Material requirements planning (MRP) is a sales forecast-based system for use in manufacturing. It gives floor managers and planners the ability to make informed purchasing decisions, schedule raw material deliveries, determine how much material is necessary to meet production, and create a labor schedule. Unfortunately, antiquated ERP design and use may create problems in production as well. To ensure your business has the resources needed to succeed, floor managers need to understand the challenges of outdated materials requirements planning processes, the characteristics and benefits of a modern requirements planning process, and how to select a best-in-class system.
The Challenges of Outdated Material Requirements Planning
A material planning system was one of the first forms of integrated information systems to leverage data, but advancements in technology have created problems for the modern manager. Having access to data alone is not enough to succeed, and poor processes contribute to higher costs.
For example, storing excessive materials or goods ties down capital and limits your ability to react to changing conditions. If a larger-than-expected order arrives, your business may need to order more materials, augment the labor force, or even delay other, lower-priority projects. Instead of turning away potential clients, optimizing material management can help you accomplish your goals and avoid unnecessary costs. In fact, optimizing material management is the quickest way to increase the liquidity of your business, so you can more readily respond to change.
As businesses have grown, a single material requirements planning system may not be enough to track all inventories. Multiple warehouses and manufacturing centers exist to meet demand. Yet, the need for lean manufacturing, avoiding unnecessary inventory carrying costs grew in tandem. According to Steve Banker of Forbes, the costs of inability to access raw materials, components, and subassemblies in manufacturing is significant. Manufacturers may levy fines of $4,000 per minute for partners that fail to meet delivery obligations.
The effect on the factory is clear; poor access to materials halts production. At the same time, too much raw material will lead to higher purchasing and carrying costs.
Manufacturers pushed raw materials further upstream, creating a delicate balance between supply and demand in their shops. Thus, an unexpected order could result in severe loss of production ability.
These problems are exacerbated for companies with little to no material requirements process in place. Companies may not know the volume of raw materials necessary to meet minimum production requirements. They may also fail to meet client expectations. The costs abound, and enough inventory to meet a four-week production period for a high-cost machinery manufacturer could be valued at $100 million. However, a modern planning system can overcome these issues.
What Are the Features to Look for in a Modern Material Requirements Planning System?
Companies searching for a new material requirements planning system should ensure it meets the minimum standards for each business. While such functions may vary slightly from business to business, at a minimum, broad features in modern systems should include:
- Raw material ordering and costs. Knowing the exact costs for raw materials, as well as cost differences between suppliers, enables managers to reduce manufacturing costs without sacrificing quality.
- Scheduling of raw material deliveries. The best-laid plans for material planning will fail following missed or inconsistent deliveries. The system should enable scheduling of raw material deliveries and provide accurate lead-time estimates.
- Consideration of available labor and machinery to handle production volume. Regardless of demand, labor and machinery availability affect production volume. The system must consider the maximum production volume to prevent overordering and improve customer experiences.
- Changes to order quality, scale and delivery expectations. Customer service is subject to changes in order quantity, delivery and cost. The system must take the likelihood of changes into account and give managers flexibility to adjust raw material plans accordingly.
- Compatibility with existing systems and those in your supplier, distributor and reseller network. Digital transformation of global industries will require easy-to-integrate systems, and your new system must be compatible with in-house and partners’ existing systems.
- Performance measurement and management. Performance management helps floor managers improve quality control, increase labor productivity, and reduce turnover.
- Inventory reconciliation. Cancelled or changed orders will result in inventory inconsistencies, and the system must enable reconciliation of inventory to manage carrying costs.
- Ongoing sales and production forecasts. Ongoing sales and production forecasts within the material requirements planning system will enable shorter lead-times and augmented production value.
- Intuitive controls and user-friendly interfaces. The most important feature is also the simplest—an easy-to-use interface that will build worker support for new system implementation and use.
How Does abas MRP Benefit Your Business?
Modern material requirements planning relies on data quality and continuous use to proactively manage material planning. The characteristics of a modern system leverage production planning data to create a master schedule, notes Scott Jessup via Metal Forming Magazine. The schedule drives the material plan, and upon completion of the project, feedback to the system allows for the continuous optimization of the manufacturing operation. The effect is two-fold, faster project completion and less waste.
For example, abas MRP System manages all resources and requirements necessary to meet your manufacturing demand, while allowing you to maintain lean inventory levels. Not only does abas manage requirements for manufactured items and sub-assembly processes internally, it also manages requirements planning for production at alternate locations and through third-party vendors as well. The system looks at material demand, labor capacity, department and work center capacity, and provides rough cut capacity planning.
Your team gets the information they need to coordinate material flows and accelerate inventory turnover while ensuring the availability of required goods.
How to Ensure Proper MRP Implementation.
Proper Material Requirement Planning implementation depends on the ability of your team to understand business needs, select a system, and plan implementation. The steps to selection are like the steps to selecting an ERP. However, a few other steps are necessary to maximize the value of your new system and streamline its implementation; they include:
- Assign the right personnel to the change management team. The change management team is responsible for overseeing the selection and implementation of a new system. The right personnel making decisions will translate into selecting and implementing the system faster and without added costs.
- Establish policies that enhance system use and benefits. A frequent problem in requirements planning system use goes back to “letting the system handle it all.” Although a modern system allows for greater efficiency and self-optimization, it still relies on data. Inaccurate data undermines the capabilities of the system. Policies created must focus on using real-time, accurate data, and integration between systems can automate the data collection and entry processes.
- Integrate the new system with your ERP to optimize efficiency. Integration is crucial to reducing the amount of time lost in manual data entry and ensures the most relevant and accurate data use. In addition, integration is easier with modern systems that are built on RESTful APIs, enabling integration with existing systems at a fraction of the time required to manually code and integrate traditional systems. Furthermore, consider integration with supplier systems to effectively automate the purchasing process, freeing managers to focus on the floor and customer service.
- Focus on proactive changes, not reactive purchasing. Implementing a system to handle materials resource and requirements planning differs from purchasing; it is a data-intense process that gives credence to a procurement strategy. Instead of trying to put out the fires that arise from poor planning, the system proactively creates a forecast model. This model is the basis for the creation of a master schedule for making purchasing decisions.
- Use metrics and analytics to understand requirements planning status. A key benefit of modern systems derives from their use of analytics and metrics to provide activity snapshots. This is a form of business intelligence, and its application can be used to help workers understand how current operations compare to forecasts and the actions needed to augment production. Using metrics and analytics are also useful in planning for “what if” scenarios, such as the impact of tariffs or material shortages.
Gain Control Over On-Hand Stock With abas ERP and Material Requirement Planning Now!
The best-laid plans for manufacturing fail with poor purchasing decisions. Instead of relying on visual inspection of on-hand stock and someone’s perception of demand, let data do the work for you within a best-in-class MRP system. Learn more by submitting your RFP to [email protected] or visiting abas ERP online today.
Looking for new a ERP system? Download the guide: Selecting an ERP System in 7 Easy Steps