Material Requirements Planning or MRP is a system which is used for the sake of calculating the component and the material which in turn will be needed for the sake of making a product. Ideally, one can say that it has three broad and 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 the need may be to ensure that there is no unwanted delay 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 MRP Background
It is good to have some little background on the concept of material requirements planning and to see how it came into being and the ones that implemented it right away.
The Material Requirements Planning was initially created so that it could be fed to the Polaris program. It was mainly an answer to the Toyota manufacturing program. It is Joseph Orlicky who is credited with developing the material requirements planning.
Black and Decker happen to be the first company to have used MRP. This happened in the year 1964. Soon enough, by 1975 there were as many as 700 companies using this system. In the next five years or so, the number jumped to as much as 7000.
Now, in the year 1983, Oliver Wight developed MRP II (Manufacturing Resource Planning). This was much-advanced version and it took into account things like master scheduling, rough-cut capacity planning, capacity requirements planning and so on.
Let us see the details of MRP II in a detailed manner.
The Manufacturing Resource Planning
As the MRP module was used profusely, people found the need to have something more advanced and that could better deal with demand forecast and capacity control. This led to the birth of MRP II.
It could mainly be categorized as a method which is used for effectively planning the different resources that are a part of the manufacturing company. It, therefore, addresses the different operational planning units and also deals with financial planning. It encompasses several aspects which include but 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 MRP is an essential sub-part of the MRP II system.
One interesting part of MRP II has to be capacity requirements planning. Let us see what it is.
Capacity Requirements Planning
For any business to run successfully, not only does it need to worry about the present, but it should have a clear and well-thought plan for the future too. The capacity requirements planning is mainly the process which the 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 condition to decide what would be the apt production supply. Those businesses which tend to have seasonal sales need to calculate the capacity requirement much more frequently.
Owing to the critical use of capacity requirements planning, MRP II enjoys much better popularity as compared to MRP. Now, let us focus on the key differences.
MRP and MRP II - The Differences Mapped
Like we have mentioned before, manufacturing requirements planning is nothing but an advanced version of material requirements planning. The terms are often used interchangeably these days.
MRP can be hailed to be manufacturing centric. The underlying purpose is simply to schedule the raw materials and components and to control those areas of productions which can help you fulfil the 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 II.
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 started catching up has to be the ERP.
Difference Between MRP and ERP
It is important to first have some slight knowledge of what ERP is so that you can better understand the difference between the two. So, let us check the specifics.
ERP – The Idea Explained
ERP mainly 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 the MRP, this model too can help you in planning the production, scheduling the list, 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 it a point to store all the data related to the workflow at 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 ERP and MRP, 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 fosses solely on the manufacturing end of the business, the scope for ERP is much more. The ERP modules have been designed to offer complete business control
ERP, owing to the extensive use and widespread modules, are mostly 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 as 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 which it offers.
So, it is upon you to make the utility cost trade-off and decide accordingly.
The Final Word
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 age of 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, using these automated solutions, one can overview the changing market demands and thereby assess the best of production needs and 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, interweave the processes in a meticulous manner to ensure the final output is not impacted.
Based on the amount of money you are willing to spend, the extent of business you have, 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 favourable option.
Check the details, weigh the options, and then decide accordingly.