Objectives of MRP
The primary purpose of MRP is to provide an adequate supply of dependent demand inventory as and when required. By doing so, it helps an organization achieve the following objectives:
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Improved customer service
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Reduced investment in inventory
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Improved operating efficiency
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Faster response to market changes
Improved customer service
The responsibility of an organization does not end with producing adequate stock of products to meet customer orders. To improve customer service, organizations need to fulfill delivery promises. MRP assists the production department in doing that by identifying the quantity, timing and availability of components and parts, and by simultaneously placing orders to satisfy the requirements on time.
Reduced investment in inventory
An MRP system assists organizations to order inventory on time so that the desired items are available when required. The ordering quantity is based on the actual number of components and parts required in the production of end items. As a result, organizations can reduce their investment in inventory.
Table Expected Benefits from MRP
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Industry
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Description
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Expected Level of Benefits
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Assemble-to-stock
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Combines multiple component parts into a finished product, which is then stocked in inventory to satisfy customer demand. Examples: Watches, tools, and electrical appliances.
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High
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Fabricate-to-stock
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Items are manufactured directly by machines rather than assembled by parts, and are stored in stock points to meet the anticipated customer demand. Example: Electrical fuses.
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Low
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Assemble-to-order
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A final assembly is made according to the customer's orders. Examples: Motors, weigh feeders, and crushes.
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High
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Fabricate-to-order
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Items manufactured by machines to customer orders. Examples: Gears, ball bearings and conveyor belts.
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Low
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Manufacturer-to order
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Items either fabricated or assembled completely in adherence to customer specifications. Examples: Turbines, packing machines, and heavy machine tools
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High
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Process
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Industries such as chemicals, foundries, cement, steel, rubber, and plastics
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Medium
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Improved operating efficiency
An MRP system helps operations managers obtain control better over the quantity and delivery time of raw materials, parts, components, etc. As the system is updated regularly, it responds effectively to the changes in the production schedules. Based on the actual requirements, MRP systems can expedite or delay the inflow of materials. As a result, both stock-out and inventory holding costs can be reduced. Moreover, timely supply of needed materials reduces the idle time and improves the overall operating efficiency of organizations.
Faster response to market changes
MRP system enables an organization to respond quickly to market changes. As MRP system is updated periodically, it is flexible enough to respond effectively to the changes in demand for the end product. If the market demand necessitates a change in the master production schedule, it can be easily incorporated in the MRP system.
Thus by providing improved customer service, reduced investment in inventories, improved operating efficiency and faster response to market change, MRP contributes to the overall growth and operating efficiency of an organization.
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