How material requirements planning works and benefits manufacturing
Manufacturers and other businesses have traditionally run into issues with exactly how many materials they need to have on hand. This has never been clearer than during the last two years when we’ve seen a wide variety of industries temporarily closing their doors to wait for much-needed supplies.
Fortunately, there is software that can eliminate much of the waiting (while also preventing you from ending up with way too much stock).
Material requirements planning (MRP) is a simple solution that can help your business keep its inventory under control while still meeting customer demand.
Let’s talk about it.
What is material requirements planning?
Before we get too far into the weeds, let’s begin by defining material requirements planning. MRP is a type of software that allows you to plan and manage the procurement, production, and distribution of materials in an organization.
An MRP system is often used in manufacturing. These businesses use it to create powerful material requirements planning initiatives. The platform works backward from a finished good’s (FIGO’s) production plan to detail the requirements for raw material and components.
For example, contractors build cockpit displays that go into helicopters and other types of aircraft. They have an MRP system that works off a bill of material (BOM) that lists everything down to the minutiae for building the FIGO display.
Everything from the BOM’s lower-level of items, like government-approved glue, wires, and hardware lamps and chassis needed to build the higher-level assemblies, are listed in the BOM to build one cockpit display.
Material planners then use the MRP system to issue the material and assemblies required to build it in a manufacturing cell. Afterward, assemblers and testers complete its build.
And besides estimating quantities of raw materials, management can use the MRP to schedule their deliveries. Once delivered, the cockpit display is installed into the helicopters by technicians.
A warehouse management system (WMS) often comes into play in various stages of the process described here.
What is the difference between MRP and WMS systems?
Often, MRP systems are confused with a WMS system. They are both inventory management systems, but they have very different functions and features.
Remember the material that is listed in the BOM? It is populated with information about the items received into the facility through a WMS or similar inventory management system.
A WMS system is also used to track inventory levels, lot numbers, and where the material is located in the warehouse.
The data collected by a WMS can be integrated into an MRP system to generate replenishment orders and alerts when the stock levels drop to a certain point.
This information exchange goes both ways. Material handlers, planners, and expeditors do lookups and print BOM parts lists in MRP systems to pull parts. The MRP report shows them if there are available parts in stock to pull from in a stockroom, aisle, Remstar device, etc.
The available stock shown in the MRP system comes from data inputted to the WMS after operatives received and stored the parts in that system (either manually or by barcode or smartphone app).
Integration often makes electronic exchange possible between all the dependent departments in the facility and sometimes with external personnel like suppliers or clients.
MRP systems are not just for manufacturers, either. They can be used in any business that has a product with a BOM and raw materials that need to be tracked.
SkuVault Core operates in a similar way to the WMS that is described here but in a more powerful and comprehensive capacity.
Servicing ecommerce customers across many verticals, SkuVault’s inventory management platform offers features you’d expect to see in warehouses and fulfillment centers like:
- Pick, packing and shipping
- Integrations with dozens of ecommerce software
- Quality control features
- Automatic reorder alerts
The benefits of an MRP system
The magic behind an MRP system is that it addresses the issues that manufacturers face daily. For instance, it considers your current needs and can schedule production requirements, make a plan for delivering raw materials, and control your overall inventory.
Going even further, an MRP can use input data points to determine when you need additional supplies. And—it can even place an order for them. In other words, you won’t need to spend hours at a time going through your inventory and upcoming orders. Instead, you can allow your MRP to take care of this cumbersome process for you.
How does material requirements planning work?
An MRP system can decide when you’ll need more materials, along with when you’ll need fewer materials on your shelves. Instead of basing this purely on historical data, an MRP goes even deeper than that.
When you use an MRP, it can look at your upcoming production schedule and your on-hand materials. Next, it determines the exact materials needed and ensures that your orders are placed in a timely manner.
All of this is completed using the following process:
- The MRP identifies your current stock;
- If something isn’t in stock, the MRP raises a purchase order to get it;
- The system then determines the approximate timeframe for receiving raw materials, and;
- Taking the requested delivery date into account, the system provides a production start date.
Everything listed above happens automatically, which takes most of the pressure off your planning department and employees. Rather than calculating the entire process for yourself, the MRP will make sure you’re kept up to date.
What makes MRP so important?
Do you recall how long it took you to plan for your last order? With an MRP, you would have saved all that time to apply toward something more important.
For instance, instead of working out a production schedule, you would have simply been able to move on to assembling your product from the raw materials.
This one fact alone makes an MRP worthwhile for any manufacturer, especially because the software keeps a constant eye on your company’s needs.
Pros of using MRP
As with any system, there are pros and cons to using an MRP. As you’ll soon learn, the pros are more extensive than the cons, providing a much better process overall.
- Customer satisfaction improves due to reduced lead times.
- Inventory costs are reduced.
- Creates an optimized, effective inventory management plan.
- Improves the efficiency of manufacturing.
- Boosts labor productivity.
- Provides more competitive product pricing.
- Always have components and materials available when needed.
- Reduces your inventory levels and associated costs.
Cons of using MRP
The following cons should be carefully considered and weighed against the pros of an MRP.
- Your production schedule flexibility will be greatly reduced.
- There are data integrity requirements to be aware of.
- Input data accuracy is everything (garbage in, garbage out).
- An MRP can be difficult and expensive to implement.
- You may be tempted to hold more inventory than necessary.
Main features of an MRP system
There are several minor features of an MRP system, but these are three primary ones to focus on.
- Master Production Schedule – Your MRP will produce a statement of the planning schedule, including capacity, forecasts, and orders.
- Bill of Materials – All the components and materials required to make the final product will be included on your BOM.
- Inventory Status File – These stock records give you the freedom to adjust your gross requirements to net requirements.
The types of data considered by MRP systems
Your MRP will consider a wide range of data to make decisions for your company. In the vast majority of cases, this makes the software a better judge of your inventory needs than any human ever could be.
1. Name of the Product Being Created – This will occasionally be referred to as Level 0 or independent demand on your bill of materials.
2. When and What Information – How much of each material is needed? When is it needed?
3. Shelf Life – What is the shelf life of your stored materials, and how does that fit into your material requirements?
4. Inventory Status Records – Provides records on how many net materials are on hand. It gets this from an electronic exchange of information from integrated platforms. These items are received and stored goods, plus any materials that have been ordered from suppliers.
5. Bills of Materials – Details all the components, materials, and sub-assemblies required to create each product.
6. Planning Data – Includes all directions and restraints to build items such as labor and machine standards, routing, lot sizing techniques, quality and testing standards, and other inputs.
Material requirements planning (MRP) steps
The steps of MRP are straightforward and easy to understand, even if doing them manually is not. Allowing the MRP to follow these steps provides a business with the best possible plan to complete each order on time.
First, the MRP will estimate the demand for inventory, along with whichever materials are required to make it happen. Then it will move on to checking your inventory versus the demand for it and allocate resources as needed.
From here, the MRP will go through the production scheduling process, using the materials on hand and the due date of materials that must be ordered to peg a specific timeframe. Finally, the software will monitor the entire process to ensure nothing breaks down.
There are four primary inputs that the MRP needs:
- Demand – How much of a demand for each product is there?
- Bill of Materials (BOM) – What goes into making each product?
- Inventory – How many of the components for the product are in stock?
- Master Production Schedule – Timing and quantity of all end products.
The MRP will take the input information and determine what materials are needed, how much is needed to complete the necessary build, and at what point during the build process will the materials be needed.
This gives your company an exact accounting of what materials need to be ordered and when.
Instead of having to figure everything out for yourselves, you’ll be able to meet your customers’ expectations and even reduce the amount of time necessary to fulfill their orders.
Let SkuVault Core take your business to the next level
SkuVault offers everything you need to get started and scale a profitable and efficient inventory management system. We can also help integrate many of your business’s current systems with ours, including your MRP.
Our system has a proven track record of providing 87 percent faster fulfillments, 90 percent fewer out of stocks, and 83 percent fewer mis-ships. We also integrate our software with some of the biggest retailers in the world, including Amazon, Shopify, Walmart, and eBay.
Reach out today to schedule your free personal demo. We’re excited to show you the many ways SkuVault Core can change your ecommerce business for the better.