The Complete Guide to Material Requirements Planning
How was this system invented, and why?
You can find the foundations of "modern" MRP systems in the innovations introduced by Toyota in the last century as the Japanese automaker perfected its now-famous production system.
At the heart of Toyota's approach was the recognition that manufacturing is a continuous improvement process in which all activities, from supplier to customer, must be integrated and aligned to achieve maximum efficiency.
This philosophy, known as the Toyota Production System or lean manufacturing, has been adopted by manufacturers worldwide and forms the basis for many of today's MRP systems.
It is no coincidence that Toyota is the symbol of "lean manufacturing". Thanks to the innovative production management model developed at the end of the Second World War in its factories in Japan and then exported worldwide.
In the immediate post-war period, Toyota was in severe conditions of lack of resources, as did much of Japan's industry, which had been defeated and exhausted by a devastating war.
The need to make the most of what was available, to work better with less, led Toyota's engineers to develop a new way of conceiving and managing production.
This is how the now-famous Lean Manufacturing, or "Toyota Production System" was born. It was based on two fundamental concepts: "just in time" deliveries (JIT) and "kaizen", continuous improvement.
The idea of the "Just-in-time" production came from Kiichir Toyoda, the founder of Toyota. In the late 1940s, Toyota was a small Japanese car company whose machinery was old and had negligible market shares.
In those conditions, Toyota could not apply the mass production criteria of other companies such as the American Ford. Production is no longer based on supply, as for the large Ford company, but on-demand from the market and on the continuous improvement of the product alongside that of production. The quantities produced are closely related to changes in actual demand, which are difficult to forecast.
The advantage of this system is that it prevents the accumulation of stocks (of finished products and materials in progress) with all the advantages that this entails in terms of saving on storage costs, reducing the risk of obsolescence, and optimizing production processes.
The Toyota Production System has had such a profound impact on the world of manufacturing that it has completely changed the way we think about production.
What is an MRP system?
An MRP system is a software tool that helps manufacturers plan and track the production process from raw materials to finished products. It generates purchase orders for inventory based on sales forecasts, production plans, or customer demand.
Manufacturers can also use them to track inventory levels and calculate delivery schedules.
An MRP system starts with the bill of materials (BOM), which lists all raw materials, components, and sub-assemblies needed to produce a finished product.
The BOM also includes quantities, lead times, and other relevant data.
The MRP system then uses this information to optimize inventory management based on the needs of the company.
With the support of this software module, manufacturers can achieve their main goal:always have accurate material planning and deliver products to customers in a short time and at the lowest possible cost.
MRP systems are used in a wide range of industries, from automotive to aerospace, and are typically implemented using an enterprise resource planning (ERP) system.
ERP vs. MRP systems
An enterprise resource planning (ERP) system is a software tool that helps businesses manage their core operations, such as accounting, human resources, and customer relationship management.
An ERP system typically includes an MRP system. Still, it also has other modules that support other aspects of the business.
For example, an ERP system might also include supply chain management or project management modules.
The main difference between an ERP system and an MRP system is that an ERP system is designed to support the entire organization. In contrast, an MRP system is explicitly focused on optimizing materials availability.
The importance of an MRP system for manufacturers
An MRP system is a vital tool for any manufacturing company that wants to optimize its production process. Manufacturing operations without an MRP system in place are usually inefficient and result in high inventory levels, long lead times, and high production costs.
An MRP system helps companies plan materials availability more accurately, track inventory levels, and avoid stockouts. In addition, an MRP system can also help companies reduce their production costs by optimizing the use of raw materials.
Here are how the advantages of an MRP system can be summarized:
- Compliance with delivery deadlines.
- Availability of materials for production.
- Lowering of stock levels, both for finished products and raw materials.
- Reduction of production costs.
- Accurate planning of production activities concerning delivery and purchase orders.
- Facilitation of purchasing phases, optimizing the supply of raw materials.
We should emphasize that a system of this type often could already be integrated into the company software management system (ERP).
In fact, in many cases, a specific module for this function can already be found within management software for production companies.
For this reason, especially if you do not yet have management software in your company, it is important to contact software houses that can offer solutions for the specific sector and are tailored to the company, such as Boyum IT.
How does an MRP system work?
First, it must be clear that the basic principle of any system of this type is precisely the optimization of stocks, obviously based on the company's needs.
For this reason, it is necessary to manage the raw materials according to the market demand for the product. That means that you need to have an inventory of raw materials that is sufficient to meet the demand but not so high that it results in high storage costs.
This system will act based on three fundamental processes:
- Master Production Schedule: To know what needs to be produced, it is necessary to have a production planning that considers all the factors that can influence the market demand. This is the master production schedule, which manufacturers must create based on sales forecasts, historical data, and other factors.
- Inventory: The second step is to manage the inventory of raw materials. This step is necessary to ensure that there are enough raw materials on hand to meet the demand, but not so much that it results in high storage costs.
- Bill of Material: The third step is to create a bill of material for each product. This bill of materials lists all the raw materials and components required to produce the product.
In every manufacturing company, there is a person who must answer the three questions:
- What to produce and buy?
- How much to produce and buy?
- When to produce and buy?
The MRP is the tool you need to answer these questions. Furthermore, it obtains management results:
- Coordination of materials logistics.
- The minimization of stocks.
- The maximization of the level of service.
The MRP is an algorithm that receives the market demand and sales forecasts, the bill of materials, the lead times, the inventory situation, the production, and purchase orders necessary to respond to market demand.
The algorithm performs three steps:
- Calculates how much you need to produce net of available stocks.
- Calculates the date on which it is necessary to produce and purchase the goods concerning the time of need.
- Breaks down the demand by evaluating the structure of a product (i.e., the objects it is made of) and calculates its net demand.
At the end of the algorithm's execution, the MRP proposes the production orders and the planned purchase orders necessary to respond to the market demand.
Picking an MRP system
When choosing an MRP system, it's essential to find one that is tailored to your specific industry and business needs.
There are many different types of MRP systems on the market, so it's essential to do your research and find one that is a good fit for your company.
The best way to find an MRP system is to talk to other companies in your industry and see what they are using. You can also talk to software vendors and get their recommendations.
Once you've narrowed down your choices, you can request demos from the vendors to see how the software works.
When evaluating MRP systems, there are a few key features you should look for:
Ease of use:The system should be easy to use to train your employees on it quickly.
Flexibility: The system should be flexible so that manufacturers can customize it to your specific business needs.
Scalability: The system should be scalable to grow with your company.
Customer support:The vendor should offer excellent customer support if you have any software problems.
Boyum IT Solutions is a leading provider of manufacturing software for different industries.
We offer a wide range of solutions that you can customize to fit the unique needs of your business. Contact us today to learn more about our products and services.
To sum up, if you're looking for a way to streamline your manufacturing process and improve your bottom line, an MRP system may be the answer. Material requirements planning is a powerful tool that can help you optimize your inventory, and track progress on your manufacturing orders.