Material Requirements Planning (MRP) – Cheat Sheet.

1. Key Concepts in MRP

a. MRP Definition

• Material Requirements Planning (MRP) is a computerized inventory and production planning system used to manage manufacturing processes. It ensures that materials are available for production, finished goods are available for delivery, and inventory is kept at optimal levels.

b. Objectives of MRP

• Ensure that materials are available when needed for production.
• Plan inventory levels to avoid both stockouts and overstocking.
• Optimize production schedules to minimize downtime and waste.

2. Key Components of MRP

a. Bill of Materials (BOM)

• Definition: A hierarchical structure listing all components, sub-assemblies, raw materials, and parts required to produce a product.
• Purpose: Helps identify the quantities of materials needed at each stage of production.

b. Master Production Schedule (MPS)

• Definition: A detailed plan that outlines what needs to be produced, in what quantities, and when.
• Purpose: Defines production priorities based on customer demand, forecasts, and available capacity.

c. Inventory Records

• Definition: Detailed data on current inventory levels, including the stock of raw materials, components, and finished goods.
• Purpose: Provides the basis for MRP calculations to determine when and how much to order or produce.

d. Lead Time

• Definition: The amount of time required to procure materials, manufacture products, or receive goods after placing an order.
• Purpose: Helps calculate when materials should be ordered to ensure timely availability.

3. Key MRP Terms

a. Net Requirements

• Definition: The difference between the total quantity needed and the inventory available (including any scheduled receipts).
• Formula: $$\text{Net Requirements}=\text{Gross Requirements}-(\text{On-Hand Inventory}+\text{Scheduled Receipts})$$
• Purpose: Determines how much more of each material is needed.

b. Planned Order Releases

• Definition: The recommended order quantities and timing that MRP suggests to meet the production plan.
• Purpose: Ensures that materials are ordered on time to meet production schedules.

c. Scheduled Receipts

• Definition: Orders that have already been placed for materials but have not yet been received.
• Purpose: Avoids ordering materials that are already in transit or planned to arrive.

4. MRP Process Flow

1. Forecast/Order Review:

   • Collect customer demand, sales orders, and inventory data to assess material needs.

2. Create Master Production Schedule (MPS):

   • The MPS drives the entire planning process by defining the production schedule.

3. Develop the Bill of Materials (BOM):

   • Identify and list all materials, components, and parts required for each product in the MPS.

4. Calculate Gross Requirements:

   • Determine how much of each material is needed based on the MPS and BOM.

5. Check Inventory Records:

   • Assess current stock levels and scheduled receipts to calculate if additional materials are needed.

6. Net Requirements Calculation:

   • Subtract existing inventory and scheduled receipts from the gross requirements to determine the net requirements.

7. Create Planned Order Releases:

   • Based on net requirements and lead times, MRP generates planned orders (purchase orders or production orders).

8. Production Scheduling & Order Placement:

   • Generate work orders for production and place orders for raw materials.

9. Monitor and Adjust:

   • Continuously update MRP based on changes in demand, inventory levels, or supplier lead times.

5. MRP Outputs

a. Planned Orders

• Definition: Orders for materials or components that MRP generates based on demand, stock levels, and lead times.
• Purpose: Specifies when and how much of a material needs to be ordered or produced.

b. Order Releases

• Definition: Official requests to suppliers or the production department to fulfill the planned orders.
• Purpose: Moves materials through the supply chain to ensure production requirements are met.

c. Exception Reports

• Definition: Reports that highlight potential issues such as material shortages, late deliveries, or production delays.
• Purpose: Helps planners identify and address potential disruptions before they occur.

d. Inventory Reports

• Definition: Reports on the status of materials, including on-hand inventory, orders in progress, and stockouts.
• Purpose: Provides visibility into material availability and helps avoid overstocking or understocking.

6. Benefits of MRP

• Improved Inventory Control: Helps minimize excess inventory and reduce carrying costs by ensuring the right materials are available at the right time.
• Increased Production Efficiency: Ensures that production schedules are aligned with material availability, minimizing delays and downtime.
• Better Customer Service: Helps ensure that products are manufactured and delivered on time, leading to higher customer satisfaction.
• Reduced Lead Times: MRP optimizes material ordering to reduce delays caused by late shipments or insufficient inventory.

7. Challenges in MRP

• Data Accuracy: MRP systems rely heavily on accurate data regarding inventory levels, lead times, and demand forecasts. Inaccurate data can lead to poor planning and stockouts.
• Complexity of BOMs: Complex or nested BOMs (multiple levels of subassemblies) can make MRP calculations difficult to manage.
• Supplier Reliability: If suppliers are unreliable, MRP calculations for lead time may be off, leading to production delays.
• Demand Variability: Large fluctuations in demand can lead to challenges in adjusting material orders in time.

8. MRP Tools and Software

a. Enterprise Resource Planning (ERP) Systems

• Examples:
  • SAP ERP: Comprehensive software suite that integrates MRP with finance, procurement, and production.
  • Oracle ERP Cloud: Provides MRP functionality integrated with supply chain management.
  • Microsoft Dynamics 365: Offers MRP features as part of a broader ERP system for manufacturing and distribution.

b. Standalone MRP Systems

• Examples:
  • MRPeasy: A cloud-based MRP solution for small to medium manufacturers.
  • JustFood MRP: Focuses on MRP for food manufacturers with real-time production scheduling.

c. Advanced Planning Systems (APS)

• Examples:
  • Kinaxis RapidResponse: An advanced system that integrates MRP with supply chain and demand planning.
  • Infor Advanced Planning and Scheduling (APS): A robust system that supports complex supply chain planning.

9. Best Practices for MRP Implementation

• Data Accuracy is Key: Ensure that all inventory data, lead times, and demand forecasts are accurate and up to date.
• Frequent Updates: Regularly update MRP parameters such as lead times, inventory levels, and BOM structures to reflect real-time conditions.
• Collaborate with Suppliers: Share MRP data with suppliers to improve material availability and reduce lead times.
• Monitor MRP Exceptions: Review exception reports and adjust plans proactively to address potential issues.
• Training: Train users on how to interpret MRP reports, make adjustments, and troubleshoot problems.

10. Common MRP Terms to Know

• Gross Requirements: The total demand for materials before considering inventory on hand.
• Lead Time: The time between ordering a material and receiving it.
• Net Requirements: The actual amount of materials needed after accounting for existing inventory and scheduled receipts.
• Planned Order Receipts: The scheduled arrival of materials or components.
• Planned Order Releases: The generated orders that must be placed to procure or produce materials.
• Safety Stock: Extra inventory kept to mitigate risks such as demand fluctuations or supply delays.
• Lot Sizing: The process of determining how much of a material to order or produce at a time.

Conclusion

Material Requirements Planning (MRP) is essential for ensuring that manufacturing processes run smoothly by coordinating materials, inventory, and production schedules. It helps businesses manage resources more efficiently, reduce waste, and meet customer demands. However, its success depends on accurate data, effective coordination across departments, and the timely execution of planned orders. By following best practices, leveraging the right tools, and monitoring performance, companies can optimize their MRP processes for better productivity and cost-effectiveness.