How does MRP Works?
Makers decide the MRP in view of different factors, for example, creation costs, bundling, transportation, and wanted net revenues. The MRP is then imprinted on the item’s bundling. Retailers are legitimately bound not to sell the item over this predetermined cost.
1. Bill of Materials (BOM): MRP starts with a comprehensive list of all materials, components, and sub-assemblies required to manufacture a product. This list is known as the Bill of Materials (BOM). The BOM includes details like part numbers, quantities needed for each assembly, and the hierarchical structure of the product.
2. Master Production Schedule (MPS): The Master Production Schedule outlines the production plan, indicating what products need to be manufactured and in what quantities over a specific period. This schedule is typically based on market demand forecasts, customer orders, and historical sales data.
3. Inventory Status: MRP relies on current inventory levels of raw materials, components, and finished goods. It takes into account the quantities available in stock and in the production pipeline.
4. Gross Requirements Calculation: MRP calculates the total demand for each component and material based on the MPS. It considers both the production requirements and customer orders. This calculation determines the gross requirements for each item in the BOM.
5. Net Requirements Calculation: Once gross requirements are determined, MRP subtracts the current inventory levels and scheduled receipts (materials on order but not yet received) from the gross requirements. This calculation results in net requirements, indicating the exact quantity of materials that need to be procured or produced to meet the demand.
6. Monitoring and Updating: MRP does not end with the generation of orders. It continuously monitors inventory levels, order statuses, and production progress. As new information becomes available, such as delayed shipments or changes in customer demand, the MRP system updates the plans and recalculates requirements accordingly.