Smartsheet Contributor Andy Marker April 21, 2017 (updated November 18, 2021) Joseph Orlicky, author of the definitive
Material Requirements Planning (MRP): The New Way of Life in Production and Inventory Management, said, "Never forecast what you can calculate." Nowhere is this rule more evident than in the manufacturing industry, where determining the right amount of raw material for current demand is a challenge.
Underestimating will force you to short your clients, causing them to seek the products elsewhere. Overestimating will cost you money in either waste or storage. However, manufacturing is only one industry that relies on the appropriate balance between supply and demand. Whether you work in a bakery or in a technology firm, implementing material requirements planning (MRP) concepts can dramatically benefit your company. Although originally intended exclusively for the manufacturing
and fabrication industries, MRP is applicable to almost any industry, including the service industry. This is because MRP focuses on two universal concerns of business — customers and resources. MRP analyzes all company activities in terms of customer demands and manages all company resources via its own logic and data processing. The following guide will teach you all about MRP, from basic concepts to more advanced topics, including a detailed definition of the system itself, its
benefits and processes, its problems, and its history. It also includes a discussion of similar systems, such as manufacturing resource planning (MRP II), enterprise resource planning (ERP), distribution resource planning (DRP), and production planning. In addition, we offer tips on MRP best practices culled from around the web and from the experts. Finally, we review MRP software, tell you how to select the best one for your needs, and help you determine whether you should consider taking an
MRP software course. In this article Material requirements planning (MRP) is a planning and control system for inventory, production, and scheduling. MRP converts the master schedule of production into a detailed schedule, so that you can purchase raw materials and components. Used mostly in the manufacturing and fabrication industries, this system is a push type of inventory control, meaning that organizations use forecasting to determine the customer demand for products. The manufacturing or fabrication company will forecast the amount and type of products they will purchase, along with the quantity of materials to produce them. They then push the products to the consumers. This contrasts with a pull system, where the customer first places an order. The main disadvantage of a push system is its vulnerability when sales vary. In this scenario, the forecasts become inaccurate, which for manufacturing, cause either a shortage of inventory or an excess of inventory that requires storage. Inventory is divided into two categories, independent and dependent demand. Independent demand is a desire for finished products, such as cell phones or automobiles, whereas dependent demand is the demand for components, parts, or incomplete assemblies (sometimes called sub-assemblies), such as phone screens or tires for automobiles. You determine quantities for the dependent demand by determining quantities for the independent demand. For example, if you forecast your independent demand for the number of completely assembled cell phones that you expect to sell, you can forecast the quantities of your dependent demand materials, such as your screens, processors, batteries, and antennas. These part quantities depend on the quantity of cell phones you want to produce. This relationship between the materials and the finished product are shown on a bill of materials (BOM) and are calculated with MRP. The three key questions that you must ask when planning for dependent demand are:
In determining how much material your product needs, MRP differs from consumption-based planning (CBP). MRP logic uses information received either directly from customers or from the sales forecast, calculating the material required based on the dependencies of other materials. CBP calculates material requirements only via historical consumption data. CBP does not consider the dependencies between different materials, as it presumes that future consumption will follow the same pattern that the historical data did. MRP synchronizes the flow of materials, components, and parts in a phased order system, considering the production schedule. It also combines and tracks hundreds of variables, including:
For all companies, MRP has a few goals in common. These include making sure that the inventory level is at a minimum, but high enough to provide for the customer need, and that you plan all of the activities, including delivery, purchasing, and manufacturing. There are some terms that will come up in MRP repeatedly. Some are terms related to MRP as a concept, and some are specific to MRP software. These terms are as follows:
What Is the Benefit of Material Requirements Planning?You may use MRP concepts in a variety of different production environments. You may also use them for service providers, such as job shops. Examples of production environments include instances in which products are complex, products are only assembled to order, or demand items are discrete and dependent. In these cases, MRP can reduce the stored inventory, the component shortages, the overall manufacturing cost, and, therefore, the cost to purchase. This more accurate scheduling improves your company’s productivity by decreasing the necessary lead time, giving your customers a higher quality of production and service. Overall, your company is more competitive in the marketplace. However, with these advantages come a few drawbacks. Foremost, MRP is only successful if the accounting is accurate. You must keep records of inventory and BOM changes up to date. Inaccurate input causes inaccurate output. Another potential downside to MRP is that it can be costly. If you don’t keep the input in a timely fashion, it can be difficult and expensive when switching over to a new system. Material Requirements Planning Steps and ProcessesMRP works because it is a well-organized framework of processes and calculations. An MRP system can completely transform a company’s operational procedures. Many people within an organization contribute to the MRP process, including sales, production, purchasing, receiving, stockroom, and shipping personnel. MRP consists of three basic steps:
The calculations that MRP performs are based on the data inputs. As shown in the diagram above, these data inputs include:
After MRP receives the input, it generates the output. There are four main outputs. These include:
The MRP technique can be vague at times because we call it a calculation process without necessarily indicating how to compute the data outputs. MRP is about putting mathematical controls into place using formulas that yield optimal results. MRP is an optimal control problem that calculates the initial conditions, the dynamics, the constraints, and the objective. The variables are the local inventory, the order size, the local demand, the fixed order costs, the variable order costs, and the local inventory holding costs. MRP comprises many methods and calculations. To find the order quantities, you can use any number of methods. Three of the most popular are:
Problems with Using Material Requirements Planning SystemsAlthough using an MRP system is vastly superior to cobbling together a system of spreadsheets and hand calculations, problems do arise. The biggest issue is data integrity. Data that is either not up to date or has errors gives output that is inaccurate and can end up costing your business serious money. You should carefully screen inventory and BOM data. Errors often occur during cycle-count adjustments, input and shipping, and reporting of scrap, damage, waste, and production. Barcode scanning and pull systems can minimize these types of errors. Moreover, MRP systems can be rife with error when companies with facilities in different countries do not set up by individual location. For example, the MRP system could indicate that there is plenty of raw material available for production when, in fact, that raw material is on the other side of the world. Staffpower is also not always accounted for in MRP. In these cases, the MRP creates a capacity issue. In addition, lead times can throw off MRP. The required lead time can change based on the product. MRP assumes that the lead time is always the same for each product, regardless of changes in supply, required quantities, or the possible simultaneous production of other products. Solving your data-integrity issues may take some concentrated effort. Best practices for ensuring that your data is high-quality before you start your MRP process include:
The History of Material Requirements PlanningDuring the early part of the 20th Century, material and planning control systems started using mathematics to calculate manufacturing lot sizes. In 1913, Ford W. Harris introduced the economic order quantity (EOQ) model, and it is still studied today for inventory management. Joseph Orlicky developed MRP in 1964, while working for IBM to perform computerized supply planning. Dr. Orlicky was on a mission to educate senior executive customers to use computer technology to manage their inventory and control processes. At IBM, Dr. Orlicky worked with Oliver Wight, who ended up co-authoring a book with George Plossl in 1967, Production and Inventory Control: Principles and Techniques. Long considered a bible of production and inventory control practices, the book’s influence was almost immediate. Black & Decker implemented MRP right away. The three professionals, Orlicky, Wight, and Plossl began the movement that saw nearly 700 companies adopt MRP by the time Dr. Orlicky’s book, Material Requirements Planning, came out in 1975. By 1981, about 8,000 companies had adopted MRP. The next generation of MRP was considered closed-loop MRP, because it added a feedback feature that enabled the synchronization and adjustment of the master production schedule, effectively closing the loop. Helmed by the three professionals, APICS, formerly the American Production and Inventory Control Society, undertook a huge campaign called the “MRP Crusade” to tout the benefits of the MRP system and make it the standard for manufacturing planning in America. Still going strong, APICS now serves as a professional association for supply-chain operations, logistics, and management research and publications. In 1983, Oliver Wight took MRP a step further and developed manufacturing resource planning (MRP II), also known as material planning. Considered a significant innovation, MRP II includes additional data, such as employee and finance information. The most recent development for MRP came in 2011 when a new book was published by Joseph Orlicky’s original publishing company, McGraw Hill. This update to Orlicky’s work is the third edition of Orlicky's Material Requirements Planning. This edition introduced demand-driven MRP (DDMRP), with five components, including strategic inventory positioning, buffer profiles, level, dynamic adjustments, demand-driven planning, and highly visible and collaborative execution. What Is Manufacturing Resource Planning?Specific to the manufacturing industry is manufacturing resource planning (MRP II). MRP was so successful that organizations using it wanted more improvements and more automation. MRP II takes the principles of MRP and adds some additional areas, such as rough-cut capacity planning and capacity requirement planning (CRP), to give companies a comprehensive manufacturing plan. CRP is an accounting method that determines the load for each process according to the manufacturing order. CRP takes data from MRP.
MRP II also relies on the quality and timeliness of the inputted data. Inaccurate information or consistent lead-time fluctuations result in poor planning. These plans can lead to execution failure and even reimplementation. What Is Enterprise Resource Planning?Enterprise resource planning (ERP) is an extension of MRP systems that came about in the 1990s. MRP is a planning and control system for the resources in a company and was essentially the harbinger of ERP systems to come. ERP is a solution for the enterprise as a whole, with more functionality built in, extending the concepts of MRP and MRP II. All the functions in an enterprise are tightly integrated, including internal and external information. For example, an ERP system would possess advanced functionality in the areas of financial , customer relationship, and sales order management. Today, the difference between MRP and ERP is that MRP can be a stand-alone application or just a piece of an ERP, whereas ERP can support the whole company. ERP is a single solution that addresses all business needs, not just the scheduling of resources. ERP has moved away from its manufacturing roots and gone on to support many different types of businesses. It decreases any information redundancies and adds elements, like user-level security. The line between MRP and ERP has blurred, as the more recent ERP systems rely on similar database structures and linkages . To clarify, MRP only concentrates on:
Using an ERP system gives your company some strategic opportunities. Companies report that the biggest benefits of their ERP system are increased efficiency, integrated information, more customized reports, higher-quality customer service, and more secure data. A well-used ERP system can enable your teams to be forward-looking and support your strategic vision for growth. A good ERP strategy improves your key business processes. ERP systems do come with challenges, however. Once you’ve allocated substantial financial resources to a system, you must address the organizational culture, so your staff utilizes the system adequately. With an integrated system, the return on investment depends on the breaking down of company silos to achieve seamless processes. What Is Distribution Requirements Planning?Distribution requirements planning (DRP), also known as distribution replenishment planning, is a continuation of MRP logic that came about in 1981. DRP takes MRP one step further and calculates how to move the materials out of the facility. The product delivery is more efficient because DRP calculates the quantity of each type of goods that requires delivery, as well as where to meet the demand. DRP is a time-based approach to guarantee that inventory that’s likely to be low has a replenishment plan. DRP is similar to MRP but can work by either a push or pull system. ERP took over this functionality when it came about in the 1990s. Now, DRP can still be a stand-alone system or act as a module within an ERP system. What Is Production Planning?Production planning is the process ensuring that there are sufficient raw materials in a manufacturing business to create the products on schedule. More advanced than MRP, it extends the latter’s functionality. Developed to address some of the deficiencies of MRP, production planning expands upon MRP in the following ways:
Material Requirements Planning Expert AdviceAlthough MRP may be challenging to implement, it is clearly worth the time, effort, and financial investment. Whether you are with a large organization or are a small business owner, it is important that you figure out how to best implement MRP and what software to use. Across the web, experts in MRP consistently make two suggestions: choose the right software, and keep your data accurate. With the right software for your company, you can harness the power of MRP. Whether you capture MRP in a comprehensive program, on an Excel spreadsheet, or with a stubby pencil and a legal pad, accurate data can consistently get you the right results and keep your business on track. The following are more tips culled from around the web on using MRP successfully. For more regularly updated MRP practice information, check out APICS magazine.
“I was involved in implementing ERP systems for various manufacturers. MRP was an essential part for production planning and scheduling and was an integral part for ensuring the materials were ordered on time to meet customer demand. To simplify the MRP process explanation, we created a user-friendly chart that showed how MRP interfaces among different business departments. In short, MRP takes input from customer demand and forecast and produces scheduling recommendations for production and purchasing. MRP can go as far as automatically creating manufacturing work orders and purchase orders to meet customer and forecasted demand. It is essential to have all the parameters set up correctly, such as manufacturing lead times and safety stock, to make sure that the resulting MRP recommendations are accurate. For example, if product includes wrong manufacturing or purchasing lead times, MRP will recommend starting production on a wrong date, and that can result in product being produced later than the customer demands it. This can result in loss of customers and decrease in revenue. However, if the data is accurate, MRP plays an integral part in guaranteeing on-time shipping and scheduling. There is no question that MRP is a necessary part of every company that strives for efficient production planning and scheduling processes.” Material Requirements Planning SoftwareAlthough MRP is often an integrated, automated system, it can also be handwritten or consist of different applications or modules in disparate
software systems. MRP software focuses on the period during which you create a product, identify and purchase raw materials , determine resources, and plan the steps for production. This subset of modern ERP systems is usually available as a module and looks for efficiencies in each step. Although the marketplace has a wide variety of providers, each claiming to offer the best system available, experts recommend that you carefully consider your needs and options before purchasing software. And while it’s always good to consult your network for a consensus on what others are using, remember that what works for your colleagues may not work for you. Before looking at any features or products, consider your business goals, as well as your current requirements. Some of the features you should consider when choosing MRP software include the following:
Download Microsoft Excel Template for Choosing MRP Software Should You Take a Course on Material Requirements Planning?Accurately forecasting for materials in your business is a big responsibility, whether you produce automobiles or veal dishes. MRP is meant to assist you in getting the quantities right, so you don’t have critical shortages or a surplus of raw material spoiling or taking up critical storage space. There are numerous online courses available concerning the concepts and use of MRP. The majority of courses teach you about specific software systems and cost anywhere from nothing to a few hundred dollars. Some of the courses come with certification, especially those for larger software systems, such as SAP. Courses are recommended for all MRP end users and analysts and any new MRP software users. We recommend some type of training for all staff who are new to the software. Course topics usually answer the following questions:
If this guide and taking a course on MRP still does not give you the confidence or proficiency to use an MRP system, you can always hire a consultant who specializes in MRP/ERP implementation and solutions. An outside expert can get to know your business and help you decide what software is right for you, as well as take your business through the steps to implement the system correctly. An independent pro may very well be worth the cost, but be aware that most consultants have their favorite software systems, so they may be biased in their recommendations. Easily Manage Material Requirements Planning with SmartsheetEmpower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time. Try Smartsheet for free, today. What is a materials requisition form?A material requisition form is an official document that allows employees to request for necessary materials needed to perform their tasks at the workplace. With this form, employees can request various materials depending on the need and occasion.
What is material request?A Material Request is a simple document identifying a requirement of a set of Items (products or services) for a particular reason. A Material Request can have the following purposes: Purchase: If the material being requested is to be purchased.
What is a requisition form?A requisition form, whether physical or digital, typically includes the details about the item(s) requested, the date of the request, the individual and department making the request and the location where the goods should be delivered.
What is a request made to the purchase department to procure materials of given description and of the required quality and quantity within a specified period?Purchase Requisition is defined as the duly approved written and formal request made by the store department, head of the department, or an authorized officer to the purchase department to procure specified material, supplies or equipment, of the stated description, desired quality, and quantity, within the given ...
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