Question

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Material Requirements Planning (MRP) is the process used for calculating the materials required to manufacture a product.  A common approach companies use is called just in case inventory which requires huge inventories to stock all materials needed for manufacturing a product before they are required (Vonderembse, 2013).  This process may sound like a great idea but is very costly in requiring extensive warehouse space and monies tied up in inventory.  If companies that utilize MRP they will be able to free up these costs without effecting deliveries to customers and also could provide these products at a lower cost.  The MRP is processed with a computerized information system that uses the information from the Master Schedule File, Bill of Materials File and Inventory file to determine a more precise amount of inventory to have on hand.

I work for Sharp Electronics Americas and when it pertains to MRP we need to be sure we have enough supplies and parts in stock for our USA Sales and Service Distributors.  In the past we used to utilize the just in case inventory process and have numerous warehouses throughout the United States.  We would also encourage our dealer chain to have an extra amount of inventory on hand as well.  About 5 years ago we partnered with a company called Tech Data which specializes in a more just in time logistics system.  They are able to take an order from one of our dealers and have it delivered to them in 24 to 48 hours.  Utilizing Tech Data allowed us to eliminate all of our warehouses, which saved us a tremendous amount of money.  This also allowed our dealers to not store and tie up resources stock pilling inventory.  We utilize SAP to process the correct amount of product to order from our factory and have in hand at the Tech Data warehouse facility.

Answer 1

This post talks about different kinds of inventory management systems used by companies.Lets discuss about them:

• Just in Case inventory management system : This is the most traditional way of inventory management used by companies.They use to stock a large amount of raw material inventory before they are required in warehouses.This was a very costly and tedious method as companies had to rent or own a large number of warehouses for storage which lead to increase in the cost of production.
• MRP inventory management system :Material resource planning ( MRP ) is one of the most used technique for managing inventory by manufacturers.It is a computer based program to calculate the material required for the production and schedule deliveries.It answers 3 simple questions of the manufacturing process:
  • What is needed ?
  • How much is needed ?
  • When is needed ?

MRP synchronizes the flow of raw materials considering the production schedule.It takes into account factors like Sales orders,shortage of materials,due dates,forecasts etc and gives out the inventory need for the company.It is very beneficial method for managing inventory as it saves a lot of cost of warehouses which were required earlier to store inventory before the production.This saved cost reduced the overall reduction in the price of finished product and proves to be economical for the company and consumer.MRP overall enhances the productivity and saves cost and time both.

• JIT inventory management system : Another effective way of managing inventory is Just In Time (JIT) inventory management system.As the name suggests it helps in receiving goods or material required for production only as they are needed in the production process.It enhances efficiency and decrease the waste .Benefits of JIT :
  • Lower inventory costs :It lowers the inventory holding costs like need of warehouse space.
  • Improves cash flow :As lot of money is freed up by no need of warehouse it increases the cash flow.
  • Less dead stock : As it depends on customer demands the risk of dead stock is minimized.

JIT appeals to lot of companies as it helps to sell the product before purchasing it and then procuring the item from third party and have it shipped.

Now Sharp Electronics Americas also uses JIT system of third party i.e Tech Data who are masters in JIT .They take orders on behalf of Sharp and delivers them within 24 to 48 hours.This has helped Sharp to save a lot of money which overall lowered the cost of production.They didn't preferred MRP as they have to make sure about the availability of there parts for the USA distributors and dealers.Earlier they were using Just in case inventory system which blocked a lot of money and they had many warehouses in United States.

Comparison :

Now the question arises which one is better among the 2 inventory management system; MRP and JIT.So we have compared the two to understand this :

MRP and JIT are totally unlike on many factors :

1. BASIS : MRP is a resource tool that is totally based on forward thinking and JIT on the other hand is based on waste reduction.
2. Effectiveness : When it comes to manufacturing unit MRP gives more control and better management in inventory whereas JIT increases the value of the process.
3. Lead time : JIT is applicable when lead times are short whereas MRP is best in longer lead times.
4. Inventory : MRP carries inventory while there is zero inventory in JIT.
5. Safety stock : MRP carries safety stock but JIT doesn't.
6. Factor : MRP considers purchase orders to predict the requirement whereas JIT uses delivery schedule for the same.

CONCLUSION :

It is very hard to say which one is better,however it depends on the manufacturers ,which technique they use for there production process according to there requirement and need.

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