of the finished product.
How does MRP work?
Planning elicits requirements for raw materials and raw components. The first step of MRP starts with implementing a schedule of raw materials and subassemblies. The final product needs to be completed within the predetermined schedule formulated during the planning stage of the manufacturing process. MRP addresses these questions during the production stage:
MRP simplifies the process of production by breaking down inventory requirements and criteria into stages of planning. The goal of this manufacturing management approach is to complete production activities in a timely manner with minimal cost.
In manufacturing, unnecessary material inventory levels are avoided by companies through extensive planning and careful design. Also, elements such as capacity needs are controlled and production time is allocated accordingly. However, material planning delivers a reverse result if not implemented carefully, which is waste of time and resources.
Risks of not having proper MRP system
The biggest risk of not using any system for MRP would be not being able to meet contract obligations to supply product to the client at the agreed time. Customer is not interested to know the reason behind why the product has not arrived as promised which has been ordered long time ago. Most probably such a client will change to a new supplier entirely or will ask for substantial discounts in the future shipment. In both cases, this will have an impact on manufacturer’s business. Another big risk is the waste of money by being tied up in unused material stock. These funds are literally dead, until client has sold and paid for the finished product.
The risk of inaccurate information
When inaccurate information is being entered into the system, then MRP is done wrongly. The efficiency of an effective production components planning relies on the quality of information that is typed into the system. Key management personnel should ensure that all data placed on the system are both accurate and updated. Companies should always maintain a backup of the current list of bill of materials and inventory information in order to fix the errors without big loss to the manufacturing process.
Why is MRP Critical to the Success of Manufacturing Companies?
A well-designed and properly implemented MRP is crucial to increase profit, size and scope of any businesses. Shortages in inventory and disorganized scheduling can result in delays that may even be the cause of production halts and cancelled orders from clients. If you want to avoid problems and make sure your shop floor runs smoothly and flawlessly, first the risk of wrong information has to be eliminated. When this is done a business owner can reap the following benefits:
Competitive pressures can be easily dealt with a good material planning in place. Amidst reduced margins, leaner operations and less production, the best way to ensure that the planning is done correctly is to look into the MRP software that are being offered on the market right now and pick the one that suits all your needs. While there are a considerable amount of companies relying on past data and their experience to determine quantity of materials to purchase, more and more organizations are switching to MRP solutions.