How can you use MRP to track your manufacturing costs?

MRP is a software-based system that creates work orders, purchase orders, and delivery schedules based on information from your inventory, bill of materials (BOM), and production plan. With the aid of MRP, you can schedule your inventory levels, production activities, and material purchases according to your present and anticipated demand. By guaranteeing that you have the appropriate materials, in the appropriate quantity, at the appropriate time, MRP also helps you prevent stockouts, overstocking, and waste.

MRP is the short name for Material Requirement Planning. It is a software system that can either be run alone or found within ERP systems. MRP is loaded with key information about materials, lead times, processes & process times, sub assemblies, stock levels, routings etc The MRP system works back from date you need to deliver the order and works out when you should start each process and how many items you need to do. It can be used to produce works orders, production orders though you need to make sure every process is listed from stock picking through to inspection and dispatch. Many companies forget to put the processes on that aren't "part of the factory"

The MRP system can be loaded with data from purchasing e.g. if materials/parts cost ￡10 a month and ￡10.50 the next. You can see when the more expensive materials/parts are used. Quality issues and re-worked or scrap items can be tracked through MRP. Each process step is often given a labour standard. This is typically how much time the standard work should take. Each time the work is done the labour time it takes can be recorded. This allows the business to track how many labour hours are used on each part. Each labour hour will have a cost, hourly rate. Multiplying the time taken by the hourly rate gives a cost. This allows the business to see how costs change for each order of the same products.

MRP if used effectively and efficiently goes a long way to cost reduction as well as cost monitoring tool. MRP gives the planner feasibility of all materials:- 1. Ordering process & cycle; MRP informs the planner what to order and after how long, how much stocks to keep. It also advises if to order is bulk or consolidate orders 2. DIH; MRP helps maintain healthy stock levels, minimizes SLOBs and ensures that the planner has the right stock for the right production runs. 3. Scheduling process;MRP ensures that the planner has the right schedules, right runs, and there are no left overs or unefficient runs which leads to wastages and unutilised machines or labor. These are just but a few ways MRP can be used to solve costs