Material requirements planning (MRP) is the method and process of managing and controlling a business’s production or manufacturing activities following customer demand. By coordinating all facets of production, including purchasing materials and components, MRP ensures that the right items are produced at the right time. This system enables efficient scheduling, production planning, and inventory control to streamline manufacturing processes. It optimizes inventory levels, minimizes lead times, and maximizes service levels to boost business efficiency.
Objectives and Advantages of Using MRP Software
The main objectives of using material requirements planning are to ensure that the right materials are available at the right time, and if possible, in the required amounts. This minimizes warehousing costs, stock shortages and can enable reduced running costs through reduced lead times for delivery to manufacturing.
MRP software is used, along with other computer systems such as enterprise resource planning (ERP), human resources management system (HRMS), etc., to support an organization’s decision-making. MRP software can improve collaboration between different departments like production, purchasing, inventory control, etc. By providing access to the same data about products and suppliers that each department holds.
The advantages of using material requirements planning include:
- Reduction in working capital requirements
- Reduction in order lead time
- Reduction in stock levels and inventory costs
- Improved service levels to customers
These benefits will be realized when the following conditions are met:
- The demand for all components is known at least one month before their actual requirement, with some provisions made for realistic future growth.
- The product structure is relatively stable, so there is no need to change most of the bill of materials (BOM) more than once a year.
MRP software will not benefit the organization if these two conditions are not met. Where changes are frequent or large, unexpected changes occur, it may be necessary to temporarily revert to manual control of ordering until greater stability in product demand has been achieved.
It can be challenging to know what inventory management strategies will work best for your company when you start a business. After all, you might not know exactly what type of inventory items you’ll be storing at first or how frequently they will need to be replenished.
However, some basic insights can help guide your decision-making process as you try to optimize inventory management in your business. Here are just three tips that can help give your business an early boost by simplifying this essential component of the supply chain:
3 Tips for Early Success with Inventory Management
Tip 1: Make sure all purchases are correctly recorded to be tracked throughout the supply chain. The last thing you want is a purchase order to be received and ignored. All inventory requires some degree of management and timely recording, so make sure that any shipments get noted for the appropriate employees to handle.
Tip 2: Plan out how much labor will be required annually to deal with all your incoming and outgoing products. After the initial setup is complete, you want to easily manage your inventory without too many bumps along the way. Even if it’s a simple spreadsheet, planning out who will do what and when they’ll do it can go a long way toward helping you achieve this goal.
Tip 3: Don’t spend more than necessary on equipment or software. Inventory control doesn’t require extremely advanced or expensive technologies; after all, you’re just trying to keep track of information that will help you supply your product or product line in a cost-efficient and productive way.