For manufacturing businesses, life is a sea of acronyms and abbreviations. From CRM to EAM, things can get murky pretty quickly, especially when the functions of so many systems overlap. MRP software (also referred to by some as manufacturing ERP software) is one tool that many manufacturers and distributors opt to purchase, mainly because of its focus on efficiency and productivity within the manufacturing realm. Material requirements planning is a valuable component that, like many other software solutions, is available both as a standalone solution or as a part of a full-blown enterprise resource planning (ERP) suite.
In this guide, we will explore what exactly MRP is along with the pros and cons of opting for a standalone MRP solution. Many factors come into play when selecting software that’s right for you, so let’s go ahead and dive in.
What Does MRP Software Do?
The basic premise of MRP as a business strategy is that it’s a way of controlling and planning inventory in a manufacturing environment. The ultimate goal is to discover what materials are needed, how many are needed and when they are needed. Before material requirements planning software was created, this could be done by manually writing down and tracking information such as fluctuations in stock.
MRP software itself works to meet the requirements outlined by a material requirements planning strategy. Some businesses may still choose to record inventory levels and complete calculations using only a pencil and paper, but material requirements planning software works to reduce the likelihood of error and required manual labor. It’s highly recommended that if you can afford MRP software to assist in the efficient completion of manufacturing runs or batches, you should take the leap. This is because there are so many moving pieces involved in material requirements planning.
At its core, MRP systems ensure that there is always enough raw material available to meet production demand. This can improve the likelihood that your business will be able to produce the correct amount of products efficiently. It’s also a great way to avoid spoilage, as it can help your company cut back on surplus resources that wait in limbo in your distribution center.
Spoilage is a huge concern for companies, with hundreds of thousands of dollars lost to wasted stock each year. In fact, a third of all the food produced globally is lost or wasted. With a reliable MRP system, you can reduce the costs associated with spoilage, warehousing and lead time slowdowns, all of which can contribute to significant savings. Ultimately, material requirements planning can help you run a tighter, leaner operation. Here are some of the main steps involved in MRP:
1. Developing quantity requirements
MRP software looks at how raw materials are allocated within a warehouse (on-hold for a specific purchase order, on-hand, committed to manufacturing, etc.) to determine how much of a resource is needed. This is a number that varies day by day and by distribution center. This is due to factors such as the shifting availability of raw components and changes in customer demand.
2. Calculating material order suggestions
Once you know how much raw material is tied up in current manufacturing processes and you’ve projected future need, your MRP software will then use data and calculations to suggest the amount of material you should order. It’s important to note here that your material requirements planning software is at its best when it has the most up-to-date and accurate inventory data. If you don’t have a good system for tracking where materials are at in the manufacturing process, your MRP could potentially recommend unnecessary orders due to inaccurate data. Therefore, MRP is especially beneficial if you use a tracking tool such as RFID to see where materials are at in the manufacturing process.
3. Completing material orders
The last step is for the MRP software to create a list of specific materials needed to ensure the most efficient production. Again, this is based on factors such as projected purchase orders, current material inventory and the estimated amount of time it takes for a material to arrive. For example, if it takes two weeks for lumber to reach the distribution center and the center is projected to run out of the resource in three weeks, the software would suggest reordering of the lumber in a week.
What’s the History of Material Requirements Planning?
The concept of MRP was first introduced by Joseph Orlicky more than 50 years ago before it became a type of software. Black & Decker quickly jumped onboard and began using the methodology for its manufacturing practices. The tactic continuously grew more popular, and by 1981 about 8,000 companies were using MRP.
Because of its vast influence, other variations of MRP were introduced to the technology sector. Oliver Wright developed manufacturing resource planning (MRP II) in 1983. He differentiated it from typical MRP by including more data and information on processes such as finance.
In the 1990s, ERP software was introduced as another variation of MRP. Enterprise resource planning includes more workflow processes than MRP and hosts a suite of solutions that are meant to help companies with a wide variety of automated tasks. Along with covering inventory and stock functions, it also extends to processes such as payroll management, staff acquisition, shipping and product costing.
What Are the Benefits of Standalone MRP?
High-quality MRP software is beneficial. Some enterprises have gone from completing about 70% of orders on time to hitting targets on about 90% of occasions. When applied skillfully, MRP improves customer service, increases direct labor productivity and reduces expenses. Deciding whether or not to go with a standalone MRP system is not a question of worth, but instead of what exactly you need from your software solution.
Even sophisticated material requirements planning solutions tend to need a substantial amount of manual input from users. The more accurate and timely your entry of critical data such as inventory levels, the more precise and beneficial your material requirements planning software can be. The software collects and captures data for more efficient logistics planning, product replenishment and inventory control.
All of these factors contribute to faster, more punctual orders and happier customers who come back again and again. If you haven’t yet acquired an ERP system, it might be worth considering a standalone MRP solution such as DTAILS or Access Manufacturing Management.
The simplicity and base functionality of MRP is a factor that is appealing to many companies, especially those that already have standalone accounting or CRM systems that they don’t want to fuss with as far as integration goes. If this is the case for your business, standalone MRP may be a great option for you.
What Are the Failures of Standalone MRP?
Standalone MRP is a great manufacturing solution, but it does have its downfalls, which you should keep in mind when looking at solutions. Although it can provide effective forecasting and planning technology, it is highly reliant on accurate input of data to generate these insights. Unlike a system such as ERP, which can automatically find and use data across business workflows, standalone MRP requires data to be entered manually. This is because it is a standalone system and by definition its data is siloed. Alternatively, your IT resources could integrate your material requirements planning with your other systems, but seamless integration is not guaranteed like it often is with ERP.
Another failure is its lack of business scope. MRP software is incredibly beneficial to the manufacturing process specifically. As a best-of-breed solution, its functions should be detailed and applicable. However, it won’t help you much in terms of other workflows such as finance and HR. This comes into play because the data that is generated within the program might need to be manually extracted in order to apply it to other processes.
What’s the Latest Trend in MRP?
Traditionally, MRP has had an issue with agility and has functioned best in a steady state environment. The problem with this is that customer demand can change extremely quickly. With MRP, there is a much greater emphasis on lead time efficiency as opposed to customer service, which can create significant logistical challenges. However, there is a new type of MRP called demand-driven MRP that is increasing in popularity for a couple of reasons.
Demand-driven MRP (DDMRP) helps businesses reduce their dependence on forecasting tools while also offering compatibility with mainstream ERP software, therefore offering a way for both systems to coexist. How demand-driven MRP works is that it combines actual demand (AD) process data with strategically positioned and managed points of stock (buffer stock) across the supply chain. This results in a reduction in supply and demand variability, therefore solving the bullwhip phenomenon.
The bullwhip phenomenon occurs when MRP planning policies lead to substantial or unpredictable shifts in inventory, even when customer demand has only changed by a small amount. It can lead to wild jumps between overstocking and understocking of an item as a business tries to balance customer demand with cost savings.
Demand-driven MRP is a great way to eliminate this effect because it helps companies build more closely to actual market requirements. It’s excellent for encouraging faster, more valuable decision-making processes while also making it easier to monitor, predict and respond to high levels of market volatility. DDMRP is an excellent development in the MRP software industry and could help to increase its attractiveness to businesses.
Material requirements planning is an effective way to streamline your manufacturing business. Its dedication to the industry means that it’s chock-full of features that directly apply to your company. As a standalone solution, it requires manual data entry to ensure that material forecasts are accurate. However, it can save you time and energy when trying to calculate resource needs.
MRP software is constantly evolving as technological needs change. DDMRP is an interesting development in the industry that may help boost MRP’s prominence over software that includes similar features, such as ERP. Although MRP is relatively old in the software world, its important role continues to exist because of its helpful features and its adaptability.
Do you think MRP has a role to play in our current technological ecosystem? Tell us why or why not in the comments!