Do you ever think Why Manufacturers Must Adopt a Modern MRP System? When you’re just getting started with your product-making business, it makes sense to keep track of your raw materials, finished goods, and manufacturing processes by hand. Most probably, you’ll keep your data in Excel spreadsheets, so that you can customize it quickly and conveniently.
However, once your small business grows and you’re focused on scaling, it will be close to impossible to manage your stock that way. You’ll need to adopt automation technologies to optimize your processes, be more efficient, learn from accurate data, and ultimately, stay ahead of the curve.
Implementing smart MRP software can help you gain complete visibility into your business processes, by tracking stock in real-time, managing resources, automating the reallocation of materials based on priorities you set, and much more.
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Let’s take a look at what exactly MRP software is, why it is essential for manufacturers, and what key functionality it should have.
What is an MRP System?
MRP stands for material requirements planning and it is a system designed to analyze inventory levels, production capacity, and the need to produce goods based on forecasts.
It starts working backward from a production plan for finished goods, which is transformed into a list of requirements for the subassemblies and raw materials necessary to create the finished goods within the schedule. Simply put, it’s a system that helps manufacturers understand the materials and items needed to produce a given product while balancing both supply and demand.
Why use an MRP System?
An MRP system helps businesses gain accurate insights into inventory requirements necessary to meet demand, which means it ensures that inventory levels and production schedules are optimized. Without a proper MRP system, costly mistakes can be made, such as:
- Increased carrying costs due to ordering too much inventory
- Cash tied up in inventory overhead that could be invested somewhere else
- Lost sales and out-of-stocks due to insufficient raw materials available
- Increased production costs and decreased output due to disruptions in the production cycle and delayed sub-assemblies
What does a good MRP System do?
1. Effectively manage products and raw materials
First of all, MRP helps understand customer demand and what is needed to meet it. By creating a bill of materials (or product recipe), you essentially tell the system what raw materials, assemblies, and components are needed to manufacture an end product. Then the system breaks down demand into specific raw materials and components. This way, your inventory management strategy is optimized to ensure the best possible tactics are in place in your manufacturing facility.
2. Boost manufacturing efficiency
MRP helps identify bottlenecks in the production process caused by scarcity of materials and enables manufacturers to reprioritize production based on material availability, which means that production never has to stop. It also helps manufacturers to make informed decisions about equipment planning, labor requirements, and operational asset management.
3. Reduce waste
The right MRP software helps reduce waste in several areas, to ensure lean production. For example, ensuring stock is in the right place, at the right time, it reduces needless transportation. In addition, it helps avoid overstocking and understocking. This means that it can easily calculate minimum stock levels based on historical data and trigger notifications when the stock reaches a specific threshold. At the other end of the spectrum, maximum stock levels trigger can be set to send alerts and avoid overstocking.
4. Reduce lead times
Lead time is the time taken from scheduling to delivering a product. Reducing lead times is arguably the most important factor in increasing the performance of your supply chain. An MRP system can help reduce lead times by enabling manufacturers to set reorder points, keep safety stock, and implement lean inventory. Moreover, MRP systems help to optimize material availability, resources, and external processing, which are all contributing factors to decreased lead times.
5. Improve customer satisfaction
Customer satisfaction is the ultimate goal of any business. By reducing costs normally held in excess inventory and making sure materials are available on time for production, MRP helps manufacturers improve customer satisfaction. It is more likely that a customer will return to purchase from a company that delivered a high-quality product, on time, at a reasonable price.
Keeping track of stock, raw materials, machinery, and resources by hand is not an option for scaling manufacturing businesses looking to improve efficiency. To gain a competitive advantage, it is important to identify ways to automate processes, implement smart tools, and embrace digital transformation. The alternative will only inhibit your ability to grow your business, wasting your resources and costing you clients.