You know that things like low employee productivity, IT downtime, and even theft can seriously eat into your company’s profits.
But what about things that aren’t quite so obvious?
Things like over-ordering on your inventory, being unable to fulfill desired customer orders due to a lack of products, or even keeping raw materials on the shelf until they expire?
These are all things that material requirements planning systems (or MRP for short) help your company to address.
Now, MRP systems are even being used to improve your overall advertising strategy and to increase customer engagement.
But what is MRP, and how can it add value to your business?
Keep on reading this post when you’re ready to find out.
What Is MRP?
Before we go any further, we need to make certain that you’re clear on what an MRP system actually is.
MRP stands for “material requirements planning.”
While this might initially sound a bit confusing, we promise that it’s actually quite a simple concept. Essentially, it’s a type of software that helps you to keep your company as productive as possible. It also helps you to better understand and plan your operating expenses.
It assists in the scheduling of deliveries, ensures that your inventory is where you want it to be, and even makes estimates about the costs of labor, materials, and other business expenses.
Many people think that MRP systems are used exclusively within the manufacturing world. And while that’s certainly an easy way to help you understand what an MRP is, the truth is that these systems benefit a wide variety of industries.
MRPs help companies to keep costs down because they prevent you from overbuying on products. The software actually helps you to understand, essentially, how little of a material you can get away with buying.
It also helps you to keep track of your past and future purchasing activity.
It helps you to understand which materials you need when you need them, and how much of them you need to buy. (You could swap out “materials” with other expenses like labor, deliveries, and pretty much anything else you want to estimate.)
You can use an MRP system to help you get a better grasp of both internal and external expenses at your company.
The goal is to automate as many of these processes as possible. This means that you can increase productivity and lower your overall operating costs.
What MRP Tracks
Of course, good MRP software does a lot more than just tell you how many orders of an item you need and when you need them by.
It also tracks your past purchase orders, and even lets you know when an expedited order needs to be placed.
It alerts you when you’re running low on certain parts. It will also tell you if your current inventory may not be able to keep up with a sudden rise in demand.
It can even track sales and purchase orders that your team members have placed or received from clients. This ensures that everyone is on the same page and that nothing gets overlooked or doubly purchased.
Some MRP software will also help you to understand the current market demand for your product. Are outside influences, such as national shortages or recalls, influencing customers to buy more or less of your products?
MRP also makes use of trend and purchase forecasting. This kind of estimation and predictability helps you to stay ahead of the competition.
It will also help you to understand the shelf life of any raw materials you’ve purchased.
So, what is an MRP, really?
Essentially, it’s an efficient data, price, and inventory monitor that every business can use.
Understanding Inventory in MRP Systems
Now that you can answer the question, “What is MRP?”
Let’s make sure that you understand how the word “inventory” is defined within an MRP system.
Inventory when it comes to material requirements planning refers to both dependent and independent demand within a company.
Defining Independent Demand
Independent demand is, in a nutshell, the demand your customers have for a finished product.
You might create products like computers, pieces of furniture, or even cars. But independent demand is solely in the hands of your customers.
In other words, independent demand is the desire that your customers have for the things you’re selling.
Defining Dependent Demand
So, what about dependent demand?
Well, this type of demand refers to the materials, parts, and small components that you need in order to make a product. (In other words, the things you need to create products to satisfy that independent demand.)
These can include things like hard drives, wires, keyboard materials, and even screens for the computers your company makes.
They might be the ingredients for your best-selling face cream. They might be parts of a car like a windshield, brakes, or airbags.
Of course, it’s important to remember that independent demand and dependent demand are directly related to one another.
Why These Things Matter
The number of people who place orders and buy your products influences how many of those little parts you need.
You don’t want to overbuy and waste money.
You also don’t want to underbuy and end up not being able to provide your customers with the products they want.
This will certainly hurt your brand’s reputation. It will also ensure that customers don’t buy from you again in the future.
An MRP system uses forecasting and past buying/selling history to help you find the balance between supply and demand. This way, you’ll buy the number of raw materials that are “just right” for that independent customer demand.
MRP in Marketing
Especially in recent years, MRP systems have also started to influence the way that companies approach marketing.
Smart businesses have started to use the data that MRP systems provide to inform their marketing strategy. The information that MRP systems find can help companies understand the most optimal time to market specific products.
MRP in marketing lets you know when your customers are due to refill their orders. Based on their overall buying history, you can also get a better understanding of the products that you know will appeal to them.
You can get to know the ads that they’re most likely to respond to, what their general demographic is drawn to, and much more.
Using market segmentation tactics along with an individual knowledge of a particular client, MRP in marketing is incredibly useful. It will help you to prove to your customers how well you know them.
This also makes customer service much better in general.
It will also ensure you’re pitching the right products to them at the right time.
Of course, in order to get the most out of marketing MRP, you need to ensure that your data is as clean as possible.
Improving MRP’s Accuracy and Efficiency
We hope that this post has taught you that MRP systems certainly have a lot to offer your company.
And while they can accomplish a lot on their own?
There are also a few things that you can do to make the process go even more smoothly.
First of all, we suggest switching over to a barcode scanning system when it comes to your inventory.
Make sure you communicate with your vendors to ensure you understand average processing times. If you don’t make your materials onsite, know how long it takes a vendor to make them.
Understand your overall sales cycle, including how long it takes for you to convert a lead into a customer.
You should also make sure you come up with a loss factor. Accidents, delays, and employee missteps happen. It’s up to you to prepare for them.
What Is MRP? Wrapping Up
From helping you to save on the costs of materials to ensure that you’re able to accurately estimate your expenses, MRP systems can do a lot for your company.
Think that an MRP system would fit in well with your company?
If so, then remember that being able to answer the question, “What is MRP?” is just the beginning. You’ll need to look for the features you need, understand what kind of support is offered, and know what your responsibilities are.
The good news is that an MRP system is far from the only way you can lower your operating costs and improve your marketing plan.
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