Everything you need to know about the MRP process

The vast majority of manufacturers will create a product of multiple components, resources, or raw materials. 

A materials requirement planning (MRP) process is used to ensure that the materials are available when needed and in the right quantities. MRP is an important aspect of the production planning process — it helps to plan for both short-term and long-term needs in terms of purchasing and stocking inventory. 

Without it, manufacturers may run out of materials or have to pay for expensive rush orders. The process of MRP can help companies save time and money and stay on top of any shifts in the supply chain, market demand, or production. 

Below, we will examine the objectives of an optimized MRP process, the inputs that are included, an example of one in action, and the different ways in which MRP can be implemented.

What is the MRP process?

The MRP process can be defined as a system that helps manufacturers plan for their inventory needs by analyzing the data from sales orders, forecasted demand, and current stock levels. 

The goal of MRP is to maximize efficiency while minimizing cost. MRP helps companies identify what materials are needed so that the necessary resources can be acquired promptly. This process also allows for an analysis of the supply chain so that potential problems or delays can be avoided before they happen. 

Objectives of MRP processing

Especially useful in a manufacturing situation that involves a large number of components or materials, MRP is designed to achieve the following objectives:

• Maintain proper stock levels of components and materials
• Minimize inventory carrying costs 
• Establish a timeline for production and delivery

Accurately completing these objectives provides the following benefits:

• Increased efficiency and cost savings — By properly forecasting demand and planning for inventory, manufacturers can save money by avoiding overstocking or understocking materials
• Improved customer service — Satisfaction levels will never be in danger of dropping due to stock shortages
• Reduced lead times — With the necessary materials on hand, production can begin immediately, and products can be delivered more quickly
• More effective scheduling — MRP helps to schedule activities in a logical sequence, which can make the entire production process more efficient

With these objectives in mind, let’s look at the inputs needed to begin MRP.

The three inputs of an MRP process

An effective MRP process requires three inputs: 

1. Master production schedule (MPS)
2. Bill of materials (BOM)
3. Inventory status records

Let’s take a closer look at each of these.

Master production schedule (MPS)

A master production schedule is an overall plan of what products are to be made, how many need to be produced, and when they need to be completed. This provides information on what materials need to be purchased to meet the production timeline.

Creating a master production schedule

The MPS is typically created by the production manager and follows these steps:

1. Analyze customer demand — This includes forecasting future demand as well as any changes in the current market
2. Identify inventory levels — Look at your current stock and determine what needs to be replenished or adjusted to meet the MPS timeline
3. Estimate lead times — How long does it take for each material to arrive?
4. Create a plan for production — Decide on the timeline, resources, and equipment needed for each product

Bill of materials (BOM)

A bill of materials is a list of components needed to produce a particular item. It is important to note that this does not include labor or overhead costs. The BOM provides information on what items need to be purchased, how many are required, and when they should be ordered.

Critically, the BOM should be kept up to date and contain accurate information. This ensures that the process of MRP will run smoothly and efficiently while reducing incorrect orders or shortages of materials.

Example of a BOM

An example of a BOM for a laptop computer might be:

• Display screen
• Motherboard 
• Hard drive 
• Memory 
• Graphics card 
• Processor
• Optical drive 
• Power supply 
• Keyboard and mouse 
• Battery pack 

While some of these things may be manufactured on-site, others may need to be purchased from outside vendors before the laptop production can begin. 

Inventory status records

Inventory status records list all the materials a company has in stock and their current levels. 

Given the rather static nature of the other two inputs, inventory status records will need to be updated regularly. Inventory levels can change rapidly due to sales, returns, or new orders — these must be considered when creating the MRP plan.

MRP example

Let’s look at a simple example of an MRP process in action. 

Welcome to Ralph’s Recliners, our fictional chair company. We make recliners from high-quality leather and wood.

Let’s say Ralph’s Recliners has received an order for 100 chairs, and the MPS requires that these chairs be completed in two weeks. The BOM for this chair indicates that each requires 20 square feet of leather, 10 board feet of lumber, eight bolts, and four screws.

That means in total:

• 2,000 square feet of leather 
• 1,000 board feet of lumber 
• 800 bolts 
• 400 screws

When the production manager examines the inventory status record, he sees that the company currently has 700 square feet of leather, 800 board feet of lumber, 300 bolts, and 300 screws that are not committed to any other products. 

This means that to fulfill the order for 100 chairs, Ralph’s Recliners will need to purchase an additional:

• 1,300 square feet of leather
• 200 board feet of lumber
• 500 bolts
• 100 screws

The lead time on leather is three days, and lumber arrives in two. Bolts and screws can be ordered from a local vendor and will arrive the same day.

Since the company can only produce 10 chairs daily and the maximum amount of leather used daily will be 200 square feet, production can start immediately. The new shipment will arrive in time to keep things on schedule as long as the order is placed immediately.

History of MRP systems

MRP systems is not a new concept. It has continued to evolve and become more sophisticated. Over time, it has gone through three main stages of development:

• Material Requirements Planning (MRP I)
• Manufacturing Resource Planning (MRP II)
• Enterprise Resource Planning (ERP)

Let’s take a closer look at how they were first introduced and evolved in the modern era.

Material Requirements Planning (MRP I)

Before computers were widely available, inventory and resource management were done manually. This involved using pen and paper to keep track of orders, inventory levels, and forecasts. 

In the early 1950s, General Electric and Rolls Royce developed a computerized version of this process allowing them to keep track of inventory levels, production schedules, and resource requirements in a more automated way.

MRP I was born a decade later when Joseph Orlicky, an engineer at IBM, developed the system after studying the different inventory control systems used in factories. The aim was to reduce costs and improve efficiency by automating processes and managing resources.

Manufacturing Resource Planning (MRP II)

In the 1980s, the basic structure of MRP was improved by adding features such as capacity planning, general accounting, and production scheduling. This was the introduction of MRP II, which allowed manufacturers to plan for long-term goals and optimize their processes. 

As the world moved to a global supply chain, MRP II was needed to deal with the complexities of sourcing materials from around the world.

Enterprise resource planning (ERP)

An ERP system may be the best option for more complex manufacturing operations. This type of MRP process is a comprehensive software package that integrates all aspects of a successful manufacturing business, from design and development to order processing and inventory management. 

The biggest benefit of ERP is its scalability. It can grow with your business as new processes are added or existing ones are changed. With visibility into every aspect of the production cycle, you can make more informed decisions about how to run your business efficiently. 

By integrating with accounting software, ERP also helps manage financials in real time. The downside is that ERP systems can be expensive and require a significant amount of setup.

Setting up the perfect MRP process for your business

Regardless of which MRP system you choose, some key elements should be included in any process: 

• Accurate product data 
• Detailed bill of materials 
• An inventory management system for tracking stock levels
• Lead time calculations for production planning 
• The ability to generate purchase orders 

By having these components in place, you can rest assured that your MRP process is optimized and running smoothly.

Luckily, there are resources like Katana that not only offer comprehensive software but also provide support and guidance to help you get the most out of your MRP processing. Get started by booking a demo with Katana today.