Planning (MRP) Materials Requirement Planning, or MRP,

¶ … Planning (MRP)

Materials Requirement Planning, or MRP, can implement a number of clear benefits for a company in almost any industry. Essentially, "MRP calculates and maintains an optimum manufacturing plan based on master production schedules, sales forecasts, inventory status, open orders and bills of materials" (Inventory Solutions Logistics, 2007). It can be used as a way to help a company guide the way the handle their inventory so that they are not wasting additional financial resources on inventory that is just taking up space. Too much inventory costs a company in overhead and can lag down capitol that may be needed to fund other operations. Utilizing MRP can help reduce inventory levels by planning production "so that the right materials are at the right place at the right time" (Inventory Solutions Management, 2007). Downsizing inventory can also help reduce work-in-progress, or WIP (Abdul, 2013). The Toyota Company has implemented MRP in their Just-in-Time production strategy so that they keep overhead costs down, while still remaining fully capable to produce the needed units at just the right time. Toyota keeps its inventory low until orders are brought in. This allows the company to have extra capitol for other spending measures. Still, when large orders come in, the company is prime for bulking up the inventory to meet the growing demand.

Perpetual and Periodic Inventory Systems

Inventory systems are important for accountants and management because they help track inventory levels and keep the system running smoothly. However, not all inventory systems used by accountants often differ dramatically from case to case. Thus, there are a number of different systems used. One of these systems is perpetual inventory. According to the research, "under a perpetual system, inventory accounts and databases are updated automatically each time a product is received or sold" (Ingram, 2012). This type of automated accounting for the inflow and outflow of products helps keep the system moving smoothly, without a whole lot of manual attention. When one product is sold or received, the entire system updates itself instantly, and thus there is the spreading out of the work load so that no one has to spend hours crunching numbers at the end of a certain period, where the inventory adjustment would be much more labor intensive. Perpetual systems account for sales transactions immediately, and thus there is no need for long closing entries at the end of accounting periods. Companies use Radio Frequency Identification tags (RFID) to automatically adjust the inventory listings for each sale transaction. This helps dramatically for companies working with large amount of smaller sales transactions. Thus, grocery companies, like Ralph's or Vons benefit from this type of system because of the large inventory stock they have.