1. MRP or Material Requirement Planning has been a life savor for many companies across the world. MRP is something that has become very common in business for bigger companies but still lacks in many local or mom and pop shops around the world.“For companies today, MRP is a computerized information system. As such, it requires data to provide the information needed for decision making. The three most important data requirements of MRP are the master production schedule, bill of materials,and inventory records”(Vonderembse & White, 2013). MRP at GHSP where I work was a life changing system for them as it gave them the ability to take customer releases or demand and push that down to the supply base via schedules which means that we are only ordering what we need via the customers orders. Prior to the system we would try to base our orders on past history or what the customer would tell us which typically meant we would have much more inventory on hand than we really needed to cover our butts in case they increased orders and we could then be prepared. Now using the system and being able to see customer demand along with controlling our order based on that we have been able to decrease our inventory by 40% as well as increase customer score cards from mostly mid 90Â´s to 99 and 100Å› for everything. Having the correct amount of inventory creates much more accurate shipping and less confusion on the floor with less inventory to search and try to work around. Overall MRP has been a life change program for inventory dollars as well as saving our butts by improving customer scores and satisfaction to all customers.
Materials Requirement Planning (MRP) can be defined as the planning, acquisition, and inventory of materials required for production.
(Vonderembse & White, 2013)
The planning component is based on demand. Demand is internally and externally influenced.
Internal influence occurs when production demands certain materials for the production process. For example, a paper mill plans to produce 1,000 reams of printer paper. The production process requires 100 blocks of wood pulp, 500 gallons of water and 100 gallons glue. This list of materials is the internal demands of production.
External influence occurs when production requirements are called for by customer demand. For example, the paper mill has customer orders for 1000 newsprint (a specialty paper) pads of paper. This demand is external because the specialty paper is only produced when it is ordered by a customer.
Vonderembse & White (2013) explained that â€œMRP is a computerized system that requires data to provide decision making information…the three most important data requirements are the master production schedule, the bill of materials, and inventory records.â€ (Operations Management, p. 266). The master production schedule, as the name implies, is the planned production process. For example, the paper millâ€™s plan to produce 1000 reams of paper is one component of the master production schedule. The bill of materials is the detailed list of all materials required, the correct volume demanded, and the ratios needed to complete the planned production. For example, the 100 wood pulp blocks, the 500 gallons of water and the 100 gallons of glue from the paper mill example above is the bill of materials. With this information, the paper mill is able to determine the ratios. The inventory record is the detailed accounting of both materials and finished products held by the company to meet consumer demand. For example, in order for the paper mill to fulfill the order of 1000 newsprint pads, employees would first check the inventory record to determine the number of newsprint pads that have to be manufactured.
Vonderembse, M. A., & White, G. P. (2013). Operations Management. San Diego: Bridgepoint Education, Inc.
The perpetual inventory system records each inventory transaction posted so that a current record of inventory is maintained; whereas periodic inventory depends on the frequency of inventory periods and the volume activity (Vonderembse & White, 2013). In other words, fast-moving products may require daily or weekly shelf counts, while slower moving products may be counted monthly.
Neither system is better than the other only used for different needs. It is important to incorporate all the elements that will impact customers in the inventory planning process, including ease of finding products. For example, my organization inventories using both methods inventory counts are performed to ensure accuracy from count to count. Office supplies are inventory differently than product inventory. Office supplies are inventoried twice per month and replenishment occurs the following day. Order levels have been pre-determined and once the quantity goes below that level stock are ordered to replenish. This inventory process is sufficient given the low amounts of office supplies required.
However, products for customer use are inventoried using a point-of-sale system and uses the perpetual inventory system. Once a product is purchased, the companyâ€™s MRP system immediately sends a request for replenishment. MRP is linked via Electronic Data Interface (EDI). When increase in demand occurs the system automatically sends a reorder signal. This is to ensure stock is insistently replenished and inventoried to guarantee the accuracy of future inventory.
Perpetual and periodic inventory methods are equally useful based on the application. In the example provided office supplies are never continuously inventoried and products for customer use are inventoried continuously. The important factor in selecting an inventory method is to understand what items are being sold and which items are not, and whether the company is operating at the break-even points or making a profit. Fast-moving products require constant inventory versus slow moving product that may be inventoried less often.
Vonderembse, M. and White, G. (2013). Operations Management. San Diego CA: Bridgepoint Education, Inc.
The periodic and perpetual inventory systems are different approaches used to document the quantity of goods accessible. The perpetual system provides more appropriate information. According to Vonderembse & White (2013), the perpetual inventory system is a system whereas inventory is monitored regularly. There are continual updates to the cost of goods sold. The periodic inventory system merchandise is not updated continually. It is not as costly as the perpetual inventory. The cost of goods does not exist during a period with the periodic inventory systems. The periodic inventory system depends on physical count of the inventory to decide balance of the inventory and cost of goods sold.
Vonderembse & White (2013) found that the perpetual inventory records the sale of inventory through computers. It shows a change in inventory. Periodic inventory is used for moderately low cost goods. An example of the systems will be using a debit card for buying goods. The perpetual system is more expensive to uphold but provides more detail information. The periodic inventory system is easier to keep. According to Needles, Powers, & Crosson (2012), the periodic system allows a company to know beginning inventory and ending inventory, but it does not keep a record on a daily source. There is no circumstance to which system tis better than the other. It is up to the company to decide which one to use. Grocery stores use the periodic inventory system and retail stores use the inventory system to trade their inventory and customize their delivery system.
Needles, B. Powers, M., & Crosson, S. (2012). Principles of Accounting. Cengage Learning.
Vonderembse, M.A., & White, G.P. (2013). Operations Management. San Diego, CA: