Manufacturing businesses all over the world needed a system to incorporate all their needs for planning inventory and production management, for which they were using Re-order Point, Re-order Quantity, and Economic Order Quantity methods. And in around the 1950s, a system started to develop, which was Material Requirement Planning. It was from then till now been the system or process, the essence for planning out the production process and taking care of the inventory management needs. In 1975, Mr. Joseph Orlicky published a book name, Material Requirements Planning – The New Way of Life in Production and Inventory Management, and it has been the foundation for companies to learn and implement this MRP system.
Now let’s understand the Material Resource Planning (MRP) concept and how it benefits all businesses.
What is Material Requirement or Resource Planning (MRP)?
Material Requirements Planning is a process that helps in procurement planning on the basis of orders, stock management, inventory control, production planning, scheduling, and cost reduction. It helps in determining the facts like –
- What raw materials are required to complete the order?
- What is your current Stock position, and if it is suitable to fulfill your orders or not?
- How many Purchase Orders have you already given for the stock?
Further, many people have a confusion that Material Requirements Planning (or MRP I) and Material Resources Planning (or MRP II) are two different terms. But it is not the case. Actually, these terms are almost alike. Many times they are used interchangeably. The difference is that MRP II further provides the information using the accounting and other data, through which you can forecast and analyze the manufacturing requirements cost and capacity.
How do the MRP systems work?
As you all know about the development of the MRP concept from the 1950s. But in reality, the companies started using it around 1989. Because at that point, only the software became present that was providing the MRP module service. Now you must understand that this concept is only available for businesses with MRP software help.
This system involves the help of inputs like a Bill of materials (BOM) for manufacturing concerns, stock reports, purchase orders, and inventory costs. The BOM provides the raw material components information. It further helps in calculating the total quantity of materials required for manufacturing particular demand of finished goods.
Then the next step with the stock reports help is to ascertain that the inventory available in stores is sufficient for the particular order requirement or not. Further, if the inventory levels are shorter. Then how much additional quantity of materials should get purchased gets calculated.
With the help of Purchase Orders, the required quantity which has already been ordered becomes clear. And it becomes clear that which components and their quantities need to get re-order.
Benefits of the Material Requirement Planning system.
This Material Requirement Planning process helps businesses in these particular ways –
- Purchase Planning – With the help of input documents like the Bill of Materials and Order Confirmation, the exact quantities of input materials and other resources can get estimated. Further, the business can plan out its purchase process and re-order time efficiently.
- Production Planning – MRP helps in planning and scheduling the manufacturing operations. Further, it does it in such a way that does not involve use of excessive inventories.
- Inventory Control – Material Resource Planning helps in controlling your stocks. So, that you can hold the least amount of inventory in your warehouses. Additionally, that makes it easier lower down the inventory holding costs.
- Cost Reduction – It helps in decreasing the working capital costs. Further by decreasing the inventory levels and optimum utilizing the production resources.
So, in short, this is the procedure that every MRP module follows to help businesses in their needs. And to perform these, all activities manually becomes an impossible task. That’s why there is a need for a software solution that provides the Material Resource Planning function. And for Indian SMEs and Manufacturing concerns, TranZact is there to help them out in this task.
TranZact is a zero-effort digital transformation tool and platform for SMEs to digitize business processes right, from customer inquiry to dispatch. Its MRP module helps companies in easing out their procurement, production, purchasing planning process.
Additionally, its MRP Dashboard feature helps in forecasting the demand of their products and their raw materials. And with all these features, business management can make data-driven decisions.
The TranZact team provides their digitizing tool on a Freemium policy. Because we want our customers to take a step forward in digitizing their businesses without having to think over silly amounts of money.
Further, the organizations must choose TranZact or any other software only when it meets all their requirements. They should check whether it is suitable for their business size and nature. And if the software satisfies all these conditions. Then only should implement it in their organization.