Material Requirements Planning or MRP is a computerized inventory management system that helps production managers plan and schedule the purchase of raw materials and component parts for manufacturing facilities. MRP systems are driven by outstanding orders or foretasted orders or a combination of the two in order to ensure adequate inventory of dependent demand items to meet production requirements.
MRP systems allow inventory managers to reduce the level of component parts and raw materials inventory. An MRP system works backward from the production schedule to determine the exact amount of inventory necessary to meet production demand. Maintaining lower inventory levels reduces the amount of capitol tied up in inventory and reduces inventory carrying costs.
Over time an MRP system reveals the ideal lot sizes that should be purchased of each component item or raw material. By taking into account the production demand for the item, carrying costs, quantity price breaks and transportation costs the most cost effective order amount can be determined with great accuracy.
MRP shows managers what inventory will be needed to meet increased demand on finished products. With any increase in inventory requirements comes a commensurate increase in warehousing requirements. Information about inventory requirements helps managers plan for future facilities expansions.
Production of finished goods is dependent on the availability of the raw materials and component parts. MRP can identify shortages in inventory items so managers can shift production assets to the manufacture of other items where the constituent parts are on hand.
MRP systems provide a clear picture of the inventory available for the production process. Managers can use this information to schedule work crews to meet the needs of the manufacturing process without over staffing the production line.
Information provided by an MRP system can help customer service representatives to provide customers with accurate order delivery dates.