The initials MRP stand for Material Requirements Planning or Manufacturing Resource Planning. MRP is a control system for inventory and production planning. An MRP system must accomplish three goals. The first is to ensure that materials are available for production and products are available for consumers when required. The MRP also needs to keep inventory levels as low as possible. Finally, the MRP must plan delivery schedules, manufacturing activities and purchasing activities.
From the point of view of a business, finished products sitting in inventory are a waste of money, because they cost money to store. Ideally the business should be able to manufacture products and then immediately transfer them to the customer. MRP works to keep inventory levels as low as possible by optimizing manufacturing processes on the basis of empirically derived knowledge about how long manufacturing processes take.
Several types of data and information need to be fed into the MRP process. You need to know the type of end item that needs to be created, as well as how many of these items you require at a particular point in time. In addition to this, you need to consider the "shelf life" of the item. Assemble a bill of materials, which includes details about the components, materials and sub-items needed to make each item.
Once the MRP system processes all of the input, you can produce two primary forms of output. The first output consists of the Recommended Production Shedule. This describes the minimum beginning and finishing dates of each step in the manufacturing process. It also includes the bill of materials required for each manufacturing step. The second major output is the Recommended Purchasing Schedule. This describes the dates on which the factory should receive the inputs to the manufacturing process and the dates that the purchase orders should be made.
A key issue with MRP systems lies in the integrity of the data fed into the MRP system. If there are any errors in the inventory information then the information produced by the MRP system will also contain errors. This is an example of the GIGO principle, or "Garbage In Garbage Out" principle. In addition, MRP systems lack flexibility when products take different amounts of time to be manufactured. MRP also does not take into account capacity, and so can produce solutions that are practically impossible to implement.