Chapter 11 – Material Requirements Planning (MRP) and Enterprise
Resource Planning (ERP)
Definition:
MRP is a computer-based inventory management system designed to assist in
production planning, scheduling, and inventory control. It calculates what materials
are needed, how much, and when.
Objective:
To ensure materials and products are available for production and delivery to
customers while minimizing inventory levels.
Example:
A furniture manufacturer uses MRP to determine how much wood, nails, and paint
are needed over the next month based on the forecast of table and chair
production.
2. MRP Inputs
There are three primary inputs to an MRP system:
1. Master Production Schedule (MPS):
Lists what is to be produced, how many units, and when.
o Example: Produce 500 desks over the next 4 weeks.
2. Bill of Materials (BOM):
A detailed list of all components needed to make one unit of a finished
product.
o Example: Each desk requires 4 legs, 1 tabletop, 10 screws.
3. Inventory Records:
Shows current inventory status, lead times, and scheduled receipts.
o Example: 200 desk legs in stock, 3-day lead time to order more.
3. MRP Processing
MRP processing involves calculating:
Gross Requirements: Total needed for production.
Scheduled Receipts: Items already on order.
Projected on Hand: What’s available before placing new orders.
Net Requirements: What needs to be ordered after accounting for
inventory and receipts.
Example:
If 100 tabletops are needed next week, 20 are in stock, and 30 are arriving in 3
days, the net requirement is 50 tabletops.
4. MRP Outputs
MRP generates the following outputs:
Planned Orders: Orders for components to be released.
Order Rescheduling Notices: Adjustments to existing orders.
Inventory Status Reports: Updated inventory levels.
Performance Reports: Efficiency and delay information.
5. MRP in Services
Although MRP is common in manufacturing, it also applies to services, especially
those involving inventory or materials.
Example:
A hospital pharmacy may use MRP to plan orders of medications and supplies based
on expected patient volume and prescriptions.
6. Benefits and Requirements of MRP
Benefits:
Reduced inventory levels
Better production planning
Improved customer service
Increased responsiveness to changes in demand
Requirements for Effective Use:
Accurate input data (MPS, BOM, inventory)
Reliable lead time information
Ongoing system updates and maintenance
7. MRP II
Definition:
Manufacturing Resource Planning (MRP II) expands on MRP by integrating additional
functions such as capacity planning, shop floor control, and financial planning.
Example:
An MRP II system may not only schedule production but also check whether labor
and machines are available, and update accounting for material costs.
8. Enterprise Resource Planning (ERP)
Definition:
ERP is a comprehensive system that integrates all departments and functions
across a company into a single IT system.
Core Modules Include:
Finance and Accounting
Human Resources
Manufacturing and Logistics
Sales and Marketing
Customer Relationship Management
Example:
A clothing company uses ERP to align raw material purchasing, employee payroll,
and retail sales data across all its branches.
9. Operations Strategy
The adoption of MRP and ERP should align with the organization's overall operations
strategy.
Strategic Considerations:
Choose systems that support your scale and scope.
Ensure cross-functional integration.
Train staff and establish clear protocols for system use.
Example:
A company pursuing a low-cost strategy may use MRP to minimize inventory
carrying costs and reduce waste.
Conclusion and Recap
To recap:
MRP helps plan material requirements based on production schedules.
MRP Inputs: MPS, BOM, inventory data.
Outputs: Order schedules, rescheduling notices.
MRP in Services is applicable where materials are consumed.
MRP II broadens the scope by including other resources.
ERP integrates all departments under one system.
Both systems must align with operational goals and require accurate data.
These systems are foundational tools for modern operations management. They
contribute to efficiency, customer satisfaction, and strategic decision-making.
