Most of the SMEs today are facing problems in inventory control, delayed production, delayed in delivery and many such problems, this causes excess or shortage of materials in inventory, departments not getting materials in stipulated time and unhappiness of employees as well as customers
But why are such problems so common in SMEs?
These problems arise as a result of improper planning and management of materials. If proper planning is done, industries will know how much inventory to keep, causes of delay and estimate the correct time of delivery. This will help in preventing production delay hence resulting in better employees and customer satisfaction.
So, how to solve these problems?
To overcome these problems a concrete step needs to be taken so that there would be always a win-win condition for all stakeholders.
What is Material Requirement Planning (MRP) and how will it help?
MRP is a production planning and inventory management system designed to manage manufacturing business processes. Its goal is to keep adequate inventory levels to ensure that the required materials are available as they are needed.
With the help of MRP, you can plan delivery schedules, manufacturing activities and purchase activities hence ensuring that required materials are available for production and products are available for delivery, while maintaining the lowest level of inventory possible.
Who should use MRP?
MRP is useful for manufacturing companies who use assembly lines or require multiple parts to create their products. It helps to organize their inventories, as well as to ensure that the required products and parts are in place when an order is made. Material Requirement Planning will assist manufacturing companies to plan out the production schedule and determine when materials need to be ordered for which products. MRP simplifies the planning process, facilitates inventory management, and ensures that products are delivered by planned deadlines.
Advantages of MRP:
- On time availability of the right materials required for production.
- Little, if any, excess inventory.
- Timely delivery of manufactured goods to customers.
- Optimal use of manufacturing resources.
- Decrease in capital cost due to decreased inventory levels and optimal use of production resources.
- Collecting the business data for analysis and better planning.
How to ensure good Material Requirement Planning
1. On-hand accuracy – How much is your inventory balance? What is the quality of the materials you have in your inventory? These are some questions that you need accurate answers to. If you have incorrect quantity on hand, your material requirement planning will be around those inaccurate amounts, which will result in poor performance.
2. Use of forecast – If enough data of past inventory trends of your industry is present, i.e. inward & outward values of inventory, then you’ll be able to forecast the future trends of production needs and hence plan your inventory accordingly.
3. Lead times – Knowing how long it generally takes for materials to arrive from the moment you order, how long it takes to make your finished product, time for quality check etc will help you in identifying when you need to place the order hence to prevent any delays in production while keeping minimum stocks in-hand.
4. Safety stock and reorder point – It is really important to know the difference between the two. Will you treat safety stock as a hard number and not go below it, 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 when stocks reach the level when there’s a need for action.
5. Capacity limits – Planning should be done keeping in mind the limitations of productions in work centers or capacity of the inventory. Accurate data of these are needed and materials should be planned accordingly
6. Active Participation – In most of the organizations, the burden of material requirement planning is placed on the shoulders of 1 or 2 individuals. These individuals will not always have all the answers or solutions to problems that may come up.
An efficient MRP requires the participation of executives from the purchasing team, customer service, production, and quality leader as well along with individuals responsible for material requirement planning. Frequent meeting of all these individuals should occur reviewing and analyzing reports of MRP.
The individuals from different departments will know their data and hence can spot any shortcomings and make Material Requirement Planning more efficient.
