Making sure you have everything you need on hand – whether it’s raw materials, production capacity or sufficient labour – is key to running an efficient, lean and flexible manufacturing business.
Managing the supply chain and the production process is a fundamental requirement of a successful manufacturer. After all, getting the numbers wrong can lead you either to being unable to supply your customers or to wasting money on unwanted stock and the cost of storing or disposing of it.
Material requirements planning (MRP) takes on this vital logistical role and helps ensure you can meet ongoing demand without spending money on unnecessary inventory, hitting production bottlenecks or finding you can’t source the necessary materials.
What is material requirements planning?
MRP is a system that allows businesses – primarily manufacturers, but not exclusively so – to schedule production requirements, control inventory and plan deliveries of raw materials. It uses a production plan for the finished goods to schedule your requirements for the materials and components you need.
As technology has evolved over the past half a century, so has the MRP offering. Today’s MRP software can play a vital role in ensuring you have the right quantity of materials on hand and are able to meet the production needs of your customers.
It allows you to keep up with demand without having to spend hours manually working out what is needed in order to fulfil your commitments.
How does manufacturing MRP work?
As sales ebb and flow over the long term, so your demand for materials and components varies. By analysing your production schedule, MRP software can calculate your upcoming requirements. Rather than relying on educated guesswork, it monitors your inventory in real time and orders new components and materials when required.
It takes your production plan and schedule and works backwards from there, presenting you with an accurate analysis of what you need, how much of it you need, and when you need it.
In simple terms, if an order is received, MRP software will:
- Identify existing stock
- Raise purchase orders for anything not already in stock
- Calculate timescales for the availability of raw materials
- Work out a production start date based on the requested delivery date
What data goes into an MRP system?
MRP software can track dozens of variables. Ultimately, the more data that is fed into the system, the more advanced and accurate its planning will be.
The data it analyses includes:
- What products are on order, and the quantities
- Bills of materials (BoM) – the raw materials needed for each product
- Purchase orders
- Sales orders
- Details of existing stock levels
- The shelf life of the existing inventory
- Materials on order from suppliers
- Any known shortages of available materials
- Labour availability
- Forecasts for supply and demand, based on historical data
- Existing demand in the market
As such, a smooth-running MRP system benefits from data being uploaded by colleagues across the business, including in the finance department, production managers, in the stockroom, in the distribution team and HR.
The benefits of MRP systems
One of the biggest advantages of an MRP system is greater control over your inventory. It gives you an accurate and fast reading of what you have, what you need and how much it will cost you to meet your customers’ demands.
Linked to that, it identifies what to buy and when by cross-referencing existing stock levels with order requirements. Suppliers can be contacted automatically when components or raw materials are required.
MRP software can search for the most competitive option for ordering materials and components, even factoring in issues such as delivery costs. In other words, it can shop around for the best deal.
By monitoring problems in the wider marketplace – such as scarcity of materials – MRP software can spot potential obstacles in advance, helping prevent possible production bottlenecks.
Meanwhile, the cost of labour for a particular project can be more accurately predicted. As well as enabling project managers to address logistical issues such as overtime requirements in advance, it adds another layer of knowledge when it comes to costing a project.
MRP software can present you with all sorts of detailed data, including purchase data, timetables, receipts and invoices.
In summary, a good MRP system gives you control over your inventory, cuts your costs (and, ultimately, makes you more competitive for your potential customers), helps plan your production schedule and delivers better customer service, with less risk of failing to meet your deadlines.
Although the manual inputting of accurate data is important, the day-to-day automation of the process makes the whole system extremely time-efficient, too.
Things to watch out for
The data produced by MRP software is more accurate, faster and more up to date than data produced by simple spreadsheets or a pen and paper. However, the software can generate data based only on what has been input.
In the same way that adding wrong figures to a spreadsheet leads to an inaccurate conclusion, the quality of data that is fed into an MRP system is equally important. Inputting errors and out-of-date data will not give you an accurate result.
If you start to manufacture a new product, or if a product’s BoM changes, make sure the system is told this. Meanwhile, in order to keep inventory levels accurate, you should update the system if any materials are damaged or written off.
Consider keeping one-off or unusual orders out of your MRP system – it can be a waste of time feeding very specific, detailed requirements into the system if they are never going to be needed again.
MRP has been developing over the past few decades. It was first adopted by giant companies such as IBM, but the software available today is pitched as much at smaller players and MRP is being embraced by manufacturers of all sizes.
The investment required to adopt a smooth-running MRP system will be more than repaid by the savings and efficiencies it can bring even small manufacturing businesses.
Read more about how our specialised MRP software for manufacturers can benefit your business today.