Material requirements planning
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Material Requirements Planning (MRP) is a type of computer software that helps manage a manufacturing process.
The purpose of an MRP system is to reduce the cash needed by a manufacturing organization. This increases the organization's return on investment, directly making the manufacturer a more profitable, attractive investment.
In a classical manufacturing organization, huge amounts of cash are tied up in in-process inventory, parts, that must be assembled and then sold. MRP uses planning and management to reduce this cash to the minimum.
The basic idea is simple. A sales or marketing group estimates how many products it will sell at a future time. The MRP software back-dates using the factory's estimated time to assemble each product. Then, the system explodes the product into lists of parts needed, using the bills of materials developed by Engineering. The parts are ordered at times back-dated from the assembly dates. Finally, the cash flow of the above ordering, assembly, ship and payment process is developed.
The system provides reports about which parts are needed to ship an order. If a high-value order is waiting for a few cheap parts, the planner can ask for the parts to be flow in by air-freight, and usually this will improve profits and return on investment.
- Inputs:
- A sales estimate for each product.
- A bill of materials for each product.
- An assembly time for each product.
- A complete on-hand inventory of all parts.
- Estimated delays from order to receipt for each part, for each vendor that supplies the part.
- Estimated prices for each part, by vendor and shipment method.
- Inventory deposits and withdrawals.
- Outputs:
- Needed parts to complete a valuable order.
- Invoicing or electronic data interchange to order parts early enough to meet sales forecasts.
- Inventory management data.