MRP is a new solution to an old problem: having stock of material always on hand when needed without carrying excess inventory. Highly dependent upon computer technology, MRP is most helpful to firms with finished goods or end products which are made from a number of components and which are also subject to uneven or lumpy demand. The technique separates the various components and co-ordinates purchasing and delivery with production.
This results in material arriving exactly when needed for production and, at the same time, reduces the length of time when materials are held in stock. MRP plans and controls goods on order and generates data for determining when and what specific material will be needed to meet the previously planned production schedule.
The master schedule drives the Material Requirement Planning (MRP) program. Other inputs are product structures, bills of materials, and inventory status. The outputs of the MRP program are open and planned orders; net requirements for parts and materials load reports, and updated and projected inventory status. A variety of other reports can be generated to suit individual needs
MRP is an effective ordering method for dependent demand situations where the placement of an order or the start of a production batch for a part is determined by the timing and usage of the part in a subsequent stage of production. Since MRP decisions for a production stage (what to manufacture, how many, and when) are coordinated with decisions for other stages, it is natural to extend MRP to include capacity planning, shop floor control, and purchasing. This extended MRP is referred to as closed loop MRP.
In MRP II, financial and marketing function is tied to the operations function. Since materials and production requirements for each stage of production are determined in MRP, these requirements are converted into dollars. We can then have, by each product group category, on-hand inventory in dollars, and purchase requirement for the planning horizon. In this way, production and finance people work together to ensure that the desired resources are made available to meet the production requirements for the final products.
MRP II also facilitates coordination with marketing. To begin with, sales forecasts are inputs to MRP as they are used to determine aggregate production plans and the master schedules for each product. The production planner and the marketing product manager then work together on a weekly basis to see whether changes in the master schedules are needed based on individual customer orders. These changes may include changes in the order size, cancellations, and the expediting or postponement of some orders. The marketing manager and the plant manager may meet monthly to update sales forecasts and revise master schedules. Finally, the top managers from production, marketing, and finance together decide the product mix, aggregate production plans by families of products, financial requirements, and pricing strategies.
MRP II therefore provides a convenient vehicle for coordinating the efforts of manufacturing finance, marketing, engineering, and personnel departments toward the common business plan. Since MRP II is computerized, the managers can perform â€œwhat ifâ€ analyses to evaluate the implications of their decisions. For example, if the sales forecasts provided by marketing cannot be met with existing capacities the financial and other implications of alternative decisions, such as subcontracting, scheduling overtime or second shifts, or postponing some customer orders, can be evaluated using the simulation capabilities of MRP II.
Another extension of MRP concepts is in planning distribution requirements for various central, regional, and branch warehouses. This is called distribution resources planning (DRP). In simple terms, the idea of DRP is to coordinate the decisions at various distribution points in much the same way as MRP is used to coordinate decisions at different production stages. Thus, instead of independent control of the same item at different distribution points using Economic Order Quantity EOQ methods, the dependent demand at a higher echelon (e.g. a central warehouse) is derived from the requirements of lower echelon (e.g. regional warehouses). DRP is useful for both manufacturing firms (automotive, other consumer durables, etc) that sell their products through several distribution points and purely distributional firms (department stores, supermarket etc).