This is our first post in the series explaining the concepts surrounding MRP system. MRP is a term that can be understood in many ways. We’ll try to shed some light on the history and relevance of the term and the characteristics of the MRP systems. (Funnily, the answer to “What is MRP?” depends on the age of the respondent. Read on, and you’ll understand why.) http://manufacturing-software-blog.mrpeasy.com/blog/2017/09/25/mrp/

1. MRP SYSTEM SERIES #1:
WHAT IS MRP?

2. WHAT IS MRP?
MRP is a term that can be understood in many ways. We’ll try to shed some
light on the history and relevance of the term and the characteristics of the MRP
systems.
(Funnily, the answer to “What is MRP?” depends on the age of the respondent.
Read on, and you’ll understand why.)

3. WHAT IS MRP?
MRP was one of the first manufacturing software systems designed to increase
productivity with the help of computers. It has led to great improvements in
production efficiencies.
In general, MRP is a method for company management, which allows
management to accurately and efficiently plan the company’s resources in
terms of materials, equipment and workforce. Even though MRP could be
applied manually, it’s unthinkable without software.
MRP can be applied to any kind of production: Make-to-stock or make-to-order,
for simple products to complex products with sub-assemblies, where
components are produced in-house, or even to managing outsourced
production.

4. WHAT IS MRP?
Inventory Management
Inventory management, the processing of bills and materials and scheduling are
the very basic functions of an MRP system. One of the primary goals of MRP is
helping organizations maintain low inventory levels. Mainly, it is used to plan
production, purchasing and delivering activities.

5. WHAT IS MRP?
Nowadays, the term MRP is mainly understood as Manufacturing Resource
Planning (aka MRP II), which allows for very accurate planning and
management of resources. When it came to be named, MRP was coined
Material Requirements Planning (aka MRP I).
Historically, most formal practices before the introduction of MRP were mainly
only applicable for big manufacturers whose series produced standardized
products year-after-year. Those methods mostly fell short in changing
environments, or for smaller manufacturers with many or custom products, for
which market demand cannot be easily predictable. In turn, this resulted in
keeping higher inventory levels and more materials and products were obsolete
since market demand changed.

6. WHAT IS MRP?
To counter this, new manufacturing inventory management software emerged –
Material Requirements Planning (aka MRP I).
This enabled more accurate production and inventory planning based on
demand.
The greatest benefit was minimizing inventory (and waste also!) through highly
accurate planning, which would have required enormous effort done manually.
(We could argue if MRP is for inventory management or for production planning,
while it really is for both. If your job title has the word “inventory” in it, use the
former… if “production,” use the latter!)

7. MRP I – Material Requirements Planning
Joseph Orlicky developed the concept in 1964 and the first company to utilize it
was Black & Decker.
This was just the time when computers slowly started dominating the industry.
Compared to today’s MRP systems, due to computational limitations, MRP I
was a much more simplistic production planning and inventory management
software.
It wasn’t very integrated for live data collection from various parts of the
company.

8. MRP I – Material Requirements Planning
It was designed to answer a few central questions: What should be purchased?
How many? When?
The main data inputs were:
 The produced items, bills of materials and production details (i.e. the routing)
 The material items and their lead time.
 Sales demand, a sales forecast, or a master production schedule

9. MRP I – Material Requirements Planning
The main data outputs were:
 Recommendations as to what should be purchased.
 A basic production schedule when different production runs should start,
without regard to actual machine capacity (infinite capacity is assumed)
The main benefit is that thanks to computers, a clear production schedule and
purchase requirements emerge with relative ease.
Alternatively, this would take many hours-to-days for a team of planners for
complex products (or just many parts and products!).

10. MRP I – Material Requirements Planning
The greatest disadvantage is that the MRP I system is not very integrated, and,
for good results, the data needs to be constantly updated.
In addition, it does not provide such an accurate production schedule based on
individual machine capacity, nor does it manage important manufacturing
financials like product costing.

11. MRP II – Manufacturing Resource Planning
Manufacturing Resource Planning emerged in the 1980s when the MRP I
systems were improved and integrated with other business applications.
Therefore, a Manufacturing Resource Planning system is an integrated system,
where many different operations within a manufacturing company are brought
together into one, unified MRP system. It’s no longer just an application for one
purpose.
Two of the biggest improvements of MRP II are
 The capability to produce a highly accurate production schedule by
considering the production capacity.
 Live feedback information from the shop floor, reporting and other functions,
like inventory management, sales, purchasing etc.

12. MRP II – Manufacturing Resource Planning
All different departments in the company interface the same software in real-
time – the salesperson, purchaser, stock clerk, production planner, shop-floor
worker, engineer… they all have a common platform where they conduct some
of their work.
Since everyone is using the same system at the same time, compared to MRP
I, the data in the MRP II system is of much better quality.
Data simply does not need to be carried from one system to another – while
being the purchasing and sales software, it is also the inventory management
software, manufacturing software, production scheduling system and much
more.

13. MRP II – Manufacturing Resource Planning
What does this mean for production planning?
 Besides letting you know what should be purchased, the MRP II system can,
itself, plan the capacity of all work stations, providing a detailed production
schedule. Answering the question, “When will the products be ready?”
 Since material purchasing is done within the same system, it answers the
question, “What do the materials cost?”
 Since it’s also a manufacturing execution system where workers do
production scheduling and reporting, it also answers the questions, “What is
the current situation on the shop-floor?”

14. MRP II – Manufacturing Resource Planning
What does this mean for production planning?
 And importantly, also based on reported information, “What is the production
cost?”
 Since sales are also managed from the same system, it greatly facilitates on-
time delivery and shipment planning. Plus, it answers the critical questions,
“How to price the quote?” “When can I deliver?” and “How much will the
company profit?”
 And much more, depending on the specific way the MRP system has been
built.

15. MRP II – Manufacturing Resource Planning
As many functions can be carried over to the MRP system, it greatly facilitates
production planning and manufacturing execution.
It is easier to manage the financials, there’s up to date information about
inventory balance, exact product costs and reporting.
A modern MRP system is an Enterprise Resource Planning system – an MRP
ERP system – not only a module like MRP I used to be in its infancy.
MRPEasy is also manufacturing software like this, designed to organize your
production and give you all the information you need.

16. Manufacturing Inventory Management
before MRP
Before the MRP concept, the main methods that were used in manufacturing
inventory management were simply reactive or relied heavily on statistical data.
For example, like Reorder Point/Reorder Quantity, or Economic Order Quantity,
methods that are more than 100 years old.
The Reorder Point method uses material consumption averages to estimate the
minimal stock level for when to order new materials. It does this based on
historical consumption rates so you wouldn’t run out of stock before new
materials arrived. And the Reorder Quantity, calculated based on historical
consumption, is the quantity you should purchase so you would survive until the
next purchasing cycle.

17. Manufacturing Inventory Management
before MRP
Sounds like a good tactic? Yes, in very limited situations. But not very good if
the production schedules vary, it’s make-to-order, there’s need for agility, market
changes, etc. In these scenarios, this method will bring heightened inventory
levels with parts and products that will never see the market.
The Economic Order Quantity is a method for minimizing the holding and
ordering costs per item. It reports what is an optimal order size, from the
perspective of financial management. The central idea is not about keeping a
minimal inventory or having efficient production planning. This method can only
be applied in a very constant production environment, where planning is done
by long time frames (e.g. one year at a time).

18. Manufacturing Inventory Management
before MRP
The greatest weaknesses of these methods are that they do not consider the
future needs of production, which change by market demand, or neither do
these try to minimize inventory.
The presumption is constant and uniform demand (based on historical data).
Of course, it is possible to apply these methods in today’s world, but it is not so
straightforward, nor elegant as it might seem in the first place.

19. MRPEasy Blog
Original source:
http://manufacturing-software-blog.mrpeasy.com/blog/2017/09/25/mrp/

20.  Production planning and reporting
 Supply chain management
 Stock management
 CRM
 Managerial statistics, business intelligence
 Integration with online accounting solutions
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MRPEasy Cloud ERP/MRP Solution