Material Requirements Planning

 

The flow of products & raw materials through a production operation, as well as the necessary inventory levels to perform at acceptable levels, is one of the primary worries of all the types of production executives.

 

And all this is because the above mentioned product flow is followed by e reverse cash flow. Most times cash flows are the decision making factors of any future plan.

 

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes and inventory levels.

 

Most MRP systems are software-based, while it is possible to conduct MRP by hand as well.

 

An MRP system is intended to simultaneously meet three objectives:

·         Ensure materials are available for production and products are available for delivery to customers.

·         Maintain the lowest possible material and product levels in store

·         Plan manufacturing activities, delivery schedules and purchasing activities.

 

MRP is a tool to deal with these problems. It provides answers for several questions:

·         What items are required?

·         How many are required?

·         When are they required?...

 

An MRP system can be used for two distinct cases.

 

For commercial use, where these items can satisfy a simple sales plan where the system is used for inventory planning purposes and purchasing procedures. In this case the important factors are:

 

 - The sales plan

 - The lead time

 - The desired inventory level, which in continuation is connected with:

            - The product life expectancy

            - The gross profit margin of the product

            - The working capital required, and

            - The capacity of our storage

 

For production use, where these items can satisfy a production plan where the system is used for inventory planning purposes and purchasing procedures. In this case the important factors are:

 

 - The production plan

 - The lead time of the raw materials

 - The desired inventory level, which in continuation is connected with:

            - The material life expectancy

            - The working capital required, and

            - The capacity of our storage

 

MRP systems as planning systems are proved to be very important to the organizations profitability as well as the organization’s customer support sensitivity and validity.

 

MRP systems have to be directly or indirectly connected with the main production and ERP systems so they have to be updated on all changes happen during the process.

 

The validity of an MRP system is directly related with the validity of the data entered and with the update procedures of any possible changes of external parameters or internal policies.

 

For example:

 

 - external parameters are the lead times, the cost of purchasing or the minimum order quantity

 

 - Internal policies are the desired inventory level, the working capital available or the capacity of our          storage.