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, not to mention leave your supply chain vulnerable during times of disruption.
The most prominent disruption today remains the novel coronavirus, officially known as COVID-19, and how it’s changed the fundamentals of business management. In manufacturing, the COVID-19 crisis brings an unprecendented disruption to all supply chains. Companies were forced to source products and raw materials from others. Quarantine measures in Wuhan brought the infusion of imported raw materials and components to a halt. Now, the situation is improving, and company leaders are working to figure out the path forward to ensure employee safety, prevent a resurgence of the disease, keep production moving, and lower overhead.
The irony lies in that an advanced material requirements planning system could have prevented much of this disruption. Advanced systems were designed to consider the external influences and enable real-time visibility into procurement through performance measurement. In the pursuit of efficiency and lean production, companies sacrificed some responsiveness. Those sacrifices were necessary for the time being, but with the current situation, it is imperative floor managers take a second look at all resources, including whether the existing systems can handle the rapid changes in demand that arise from an unprecedented, Black Swan event comparable to COVID-19.
It is time to revisit the topic of material requirements planning and point how its advanced functions ensure your business has the resources needed to succeed. Time is of the essence, and floor managers need to understand the traditional and new challenges of outdated materials requirements planning processes, the characteristics and benefits of a modern requirements planning process, and how to select a best-in-class system that overcomes disruptions regardless of scale.
What Are the Challenges of Outdated Material Requirements Planning During Routine Operations and Times of Disruption?
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.
Optimizing material management is also an essential step in creating responsive supply chains. During the COVID-19 pandemic, demand for masks and personal protective equipment skyrocketed. Now, some areas have implemented mandates for wearing masks when working in enclosed facilities, as well as existing social distancing measures.
Optimization allows for businesses to change priorities and adjust to new needs. For example, the invocation of the Defense Production Act could be a stimulus to a forced redistribution of planned activities and resources for your company. If the company lacks a transparent, easy-to-use system, optimization and pivoting to new schedules will be troublesome at best.
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.
The example most clear in the current climate is the great toilet paper shortage. The demand caused a downfall in the demand latency. Companies could not keep up with demands, and even if inventory was available, what about the drivers? Without a responsive logistics strategy, it sits in warehouses waiting for transport. Moreover, nodes within longer supply chains amplify the impact of demand latency, creating a bullwhip effect, which was further explained by Lora Cecere of Forbes and visualized in the following graphic:
Prior to this event, manufacturers pushed raw materials further upstream, creating a delicate balance between supply and demand in their shops. Sudden demand resulted in a 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.
Even for companies that do know what it takes to manufacture a set volume, how do they respond and figure out how much more materials to order to meet the demand? That’s where demand sensing—an advanced form of demand forecasting—comes into play and leverages the latest, if not real-time, data to make informed decisions and avoid risks from coming to fruition.
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.
Ability to integrate labor management systems with data from other companies, particularly staff augmentation services. During disruption, traditional staff may be unavailable, and even with intervention, drastic consequents may ensue. Take the recent example of more than 500 employees contracting COVID-19 at the Smithfield plant in South Dakota. Unlike a traditional risk of a storm or even poor economic stability, the invisible foe—COVID-19—brought production to a grinding halt. Now, the company is struggling to find a way to ensure employee safety, broaden capacity, and make up for losses. How? The answer to that question lies in whether Smithfield can successfully swap out is quarantined workforce and still avoid disruptions after a thorough cleaning of the facility.
- 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.
- Adherence with latest standards for safety. The right system must allow for remote functionalities and capacity changes that accommodate changes to the schedule as released by governments. In other words, can the system isolate non-essential and essential businesses, revisiting requirements for both and automatically adjusting the production schedule?
- 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.
Those impacts are the differentiators in responding to a pandemic. They transcend all risks and enable business continuity.
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. The process continues throughout all activities, reflecting the most accurate and insightful data. Period.
How to Ensure Proper MRP Implementation.
Proper Material Requirements 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.
- Consider adding new collaboration tools to remote manage workflows and mission-critical processes. Such remote functions must maintain cybersecurity measures, leverage centralized data storage, enable clear, concise communications, and avoid unnecessary modification of systems. With modification in mind, the topic of integration takes on a new form.
- 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. During disruptions, integration must focus on the fastest and most effective process for unifying systems without unnecessary modification. Why? Extra modifications are available, but when time is of the essence, extra modifications add to overhead and may not be as valuable as believed. So, try to focus on leveraging off-the-shelf functionalities first, modifying systems if and only if justifiable and generative of strong ROI. 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. Please also note that a reactive purchasing process is a inevitability during crisis. However, your reaction must reflect your needs. Take the time to know the data and what you really need before diving into a chaotic, impulse-driven purchasing mindset.
- 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!
COVID-19 was unprecedented. Instead of simply returning to the day-to-day approach to procurement and planning, take stock of lessons learned. Know that this event implies a greater chance for recurrence, and supply chain leaders must enable a responsive strategy that relies on data, not assumption, to make the best decisions.
Remember that 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. Also, your system must have the scalability and integration capabilities needed to rapidly evolve your supplier network and use of big data to mitigate disruptions as they arise.
Learn more by submitting your RFP to [email protected] or visiting abas ERP online today.
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