What is Material Requirements Planning (MRP)?

What is Material Requirements Planning (MRP)?

RVJ
RVJ
Table of Contents
Table of Contents

If you are a manufacturer, you understand the significance of streamlining your manufacturing unit operations. Therefore, it is worthwhile to evaluate your setup carefully to ensure that you leave no stone unturned to control manufacturing problems.

Although the industrial sector has faced challenging times over the past 20 years, there are still many obstacles and problems to be resolved. Poor inventory management, inefficient quality control, and supply chain problems can be just the tip of the iceberg. If you seek to keep your business free from such problems, you must implement a material requirements planning system.

This blog post will examine how advanced industry-specific solutions with material requirements planning capabilities can resolve them.

Here is all that we shall learn:

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What is MRP?

MRP or Material Requirements Planning is a software that calculates the raw materials and components required to manufacture a product. It achieves this by integrating inventory and supply chain management for businesses.

Manufacturing businesses primarily seek to deploy an MRP system to take care of the various processes involved in the production of the final goods. Raw material inventory management and tracking the overall production schedule are the core concepts of MRP.

The other important factor is to keep a track of the labor capacity against the demand. The system helps the manufacturers know if there is a sufficient labor force to carry out the manufacturing process. Additionally, the level of machinery requirement is also assessed.

From scheduling the ordering of raw materials to evaluating machinery and labor capacity for the manufacturing process are all a part of MRP.

Primarily, the system drives three essential steps given as follows:

  • Calculating the existing inventory of materials and components
  • Identifying the components needed
  • Scheduling the production or purchase of the components that are in shortage

MRP can be referred to as the first computer-based inventory management system. It assists in creating a manufacturing plan for finished products by determining the number of components and raw materials that must be kept in stock.

MRP is instrumental in lowering inventory levels, shortening customer lead times, and ensuring that materials and components will be accessible when needed. Consequently, it leads to increased customer satisfaction. While these are the benefits it offers, it requires accurate data and upholds a rigid production schedule.

Moreover, some businesses may find its implementation expensive.

Why is MRP important?

MRP helps the manufacturer analyze a number of variables to provide demand forecasts. It gives a business the ability to determine the kind and quantity of a given product, make inventory projections, and plan production.

Additionally, it ascertains that finished items are delivered to the correct place at the right time for the lowest cost to satisfy customer demand.

Boosts Productivity

MRP, which is generally carried out through computer applications, aids in ensuring that the proper inventory is accessible for the manufacturing process. It helps achieve inventory management precisely when it is required and at the lowest cost. MRP boosts the productivity, adaptability, and profitability ratio of manufacturing operations.

Avoid Production Snags

Additionally, MRP enables businesses to adapt more swiftly to escalating demand for their goods and avoid production snags. The system also helps avoid inventory stockouts that could cost them, clients.

In other words, the MRP drives revenue growth and stability. It also facilitates increased workers’ productivity, enhances product quality, and lowers material and labor costs in factories.

Exponential Growth

Widely employed by manufacturers, MRP has played a significant role in the expansion and widespread availability of consumer goods at reasonable prices. It has resulted in enhancing the standard of living in most nations. It would be difficult or nearly impossible for individual firms to scale their operations as quickly in the absence of MRP.

The accomplishments in the 50 years since the introduction of MRP software have highlighted the benefits of automation in intricate calculations and data management procedures.

MRP and Manufacturing

MRP is crucial to a manufacturing operation's efficacy, productivity, and ultimately profitability. Manufacturers would not be able to meet customer demand for affordable and quality products if they lacked the necessary raw materials and components. They will also struggle to change production in response to changes in demand.

MRP can remove the majority of the uncertainty surrounding inventory and cut down on the time required to manage it. It can also improve the efficiency and predictability of the final stages of production, such as assembly and packaging.

MRP is helpful in both discrete manufacturing and process manufacturing. In discrete manufacturing, the finished goods are discrete, countable items like bolts, subassemblies, or automobiles. In process manufacturing, the finished goods are bulk items that cannot be separated into their component parts or counted separately.

History of MRP

The MRP inventory system's installation and ongoing innovation had a lasting impact that is still noticeable today.

  • Inventory was tracked manually until computer-engineered systems proliferated in the commercial world. Users eventually realized how ineffective hand-kept inventory was, which led to market demand for the most productive approach.
  • MRP was originally computerized by aero-engine manufacturers affiliated with General Electric and Rolls Royce in the early 1950s.
  • In order to leverage the Polaris program, MRP was redesigned before it was made available for purchase.
  • When MRP was initially introduced in 1964, Black & Decker was the first company to implement it.
  • MRP was used by more than 700 businesses as their inventory management method by 1975.
  • The MRP system has undergone constant improvement since 1975 to make firms more productive.
  • There have been numerous varieties of models of MRP have been introduced since then.

MRP models have developed and evolved with each passing stag. The characteristics of MRP have become better and more adaptive to the fast-changing dynamics of the manufacturing field. Owing to these evolutions, we can term MRP as one of the most popular and commonly utilized inventory management methods in today’s date.

Why do Businesses need MRP?

MRP is predominantly applied to the manufacturing businesses or production units of a company. We often observe that companies that are still working with outdated and inefficient control systems face many hardships. Also, manufacturing is a tough and lengthy job encompassing various big and small tasks. There are bound to be a lot of issues in such an assignment that has far-stretched horizons.

Besides the disruptions, the manufacturing process entails, problems can go beyond control without a well-ordered system. This section highlights the core problems in manufacturing operations that occur due to the absence of a sophisticated MRP system.

Inefficient Quality Control

In today’s age when communication is lightning fast, it does not take more than a few minutes for a piece of information to travel from one end of the world to another. With the advent of social media, information travels faster than we could ever imagine. Moreover, customers can be unforgiving and ruthless if a product makes them unhappy.

Therefore, today's manufacturers must make sure that quality control is integrated throughout the production process. Despite the fact that this is intrinsically difficult to accomplish, it is imperative to have systems capable of anticipating or effectively responding to production issues.

Checking with the supplier for the quality of your raw materials can be a good start if you seek good quality control. After all, the final product is as good as the utilized raw material. As a result, effective resource planning will be helpful in this situation so that your company can swiftly address and resolve faults that are caused by reoccurring problems with communication.

Poor Inventory Management

Inventory management is essential for efficiency and profitability. Good control systems are now even more crucial in just-in-time (JIT) production. This is especially important if you do not carry a huge amount of stock and need to know what you have on hand and be able to reorder it.

However, the advantages of efficient inventory control go beyond simple production efficiencies. This is to say that it also includes things like reducing waste and spending, both of which can have an effect on the bottom line.

These efficiencies can be delivered by modern MRP programs, but they must be built for the task. If you do not maintain your resource planning software or have not updated it, the associated MRP issues will lead to further manufacturing challenges down the road.

Supply Chain Problems

In the past, local vendors provided manufacturers with practically all of the raw materials and components they required. In the current world, it is simple and straightforward to source your requirements from suppliers that offer more worthwhile goods. Obtaining resources from sources other than the obvious ones may often prove to be advantageous as well.

However, there could be a variety of concerns with this worldwide supply chain. You could be facing concerns such as variations in prices, reliability problems, and difficulty with quality control, to name a few. This calls for implementing a system that consistently assesses your supplier's actions. The modern-day tools can offer controls that are necessary to get real-time updates and act quickly if and when issues arise.

Supply chain hassles can be astonishingly reduced owing to these systems. The data analysis, integration, and automation offered by modern manufacturing ERP solutions enable quick and effective decision-making.

Ineffective Process Management

As is rightly said, change is the only constant, your business must also be readily adaptable to the changes around. The uninterrupted commercial and industrial evolution has necessitated the use of coherent systems.

The manufacturing processes are no alien to the constantly changing dynamics. From handling enormous amounts of data to heightened customer expectations, your business must mold accordingly.

Manufacturers must have complete control over their operations in order to deal with these factors. Otherwise, you may face scenarios of providing hasty remedies to address shifting customer needs. These may eventually result in expensive manufacturing issues. Moreover, the outcomes in terms of quality may be questionable.

Consequently, investing in the proper manufacturing of ERP systems becomes critical. The software can guide you to control while yet being flexible to new challenges and changing circumstances.

Apart from this, software that has an eye on the future rather than being stuck in the past is required in a business environment where everything is connected smoothly. Today, there is no dearth of effective and affordable ERP packages that can be chosen by even small enterprises. Moreover, they do not have to rely on patched software or handwritten spreadsheets. Businesses can now channel their workforce into more profitable and fruitful activities instead of manual processes.

Importantly, businesses are looking for dependable IT partners to support them for adapting to the changing times. With all the endurance in the future's rapidly evolving manufacturing sector.

Data Management Failures

Today, information is easily accessible on a wide range of topics, including raw material pricing and supplier performance. Businesses produce enormous amounts of data. However, more often than not, this priceless resource is not utilized or remains underutilized.

If your company suffers from inadequate IT systems, you run the risk of facing the problem of underutilized data. You may lose out on the chance to acquire insights from such data and the possible benefits from these insights may also be lost.

This makes utilizing MRP a necessity. With an MRP in place, the same data can offer you multi-level benefits; especially, when it is properly compiled and examined by a new-age and industry-ready software.

How does MRP work?

Inventory management requires the use of material requirements planning tools. These tools could aid in the development of completed goods as long as raw materials are accessible. Other producers in the same niche or business may employ them if they are more than necessary.

When there are enough supplies, the supply and demand chains should ideally remain in sync. But when there are too many finished goods created and made available, there is a good chance that they are wasted.

MRP Workflow with Inputs and Outputs
MRP Workflow with Inputs and Outputs

On the other side, if there is a shortage of inventory, customers and shoppers will opt for another brand, leading to multi-level losses to the company. Loss of clients may lead to a decline in business. Therefore, having enough stock or inventory is essential to satisfy demand and maintain a seamless supply chain.

MRP system’s role revolves around assisting the producer in doing numerous analyses and creating demand projections. It determines the inventory levels and aids in creating plans for manufacturing. It ascertains that finished goods are delivered at the most reasonable cost and at the appropriate time.

Thus, we can say that all these MRP features aim towards meeting two fundamental goals of a manufacturing company, which are: fulfilling the needs of the customer and enabling the business to comprehend the type, quantity, and delivery of a specific product.

MRP Process and Steps

There are four main steps that make up the MRP process:

MRP Steps

Determining Requirements to Satisfy the Demand

Inventory Review and Resource Allocation

Production Planning

Recognizing Problems and Offering Suggestions

Determining Requirements to Satisfy the Demand

As a first step, the companies must establish clarity on the demand they face. By entering customer orders and sales predictions, the MRP process begins by determining consumer demand and the requirements necessary to satisfy it.

The system then breaks down the demand into the individual components and raw materials needed to finish the build while accounting for any necessary sub-assemblies using the bill of materials needed for production.

Inventory Review and Resource Allocation

You can monitor the products in stock, the quantity, the type of products, and the location by using the MRP. This information is useful for comparing the demand to inventory and allocating resources. Inventory review and knowledge about resource allocation are crucial if you have inventory spread out over various sites.

Additionally, you can view the status of items, providing visibility into both those that have been ordered but have not yet arrived at the warehouse and those that have been allocated to a different project. The MRP then directs inventory to the appropriate places and generates suggestions for reorders.

Production Planning

This is a significant feature of MRP as the system calculates how much time and labor are needed to finish each phase. Also, it lets you know when they need to happen so that production can proceed without interruption using the master production schedule.

The necessary work orders, purchase orders, and transfer orders are generated based on the production schedule, which also specifies what equipment and workstations are required for each phase.

The system also accounts for how much time each subassembly consumes when scheduling subassemblies if the build calls for them.

Recognizing Problems and Offering Suggestions

MRP being an efficient system, facilitates the connection between work orders, customer orders, and raw materials. This way, it can automatically notify your team when items are delayed. You can, thus, receive suggestions for current orders.

Data required for MRP systems

You will have to define various criteria while working with MRP. A comprehensive set of data is necessary for the effective operation of an MRP inventory system in a company. The following points reveal the information you will need to enter into the system.

End Item or Items: The MRP system asks the user to specify the kind of product being produced and the precise level of demand for it.

Time and Quantity: You must mention the quantity needed to fulfill specified demand schedules in the system.

Current Forecasting: If there is information on what you have already predicted, the organization may be alerted to necessary modifications. This helps to align inventory and demand.

To establish near-perfect forecasting, you will need to know the seasonal trends and optimize the production rate based on the demand.

Government Policies: Compliance is a crucial element, and therefore, you can import the locally applicable government policies into the system. This way, you can stay compliant in the various areas of your business operations.

Shelf Life: The planning component of an MRP system needs to know how long a product can stay in the warehouse.

A business can use the system once all the data has been entered into it.

MRP Inputs

Once you have your necessary data ready with you, it is now time to take a look at the input files required in an MRP system. They are given as follows:

Master Production Schedule (MPS)

A production plan known as the master production schedule (MPS) outlines which goods will be produced along with their quantities and start dates. It can be termed the backbone of the production or manufacturing process.

Maintaining the schedule can be challenging because you must strike a balance between generating enough inventory to meet expected customer demand. Moreover, you must also manufacture enough to fulfill expected orders.

When there are shortages of raw materials and extensive lead periods for ordering raw materials, the scheduling can get more difficult. Scheduling also gets hampered due to production process bottlenecks, equipment breakdowns, and low workforce levels.

When you manage your MPS well, it shall help you with the following:

  • serve as the blueprint for the administration of the manufacturing processes
  • helps in keeping production stable
  • helps build realistic plans for manufacturing orders
  • serve as the link between precise production operations and broad corporate strategy
  • enable clients to receive trustworthy delivery commitments
  • aid in the planning of the utilization of the production capacity that is available
  • increase the manufacturing process's effectiveness
  • lowering your lead time
  • guides in making correct purchases and transfer orders

How to create Master Production Schedule?

A useful MPS can be created with the help of the elements listed below:

  • Product list: This has all the product models you manufacture. You can have them listed alphabetically or based on their popularity.
  • Variation sub-lists: You must have a field allocated for each product variation and also for each SKU.
  • Year, month, and week: Keeping records is important for tracking the progress and also for accurate demand forecasting. Breaking up the schedule into months and weeks can help define and assess your plans accurately.
  • Quantities of production: This is the number or quantity of products you determine to manufacture in a week.

Bill of Materials (BOM)

A complete list of the components, goods, assemblies, subassemblies, intermediate assemblies, documents, drawings, and other materials needed to make a product is called a bill of materials (BOM). The BOM, which is presented in a hierarchical style, can be compared to the recipe used to make a final good.

The BOM depicts the structure of the product. It includes details regarding all necessary sub-components, their quantities, and the order in which they are assembled to make the final product. It also contains details on the work centers carrying out buildup operations.

Vendor, part number, manufacturer, description, PCB footprint, and so on are some of the fields that are commonly observed in a BOM. Single-level and multi-level BOMs can be used in companies based on the kind of operations they have.

How to create a BOM accurately?

You must include the elements enlisted in the following when creating an accurate Bill of Materials.

  • BOM level: Give each component or assembly a number to indicate where it belongs in the BOM hierarchy. Anyone may easily comprehend the BOM's structure and all of its components through the BOM level.
  • Part number: Each component in the BOM should have its own part number so that anyone working on the manufacturing process may quickly refer to and recognize parts.
  • Part name: Each part, material, or assembly should have a thorough and distinctive name that anyone in your shop may use to recognize the part without consulting other sources.
  • Description: Include a thorough, insightful description of each material or component in a BOM. The description aids in part identification and helps you and others tell apart comparable parts.
  • Phase: Note the stage or phase of each component's lifespan that it is in. "In Production", "Unreleased" or "In Design” are some terms used to describe the stage in which the product is in currently.
  • Procurement type: This describes the way that each component is acquired.
  • Quantity: Here, you must specify how many units or quantities of each part are utilized in each assembly.
  • Unit of Measure (UoM): You must determine the unit of measure that is being used to quantify the part or material. Examples include "inches," "millimeters," and "ounces." By defining UoM, you can ascertain that the shop floor gets deliveries of precise quantities.
  • BOM notes: Aside from other components of the BOM, you must include any additional information that is relevant to produce the final product.

Inventory Status File

An updated record of each item in the inventory is kept in the inventory status file. This file contains details on each item, including its procurement lead time, quantity purchased, safety stock level, quantity on hand, and item identification number.

MRP Outputs

The output of MRP will have the following elements:

Planned Order Receipts

This is the quantity of an item that may be ordered so that you receive it at the start of the said period to satisfy the period's net requirements. This order will be placed soon; it has not yet been done so.

Planned Order Release

This is the quantity of an item that is planned to be ordered. It must be ordered within the anticipated time frame to guarantee that it is delivered when required. Offsetting the expected order reception by the item's procurement lead time yields the planned order release.

Stock-out incidents, purchase commitment reports, inventory forecasts, and more are all a part of planned order releases.

Order Rescheduling

This emphasizes the necessity of expediting, slowing down, and canceling open orders, among other actions. There could be numerous unforeseen circumstances in a business that can be addressed with the order rescheduling process.

Besides the above-mentioned points, we must note that there are various other output reports generated by the MRP. These include order release notices, rescheduling notices, cancellation notices, and reports on inventory status.

Advantages of MRP

MRP is a crucial production tool that offers the company a number of advantages. Let’s learn about the top 8 advantages MRP systems offer.

Inventory Management

If you are looking to speed up your production process, inventory management is something that must take the front seat. MRP systems use information from the production schedule to calculate the precise quantity and price of inventory needed to meet the demand.

MRP systems present you with the right amount of components and materials in stock, which lowers the cost of carrying inventory. As a result, this lowers and optimizes the cost of inventory throughout the course of a production period; thus, resulting in organized inventory management.

Purchasing Strategy

Knowing what is available, what to buy, and when to get it is crucial for streamlining the production process. A proficient system is needed for purchase planning in order to monitor the production processes and identify any purchases that are required.

Additionally, it is required to compare those purchases to the production schedule and anticipated material deliveries. MRP guides procurement managers to automatically contact vendors whenever they have to make a purchase.

Production Planning

MRP systems identify the hold-ups or congestions in the production line brought on by a shortage or a drop in material. When this occurs, the system can present suggestions for rerouting production to the manufacturing of a new product where supplies are available. Alternatively, it can reroute the production itself.

MRPs can also direct resources toward one stage of the production process instead of another process that lacks the necessary raw materials and components. Even when there are limitations on the availability of materials, MRPs assist manufacturers in planning their production lines.

With such precise suggestions, the MRP system ensures seamless production planning.

Production Schedule

Work scheduling controls the amount of time that is spent in active production and forecasting projected yields. It is also helpful in ensuring production schedule conformance. Using the given inventory, MRPs depict the overall production process.

Managers can control hourly operations, equipment, and labor duties. Moreover, they may even correctly forecast labor time and operational expenditures using this information.

Optimization of Resources

All industrial processes and the quality of the end product depend on its raw materials. The manufacturer is better positioned to obtain insights into the raw materials and other useful resources when they have ready access to information. They can command the processes better when they are well-informed about the availability of the raw materials and the anticipated yield.

Here, information is the driving force that keeps the manufacturers informed. The MRP system provides the manufacturer with information on when extra labor is needed or what equipment is needed at what time. Apart from this, the system can also indicate whether to hire or purchase operational assets.

An MRP system's effective production scheduling helps you determine the number of workers and materials you shall need. Additionally, it also offers insights into whether you are using all of your production capacity or going overboard. Some solutions include an integrated accounting module that enables you to monitor the business's finances and spot cash leaks.

Documentation and Data Management

A huge amount of data is produced, examined, and presented during the manufacturing process. MRP systems offer support to manufacturers in managing this data. MRPs process and record data gathered from purchases, inventories, deliveries, cash flow, invoices, lists, reports, receipts, and other elements.

This way, the system facilitates a systematic procedure for documentation and data management.

Cost-efficient

The method determines the most economically-feasible purchase to meet demand by factoring in the quantity and cost of materials required. It includes the cost of shipping, storage, and carrying. MRP systems accurately and economically optimize purchases, offering insights into unrequired purchases; thereby, saving the company money on such purchases.

Elimination of Manual Tasks

MRP systems are entirely automated and do not require much human intervention or help. This saves a lot of labor and time that would otherwise be required for managing inventories, procurement, and production.

Unlike the earlier days, when inventory keeping and entering numbers were done manually on a sheet of paper, today's times have changed for the good. Even when compared to the spreadsheets which required man-made entries, the MRP system automates aspects to rule out any errors. Also, we cannot overlook the number of hours spent by the staff on tedious processes.

Owing to its automation feature, the system offers a high level of precision as compared to any human method that may be prone to mistakes. Additionally, it controls and archives production data. So, when one system can handle all the significant tasks, it eliminates the deployment of a whole team.

Improved Customer Relations

The only thing your customers want is to receive the correct order on time. Correctness of order means they receive the right quantity they ordered and for the price they agreed upon. When you give clients lead times and costs based on a variety of data sources and your intuition, this is a challenging assignment.

However, with the MRP system in place, accurate deliveries will become the norm. Owing to the MRP system's ability to calculate these figures automatically based on your current inventory levels, supplier lead times, and available production capacity, order fulfillment becomes straightforward.

Even if there are unforeseen delays in your production process, you may still notify your clients right away about a delayed delivery. This way, they can take the appropriate business-related steps on time.

Supply Chain Traceability

Tracking and traceability are significantly improved when you use the MRP module to assist with inventory and production tracking. Every event in the supply chain should leave a trace so that you may identify the source of any irregularities, organize product callbacks, and get rid of any causes of product non-conformity.

This is useful no matter what you manufacture, but it is particularly crucial in sectors with rigorous rules, like the food, healthcare and pharmaceutical sector, automotive sector, and so on.

Achieve more Scalability

Managing several suppliers, customers, and members of your own staff could be an uphill task. Coupling these with the management of thousands of stock keeping units (SKUs) and hundreds of bills of materials (BOMs) becomes a monumental undertaking.

MRP solutions have the ability to expand with your firm quickly, unlike spreadsheets or manual methods. This gives you the flexibility required in today's fast-paced corporate climate.

Using the right industrial resource planning software, which enables you to scale your organization as necessary, makes this much simpler.

Disadvantages of MRP

Although there are multiple benefits of MRP for manufacturing units and companies, there are a few disadvantages that one should be aware of. This section takes us through those points.

Resources get tied for implementation

From time to staff, your company will need to invest a lot of its resources to pull off the implementation of MRP. Every time business software is implemented, time must be taken away from other tasks, especially if the project is kept within the organization.

Then there are licenses and other fees. Companies need to take into account more than just the MRP system's license or subscription fees. Prior to implementation, a significant amount of work is also spent evaluating various solutions.

You will also need to take into account the fact that, if a new team is to be employed, their compensation may actually be higher than the cost of the software. In other words, you will have to keep your resources occupied, tied up, or invested in the implementation process.

Business requirements to be precisely articulated

Before selecting any software, you should list all the requirements your company has for the new system. Otherwise, you run the risk of selecting a solution for your business that prevents you from realizing the anticipated benefits. In some cases, it may end up being a money pit owing to complicated implementation and use.

The MRP system you choose should have all the features you require, be affordable for the firm, and be as simple to use as possible given the number of IT experts on your employees. Therefore, it is significant to have a clear vision of the kind of system your business requires. Failing to do so can have an adverse effect on the financial well-being of the organization.

Everyone must be involved

When you decide to deploy software that can have long-lasting effects on the operations across the company, you need to enroll all the heads and leaders in the process. You would also require to engage a lot of your employees who would be the future users of the software.

Onboarding all the team leaders and most of the staff for this purpose may cause disruption in their work schedules. While they are collecting and giving insights into the system and its functions, the productivity in their core areas may take a dip. Simply put, you may witness a low yield as everyone is involved with the implementation process.

Raised Expenses, Lengthy Implementation

Expenses could be a very obvious impediment while deploying the MRP framework. While MRP systems are known to be budget-friendly systems, the complications they entail cannot be overlooked.

You may experience a rise in your expenses owing to the complications in deploying the system. Moreover, the testing and maintenance of the product also tend to consume a considerable amount of capital.

Apart from this, the implementation of MRP can often be a lengthy process which may lead to a rising restlessness within the staff associated with it. While these are minor hiccups and would not last long, they are still one of the disadvantages of implementing MRP.

Tips for Successful MRP Implementation

All business operations require a certain optimum conducive environment to provide profitable outcomes. Similarly, a manufacturing company requires the right methods to deploy the MRP module of the ERP system. (We have covered the difference between MRP and ERP shortly following this section.)

Before you set out to begin the implementation of MRP, you must be mindful of certain important aspects. First and foremost, work out the capacity of your team to comprehend business requirements. The second most important point is to choose a system, and finally, to plan deployment.

The selection process is similar to the selection process for an ERP. To optimize the benefits of your new system and speed up deployment, further measures must be taken.

This section helps us with some tips you can adopt to get the best possible results. Here we go:

Consider the Size of Your Company

While you are a manufacturing firm, get enough understanding of ERP systems. Know if you really need it and if you have enough resources to keep it running.

ERP systems could be unviable for micro companies or for companies with around 10-15 employees. They will need to consider both human and financial resources before implementing ERP with an integrated MRP module.

This sums up that you must consider the size of your company and only then determine whether or not your company really needs an ERP.

Allocate adequate Resources

ERP system implementation is a one-time process. Therefore, you must ensure that all the necessary resources are aligned accordingly. It is a big project and will, thereby, require enough expertise from your end.

Before implementing ascertain that you have enough staff and talented professionals who can carry forward the deployment accurately and effectively. Also, do not forget to include all the heads of different units in your company in the implementation project team. These people will become the primary users of the ERP and, therefore, must be a part of the implementation team.

Keep Micro-management Away

Try to identify crucial jobs as they will have the biggest impact because the ERP/MRP system is meant to address the biggest manufacturing-related issues. If you concentrate more on micro-automation, it will only make the installation project more difficult.

Establish a small set of primary project goals that must be tightly tied to the business procedures and issues you wish to address. Avoid wasting time and effort on activities that may appear pleasant but have little impact. At all times, we must remember that the business should be the focus of the goals, not automation.

Ensure Perfect ERP Implementation, Step by Step

While a lot depends on the size of your company, it is still advisable that you start and complete ERP installation considering each module at a time. The system can be put into place according to personnel, functionality, and module.

For instance, before delegating tasks to line workers, managers initially report on completed manufacturing orders. Thus, the process should be completed in a stepwise manner.

Carry out Data Classification

This is one of the most important steps. Before the ERP is installed, ensure that all your data is categorized into appropriate groups. You can consider creating logical product groups to establish accurate categorization of data.

The step is crucial as you may not be able to change or modify the groups once the ERP installation has been completed.

Understand Testing and Implementation Clearly

While implementing ERP, you must have thorough clarity over testing and implementation, as the two are distinct from each other. This is so because if you use real data while testing, it may make things more complicated. You can use proxy data for carrying out the testing of the system.

Also, when you use actual data while testing and mix the data with test data, you may face problems while cleaning the database. It is, therefore, recommended that you do not use your actual data while testing and use it only when you begin with actual implementation.

Adapt when Customization is not Possible

As a company, you may want to have the best ERP the market has to offer, one that solves all your business problems. However, practicality can be different from ideal scenarios. Then again, often, companies are of the thought that they would customize the software to suit their every single need.

Yet again, that is nearly impossible. Customization is not always the only solution. Not every business can lay its hands on that perfect ERP. Therefore, you can look towards adapting your business requirements could prove to be more efficient in the long run.

Keep Your Users Informed about Project Goals and Timelines

Before you have the ERP in place, you know the people in your company who would be interacting with the system. Ensure that everyone who will interface with the ERP system is aware of the objectives and timetable for deployment.

This means that there should be a single general meeting held at the start of implementation, followed by ongoing communication. Such practices ensure that all the participants are on one page and are regularly updated about the proceedings.

Train Your Users/Team Members

Effective utilization of ERP comes from complete knowledge of it. So, once you have listed down the people who would be using the system, the next step would be to ensure they use it properly. This will require you to offer them training programs and tutorials for efficient utilization of the system.

To accomplish this, you may either train some of the users, and they shall carry the explanation to other team members. The other way is to ask the software vendor to impart a complete tutorial on how to use the system.

Trust Experienced and Expert Project Leaders

ERP implementation is a huge project and requires meticulous planning and well-outlined milestones. Besides these factors, you also need the right people who can make all this possible.

So, ensure that you have expert and experienced project leaders in your teams to help materialization of goals. In case you do not have an expert within the company, you can hire a contractor with the right skill sets for the job.

Do not Give Away the Old System Yet

ERP implementation requires scrupulous management at every juncture. While you will take all the necessary care, outcomes can be uncertain. After implementing the new ERP software, it is preferable to continue using the old system in tandem with the new one for at least one to two months.

This makes it easier to verify that the new solution has been set up and is being used correctly. For instance, you can compare the reports generated by the old and new systems.

Additionally, you will be able to go back to the old system in the event of serious problems with the new one.

Important Aspects that vary from Provider to Provider

When companies opt to carry out the implementation of the MRP system, there are a few factors that they must be mindful of. There are a ton of software companies that serve the manufacturing industry.

This market diversity may be advantageous if your software requirements are well-defined, but the more ambiguous your specifications, the more challenging it will be to discover the ideal solution. Furthermore, you shall come across a number of providers with varying features and factors associated with the MRP system. A corporation must take into account these factors before considering looking for an MRP system:

Price

A cloud-based MRP system might cost $50 per month, while an on-premises MRP system might cost hundreds of thousands of dollars. When businesses need experts to help them, they should also factor in implementation expenses.

Range of Capabilities

Many MRP systems were created as extensions of existing accounting software, which gives the system a strong accounting focus. There are many solutions and combinations that may still have extremely low manufacturing-related functionality. Businesses can have different requirements, but when it comes to an MRP, it must offer functionalities focusing more on manufacturing operations.

Owing to this, businesses should choose a product that was created especially for the manufacturing sector.

Simplicity

MRP systems have a reputation for being cumbersome, complex, and challenging to use. Choosing software that is simple to use for everyone, from management and accounting to the shop floor, should be one of the top priorities for a business that does not have any in-house expertise in information technology.

If yours is a business that lacks this kind of talent pool, then you must opt for a system that is simple to use.

MRP Vs. ERP

Material Requirements Planning and Enterprise Resource Planning sound similar and may lead to confusion among your workforce. However, it is immensely crucial to learn that the two are different.

In a  broad sense, if ERP is a system, MRP is its subsystem. To understand the difference better between the two, first we must learn about the relationship between them.

This section will clear any doubts you may have about the two systems. Let’s start.

What is ERP?

Enterprise Resource Planning is a system that facilitates an organization with integration of the various units like accounts, sales, CRM, SCM, and human resources. All the information from all these units is stored and collected from a central database. This allows all the units to access updated information in real time.

Additionally, one of the most important offerings of an ERP system is automation. By automating business tasks, ERP enables the company execute operations. By doing this, the company can eliminate a lot of manual tasks and reduce errors due to man-made entries. This way, they also prove to save time and operating expenses.

Features of ERP

The following image depicts the typical modules or features that an ERP system comprises. Offering a wide range of functionalities, ERP serves you with astonishing features. There could be some additions or modifications based on the business requirements; yet, the most probable units covered under a typical ERP system are the same.

Let’s see what they are.

Features of ERP
Features of ERP

Features of ERP 

Accounts and Finance

  • This module of ERP gives insights into the overall financial well-being of the company. 

  • Functions like profitability analysis and revenue management are frequently supported by the ERP finance module, which is sometimes known as ERP core finance or financial management.

HRM

  • The ERP module for human resource management oversees the entire human workforce. 

  • Hiring, onboarding, overtime, employee benefits, payroll, and other such employee-related factors are taken care of by this unit.

SCM

  • Supply chain management module plays a pivotal role in efficient planning, execution, sourcing, delivery, and even returns. 

  • It also helps oversee or monitor supply activities.

Sales and Marketing

  • Order placements, order scheduling, invoicing, and shipping are some of the core activities fulfilled by the sales module of ERP.

  • It also includes sales orders, sales quotations, sales invoices, delivery notes, and so on. 

CRM

  • You may access order history, customer contact information, information about purchase orders, lead management, and marketing automation operations all in one place by using the CRM module. 

  • All of these factors may work together to improve customer retention and loyalty.

Automation

  • ERP oversees the automation of time-consuming and laborious tasks. 

  • Automation enables error-free data transmission from one system module to another.

Integration

  • ERP is modular software that unifies an organization's business functions into a cohesive, database-driven system.

  • Performing data-driven tasks, evaluating data, and carrying out monitoring is made easy while using ERP software. 

  • To facilitate communication, ERP systems gather, store, and analyze data from all organizational departments.

Tracking and Traceability

  • This is one of the best features of ERP since it makes it possible to facilitate something as important as supply chain visibility.

  • With the integration of the inventory module with the rest of the modules, visibility gets enhanced, and tracking becomes simpler.

Data Analysis

  • ERP paves the way for data analysis based on the updated information stored in it.

  • Important information like client data, production stats, and sales data are shared by the system for further analysis.

  • The system helps with demand forecasts, creating budgets, and so on.

Features of MRP

Features in an MRP system are also subject to the business requirements of a company and, therefore, may vary across companies. The image below in this section explains the typical features offered by the MRP system.

Features of MRP
Features of MRP

FEATURES OF MRP

Raw Material Scheduling

  • The strongest strategies for material planning will fall short if a delivery is late or unreliable. 

  • Delivery of raw materials should be scheduled using the system, which should also offer precise lead-time estimations.

Raw Material Ordering and Costing

  • Managers can lower manufacturing costs without compromising quality by knowing the precise costs for raw materials as well as cost variations between suppliers.

Labor and machinery capacity calculation against demand volume

  • Regardless of demand, the availability of people and equipment affects production volume. 

  • For the system to avoid overordering and enhance client experiences, the maximum manufacturing volume must be taken into account.

Strategize or Modify the raw materials plan

  • Changes to order quantities, delivery schedules, and prices may impact customer service. 

  • The MRP system allows for the possibility of modifications and provides managers the freedom to modify their raw material plans as necessary.

Compatibility with existing systems 

  • The MRP offers simple-to-integrate systems; it allows you to have new system work with both internal and external partner systems.

  • This implies the MRP can be compatible with your supplier’s, distributor’s, and reseller’s systems. 

Shop floor control and Quality Assurance

  • Floor managers can enhance quality control, boost labor productivity, and lower turnover with the aid of the performance management feature of MRP.

Reconciliation of the inventory

  • Order changes or cancellations will cause inventory inconsistencies; hence the system provides inventory reconciliation in order to control carrying costs.

Sales Analysis and Forecasting

  • Shorter lead times and increased production value will be made possible by ongoing sales and production predictions within the material requirements planning system.

Compliance with safety requirements 

  • An ideal MRP system facilitates compliance with the latest government policies for the safety and security of employees.

What is the Relationship between MRP and ERP?

MRP and ERP work together to streamline corporate processes. However, ERP can be referred to as the main system that has many modules; and MRP can be viewed as one of the modules or subsystems of ERP.

An ERP solution's MRP software functions as a subsystem, providing data on resources and materials to the ERP solution, which combines and uses that data to inform other business departments. For example, your finance department can utilize the data the MRP system sends to the ERP to compute accounts receivable and the cost of manufacturing to set product prices.

While both are technologies that have a significant impact on the industrial sector, they have helped in boosting productivity and efficiency in manufacturing units along with shortening the production cycle.

What is the difference between MRP and ERP?

The following table helps us understand the difference between MRP and ERP more clearly. Let’s run through it:

Factors

MRP

ERP

System Architecture

A solo system or software

An integrated software providing real-time information across your business functions

Integration capabilities

Requires complicated procedures for integration with other software

Easily gets connected and integrated with existing or other systems

Users

Offers limited usability (only for production staff)

Different users from different departments can use it.

Scope of Operation

Focuses only on manufacturing procedures like BOMs, quality assurance, capacity scheduling, raw material scheduling, inventory tracking, and so on

Handles diverse business functions like HRM, SCM, CRM, accounting, asset tracking, etc.

Cost

Less expensive

More expensive 

The fact that MRP functions more independently of ERP is another distinction between the two systems. It is possible to merge some systems with others, but doing so can be difficult. However, integrating ERP systems with other existing or older systems is generally simple.

The main distinction between ERP and MRP is that whereas MRP systems are primarily focused on materials management, ERP systems assist in the planning and automation of a number of back-office company tasks. Accounting, production, supply chain, customer management, quality, procedures, and planning are all directly impacted by ERP.

However, MRP's procurement and planning capabilities for industrial materials are more constrained. Users of each system will, therefore, vary as a result. ERP software can be used by people from many different departments, but MRP tools can be used by people who have a connection to manufacturing operations.

What does Your Company need: MRP or ERP?

Now that we have a fair knowledge of the key features and benefits of both ERP and MRP, the question arises: which one should I choose?

Well, the answer lies in the multiple considerations, which we shall visit in this section. A few factors must be taken into account while choosing between an ERP and an MRP system. If your firm only requires assistance with manufacturing operations and stock control, an MRP system can be adequate.

On the other hand, an ERP solution if your business wants better integration to manage additional operations. Which technology is appropriate for your operations will depend on your business policies, your budget, and other factors, but there are a few points you must be mindful of.

You can ask a few questions that help you arrive at the right decision. Let’s see what they are.

Budget

How much is the budget? This could be a defining factor when choosing between the two systems. When a corporation invests in an ERP system, they often find that the system's process optimization increases productivity and efficiency to such high levels that the investment eventually pays for itself.

Since MRP systems offer a simpler solution, they are less expensive. Examine what an ERP system can accomplish for your business and how it will impact your growth and bottom line before allocating funds toward it.

Optimization

Next comes, what level of optimization are you seeking? An MRP system is ideal for you if all you need to do is optimize your production processes. If you want to automate, integrate, and optimize processes that go beyond manufacturing into accounting, human resources, and other areas, you will need ERP software.

Rapid Business Expansion

Is your business expanding quickly? A company on the cusp of considerable corporate development will need to rely more and more on automation and standardized, simpler operations in order to succeed and keep up with the expansion. An ERP system must be implemented as a result of this. You could only need an MRP tool if your company is anticipated to remain stable.

In a Nutshell: When to choose MRP or ERP?

Fast-growing businesses may find ERP more suitable.

If you need to streamline all business units, then ERP may be more suitable.

If you need a system with a lower budget, MRP is the answer owing to its lower cost.

If you need only production-associated tasks, then MRP may be a more apt solution.

MRP FAQs

This section takes us through some of the most frequently asked questions pertaining to MRP. Let’s take a look.

Q: How does MRP help a business?

A: Owing to MRP, you shall observe that the inventory levels are optimized, manufacturing productivity is increased, and you have better customer satisfaction. It also ensures that materials and components are available when required to meet the demand.

MRP helps the manufacturer analyze a number of variables to provide demand forecasts. It gives a business the ability to determine the kind and quantity of a given product, make inventory projections, plan production, and make sure that finished items are delivered to the correct place at the right time for the lowest cost to satisfy customer demand.

Q: What are the three primary sources of MRP?

A: The three primary sources of MRP are the Bill of Materials (BOM), Inventory Status File (ISF), and Master Production Schedule (MPS).

Q: What is the primary objective of MRP?

A: A digitally controlled inventory management method called material requirements planning helps manufacturers to assess the availability of raw materials against their ability to produce goods in accordance with demand forecasts.

Once they have this information, they can organize and schedule the final product's manufacture and delivery. Thus, the primary objective of MRP is to increase efficiency and assist firms to avoid having too much inventory.

Conclusion

A manufacturing system based on sales forecasts is called material requirements planning. It enables floor managers and planners to arrange deliveries of raw materials, calculate the amount of material required to meet production needs, and develop labor schedules.

Companies utilize material requirements planning (MRP), an integrated inventory and supply management system based on software, to project raw material amounts and plan output.

MRP computes the materials required, their quantities, and their timing for use in the manufacturing process based on inputs from the Master Production Schedule, Inventory Status File, and Bill of Materials (BOM).

Speaking of choosing between ERP and MRP, consider your costs, the rapidity of expansion, and the level of integration and optimization you need. If your is a business that needs to focus only on production-related activities or a low-cost system, then MRP can be a good choice. However, if you need integration across all your business modules, then ERP is the finer option.

As a business owner, you need to honestly examine your production procedures to identify any inefficiencies. Do not wait if quality or growth concerns are causing trouble for your manufacturing company.

Go ahead and make the decision to invest in improvement right away. You may choose to get MRP system professionals to examine your operations and deliver a thorough analysis.

How can Deskera Help You?

As a manufacturer, you need to be at the top with your raw materials inventory. Planning the production, engaging labor and machinery, and assessing the demand are the factors that are directly impacted by your inventory status.

Here are some key functionalities served by the system:

  • Easily track stock-keeping units (SKUs)
  • Efficiently assemble products with Bill of Materials
  • Trace shipments with USPS and FedEx in real-time
Deskera ERP
Deskera ERP

Deskera ERP is a comprehensive system that allows you to track your inventory, manage suppliers, and track supply chain activities in real time; also, it streamlines diverse other business operations.

Deskera Books lets you handle your accounts and finances efficiently. Now maintain healthy accounting practices with automated accounting tasks, including billing, invoicing, making payments, and so on.

Deskera CRM is a powerful tool that takes care of your sales and helps you close deals swiftly. Enabling you to accomplish crucial functions like generating leads with emails, it also lets you have a complete view of your sales funnel.

Deskera People is a super-easy tool that helps you get control of your human resource management functions. The tool not only helps you process payroll faster but also lets you cover all the other activities, such as managing overtime, benefits, bonuses, training programs, and much more.

Steamline Your Manufacturing Process with Deskera
Contact Us Today to View a Demo of Deskera MRP!

Key Takeaways

  • MRP or Material Requirements Planning is a software that calculates the raw materials and components required to manufacture a product. It achieves this by integrating inventory and supply chain management for businesses.
  • Manufacturing businesses primarily seek to deploy an MRP system to take care of the various processes involved in the production of the final goods.
  • Raw material inventory management and tracking the overall production schedule are the core concepts of MRP.
  • MRP can be referred to as the first computer-based inventory management system.
  • MRP is instrumental in lowering inventory levels, shortening customer lead times, ensuring that materials and components will be accessible when needed, and increasing customer satisfaction.
  • Boosting productivity, avoiding production snags, and help achieve growth are the reasons why MRP is important to businesses.
  • Inefficient quality control, poor inventory management, supply chain problems, ineffective process management, and data management failures are some of the common problems that businesses can solve with the help of MRP.
  • Steps in the MRP process include determining requirements to satisfy demand, reviewing inventory, allocating resources, planning the production, and recognizing problems.
  • Some of the key benefits of MRP are inventory management, purchase strategy, production planning, production schedule, resource optimization, and supply chain traceability.
  • Occupying too many resources and raised expenditure are some of the cons of deploying MRP.
  • Master Production Schedule (MPS), Bill of Materials (BOMs), and Inventory Status File are MRP input elements.
  • Planned order receipts, planned order release, and order rescheduling are the MRP output elements.
  • When confused between MRP and ERP, businesses can consider their budget, expansion speed, and required optimization for their business.
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