What do these acronyms mean and how do they interrelate with each other? What is the difference between MRP vs MRP II vs ERP? One thing to note is they are all computer-based systems to help manufacturing companies run efficiently. The difference is what’s included in the scope and capacity of the system.
The Evolution of MRP
It all started in the 1960’s when Material Requirements Planning (MRP) focused on material and resource availability for products and production. Then in the 1980’s came Manufacturing Resource Planning (MRP II), which added a formal feedback loop to adjust the material plan and the functions of Sales and Operations Planning (S&OP), Master Production Scheduling (MPS) and Rough Cut Capacity Planning (RCCP). Today we’ve progressed to Enterprise Resource Planning (ERP) which coordinates the resources, information and processes within an organization including Accounting, Human Resources, Customer Relationship Management (CRM), Project Management and Business Intelligence (BI).
A Closer Look at MRP
Now let’s dive into more detail with what MRP vs MRP II really means. Material Requirements Planning (MRP) is a computer-based production planning and inventory management system. MRP is a concept of creating material plans and production schedules based on the lead times of a supply chain. It was designed to assist managers in answering three fundamental manufacturing production questions:
- What items are required?
- How many are required?
- When are they required?
This process helps reduce inventory levels and associated carrying costs, determine material requirements to reduce shortages, and plan manufacturing functions, delivery schedules and purchasing.
As with any computer based system, there are data requirements to run the system. For MRP these are:
- A forecast of what products need to be made in the next few months.
- Customer Orders
- Purchase Orders
- Existing Open Manufacturing Orders
- Resupply or Transfer Orders between warehouses and plants
- A Bill of Material (BOM), which tells you which materials are used, in what quantities, to build each product
- A Routing, which tells the time required to manufacture all products, also known as the lead time
- The On-hand Stock Balance of all your products and materials, also known as the inventory balance
- Planning factors such as reorder points, safety stocks, minimums and maximums
As with any system, the information that comes out of an MRP system is only as good at the information that goes into it. This raises the critical nature of data integrity within the system, with accuracy level recommendations at 98% for BOM’s and 95% for inventory records.
The Purpose of MRP Processing
Using all of this information, the MRP system is run to determine the net requirements for all materials needed to build a product including: raw materials, component parts, and subassemblies for each period on the planning horizon. MRP processing first determines gross material requirements, then subtracts out the inventory on-hand and adds back in the safety stock in order to compute the net requirements.
The main outputs from MRP are planned orders (for future requirements), released orders (for current demand) and changes to planned orders which might include cancellations or revisions of the quantity or time frame orders. These would all be visible and actionable in the systems Planner/Buyer workbench. The system could also send alerts for problems like missed delivery dates and stock outs in orders which call attention to major problems on an exception basis.
From Forecast to Finished Product
Although working top-down from the forecast and customer orders for a finished product to determine the requirements for components may seem like a simple process, it can actually be extremely complicated. When you consider all the part numbers and BOM’s required for products and that some raw materials or parts are used in a number of different end products, the of combinations can be overwhelming. Frequent changes in product design, customer demand, production schedules or supplier performance also complicate matters. The importance of MRP is evident when you consider the number of parts and materials schedules that must be managed to ship the product.
Ultra’s MRP Experience
If your business is a manufacturer or distributor and you are finding it increasingly challenging to grow your business, reduce costs or maintain competitive edge, Ultra Consultants can help. Our business transformation and improvement services coupled with our independent ERP selection services and implementation management capabilities can jump start your business transformation journey to achieve new levels of capability and competitive advantage.
Contact Ultra today to jump start your business transformation journey.