Material Requirements Planning helps manufacturing companies operate with minimal inventory while avoid inconvenient shortages of required components and supplies needed for production. MRP helps companies improve cash flow and increase profits. In most cases, MRP involves the use of specialized computer software that coordinates procurement with inventory and manufacturing schedules to ensure that companies can achieve maximum output from their production systems.
Availability of Materials
MRP aims to ensure companies can fulfill all orders they have for manufactured products in accordance with a stated delivery schedule. This means companies must have effective systems for order entry, labor management and material purchasing, so a company can make enough units of a particular product and meet demand. In the past, companies would hoard large stockpiles of components and raw materials, so the company could easily accommodate demand. This solution left industrial companies vulnerable to market fluctuations and taxation. Also, the money companies had invested in inventory caused cash flow problems that challenged their ability to pay their bills and make payrolls.
MRP aims to order and receive materials in just enough time to meet production demands. This means a system must coordinate customer orders and manufacturing capacity with procurement specialists. Inadequate MRP systems cause work stoppages that result in high costs, broken commitments and wasted time while workers sit idle waiting for the arrival of needed parts.
Planning and Forecasting
Companies using MRP systems attempt to plan for current demand and forecast future demand to ensure they have enough raw materials, components and subassemblies on hand to keep manufacturing levels. No one knows the future, but scientific methods now exist that can accurately predict the number of products needed to satisfy new orders. These predictions can consider seasonal demand, market demand and the condition of the general economy when guiding purchasing decisions.
Challenges for MRP
MRP systems depend on accurate data for useful operation. Improper inventory tallies, inaccurate order entry, unrealistic forecasts and inadequate capacity can cause production delays, unfulfilled orders and unhappy customers. Manufacturers with failing MRP systems drive customers to competing suppliers, complicating efforts to recover from supply problems. Therefore, companies must carefully evaluate their MRP strategies, software and other tools.
Automated inventory tools such as barcode scanners and RFID tags can help companies ensure accurate inventory reports. Professional forecasting tools can use accurate historical data to ensure that management bases decisions about procurement on reliable information rather than on random speculation.