Manufacturing resource planning (MRP II) is crucial for managing a company’s materials to help it increase its efficiency and remain competitive. Using MRP II, which is a software-driven concept, companies can streamline their manufacturing processes and maintain low operational costs and high quality. Understanding the differences between MRP II and other software options can help you select the best one for you.
In this article, we discuss MRP II, its importance, how it differs from materials requirements planning (MRP I) and enterprise resource planning (ERP), and we offer steps and tips for using MRP II to help you choose the software that best suits your needs.
What is Manufacturing Resource Planning(MRP II)?
MRP II is an integrated information system that efficiently plans all of a manufacturing company’s resources. This computer-based system designs precise production schedules and provides a target production level using real-time data to organize the labor and machine availability with materials for a particular production cycle. You can use MRP II to determine what resources you require, how much to allocate and when to use the resources to fulfill demand.
MRP II also helps you find the optimal order quantity and raw materials frequency by adding average use for a planned restock lead time and safety stock. The system depends on the quality of data to work efficiently, making it essential to keep clean records and precise and updated data entering. You can make informed decisions in scheduling, inventory management and cost control using MRP II.
Related: Manufacturing Overhead Costs: Definition and Examples
Why is MRP II important?
MRP II is an important tool that helps you account for materials and prevent excess supply by ensuring companies maintain an inventory that can meet their production needs. Using MRP II, companies can enhance their visibility and relationships with suppliers to increase their net income. MRP II also:
Allows companies to accelerate their production record processes with timely availability of materials
Improves customer experience by fulfilling orders on time
Increases efficiency by facilitating communication and eliminating manual processes
Helps with purchasing and production planning and minimizes inventory levels and carrying costs
Prevents delays in the production cycle and increases production yield
Enhances work scheduling to align with labor time
Leads to more competitive pricing
Optimizes a company’s manufacturing resource and machinery usage
Related: What Is Resource Management and Why Is It Important?
MRP I vs. MRP II
While MRP II developed from MRP I, or materials requirements planning, there are several differences between the two systems. MRP I focuses mostly on short-term manufacturing capabilities. This includes managing a company’s schedule and controlling inventory for raw materials and other components. MRP I has three major functionalities:
Bill of materials (BOM): The bill of materials compiles an inventory of all raw materials and other components to build a product. It can help you plan for purchases of raw materials, estimate material costs, track and plan material requirements, improve inventory control and reduce waste.
Inventory tracking: MRP I monitors where the inventory is in the supply chain process to ensure the right amount of supply is available. It’s essential to keep current records and document each receipt and disbursement for efficiency.
Master production scheduling (MPS): Master production scheduling assists manufacturing companies in determining when to make certain products. You can know pending outstanding work orders because it takes all requirements and plans for labor, machine usage and workstations.
MRP II provides a more realistic representation of a company’s operating capabilities. It has similar functionalities as MRP I and includes factors related to the long-term performance of a business. MRP II, like a closed-loop system, can provide feedback on a specific operation. The additional capabilities MRP II includes are:
Demand forecasting: Demand forecasting uses historical data from a company to estimate the potential customer demand for a product. You can make better-informed supply decisions that estimate revenue and total sales ahead of time.
General accounting: Manufacturing companies monitor their accounting activities that include account charges. These activities help determine whether the company makes a profit or a loss.
Machine capacity scheduling: You can use this to determine how much work a company can accomplish in a period. Proper use and implementation of MRP II can help you plan for capacity needs and allocate production time.
Quality assurance: This is the maintenance of a company’s standards through every stage of production. It’s an important part of manufacturing that can result in better management and higher production and profitability.
MRP II vs. ERP
Enterprise resource planning (ERP) software is a successor of MRP II. It includes business functions beyond manufacturing operations, such as customer service management, plant maintenance and human resources. Often, large companies use ERP because its designers made it to work with businesses that have many members. Although MRP II is a stand-alone application, ERP has the potential to support an entire company. The additional capabilities of ERP include:
Core financials that connect a company’s production’s billing, costing, budgeting and analytics
Customer relationship management (CRM), which enables businesses to use data analysis to administer interactions with their customers
Enterprise asset tracking to oversee the physical assets of a company through each asset life cycle
Human resources in the management of the human labor of an organization, including the hiring and training of new employees
Marketing automation to allow companies to set up processes to occur automatically across marketing channels for superior customer service
Project management to help lead teams to achieve their goals by considering various factors, like budget and time
Supply chain management (SCM), which includes the supervision of goods and services from one location to another efficiently by tracking demand, manufacturing processes, inventory and logistics
Steps involved in MRP II
To perform MRP II, you can follow these steps:
1. Identify the quantity requirements
The MRP II process starts with collecting customer data to understand purchasing patterns and shopper behaviors. You can identify customer demand and ways of fulfilling it by recording customer order details and sales forecasts. MRP II then breaks down the demand into individual components and raw materials using the bill of materials.
2. Perform MRP II calculations
After identifying your quantity requirements, you can perform your MRP II calculations. You can know the status of items, including those in stock, in transit, or on order and the materials you consider critical, delayed and expedited. You can calculate the MRP II by multiplying the marginal revenue by the marginal physical product of the resource.
3. Complete orders
Once you complete your company’s MRP II calculations, you can use the number to determine what orders to make. The MRP II calculations help discover your company’s recommended purchasing schedule for meeting demands, work orders, primary and secondary reports and a material plan outlining the required dependent inventory. You may follow the schedule and make necessary adjustments to ensure your company meets its demand and supply.
Tips for choosing software for your company
Here are some components to consider when considering whether to use MRP II or ERP for your company:
Consider the costs. Allocating a budget for software considers its effect on the company’s growth and bottom line. MRP II can be a cost-effective solution because it has fewer capabilities and can cost less than ERP.
Decide who your key users are. When determining which software to select, consider which types of professionals may likely use the software. ERP works best for multiple departments, whereas MRP II works only for manufacturing operations.
Determine the usage. Since MRP II is solely a manufacturing solution and ERP provides solutions for multiple business processes, determine why your company needs the software. Consider MRP II if you focus on material management and ERP systems for back-office business functions.
Consider integration with other solutions. Some systems may present challenges when combined with others. ERP systems integrate well with other solutions, while MRPII is a stand-alone application.
Analyze the rate of company growth. Rapid growth often requires streamlined processes for success. Consider MRP II for simpler processes and ERP for more automated and standardized processes.