The objectives of material requirement planning in operations management are:
(a) It determines the quantity and timing of finished goods demanded.
(b) It determines the time phased requirements of the demand for materials, components and sub-assemblies over a specified planning time horizon.
(c) It computes the inventories, work-in-process batch sizes and manufacturing and packing lead times.
(d) It controls inventory by ordering materials and components in relation to orders received rather than ordering them from stock level point of view.
(e) It improves customer service by meeting delivery schedules promised and shortening the delivery lead times.
(f) It reduces inventory cost by reducing inventory levels.
(g) It improves plant operating efficiency by better use of productive resources.
Material requirements planning (MRP) is a production planning and inventory control system. An MRP integrates data from production schedules with that from inventory and the bill of materials (BOM) to calculate purchasing and shipping schedules for the parts or components required to build a product.
There are three primary functions of an MRP system. First, the system helps ensure that the appropriate materials are available for production and the necessary products are available for customers to avoid shortages. Second, MRP reduces waste by maintaining only the lowest possible materials and product levels in stock. Lastly, an MRP system helps plan manufacturing functions, delivery schedules and purchasing. When an MRP system is doing its job, it reduces material waste while also avoiding product shortages. Data integrity, however, is a major issue for successful material requirements planning. The data fed into the system must be accurate; otherwise, serious production and stock errors may occur.
MRP was developed by engineer Joseph Orlicky as a response to the Toyota Production System, the famous model for lean production. The first computerized MRP system was tested successfully by Black & Decker in 1964.