Material Requirement Planning (MRP): Definition, Objectives, and Procedures

Every company that manufactures a product certainly requires detailed data on raw materials. To easily record and prepare the budget for raw material requirements, companies can implement MRP.

Material Requirement Planning or MRP is a system designed to calculate the details of raw materials needed for production purposes. Generally, this system has been widely implemented by companies in the manufacturing industry.

Definition of Material Requirement Planning (MRP)

MRP is a system used to calculate the detailed amount of raw materials, basic materials, or components needed to produce a product in a company.

Generally, the MRP system is used by manufacturing companies whose main business activity is producing goods. With MRP software, companies can accurately estimate the raw materials needed, along with the exact quantities and details during production, up to the delivery scheduling process.

Objectives of Implementing MRP in a Company

Reduce Inventory Levels

One of the objectives of MRP is to determine the quantity of raw materials needed and when they are required according to the master production schedule.

Through this system, manufacturing companies only need to purchase materials when they are actually needed (estimating). This helps companies avoid excess material inventory.

Reduce Lead Time

Another objective of implementing MRP is to help identify the quantity and timing of materials required so that the purchasing department can perform its tasks effectively.

From here, the MRP system can also help companies avoid production delays, which are usually caused by material shortages.

Transparent and Fast Information Flow

Companies using the MRP system can quickly communicate from the production department to the shipping department, enabling them to estimate possible delivery times and improve cooperation between related parties.

Increase Operational Efficiency

Another goal of implementing MRP in companies is to help each division stay well-coordinated. This way, the company can improve the efficiency of its operational activities compared to companies that do not implement an MRP system.

MRP System Procedures

In the MRP analysis process, there are two ways to do it: manually or with the help of software. Here are four basic steps of the MRP system procedure you can apply:

Netting Process

The first stage is the netting process, which is the calculation process to determine the net requirements, the difference between gross requirements and inventory levels.

Lotting Process

The second process is lotting or lot sizing, which determines the optimal order quantity for each item or material.

This process plays an important role in materials planning, especially in companies with limited facilities or storage space. The lot size is then related to the cost of inventory.

Offsetting Process

The third process is offsetting, which is used to determine the time needed in the ordering process so that the net requirement level can be achieved quickly.

Explosion Process

The final process is explosion, which calculates the requirements for each item, assessing the lower-level components of the available product structure. This calculation is based on the order plan previously prepared during the offsetting process.

Advantages of the MRP System

Material Requirement Planning (MRP) is a manufacturing management system that helps manufacturers in production planning, scheduling, and inventory management.

MRP has been used by many manufacturers across industries for more than 30 years. With the advancement of data technology and computerization, MRP has become a very important production tool, offering many benefits for manufacturing businesses and factories. Here are the benefits of the MRP system:

Inventory Control

One of the keys to efficient production processes is good inventory management within the company. One way MRP works is by providing production schedule data to determine the correct demand levels and inventory costs to meet production needs.

The MRP system maintains optimal inventory levels for materials and spare parts, reducing inventory storage costs. In essence, MRP helps reduce and optimize inventory costs in one production period.

Purchase Planning

Streamlining the production process relies heavily on data about the availability of raw materials and finished goods, what needs to be purchased, and when to purchase raw materials.

Purchase planning requires an intelligent system to track production steps and understand each necessary purchase while cross-checking with the production and material delivery schedule.

Procurement managers need MRP data to automatically contact suppliers when there is a need to purchase raw materials.

Production Planning

The MRP system can detect delays in the production line caused by shortages or insufficient quantities of materials.

When this problem occurs, the MRP system can reroute production or recommend switching to producing other products where materials are available.

MRP can also focus efforts on specific stages of production at the expense of other stages that lack raw materials and spare parts.

MRP helps manufacturers plan production lines even when there are material availability constraints.

Work Scheduling

Work scheduling can be defined as managing production uptime, predicting production output, and ensuring compliance with the production schedule.

Managers can use this information to control hourly operations, equipment, and labor tasks, as well as accurately predict labor time and operational costs.

Resource Management

Raw materials are the lifeblood of every manufacturing process. Having control and information about the availability of raw materials and expected output also provides manufacturing companies with insights into other resources involved in the process.

Resource efficiency is key. Information from the MRP system tells factory staff what equipment is needed, when and where additional labor is required, and whether operational assets should be rented or purchased.

Data Management

The MRP system helps manufacturers handle information regarding the creation, analysis, and presentation of large amounts of data. MRP processes and documents purchasing data, inventory, shipping, and cash flow into invoices, reports, and other structured presentations with ease.

Time Efficiency

One advantage of the MRP system is its ability to automate workflows, requiring minimal human intervention. This increases the efficiency of labor time used for inventory, purchasing, and production management.

The accuracy level of the MRP system is much higher compared to human methods, which are prone to errors. It also helps manage and store production data in a single database.

Differences Between MRP and ERP

MRP and ERP are acronyms with similar pronunciation, and both can be used in the manufacturing industry. However, the two systems have several differences.

The most significant difference between MRP and ERP is that MRP is a standalone software equipped only with manufacturing modules and features, while ERP can integrate with other software such as HR (human resources) systems, POS (point of sales), and more.

Because it has the potential to be used by multiple departments and has fairly complex workflows, ERP can be the right solution for medium to large-scale businesses. Generally, ERP can facilitate various industries, not just manufacturing.

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As a startup providing a customizable Warehouse Management System (WMS) that can be integrated according to business needs, Prieds is here as a solution for improving business performance. Various features and modules offered by Prieds WMS can help companies manage stock and warehouses, including MRP.

Equipped with centralized data management, companies can more easily perform analysis for business decision-making. In addition, the Prieds system can be integrated with other software and hardware such as Barcode and RFID.

You can learn more about implementing the Prieds system in your company by consulting with our expert team. Get a system with complete features and modules, top-level security, and ease of use tailored to your company’s needs.