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Material requirements planning

What Is Material Requirements Planning?

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes within the broader field of supply chain management and operations. The primary objective of an MRP system is to ensure that materials are available for production, that products are available for delivery to customers, and that the lowest possible levels of raw materials and finished products are maintained in stock. This systematic approach allows businesses to optimize their production planning by aligning material requirements with projected demand forecasting and production schedules, ultimately leading to greater operational efficiency.

History and Origin

The concept of Material Requirements Planning emerged from the need for more effective management of complex manufacturing processes, moving beyond simpler methods like reorder point (ROP) and economic order quantity (EOQ) that often led to excessive inventories or shortages. While early forms of computerized material tracking existed in the 1940s and 1950s, the developed version of MRP gained prominence in the 1960s. Joseph Orlicky is widely credited with developing the first formal MRP system in 1964, which was implemented at Black & Decker with the aid of an IBM 1401 computer.11

Orlicky's work was influenced by the principles of the Toyota Production System, particularly its "just-in-time" philosophy, aiming to reduce waste and inefficiency.10 The 1970s saw the widespread adoption of MRP systems as their potential for cost savings and efficiency became evident. During this period, APICS (The Association for Operations Management, now the Association for Supply Chain Management, ASCM) played a significant role in standardizing MRP practices, contributing to its broader application across various industries.8, 9 This standardization helped to evolve MRP into a foundational concept in modern manufacturing, eventually giving rise to more comprehensive systems like manufacturing resource planning (MRP II) and subsequently Enterprise Resource Planning (ERP).7

Key Takeaways

  • Material requirements planning (MRP) is a system for calculating the necessary raw materials and components needed to manufacture a product.
  • It helps companies determine what materials are needed, how much is needed, and when they are needed to meet production schedules.
  • MRP systems optimize inventory levels, reduce waste, and improve production efficiency by synchronizing material availability with demand.
  • The system takes into account factors such as the bill of materials (BOM), inventory levels, and the master production schedule (MPS).
  • While primarily a planning tool, MRP also generates purchase orders and production orders to execute the plan.

Interpreting Material Requirements Planning

Material Requirements Planning is interpreted as a dynamic blueprint for manufacturing operations. It provides a detailed, time-phased plan that ensures all necessary components are available precisely when needed for assembly or further processing. By converting the master production schedule (MPS) into specific requirements for sub-assemblies, components, and raw materials, MRP allows managers to anticipate future needs rather than reacting to shortages.

The system's output reveals not just what to order, but when orders need to be placed, considering supplier lead time and internal processing times. This foresight helps in managing cash flow more effectively by reducing excess inventory and minimizing storage costs. Furthermore, it highlights potential bottlenecks or resource constraints, enabling proactive adjustments to production plans or supplier engagements.

Hypothetical Example

Consider a company that manufactures custom bicycles. Each bicycle requires a frame, two wheels, handlebars, a seat, and a gear set. The company receives an order for 100 bicycles to be delivered in Week 8.

An MRP system would break down this order:

  1. Finished Product Demand: 100 bicycles by Week 8.
  2. Bill of Materials (BOM) for one bicycle:
    • 1 Frame
    • 2 Wheels (each wheel requires 1 rim, 1 hub, 32 spokes)
    • 1 Handlebar
    • 1 Seat
    • 1 Gear Set
  3. Inventory Check:
    • Current Stock: 20 Frames, 100 Rims, 80 Hubs, 2000 Spokes, 50 Handlebars, 30 Seats, 25 Gear Sets.
  4. Lead Times:
    • Frames: 4 weeks
    • Wheels (assembly): 1 week (after components arrive)
    • Rims, Hubs, Spokes: 3 weeks
    • Handlebars, Seats, Gear Sets: 2 weeks

MRP Calculation Steps:

  • Bicycles: Need 100 by Week 8. Current stock = 0 (finished goods). Production needed = 100.
  • Frames: Need 100. Have 20. Need to order 80. With a 4-week lead time, order by Week 4 to receive by Week 8.
  • Wheels: Need 200 (100 bicycles * 2 wheels/bicycle). Assume wheels are assembled internally.
    • Rims: Need 200. Have 100. Need to order 100. With a 3-week lead time, order by Week 5 to receive by Week 8.
    • Hubs: Need 200. Have 80. Need to order 120. With a 3-week lead time, order by Week 5 to receive by Week 8.
    • Spokes: Need 6400 (200 wheels * 32 spokes/wheel). Have 2000. Need to order 4400. With a 3-week lead time, order by Week 5 to receive by Week 8.
    • Wheel assembly (1 week) would be scheduled for Week 7.
  • Handlebars: Need 100. Have 50. Need to order 50. With a 2-week lead time, order by Week 6 to receive by Week 8.
  • Seats: Need 100. Have 30. Need to order 70. With a 2-week lead time, order by Week 6 to receive by Week 8.
  • Gear Sets: Need 100. Have 25. Need to order 75. With a 2-week lead time, order by Week 6 to receive by Week 8.

The MRP system would generate a series of purchase orders for the required components and internal production orders for wheel assembly and final bicycle assembly, all timed to ensure that all parts are available to meet the Week 8 delivery deadline for the finished goods.

Practical Applications

Material Requirements Planning systems are fundamental to a wide range of manufacturing and supply chain operations, from discrete manufacturing to process industries. They are extensively used to streamline the procurement of components, manage complex production processes, and optimize inventory levels.

In real-world settings, MRP applications facilitate precise resource allocation by calculating the exact quantities of materials needed, thereby reducing waste and minimizing carrying costs.6 For instance, an automotive manufacturer uses MRP to ensure that thousands of individual parts, from engine components to interior fittings, arrive at the assembly line just as they are required, supporting a Just-in-Time (JIT) manufacturing environment. This minimizes the need for large warehouses and frees up working capital.

MRP also plays a critical role in responding to changes in market demand or supply disruptions. By providing real-time visibility into inventory and production schedules, it allows businesses to adjust their purchasing and manufacturing plans rapidly.5 This adaptability is crucial for maintaining competitiveness and ensuring timely order fulfillment in dynamic global markets.

Limitations and Criticisms

Despite its widespread adoption and benefits, Material Requirements Planning is not without its limitations. One of the primary criticisms is its heavy reliance on the accuracy and integrity of input data. If the data integrity regarding inventory levels, bills of material, lead times, or demand forecasts is compromised, the MRP system can produce erroneous plans, leading to stockouts or overstocking.4 Maintaining accurate data requires significant effort and disciplined processes.

Another challenge is the initial investment and time required for MRP system implementation. This can include substantial costs for software licensing, hardware, employee training, and consulting fees.3 The implementation process itself can also cause temporary disruptions to production operations.

Furthermore, traditional MRP systems can sometimes be rigid. They may struggle with highly variable demand or unexpected disruptions if not properly configured and continuously monitored.2 Capacity constraints, such as limited machine availability or labor, are also not directly managed by basic MRP, potentially leading to unrealistic production schedules if not integrated with a broader system like MRP II or ERP. Integrating MRP with other existing enterprise systems can also be complex, requiring careful planning to ensure seamless data flow and avoid inconsistencies.1

Material Requirements Planning vs. Manufacturing Resource Planning (MRP II)

Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRP II) are closely related but distinct systems in the evolution of production and financial planning. MRP, as discussed, focuses primarily on material and component requirements, calculating what is needed, how much is needed, and when it is needed to meet a master production schedule. It is essentially an inventory and scheduling tool for dependent demand items.

Manufacturing resource planning (MRP II) evolved from MRP in the 1980s, adding broader capabilities to the core material planning functions. MRP II integrates all aspects of the manufacturing process, extending beyond just materials to include other critical resources such as machines, labor, and financial resources. It incorporates features like rough-cut capacity planning, detailed capacity planning, and sales and operations planning (S&OP). While MRP answers the question of "what materials do we need?", MRP II addresses "what resources do we need to execute the production plan?" MRP II provides a more comprehensive, closed-loop system for managing the entire manufacturing enterprise, laying the groundwork for the later development of Enterprise Resource Planning (ERP) systems.

FAQs

What is the main goal of Material Requirements Planning?

The main goal of Material Requirements Planning is to ensure that all the necessary materials and components are available at the right time and in the right quantities to meet production demands and customer orders, while keeping inventory costs as low as possible.

How does MRP help businesses save money?

MRP helps businesses save money by preventing both stockouts (which can cause production delays and lost sales) and overstocking (which ties up capital and incurs storage costs). By precisely calculating material needs, it enables more efficient purchasing and reduces waste.

Is Material Requirements Planning still relevant today?

Yes, Material Requirements Planning remains highly relevant. While often integrated as a module within larger Enterprise Resource Planning (ERP) systems, its core logic is still essential for managing inventory and production in manufacturing companies. Modern MRP systems leverage advanced technology for greater accuracy and real-time insights.

What information does an MRP system need to operate?

An MRP system typically requires three main types of information: the master production schedule (MPS), which outlines what products are to be made and when; the bill of materials (BOM), which details all components needed for each product; and current inventory records for all items.

How does MRP differ from Just-in-Time (JIT) manufacturing?

MRP is a planning system that determines what to order and when based on a production schedule. Just-in-Time (JIT) is a philosophy and strategy that aims to produce or deliver goods only when they are needed, minimizing inventory. While distinct, MRP systems are often used to facilitate JIT by providing precise timing and quantity information, allowing materials to arrive just before they are used in the production process.