What is Material Requirements Planning?
Material Requirements Planning (or MRP) is a method that is used for the purpose of calculating the components and the materials, which in turn will be needed for the sake of making a product. Ideally, one can say that it has three broad, main steps. They would be as follows:
- Taking note of the materials’ inventory and the components which are readily available on hand.
- To identify the additional ones which would be required for the sake of seamless working of the manufacturing and production processes.
- Scheduling of production or the purchase of raw materials and components, as there might be a need to ensure that there are no unwanted delays in the production pipeline.
So now that you have a brief idea of what MRP is all about, we are going to take it further.
The Material Requirements Planning Background
It is good to have some background on the concept of material requirements planning and to understand how it came into being, as well as knowing the companies that implemented it right away.
The Material Requirements Planning process was initially created so that it could be fed to the Polaris program. It was mainly an answer to the Toyota manufacturing program. Joseph Orlicky was credited with developing the material requirements planning process.
Black and Decker happen to be the first company to have used MRP. This occurred in the year 1964. Soon enough, by as early as 1975 there were as many as 700 companies using this system. In the next five years or so the number jumped to a staggering 7000 firms.
In the year 1983, Oliver Wight developed MRP II (Manufacturing Resource Planning). This was a more advanced version of MRP, and it took into account things like master scheduling, rough-cut capacity planning, capacity requirements planning, and so on.
Now let’s take a look at the details of MRP II in a more detailed manner.
The Manufacturing Resource Planning
As the Material Requirements Planning (or MRP I) was used profusely, people found the need to have something more advanced, which could better deal with demand forecasts and capacity control. This led to the birth of MRP II.
It could mainly be categorized as a method that is used for effectively planning the different resources that are a part of a manufacturing company. It, therefore, addresses the different operational planning units, and also deals with financial planning. It encompasses several aspects which include, but which is not limited to the following:
- Mastering the production schedule
- Itemizing the master data
- The bills of materials
- The inventories and order handling
- Managing the purchases
- Capacity panning
- Standard costing determination
- Cost control and so on.
Hence, we can clearly see that Material Requirements Planning (MRP I) is an essential sub-part of the Manufacturing Resource Planning (MRP II) system.
One particularly interesting part of MRP II has to be capacity requirements planning. Let’s delve in further and discover what it is:
Capacity Requirements Planning
For any business to run successfully, the present should not be its only focus, as it should have a clear and well-thought-out plan for the future too. Capacity requirements planning is mainly a process that a company uses to determine how much it should produce so that it will be able to meet future demands. One has to understand both under and overproduction can be detrimental to the growth of the firm, as it can culminate in losses.
The demand and supply curve is always dynamic, and so it is important that companies try and assess the market conditions, to decide what would be the apt production supply. Those businesses which tend to have more seasonal sales need to calculate the capacity requirements much more frequently.
Owing to the critical use of capacity requirements planning, MRP II enjoys much better popularity compared to MRP I. Now, let’s focus on the key differences:
MRP and MRP II - The Differences Mapped
Like we have mentioned before, manufacturing requirements planning II is nothing more than an advanced version of material requirements planning. Additionally, the terms are often used interchangeably these days.
MRP can be referred to as ‘manufacturing-centric’. The underlying purpose is simply to schedule the raw materials and components and then control those areas of productions, which can help you fulfill customer orders. Therefore, it has a limited capacity to control production, based on demand forecasts. This is by far the main distinguishing factor when it comes to MRP I. MRP II, on the other hand, deals with several other aspects of production too. It would take into account the following:
- Financial estimates
- Demand forecasts
- Business planning
- Detailed capacity planning
- Personnel requirements and more
So there is no doubt that MRP II is a much more integrative and productive form of MRP. Ideally, in most companies today MRP has been replaced by MRP II, given that it has much better productivity to offer.
Another name that has started catching up has to be ERP.
Difference Between MRP and ERP
It is important to first have some slight knowledge of what Enterprise Resource Planning (or ERP) is so that you can better understand the difference between the two. So, let’s investigate the specifics.
ERP – The Idea Explained
ERP stands for enterprise resource planning and is considered to be one of the most common categories of business software. It finds widespread use in large scale businesses. Like MRP, this model can also help you in planning the production, scheduling lists, and even managing the inventory as well. However, the coverage of ERP is much more than just the manufacturing segment.
ERP would mainly be the method by which one can centralize the information and the workflow process. It makes smart use of data management practices. It mainly makes a point of storing all the data related to the workflow in one single point, and thus the different processes of your business would draw data from that specific location so that they can form insights and carry out productive business decisions.
The Difference List
So, now that you have a basic idea about both Enterprise Resource Planning (ERP), Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRP II), let us take a look at the key differences between the two methods.
First of all, it is important to know that MRP works as standalone software, while ERP is actually integrated. ERP has the ability to connect to other software modules and systems seamlessly, and it is a modular network. MRP can be connected to some systems, but the process is way more complex and not so common.
The Development Segments
While MRP focuses solely on the manufacturing end of the business, the scope for ERP is much greater. The ERP modules have been designed to offer complete business control.
ERP, owing to the extensive use and widespread modules, is most suited for large scale businesses, but MRP can be used for all categories of businesses. As long as the firm doesn’t need to integrate the MRP module with several other processes, they can use it regardless of their scale of working.
The Cost Factor
The budget is often the delimiting factor, and it is important to note that ERP tends to be much more expensive compared to MRP. However, we must be quick to add that often ERP ends up justifying the cost, owing to the wide multitude of functions that it offers.
So, it is upon you to make the utility cost trade-off and decide accordingly.
So in the end, we can understand how each of the modules has their specific role to play, from MRP to MRP II, and even ERP. For any business to function properly; you have to make several decisions, and given the current age of rapidly-developing technology; you need to automate the processes and carry out the right functions as well.
By making smart use of these modules, you can ensure that your company will be opting for the right supply of products so that it can satiate the market demands. Having a lot of dead stock could be very harmful to the progress of any firm. So, by using these automated solutions, one can overview the changing market demands, and thereby assess the best production needs, and then synchronize the details to avoid any unwanted delay.
As most processes tend to overlap, the slight delay at one end could lead to troubles in the next segment. This is what the software tends to do, as it interweaves the processes in a meticulous manner, to ensure that the final output is not impacted.
Based on the amount of money you are willing to spend, the extent of business you have, and the needs and requirements at hand; you can make a trade-off and decide the module you want to use. Of course, ERP would be the most expensive of all three, but it would encompass several other sub-areas too. For any firm that simply wants to focus on the production capacity while keeping in tune with market risks and demand, MRP II might seem like a very favorable option.
Check the details, weigh the options, and then decide accordingly.