Running a successful business requires a delicate balance of cost efficiency and effectiveness. This balance is essential and helps separate companies when it comes to profit gains despite having the same number of clients that pay the roughly the same. Manufacturing companies so much so require having this delicate balance when it comes to their inventory or materials. A company needs to have just the right amount of inventory to ensure that they do not spend an unnecessarily large portion of their floating capital on inventory. Floating capital is essential when it comes to the growth of a company as it allows you to invest in other areas and expand the business. Spending almost all of the company’s floating capital on inventory that is not necessarily required to fulfill already placed orders can lead to stagnation when it comes to the growth of your company. This is because despite having inventory in your company’s warehouse it might take a long while to make use of it thus it becomes like sitting capital which is why and MRP system is necessary.
This necessitates the need for a material requirements planning system to accurately help you on this front. Material Requirements Planning (MRP) is usually a mainly computer based system that manages inventory by assisting in the scheduling and placing orders when it comes to materials that are demand dependent. This ensures that a company is able to maintain lean inventory levels while providing production requirements done through third parties and at alternate locations. An MRP system has three main objectives to ensure cost effective and efficient production or manufacturing process. The following are the three main objectives used to manage an MRP system
· Production Planning
An MRP system has a bill of materials which is an extensive list that contains all the necessary materials used to make each single product a manufacturer produces. The list includes the raw materials, assemblies, sub-assemblies and component parts used make a single unit of an individual finished product. The bill is arranged in a hierarchy according to necessity so that a production or supply chain manage can view the necessary materials needed to accomplish it level of production. The bills are also necessary to calculate the exact quantity of each individual component to complete the order of a certain quantity of finished goods. Calculation of these quantities enables the system to determine the order quantity necessary by subtracting the inventory levels that already exist.
· Production Scheduling
The system takes note off and outlines the necessary production activities in a manufacturing plant. The system combines the production planning of the system by combining the set external orders and the orders set internally to calculate the amount of products and time the orders will need in the manufacturing plant. The system calculated the total production time necessary to produce a final product which is inclusive of fabrication or manufacturing process plus the assembly process. Production scheduling is usually demand based to ensure that your company meets the required lead times to meet customer demands, however the system does not make calculation based on production capacity. This requires the production manager to run several possibilities to ensure that you get one that suits your production plant.
· Inventory Control System
The system keeps a record file of the inventory you are holding and the inventory on route or the already made orders to ensure that you have just the minimal requirement of inventory at hand. The inventory control system keeps record of schedule receipts, expected amount at hand and gross requirements while also keeping detailed record of each item needed for production like size, supplier and lead time. This enables the system to calculate the material requirements of the production period by subtracting the materials at hand and the ones on route to ensure that you do not hold excessive inventory at any given period.
How it works
The three main objectives or components of an MRP system need to work collaboratively to ensure an effective and efficient production process. The Systems uses the information at its disposal to calculate the net requirements when it comes to inventory management by removing the inventory at hand from the material requirement and then adding in safety stock to determine order quantity. The MRP system provides period reports to ensure on the various inventory and production activities. More precisely three primary reports which include planned order schedules which details the amount and when to order future materials, order releases this basically authorizes orders and changes to planned orders it includes changes made to previously placed orders including quantity and time frame. The system also produces three secondary reports which includes; performance control reports which indicated the incidences that problems have occurred when it comes to management of inventory, planning reports forecasts the future requirements in terms of inventory and expectation reports which draw attention to upcoming major problematic incidents.
An MRP system allows a company to attain numerous benefits that not only reduce costs to the company but also improve the efficiency when it comes to your production system. It reduces costs when it comes to carrying cost, bulk buying and material tracking costs. On the efficiency side the system helps you calculate the future capacity needs, plan production times, helps establish the required safety stock and the most convenient lot sizes to order to ensure both cost effectiveness and efficiency is achieved. This system also allows to you evaluate the issues that your organization is experiencing when it comes to inventory control and materials planning to ensure that you adjust all the necessary areas to provide a smooth and maximally efficient production process. You are provided with warning or prediction when it comes to major incidences that might interrupt or halt the production process to ensure that you are well aware in advance so that you can find an alternative solution. The proper use of an MRP system requires one to keep accurate records to ensure that you have accurate figures to input into the system as this is a necessity.