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Introduction
To make final products companies need to buy raw materials. Companies buy huge amounts of raw materials to make goods and sell in the market. However, proper planning is required to estimate and manage the purchase of raw materials. If the company buys more raw materials then they may end up making more goods than the amount of market demand of that particular good, which further may result in facing a loss. Therefore, to prevent this kind of incident, proper material requirement planning is required.
Definition of material requirement planning (MRP)
Material Requirements Planning is a type of management system which is entirely computer-based and it is designed in such a way that it aids in the enhancement of productivity of a business organization.
Profit-making companies tend to take the assistance of appropriate material requirements planning systems to determine the number of raw materials required and further schedule their deliveries.
The functionality of Material Requirements Planning (MRP)
The basic design of material requirements planning (MRP) depends on three basic questions
What is needed, when and how much?
Material Requirements Planning (MRP) is designed to make a list. A list that consists of all the parts, raw materials, and subassemblies that are required to make the finished product by abiding by a previously planned schedule. In simpler words, material requirements planning (MRP) helps in determining the number of materials required to manufacture the final product which the company sells. A proper Manufacturing Requirements Planning assists a manufacturer to get a proper hold of the requirements of the inventory by keeping a balance between both supply and demand. This helps in enhancing the productivity level of a company. By acknowledging the available resources and the resources needed, the manager in charge gets a brief idea of how much labor and raw materials are required.
What are the steps needed to be followed by Material Requirements Planning (MRP)
To properly design an MRP certain steps are needed to be followed
- To properly design a MRP, the first step is to determine the needs of the target audience and then estimate the number of raw materials required to meet the demands of the target audience. Estimating the demand of the customers and estimating the material that is required to meet the needs of the customers is the first step of designing a perfect material requirements planning (MRP).
- The second step to make proper material requirement planning is to estimate the resources that are already available in the inventory of the business organization. Then determine the number of resources that are needed to be added to make the products demanded by the customers. In simpler words, material requirements planning (MRP) determines the specific areas in inventories where raw materials are required.
- The third step of material requirements planning involves the scheduling of production. In the third step, the MRP estimates the amount of labor and the amount of time that is required to complete the production process.
- The fourth step of material requirements planning involves supervision of the complete process. This is the last step of material requirements planning (MRP) and it involves supervising any issues that may occur. The MRP is designed in such a manner that it alerts the managers in case of any issues and even suggests backup plans to help in meeting deadlines.
Conclusion
The implementation of a proper MRP in business operation is important for the manufacturing process. MRP helps in making a BOM. Here, BOM stands for a bill of materials. Bill of materials helps a company to determine the number of raw materials required to produce the final product of the company. This process also helps the company to determine the level of market demand for the goods made by the company. Thus, it alerts the company in case the demand reduces. Material Requirements Planning also helps a company to maintain a low amount of resources in the inventory. Maintaining an appropriate level of resources in the inventory is important because if the inventory has more resources then there is a chance that when the market demand decreases, the company may face a loss.
