Material Requirements Planning

After the facility location has been selected and the best layout has been determined, the next stage in production planning is to determine production material requirements.

Many manufacturing companies have adopted computerized systems to control the flow of resources and inventory. Materials requirement planning (MRP) is one such system. MRP uses a master schedule to ensure that the materials, labor, and equipment needed for production are at the right places in the right amounts at the right times. The schedule is based on forecasts of demand for the company’s products. It says exactly what will be manufactured during the next few weeks or months and when the work will take place.

Sophisticated computer programs coordinate all the elements of MRP. The computer determines materials requirements by comparing production needs to the materials the company already has on hand. Orders are placed so supplies will be available when they are needed for production. MRP helps ensure a smooth flow of finished products.

Enterprise Resource Planning

Some manufacturing firms have moved beyond MRP systems and are now using enterprise resource planning (ERP) systems. ERP systems go a step further and incorporate information about the firm’s suppliers and customers into the flow of data. ERP unites all of a firm’s major departments into a single software program. For instance, production can call up sales information and know immediately how many units must be produced to meet customer orders. By providing information about the availability of resources, including both the human resources and materials needed for production, the system allows for better cost control and eliminates production delays. The system automatically notes any changes, such as the closure of a plant for maintenance and repairs on a certain date or a supplier’s inability to meet a delivery date, so that all functions adjust accordingly. Both large and small organizations use ERP to improve operations.

Just-in-Time (JIT) Manufacturing

Just-in-time (JIT) manufacturing is a strategy that companies employ to increase efficiency and decrease waste by receiving goods only when they are needed in the production process, thereby reducing inventory costs. This strategy originated with the Japanese automotive manufacturer, Toyota. In theory, a JIT system would have parts and materials arriving on the warehouse dock at the exact moment they are needed in the production process. To make this happen, manufacturers and suppliers must work together closely to prevent just-in-time from becoming “just-isn’t-there”. Operations managers must accurately forecast the need for materials, since even the slightest deviation can result in a slowdown of production.

Unexpected events like the shutdown of ports due to hurricanes or other disasters can cause chaos in the supply chains of manufacturers, resulting in problems for firms relying on JIT. But if employed properly, and in spite of these risks, a JIT system can greatly reduce inventory-holding costs and the need for storage space while smoothing production highs and lows.

MRP vs JIT

Materials requirement planning focuses on planning and calculating material requirements based on production schedules and demand, while just-in-time manufacturing emphasizes minimizing inventory levels by receiving materials just in time for production to reduce waste and improve efficiency.