In today’s digital economy, success requires businesses of all sizes and in every industry to adopt sophisticated technology. Manufacturers rely on Material Requirements Planning (MRP) to know when to purchase, transfer, or manufacture items to meet demands. Similarly, distributors and retail merchants leverage Distribution Requirements Planning (DRP) to time-phase inventory plans for purchased items and warehouse transfers. These essential inventory and supply chain planning tools are part of a larger Enterprise Resource Planning (ERP) business platform. Companies cannot use MRP or DRP independent of the larger ERP system because they rely on data from other connected ERP applications—inventory, bills of material, purchase orders, sales orders, and more. Let’s take a closer look at the history and evolution of material planning applications to gain a better understanding of modern day MRP modules and how they work with other ERP modules.

A Brief History of MRP, MRP II, and ERP

Understanding the history of material planning technology is important for understanding MRP and how its inception was the catalyst for today’s ERP solutions.

In the 1960s/1970s, IBM, in partnership with tractor and construction machinery manufacturer J.I. Case, introduced MRP software to help manufacturers with their inventory and production processes. It was designed to calculate and identify the required materials and their estimated quantities. It also assisted in scheduling, delivering, and storing the materials while supporting production planning. The focus of MRP was—for all intents and purposes—strictly manufacturing. These early MRP systems required inventory stocking information, demand forecast data, bill of material structure definitions, and other details to recommend suggested order dates and quantities. However, this data was isolated to the MRP application and often had to be manually entered for calculations.

In the 1980s, MRP evolved into Manufacturing Resource Planning (or MRP II). This version of MRP expanded the original scope of the software to encompass equipment and labor needs, production rates, scheduling, forecasting, budgeting, reporting, finance, and marketing features. It also linked directly to inventory management and production systems for data required for MRP calculations.

By the 1990s, business application developers had improved upon MRP II, creating a solution that could handle not only manufacturing and inventory needs but even broader requirements, such as customer relationship management (CRM) and human resources. Further, the underlying technology evolved out of mainframes, minicomputers, and early disk operating system (DOS) technologies. These new systems were developed in fourth generation languages (4GL) with greater connectivity to external systems and improved databases for faster processing.

As a business-wide management solution, MRP II evolved into “Enterprise Resource Planning (ERP),” a term coined by industry analyst firm Gartner in the early 1990s. While technology has changed dramatically with cloud computing, the base concept behind ERP is relatively unchanged. ERP solutions remain the de facto standard business platform manufacturers—and businesses in every industry—use to manage, streamline, and control their operations.

What is Material Requirements Planning (MRP)?

MRP systems evaluate supply and demand to make recommendations for item purchases, warehouse transfers, and production orders. Supply includes on-hand inventory, open purchase orders, planned inbound stock transfers from other warehouses, and production orders. Demand includes material requirements for open production orders, outbound warehouse transfers, sales orders, and demand forecasts.

Core Functions of MRP Systems

Most MRP systems deliver the following core functions:

• Inventory Management: Tracking stock at each warehouse, including minimum or maximum stocking levels, safety stock, and stock movement via warehouse transfers between locations.
• Production Scheduling: Finite capacity scheduling applications impact material plans. Companies implementing just-in-time strategies align purchase orders, warehouse transfers, and production orders with scheduled operation dates for production orders.
• Purchase Orders: Inventory planners or buyers may create purchase orders manually. MRP systems automate purchase order plans by suggesting orders based on existing supply and demand within the planning period.
• Sales Orders: Customer sales orders represent hard demand. Orders are either filled from existing inventory in make-to-stock environments or from production orders in make-to-order environments. In either case, MRP determines when to order raw materials and when to schedule intermediate component and finished good production orders to meet sales order promise dates. MRP also evaluates existing supply to determine the correct quantities of items to buy, transfer, or make.

Key Features of MRP Systems

In most MRP systems, there are three key features:

• Planning Buckets: Supply and demand are typically evaluated in user-defined planning buckets. MRP will create recommended orders within the period (weekly, monthly, etc.) to meet demand for that period.
• Exception Messages: MRP systems generate exception messages (sometimes called action messages) to help planners when situations require their attention. For example, exception messages are generated if demand falls inside vendor or production lead times, where orders must be expedited or dates adjusted. Further, MRP will suggest moving future orders in to cover demand that may have changed. It may also suggest canceling orders if there is no longer demand for the item in the given period.
• Demand Forecasting: Demand forecasts are commonly used to drive material plans in discrete make-to-stock scenarios. Forecasts may be created automatically by the system using historical data to predict future demand. Alternatively, demand forecasts may be created manually or imported from strategic customers. For example, it is common for automotive customers to provide demand forecasts to downstream suppliers to help them manage material plans for the parts they supply.

Manufacturers in every industry segment rely on MRP for inventory planning. However, MRP may vary slightly by industry. For example, as mentioned previously, automotive supply chains often rely on customer-supplied demand forecasts to drive material plans. Food, beverage, and chemical manufacturers have specialized MRP requirements for batch process production and repetitive manufacturing processes based on formulas and recipes. Consequently, it is vital to understand your unique business and industry requirements when selecting an MRP system.

What is Enterprise Resource Planning (ERP)?

An ERP solution connects all data from all departments and functions across an organization, including finance, human resources, sales, customer relationship management, and everything in between. This information is combined, stored, analyzed, and protected in a single system, ensuring clear communication, seamless data flow, easy collaboration, and accurate decision-making.

Core Modules of ERP Systems

Modern, cloud-based ERP systems are comprehensive business management solutions. So, while any number of modules could be added (including MRP), the core modules that fill needs common to all organizations, regardless of industry, are:

• Financial Management: This helps businesses manage assets, income, and expenses and make sound financial decisions with configurable processes, centralized information, and smart accounting applications.
• Inventory Management: This module simplifies and centralizes item management, quality traceability, automated replenishment, location management, and more.
• Customer Relationship Management: This helps streamline and personalize the customer journey by capturing and storing customer data—empowering employees to respond quickly to questions/concerns.
• Supply Chain Management: This group of modules handles every aspect of the supply chain within the ERP solution, including sourcing, manufacturing, warehousing, transportation, distribution, and customer service. It encompasses bills of material and routings, production management, material requirements planning, warehouse management, transportation and logistics, shipment management, and more.

Advantages of ERP Implementation

An ERP implementation allows all businesses—of any size and in any industry—to unify their data systems, which enables them to make wise decisions and scale rapidly. According to the U.S. Chamber of Commerce, in reference to a Panorama Consulting Group survey, the core benefits of ERP systems were felt by respondents in their improved inventory levels, compliance capabilities, supplier interactions, productivity and efficiency, standardization, real-time data gathering, information technology maintenance costs, ability to remove silos, operating and labor costs, operating models, and customer experience.

MRP as a Module in a Modern ERP System

For manufacturers, when MRP is deployed as a module in an overarching ERP system, the solution delivers a one-two-punch to production complexities—delivering seamless data flow across departments, enhancing forecasting, promoting agile decision-making, and improving planning and resource/production control.

According to Acumatica customer Francis Nwabudike, President and CEO of SpaceManager Closets, implementing Acumatica’s Manufacturing Software and its integrated MRP module has helped resolve 95% of the company’s inventory challenges, drastically reduce production errors, and impressively improve customer communication.

“There’s nothing we do that doesn’t include Acumatica,” Nwabudike says. “Acumatica is literally the lifeblood of our business. There’s a whole lot of data that’s now available to us to make smarter decisions.”

To learn how Acumatica Manufacturing can connect your data, systems, and processes, while helping you meet schedules and reduce cycle times, contact our experts today.