MRP is a computerized ordering and scheduling system for manufacturing industries. It was developed in the 1950’s but became popular only in the 1980’s.It stemmed from Enterprise Resource Planning (ERP). It essentially is a backward scheduling system. It utilizes the bills of material data, inventory data and also the master production schedule to project what material would be required along with the quantity in which it would be required.MRP facilitates in placing orders for materials whose demand is dependent in nature so as to ensure smooth flow of materials. Consequently such a system ensures that there is no mismatch between inventories and the production schedule.MRP essentially manages dependent demand and in that respect it has three core objectives:
I. Ensures that dependent demand items do not suffer from a stock out.
II. Helps in maintaining the optimal level of inventory for an organization so as to minimize cost for the organization.
III. It is used in making purchases of new stock and delivering finished goods. It is also used in planning the daily manufacturing process. The functioning of MRP requires three broad categories of inputs: I. The master schedule- is a forecast of what will be produced and in that respect it specifies the output of operations. II. The bills of material (BOM) – specifies the materials that are required to produce a finished good, manufactured part or an assembly for that matter. III. The inventory records- keep a track of how much inventory is available. MRP has many advantages and is being increasingly used by restaurants, hospitals and businesses with large inventory of dependent products. A few advantages are: I. Helps in tracking when the requirement of a material would arise. II. Keeps a track of inventory that has been consumed.
III. Determines the most economical lot sizes for orders. IV. Helps in setting safety stock levels for emergencies. V. Plans for future capacity needs of an organization. MRP has a few shortcomings as well:
I. It could be expensive, difficult and time consuming to implement. II. Any information which is incorrect or inaccurate could snowball in to misplanning, under stock, over stock and possibly dearth of critical resources.