What is Material Requirements Planning (MRP)?
Materials requirements planning (MRP) system is a software-based solution that works backwards from customer orders to determine when materials will be needed for production and then initiates their purchase to have delivery coincide with upcoming manufacturing runs and scheduled product delivery dates. It plans production, schedules raw material purchase and delivery, and manages completed inventory levels.
Since customers want and expect products to be delivered in a timely manner, manufacturers work to ensure they have enough inventory on hand to meet that demand, without going overboard.
A Balancing Act
An MRP system is designed to do three main things:
- Make sure raw materials and component parts are always on-hand for production, to keep the production schedule running smoothly
- Support just-in-time (JIT) production by enabling the lowest levels of materials and inventory to be available and still keep production on track
- Plan production schedules to meet customer demand for products in a timely manner.
By managing materials and inventory levels, MRP systems help prevent revenue loss, which can happen when:
- Insufficient raw materials on-hand prevents scheduled production and customer delivery deadlines to be missed, causing contracts to be cancelled
- Overbuying raw materials causes cash to be tied up and unavailable for use in other areas of the company, such as hiring, marketing, or shipping
- Excess inventory risks product obsolescence and ties up cash that could be used elsewhere in the business
By connecting raw material delivery to production schedules and customer purchases, MRP systems keep production running smoothly.
The MRP concept was developed by Joseph Orlicky, PhD, while at J.I. Case to compete with Toyota’s new lean production system. Early in its development, MRP was a basic production control system that required arithmetic, not computing power. Once converted to computer, it became faster and more accurate. Black & Decker was the first company to test the technology, back in 1964.
The next generation of MRP, referred to as MRP II, incorporates data from outside manufacturing, including human resources, finance, accounting, and marketing, to create a more holistic system.