The basic functions of an MRP system include: inventory control, bill of material processing, and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities.
“Manufacturing organizations, whatever their products, face the same daily practical problem – that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required.” Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of
these areas will make the company lose money. A few examples are given below:
- If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.
- If a company purchases excessive quantities of an item, money is wasted – the excess quantity ties up cash while it remains as stock and may never even be used at all.
- Beginning production of an order at the wrong time can cause customer deadlines to be missed.
MRP is a tool to deal with these problems. It provides answers for several questions:
- What items are required?
- How many are required?
- When are they required?
MRP can be applied both to items that are purchased from outside suppliers and to subassemblies, produced internally, that are components of more complex items.
The data that must be considered include:
- The end item (or items) being created. This is sometimes called Independent Demand.
- How much is required at a time.
- When the quantities are required to meet demand.
- Shelf life of stored materials.
- Inventory status records – Records of net materials available for use already in stock (on hand) and materials on order from suppliers.
- Bills of materials – Details of the materials, components and sub-assemblies required to make each product.
- Planning data – This includes all the restraints and directions to produce the end items. This includes such items as: Routing, Labor and Machine Standards, Quality and Testing Standards, Lot sizing techniques, Scrap Percentages, and other inputs.