What is an MRP System ? The Secret to Automating Factory Purchasing

An export order worth 5 billion VND has just been signed. The entire factory is fired up, racing against the schedule. However, on the third day, the entire assembly line suddenly has to hit the emergency stop button. The reason? The materials warehouse reports that they have completely run out of a specialized screw worth… 500 VND each. Meanwhile, in another corner of the warehouse, batches of shrink wrap over-purchased from last year are piling up, gathering dust, and consuming hundreds of millions of VND in working capital. This phenomenon of “surplus of the unnecessary, shortage of the critical” is a chronic disease of factories that plan purchasing based on intuition. By implementing an MRP System (Material Requirements Planning), this problem will be completely resolved: the software will automatically and accurately calculate every single screw and every meter of fabric needed based on production norms, helping the factory avoid schedule disruptions while freeing up the massive amount of capital “frozen” in the warehouse.

Key Takeaways:
–Eliminate the Fear of Material Shortages:Automatically explode the Bill of Materials (BOM) to accurately calculate the amount of raw materials needed for each production order.
–Optimize Working Capital:Eradicate the “buy extra just in case” mindset, helping businesses minimize dead inventory and free up cash flow for reinvestment.
–Calculate Lead Time:The system doesn’t just tell you how much to buy, but also specifies exactly “when to place the order” so materials arrive right when production needs them.
–Automate Purchase Orders (Auto PR/PO):Shift from manual Excel calculations to an automated Purchase Recommendations mechanism with just a single click.
–Tight Integration with Core Management:MRP data is synchronized in real-time with sales and warehouse modules on ERP software, creating a closed and transparent supply chain.

Table of Content

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1. What is an MRP System ? Eliminating the “Buy Extra Just in Case” Mindset

MRP (Material Requirements Planning) is a complex calculation engine designed to answer the three core questions of the supply department: “What to buy?”, “How much to buy?”, and “When must the goods arrive at the warehouse?”.

In traditional factories, the purchasing department is often haunted by the fear of material shortages halting the machines. To be safe, they opt to “buy extra just in case”—ordering 10% to 20% more than the actual requirement.At a pharmaceutical manufacturing plant: The Purchasing Manager always over-ordered aluminum blister foil. The result was that after a year, the expired aluminum foil inventory that had to be destroyed amounted to hundreds of millions of VND.The MRP System was created to put an end to this situation. Through a smart pegging algorithm, it takes the total required production demand, subtracts the available quantity in the warehouse, and subtracts the quantity on the way (ordered but not yet received) to propose a purchasing quantity accurate to the decimal.

2. Comparison Table: Intuitive Purchasing vs. MRP Automation

The discrepancy between calculating materials via Excel and using an in-depth automated system is massive. Let’s examine the following scenarios:

Supply Scenario	Manual Calculation (Excel/Experience)	Processing with an MRP System
Multi-level BOM Products	Accountants must trace through spreadsheets to multiply and divide material ratios. Highly prone to errors when a product has dozens of sub-components.	Automatically explodes multi-level BOM structures in seconds, accurately calculating material requirements at the lowest level.
Determining Order Timing	Relies on the purchasing staff’s memory, easily leading to late orders that leave the factory waiting.	Applies the Lead Time of each supplier to automatically count backward, precisely warning which day the purchase order must be finalized.
Handling Sudden Order Changes	Requires recalculating the entire Excel sheet from scratch, easily leading to duplicate purchases of existing materials.	Reruns the MRP scenario. The system automatically deducts current inventory and generates the latest Purchase Recommendations.

Comparison table of manual purchasing vs automated MRP system

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3. How MRP Works to “Rescue” Inventory Cash Flow

3.1. Exploding the BOM

The greatest power of an MRP system lies in its data explosion capability.Take the example of an electric bicycle assembly plant: A bicycle (Finished Good) is made up of a Frame, Motor, and Wheels (Semi-finished Goods). The wheels are in turn made up of Tires, Rims, and 36 spokes (Raw Materials).When there is an order for 1,000 bicycles, the software instantly “unpacks” this BOM tree. It automatically calculates that exactly 36,000 spokes are needed, while simultaneously checking how many are currently in the warehouse to propose purchasing the shortfall. This absolutely prevents the over-purchasing of unnecessary components.

3.2. Balancing Safety Stock & Lead Time

A smart purchasing software never lets your warehouse completely deplete before placing an order. It strictly adheres to the Safety Stock principle.At an F&B manufacturing plant: Carton packaging imported from overseas takes 30 days to reach the port (Lead Time = 30). The system calculates the daily consumption rate and realizes that in exactly 30 days, the warehouse will hit the safety threshold. Right today, it automatically triggers a red alert, requiring the purchasing department to issue a Purchase Order (PO) to the supplier, ensuring goods arrive just in time to maintain continuous production (following the Just-in-Time philosophy).

3.3. Auto Purchase Recommendations

Instead of manually typing each item code, the system provides a centralized Order Recommendation screen.In the textile industry: After running the MRP algorithm, the system lists 50 types of colored threads and buttons to buy. The purchasing accountant simply reviews the list, ticks the checkboxes, and clicks “Create Order”. The software will automatically consolidate items from the same supplier into official Purchase Orders, saving up to 80% of paperwork processing time.

Auto purchase recommendation screen on MRP system

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4. FAQs – Answering Questions About MRP System Implementation

Q1: Our factory has thousands of junk material codes (SKUs) left over from history; can we run MRP software?
A1: You must “standardize” your Master Data and BOM norms before running the system. The core rule of MRP is “Garbage In, Garbage Out” (junk input data will yield a junk plan). This data cleanup process, though arduous, is a necessary purification step for the system to operate accurately.

Q2: Can MRP calculate material scrap during production?
A2: Absolutely. When setting up norms (BOM), the system allows you to declare an expected scrap rate (e.g., 2% wrapping film scrap). When calculating purchasing needs, the algorithm will automatically add this 2% buffer to ensure the factory always has enough materials despite defects.

Q3: How is this MRP module different from an APS system?
A3: MRP is the foundational platform, focusing solely on calculating “Materials” (Are there enough raw materials?). Meanwhile, an Advanced Planning and Scheduling (APS) system calculates both “Materials” and “Machine Capacity” (Are the machines free to run?). For large-scale factories, simultaneously combining both MRP and APS is the most standard configuration.

Transitioning from intuitive purchasing to a quantitative MRP system is not just a story of reducing calculation efforts. It is a strategic solution for capital optimization, helping businesses untie billions of VND frozen in the material warehouse to reinvest for profit.

Register for a Demo experience today to witness firsthand the automated MRP algorithm solving your factory’s supply chain puzzle at INFOASIA!