Material requirements planning (#MRP) is a system used to manage inventory and resources needed for production.
It synchronizes every aspect of manufacturing, from raw material sourcing to finished product delivery. An MRP system starts with a bill of materials (BOM), which lists all the materials, components, and subassemblies required to manufacture a product. The BOM defines the master manufacturing schedule (MPS), which indicates when each component needs to be manufactured.
MRP also plans manufacturing operations, detailing:
– Work to be done
– Time required
– Amount of inventory required
In production and supply chain management, MRP converts the master production schedule into a detailed schedule, which helps in the procurement of raw materials and components. Mainly used in the manufacturing and processing industry, MRP is a push-based inventory control system, which relies on forecasts to determine customer demand for products. Manufacturing companies forecast the quantity and type of products to be purchased and the raw materials to be produced, and then deliver the products to consumers. This is different from a pull-based system, where customers place orders in advance. The disadvantage of a push-based system is that the forecast is inaccurate when sales fluctuate, leading to shortages or surpluses in inventory.
Inventory is classified into two forms: independent demand and dependent demand. Independent demand relates to finished products such as cell phones or automobiles, while dependent demand relates to unfinished parts or assemblies, such as cell phone screens or tires. The quantity of dependent demand is determined based on the quantity of independent demand.
For example, if you forecast independent demand for the number of finished cell phones you expect to sell, you can estimate the quantities of dependent materials needed such as displays, processors, batteries, and antennas. The quantities of these components depend on the number of phones you plan to produce. The relationship between materials and the final product is represented by a bill of materials (BOM) and managed by MRP.
When planning for dependency needs, three important questions to consider are:
What components do we need?
How much of each component do we need ?
When do we need the components?
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