If you are a manufacturing business, it is essential to have an inventory management system in place to ensure that you can produce products and meet customer demand. MRP (Materials Requirement Planning) is a type of inventory management system that can be used to streamline your planning processes and optimise stock levels. The supply chain world is often in flux, an MRP system offers you a powerful way to stay flexible; it allows you to reorganise your priorities and ensure that plans remain valid as new challenges arise. In this blog post, we will explore how MRP can help your business by reducing costs and enhancing efficiency.
What is MRP
The purpose of MRP is to propose suggested orders for manufacture and purchase, in order to ensure that the demands for Finished Goods derived from Sales Orders, Forecasts and minimum stock levels will be met.
MRP examines each selected product and Bill of Material / Recipe, either in time buckets in case of "make to stock" or by demand order in case of "make to order", and asks the following questions:
Do I need to order?
How much do I need to order?
When do I need to start/finish each order?
Do existing orders require replanning?
By answering these questions, MRP will give planning teams insights into what needs to be ordered and when, ensuring maximum efficiency is leveraged by the planning process.
The Importance of MRP
MRP gives businesses visibility into the inventory requirements needed to meet internal and external demand, this in turn ensures an efficient and optimised production plan. Businesses that are not using MRP will be relying on many disparate reports and spreadsheets. Departments will not be looking for a single source of truth which can lead to:
An interrupted production plan due to shortages of the required raw materials and components. Customer service levels are not met leading to unhappy customers.
Ordering too much inventory, increasing storage overhead costs for the business and inefficiencies within the warehouse and tieing up cash unnecessarily.
Writing off obsolete stock as it is no longer needed or expired, increasing the overall costs to the business and impacting its bottom line.
What is the MRP Process
The MRP process performs the following steps:
1) Identify input data for the product such as Minimum Order Quantities (MOQ), MOQ multiples and lead times required to manufacture or order the product from the supplier. Establish the Bill of Material / Recipe version to be used taking into account sub-assemblies / Intermediates.
2) Establish the demand for the product either external, customer demand and forecasts or internal demand for sub-assemblies / intermediates, raw materials and components required to manufacture the product.
3) Calculate the available stock for the product taking into account the status of the stock, whether it is available for use, whether is it rejected or awaiting a quality control inspection process.
4) Anayse the product's demand and look at the product's "Management Mode" to determine if the product is "make to stock" or "make to order".
In the case of "make to stock" MRP will look at all requirements within a time bucket (often weeks) and determine if there will be enough stock available and firm orders within the bucket to satisfy the demand. If the answer is no MRP will suggest an order to cover the firm demand within the time bucket respecting product leadtimes.
In the case of "make to order" MRP will look at the demand, check if there is enough available stock to satisfy it and also check if there is a firm order already created to satisfy the demand. If the answer is no to both question's MRP will suggest an order specifically for the demand respecting product leadtimes.
5) Order replanning. As part of its process, MRP can recommend firm purchase and work orders are expedited/de-expedited or their quantities increased or reduced in case the preoduction plan changes.
MRP Result
With the Sage X3 MRP system, planners can keep disruptions to a minimum by ordering materials and components with respect for supplier and quality control lead times – enabling Just in Time (JIT) production. There's no need to worry about products taking up unnecessary space in the warehouse or cash being tied up unnecessarily - plus, if any delays occur with materials or components, planners are alerted so that they can react quickly ensuring minimum impact to the production plan.
MRP business benefits
MRP business benefits are hard to ignore. MRP can improve cash flow, increase productivity and reduce stock levels, allowing businesses to become more efficient and cost-effective. A successful MRP system brings with it improved decision-making ability by providing clear visibility into the entire supply chain. The benefits MRP can provide are numerous and range from reduced lead times, minimized costs, lowered risks, and higher customer satisfaction scores. It's undeniable that an effective MRP system is an invaluable tool for any business looking to improve internal operations as well as customer communication.
Thank you for taking the time to read our blog post on MRP. As we have seen, MRP is a vital process for any business looking to streamline its manufacturing and inventory management. Sage X3's MRP software is the perfect tool for businesses looking to improve their MRP processes. With its user-friendly interface and comprehensive features, Sage X3 makes it easy to manage your inventory and manufacturing operations. Contact us today to schedule a demo of Sage X3's MRP software and see how it can benefit your business!