Material requirements planning (MRP) is an inventory and production planning control system. This system is primarily used to calculate the materials required to produce an item and plan its production.
The manufacturing industry heavily depends on the balance between demand and supply. To produce a particular amount of a certain product, there’s a specific amount of materials that must go into the production process to get the desired level of output. It is a push type of inventory control, meaning that firms are using forecasting methods to determine the demand for product.
MRP includes three steps:
- Identifying the materials and components in stock;
- Identifying the additional ones needed; and
- Scheduling their production or purchase.
MRP is designed to meet the following objectives:
- Ensure that materials are always available for production and products are available for delivery;
- Maintain the lowest possible level of inventory; and
- Plan manufacturing activities, delivery schedule and purchasing activities.
Effective inventory management is the main objective of MRP. While it is designed to help keep inventory at the lowest possible level, companies may want to hold more than necessary thereby raising the cost of inventory. Most MRP systems are software-based but it’s possible to conduct MRP by hand as well.
MRP was developed in 1964 by Joseph Orlicky after he studied the lean production methodology of the Toyota production System. According to several sources, the first computerized system was built in that same year by Black and Decker. The next generation of MRP system is known as Manufacturing Resources Planning or MRP II.
MRP is built to provide answers to these basic production questions:
- What is needed?
- How much is needed?
- When is it needed?
Most MRP II systems are modular in nature, comprising of modules such as item master data, bill of materials, production resources data, purchasing management, shop floor control, cost control, and others.
MRP helps firms to minimize inventory levels and associated carrying costs, keep track of material requirements, determine the most economical size for orders, allocate production time and plan for future capacity needs.
However, MRP has a few setbacks also. First its accuracy depends solely on the accuracy of the information it is given. Wrong accounting will result in MRP producing inaccurate information. MRP is one of the most widely used systems in the manufacturing industry.