Top Ten Tips for Successful Material Requirements Planning

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For most manufacturers, conducting material requirements planning (MRP) is a critical process that should be ran on a daily basis. With reliable MRP, a company could expect to see an increase in on time shipments, additional happy customers, lower inventory carrying costs and less inventory shortages.  Whether it’s done through your enterprise resource planning (ERP) system, a Microsoft Excel spreadsheet or in your head, here are a ten tips on how to achieve successful MRP:

1. On Hand Accuracy

How valid are your inventory balances? Has quality control approved of all the inventory available in your system? If you can’t rely upon your on hand values, it’s going to be somewhat difficult to rely upon the data that MRP generates for you. It’s as simple as ‘garbage in, garbage out.’ If you have incorrect quantity on hand, your MRP is going to plan around those inaccurate amounts. The one saving grace is that at a minimum, your MRP should be able to provide you a summary of the material requirements.

2. Use a Forecast

Most MRP systems will take the greater of open sales orders or forecast to calculate your demand. Your forecast can be a sales forecast or production forecast, either way, your MRP system will utilize this information to generate your requirements. The benefits are twofold, the first being you can approximate your material needs further out than the time fence that applies to your sales orders. The second, in addition to materials planning, this will also help you from both a production scheduling standpoint but also assist with staffing requirements. The forecast does not need to be concrete and you want to make sure you have the ability to make changes on a rolling basis.

3. Dates! Dates! Dates!

MRP is driven by the required dates of your expected demand. If you’re not staying up to date when it comes to open sales orders, open purchase orders or even open production tickets, your MRP will come back telling you to order materials well in advance of when you actually need them in order meet the ‘immediate’ demands of your past due sales orders!

4. Lead Times

Having accurate dates in your system for sales order and purchase orders is a necessity. However, you want your MRP to tell you exactly when you need your materials for production. When do you need to place that purchase order (PO) in order to have the 500 pounds of glycol on hand ready for production? Knowing how long it generally takes for materials to arrive from the moment you order or how long it takes to make your finished product is key. Taking it a step further, let’s add in the time it takes for your quality control team to release the material to production/shipping. Many ERP systems will have a series of fields where you can enter this information and will use in to suggest when to place that PO….when to start your production order.

5. Audit your vendors and your own shipping performance

This goes somewhat hand-in-hand with lead times. Perform frequent reviews of historical transactions by vendor/item comparing the scheduled lead time vs. actual lead times. Take a look at how your organization is performing for your customers. Take this information and adjust accordingly.

6. Safety Stock vs. Reorder Point

Know the difference between the two and more importantly, how your MRP will handle these. When you view your MRP, will it treat safety stock as a hard number and not let you go below, or is it more of a soft number, treated more as a ‘suggested quantity we don’t want to go below, but we’re fine if we do.’ Reorder point is commonly used as the level of an item signaling the need for action.

7. Formula Yield

For many manufacturers there is an inherent loss factor throughout the process. Evaporation, spillage or simply the reactivity of certain materials, can all be causes. You put in 1,100 lbs of raw materials in order to get 1,000 lbs of finished product. Without accounting for that loss factor, your MRP will have you coming up short 100 lbs of raw materials.

8. Blanket Orders

In theory, blanket orders are great. From an MRP standpoint, these can add an interesting wrinkle. For example, you tell your vendor you are going to need 50,000 lbs of sugar over the next 12 months and proceed to enter that into your system. However, you don’t have a definitive date for each release so you simply enter one date.  By using that one date, this can potentially throw off the suggestions that MRP makes. If you’re going to use blanket orders, make sure to fully understand how your MRP accounts for this.

9. Capacity Limits

Know the production limitations of your work centers. Most MRP systems will create a suggested production schedule and may not take capacity requirements into account.

10. Invite more to the party

A common practice within many organizations is to place the burden  of MRP entirely on one individual. In most cases, this individual doesn’t always have the answer or solution to any issues that may come up. To combat this, bring others into the mix. Have a daily meeting involving the purchasing team, customer service, production and quality control along with the leader of MRP to reviewing the MRP report and analyzing any potential short comings or changes that might be needed. They know their data, let them have a hand in resolving any potential conflicts.  Let’s keep in mind that while computers are ‘smart,’ you shouldn’t neglect the human element when it comes to decision making.

By using these tips, you should be better prepared to dive in to your MRP to gather superior, more reliable information that leads to more timely shipments and a cleaner inventory.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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