By Phil Abbott, Director at ABS Limited.Â
Material Requirements Planning (MRP) is often misunderstood despite being fundamentally quite straightforward. At its core, MRP is a set of basic calculations – there are just lots of them happening simultaneously.
What exactly does an MRP system do? In its simplest form, it starts by analysing your sales orders to determine what parts you need to purchase. From there, it automatically generates purchase demands to create purchase orders to buy components from suppliers, ensuring they’re delivered in time to fulfil your sales commitments.
The system handles various purchasing scenarios – whether you’re buying to maintain stock levels or making back-to-back purchases that go directly to customers. Extensions of functionality include forecasting and extending back to sales opportunities.
For manufacturers, MRP goes further by creating work orders automatically, in addition to suggesting ordering required parts. With sufficient data input, the system calculates to determine when to purchase components and when you need to start production to have them available at the right time to build. This entire process hinges on accurate dates – from supplier lead times, delivery timelines and testing requirements all the way through to production schedules.
Two types of MRP: Distribution & manufacturing
We typically categorise MRP systems into two types: distribution MRP and manufacturing MRP. The distribution version focuses primarily on buying and selling. It ensures you either purchase stock for back-to-back sales or maintain predetermined safety or minimum stock levels. For instance, if your safety level is 100 units and you sell 50, the system automatically works to replenish your inventory back to 100.
These systems incorporate sophisticated rules based on your business needs. If you receive price breaks when ordering quantities above 50, or if supplies come in predetermined quantities like boxes of 50 or pallets of 100, MRP accounts for these constraints when suggesting order quantities. It won’t order just one unit to get you from 99 to 100 – it will generate an order for the minimum practical quantity. This also means that it remains the job of the buyer to ensure requirements are correct.
Manufacturing MRP is understandably more complex because it not only manages procurement but also automatically creates internal manufacturing orders. This comprehensive approach ensures all production components are available when needed.
Enhancing human decision-making
I want to emphasise that MRP doesn’t replace human workers – it enhances their capabilities. I remember one customer, Craig, who was initially resistant because he feared the system would make his job obsolete. I explained that MRP was a tool to assist him, not replace him. Later, Craig acknowledged how the system identified components deeper in bills of materials that he might have overlooked. That’s precisely what MRP does – it provides information that empowers better decision-making.
Benefits for manufacturers
When manufacturers ask me about the primary advantages of implementing an MRP system, I highlight these five key benefits:
1. Inventory optimisation
MRP ensures you maintain the right quantity of parts while minimising excess inventory. This supports just-in-time manufacturing and more efficient warehousing.
2. Complete component visibility
For complex products with bills of materials containing multiple components, MRP automatically identifies all required subcomponents. For example, if you have five units of a product that each requires five different components, and receive an order for ten units, MRP will calculate requirements for all required subcomponents.
3. Supplier scheduling
The system accounts for purchase lead times and helps schedule orders with suppliers appropriately. This is particularly valuable when working with specialised suppliers like metal fabricators who may need extended lead times.
4. Enhanced planning capabilities
MRP integrates various timing elements including shipping timeframes and quality testing periods. For items requiring post-arrival testing or inspection, you can build these additional days into your planning.
5. Comprehensive demand management
The system begins at the sales order level but can extend to your sales pipeline. You can set parameters to create demand forecasts when sales opportunities reach a certain probability threshold, like 80%.
MRP also supports multi-branch operations, creating different requirement sets for various divisions within the business such as sales and service departments.
Integration with ERP systems
While MRP is typically integrated into ERP systems rather than being a separate add-on, implementation success depends heavily on proper setup and data quality. I’ve heard people claim ‘MRP doesn’t work,’ but that usually means the system lacks the information needed to generate accurate recommendations. Users must consistently update information in the system about when items are due in and out.
Some ERP systems, like our partner Priority, include MRP functionality as standard, while others like SAP offer it as an add-on module. Priority provides basic assembly functions out of the box in its Commercials version, with more advanced production capabilities available through purchase of the more feature rich Manufacturing version of the system.
For optimal results, most of our customers run MRP processes once or twice a week – typically early in the week to identify purchasing needs – and then again on Friday mornings to capture any new orders. This approach ensures continuous optimisation of both procurement and manufacturing operations.
With proper management, this powerful tool transforms distribution as well as manufacturing operations by providing the right information at the right time, enabling smarter decisions that optimise both inventory and production processes.