MRP has been used to signify systems called materials requirements planning (MRPI) and manufacturing resource planning (MRI II). Introduced first, MRP I developed into MRP II with the addition of financial, marketing, and purchasing aspects.
MRP I became a popular concept in the 1960s and 1970s. From a managerial perspective, MRP I consists of (1) computer system, (2) a manufacturing information system, building on inventory, production scheduling, and administering all inputs to production, and (3) a concept and philosophy of management.
MRP I is a computer-based production and inventory control system that attempts to minimize inventories while maintaining adequate, materials for the production process. MRP I systems are usually employed when one or more of the following conditions exist:
1. When usage (demand) of the material is discontinuous or highly unstable during a firm's normal operating cycle. 'This situation is typified by an intermittent manufacturing or job shop operation, as opposed to a continuous processing or mass-production operation.
2. When demand for the material depends directly on the production of other specific inventory items or finished products. MRP I can be thought of as primarily a component fabrication planning system, in which the demand for all parts (materials) is dependent on the demand (production schedule) for the parent product.
3. When the purchasing department and its suppliers, as well as the firm's own manufacturing units, possess the flexibility to handle order placements or delivery releases on a weekly basis.
MRP I systems offer many advantages over traditional systems, including:
1. Improved business results (i.e., return on investment, profits).
2. Improved manufacturing performance results.
3. Better manufacturing control.
4. More accurate and timely information.
5. Less inventory.
6. Time-phased ordering of materials.
7. Less material obsolescence.
8. Higher reliability.
9. More responsiveness to market demand.
10. Reduced production costs.
Disadvantages of MRP I Systems
MRP I does have a number of drawbacks which should be examined by any firm considering adopting the system. First, MRP I does not lend to optimize materials acquisition costs. Because inventory levels are kept to a minimum, materials must be purchased more frequently and in smaller quantities. This results in increased ordering costs.
Higher transportation bills and higher unit costs are incurred because the firm is less likely to qualify for large volume discounts. The company must weigh the anticipated savings from reduced inventory costs against the greater acquisition costs resulting from smaller and more frequent orders.
Another disadvantage of MRP I is the potential hazard of a production slowdown or shutdown that may arise because of factors such as unforeseen delivery problems and materials shortages. The availability of safety stocks gives production some protection against stockouts of essential material. As safety stocks are reduced, this level of protection is lost.
A final disadvantage of MRP I arises from the use of standardized software packages, which may be difficult to accommodate within the unique operating situations of a given firm. Firms buying off-the-shelf software often will have to modify it, so that it meets their specific needs and requirements.
While MRP I is still being used by many firms, it has been updated and expanded to include financial, marketing, and logistics elements. This newer version is called manufacturing resource planning, or MRP II.
MRP II includes the entire set of activities involved in the planning and control of production operations. It consists of a variety of functions of modules and includes production planning, resource requirements planning, master production scheduling, materials requirements planning (MRP I), shop floor control, and purchasing.
The advantages of MRP II include:
1. Inventory reductions of one-fourth to one-third.
2. Higher inventory turnover.
3. Improved consistency in-on-time customer delivery.
4. Reduction in purchasing costs due to fewer expedited shipments.
5. Minimization of workforce overtime.
These advantages typically result in savings to a firm beyond the initial costs of implementing MRP II.