What is MRP?
MRP (Material Requirements Planning) is a function or software that calculates material procurement plans needed to meet production schedules and customer demands.
MRP Overview
When introduced in the 1960s, MRP became the "killer app" that triggered the proliferation of business software and the computers needed to run them. Hundreds of thousands of businesses around the world raced to implement MRP. In the growth years after World War II, the appeal of software that could streamline production processes was great, as productivity gains directly translated into huge profits. Manufacturers used this software to increase production rates, offer a wider range of products, and lower costs by more accurately forecasting material needs.
In today's hyper-competitive business environment, production efficiency is more critical than ever. Modern resource planning systems are far more complex than the first MRP-based software. Now, companies of all sizes rely on MRP-based systems to meet customer demands, control inventory, streamline supply chain management, and respond to market changes (including natural disasters or supply chain disruptions).
Definition of MRP
MRP is a system designed for production planning. It identifies necessary materials, estimates quantities, determines when materials are needed to meet the production schedule, and manages delivery timing. The primary goal is to increase overall productivity while meeting demand.
MRP vs. ERP
You could say that Enterprise Resource Planning (ERP) is a direct descendant of MRP, or that MRP is a component of ERP; both statements are correct.
Looking at the historical process; the original MRP modules (sales, inventory, purchasing, bill of materials, and production control) were combined with finance and accounting functions to form MRP II. This package continued to expand, and eventually the term ERP was introduced to describe its more comprehensive functionality. Even today's newest ERP systems trace their roots directly back to MRP: What is needed, how much is needed, and when is it needed?
Modern cloud ERP solutions allow data to flow between production planning, inventory management, and supply chain operations, enabling manufacturers to respond quickly to market changes.
Benefits of the MRP System
Precise Planning: As product complexity and production volume increase, manual calculations become inadequate. MRP provides the necessary forecasting and planning tools for materials and components.
Cost Control: Inventory is one of the largest cost items in production. MRP strikes the balance between excess stock costs and the risk of stockouts that cause production disruptions.
Automation and Accuracy: Disconnected systems based on manual processes lead to errors and delays. MRP automates these processes, increasing profitability.
Who Uses an MRP System?
MRP is not limited to traditional factories. Any organization that takes a component or material and transforms it into a different product to be sold to a customer is considered a "manufacturer":
- Warehouses that package or kit products.
- Centers that perform custom configurations (assembly) to order.
- Service providers preparing kits of medicines, devices, or consumables.
- Hospitals, government buildings, or apartment managements that manage material inventory.
- Restaurants that manage material inventory and replenishment.
How Does MRP Work?
A modern MRP system is a closed-loop system covering the entire business. The basic steps are:
- Precisely define what will be produced: The engineering unit creates a Bill of Materials (BOM) for all products. The BOM is a hierarchical model that shows what is needed, in what order, and in what quantity for each unit.
- Quantify demand: Based on customer orders and forecasts, the system calculates the quantity and date of the final product needed. This information feeds the Master Production Schedule (MPS) data, which all stakeholders agree on.
- Determine supply: Using the BOM and MPS, the components that need to be produced or purchased during the planning period are calculated. Current inventory is checked (netting) and shortages are identified. Order dates are determined by considering purchase or production lead times.
Capacity Planning and MRP
Traditional MRP uses an "infinite capacity" model (focusing only on material). However, companies with constraints such as ovens, paint lines, or specialized technicians must use "finite capacity" models. Modern Advanced Planning and Scheduling (APS) systems create constraint-based plans by simultaneously optimizing material and capacity.
Traditional vs. Modern MRP Software
| Feature | Traditional MRP | Modern MRP |
|---|---|---|
| Planning Model | MRP and capacity planning are separate, requiring manual reconciliation. | Combines constrained and unconstrained planning in the same system. |
| Operating Speed | Data is read from the hard disk; processes are long and usually performed at night. | Much faster with in-memory storage; can be run multiple times throughout the day. |
| User Interface | Relies on deep text reports. | Provides decision support with visual, colorful screens and role-based interfaces. |
| Intelligent Solutions | Good at internal material planning. | Offers additional value, such as combining orders from a single supplier to lower shipping costs. |
New Technologies for MRP
Artificial Intelligence and Machine Learning: Enables systems to develop cause-and-effect models and give more precise recommendations. 87% of manufacturers see AI improving operational processes.
Industrial Internet of Things (IIoT): Smart sensors feed massive amounts of data into planning systems, increasing the accuracy of forecasts.
Cloud Deployment and In-Memory Databases: Provides better security, high availability, and unprecedented processing speed.
MRP Today: MRP has transformed from a simple calculation tool into a comprehensive, intelligent, and vital decision support system in over fifty years. It offers efficient, agile, and responsive management for any organization that transforms components into products.