Material Requirement Planning (MRP) is a planning methodology that is used to assure the availability of right quantities of materials when needed. In other words, Material requirements planning (MRP) creates recommendation of purchase orders and production orders for items of dependent demand. Dependent demand items are the items required in producing finished good -raw materials, intermediates and packaging items- for which the amount of inventory needed depends on the amount of finished good to be produced.
It uses a set of techniques that processes data from BOM, Inventory and MPS to calculate the future requirements for materials. Precisely, it includes calculating:
- The number of materials needed for product production.
- How long it will take to get from the supplier to the production.
- When to order materials based on delivery lead times.
Let us say, you want butter &j am sandwich every day for breakfast this month.
Let's make a plan for this!
Grocery List (i.e. Bill of Materials)
Master Production Schedule
Demand = (1 Butter + 1 Jam)*30 days
= 30 (Butter + Jam)
1 butter & jam sandwich requires 2 slices of bread
1 loaf of bread has 10 slices
So, in total, you will need 6 loafs of bread to have 30 days of sandwiches.
1 butter & jam sandwich requires 1 serving of butter
1 jar of butter = 5 servings
So, you'll need 6 jars of butter to last 30 days.
1 butter &jam sandwich requires 1 serving of jam
1 jar of jam = 5 servings
So, you'll need 6 jars of jam to last 30 days.
When should you go shopping?
Every 5 days you need to go to grocery store to restock butter & jam inventory.
This is basic example of MRP. In real business scenarios, companies use MRP on a much larger scale to make sure the right input materials are at right place at the right time to meet customer demand.