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What Is Material Requirements Planning?

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  • Written By: Cassie L. Damewood
  • Edited By: C. Wilborn
  • Last Modified Date: 29 July 2014
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Material Requirements Planning (MRP) is a system of increasing profits through improved planning of production times, inventory needs, and final delivery of products. The system is normally used as a software application, but it can also be successfully implemented using pencil and paper. MRP software is regularly updated to meet the changing needs of different companies and industries.

The three objectives of a Material Requirements Planning system are to maintain the least inventory required to adequately meet the job requirements; to guarantee the finished products can be produced and delivered in a timely manner; and to efficiently plan purchasing, manufacturing, and delivery to flow without interruption or incident. Failure to perform in any of these three areas will adversely affect the outcome of the entire project. Monitoring each of the phases and quickly implementing solutions is essential for MRP success.

The Material Requirements Planning concept was developed in the 1960s and refined and enhanced into the early 70s. By 1975, it was so successful that it had been implemented in about 150 companies in Europe and the United States. By 1981, around 8,000 companies had embraced the MRP methodology. Less than ten years later, in 1989, approximately a third of all software sales in America were MRP-based.

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MRP's popularity is largely due to its simplicity, both in concept and execution. The basic principles are to plan manpower, production, and inventory to consistently meet delivery schedules with adequate yet non-excessive inventory and streamlined production schedules. This requires intricate material needs analysis and ideal manufacturing scheduling to meet delivery schedules. Successful planning in these areas ensures high profit margins, increased productivity, and satisfied customers.

When production and manufacturing operations get a new order, managers in several departments scramble to determine how quickly and how profitably the job can be completed. Material Requirements Planning encourages these decision makers to first answer three basic questions: What is the deadline for delivery? How many units are required? What materials are required to produce the finished product?

MRP software simplifies the process and can be adapted for any type of manufacturing or production environment. It develops a plan based on information entered into the system regarding key factors in efficient production and project profitability. The software program then develops a manufacturing plan based on bills of material, inventory status, master production schedules, open orders, and sales forecasts.

Companies can benefit in many different ways through Materials Requirement Planning systems. These benefits include reductions in shortages, inventory levels, inventory, and purchasing costs; shorter lead times; and less overtime. Improved shipping times, higher levels of customer satisfaction, increased production, and better quality control are also common results of MRP influences.

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