When we talk about acronyms, especially in English, it always seems that the term has just been invented and that it is something very new that every company should incorporate. In today’s case it’s the opposite: MRP (Material Requirements Planning), has long been a long time wandering around in the back offices of any kind of business. . The difference lies in the way it is updated and brought into today’s world of software and technology.
With it we can make our material requirements planning system much more autonomous and efficient than ‘manually’, so to speak. We can be much more confident that we will have the material we need for our production whenever we need it. As you can see, it is a very useful tool to improve the competitiveness and profitability of a business, so today we are going to explain all its evolution and how you can integrate this type of planning if you do not have it yet.
What is MRP?
MRP is a method of material planning and inventory management that varies depending on the needs of the company at any given time of the year. The aim is to better allocate goods according to sales peaks, for example, and to refine the production of products or services. This will make it much easier to create efficient logistics and management, both internally and for the customer.
And not only that: good overall coordination will help to reduce costs, optimise stocks and solve any problems because they can be detected in time. Typically the businesses that employ the services of an MRP are manufacturers to have more accurate control of their items, but in reality this type of planning can be applied to any business that purchases components and transforms them to produce a different item for sale to customers, for example:
- Warehouses that package products or a set of items for sale as a unit.
- Warehouses that create customised packages on demand (stock main units and optional add-ons and combine them).
- Service providers who generate packages of documentation, devices, consumables or other physical items that they will then sell to their customers.
- Office building management companies, hospitals… in general to manage supplies and equipment.
- Restaurants using MRP to manage their inventory and replenish ingredients and supplies.
How doe it work?
Stock control systems have come a long way over time. Today’s technology has enabled the development of softwares capable of tracking all requested activity. You can also use the data provided by planning and scheduling systems to understand all the procedures that are being carried out to help the company pinpoint the focus of attention and help improve the shopping experience and customer expectations.
Let’s take a look at the key procedures:
- The first thing it will do is to define the processes to be followed. The engineering department will be in charge of creating and managing the BOM with the final products and their sub-assemblies. This list has a hierarchical structure in order to be able to tick and understand what is included in each unit. Say, for example, that a final product has several sub-assemblies, each of which will have several components and each of which will have parts. If we structure it in a staggered way, we will have an organised list with the order in which the material will be needed depending on the phase and other parts that depend on them.
- Once this is done, it is time to quantify the demand, i.e. to have a sales forecast. MRP will calculate what is needed for everything to go according to plan and the date by which the final products will be ready to meet demand. Everything will depend on the number of orders from the buyers and the sales forecasts sent by the sales department, taking off the expected stock in the warehouse.
- Finally, the supply would have to be determined through both the BOM and the MPS. The planning method shall calculate the assemblies, components and materials to be produced or purchased (if required) during the planning period. It will then be necessary to check that the inventory quantities and remaining quantities to be purchased are correct and to identify the net shortages for each component. It will use parameters already created (such as lot size) to determine the amount of ‘make or buy’ that will be needed for each product. To top it off, it would calculate the most appropriate start date for the purchase based on the purchase or production processing time and send the information to the purchasing or production control department.
How does it work?
Before the MRP obtains the data to calculate the material to be needed, it will first take into account a series of concepts, such as for example:
- The product to be manufactured.
- The material for manufacturing processes.
- Current stock control.
- Sales orders (material to be sold).
- Purchase orders (incoming material).
- Production orders that are to consume material.
- The delivery dates of the same.
By providing this information, and indeed as much as we can, MRP will be able to know how much material is needed at any given time and be able to procure in a consistent manner. Not only that: the company will be able to anticipate and adjust to needs without having to deal with unnecessary bulky stock. Stock control generates what is known as the Master Production Plan, which is able to indicate which products have to be manufactured and the deadlines for this.
We will also get recommendations on the quantities of materials to be ordered, the quantities to be produced and the quantities to be ordered from suppliers, in particular:
- OPC (suggested purchase orders). Refers to what the system suggests to buy.
- SMO (suggested manufacturing orders). It will recommend what the company itself should produce.
- ESO (external supplier orders). Materials or items to be procured from suppliers will be listed here.
With these 3 procedures in place, it will be possible to meet manufacturing requirements and deliver on time. MRP also allows inventory control so that there is never more stock than necessary; we can specify a minimum and a maximum of an item and, if it falls below this level, the software itself will trigger its replenishment, either by purchasing or by in-house manufacturing.
Advantages and disadvantages
Given the above characteristics of this planning method, it is logical to think that it can be suitable for any company, but it is necessary to know both the good and the bad things about such a tool. Only then will we understand whether it will really, in our business and situation, bring benefits to competencies.
Advantages.
One of the main benefits of an MRP is to have up-to-the-minute information about the supply chain so that decisions can be made without wasting time. This advantage can be very useful if an unexpected problem arises that requires speed and tension. This way the product will arrive from the production site to the destination in the estimated time.
However, there are other advantages:
- Increases productivity and improves the speed of order delivery.
- Improve customer/supplier relations.
- Facilitates inventory control and reduces stock accumulation.
- It helps to detect performance conflicts.
- Reduce overtime.
- It reduces the company’s expenses and helps to gain more financial control.
Disadvantages.
Although MRP can be of enormous benefit to both large companies and small businesses or SMEs, this type of planning method does not usually take into account the number of workers in the company when distributing tasks, nor does it allow the entire logistics aspects of the business to be managed in a single interface.
MRP and new technologies
Originally, MRP software vendors will take advantage of any technological opportunity to improve their products and offer new tools or features to their users. Today, that has not changed: advanced planning processes are looking to implement machine learning or artificial intelligence to help systems develop better quality plans and schedules.
Stock control systems that are already equipped with machine learning are able to automatically and constantly monitor the company’s activities in order to develop more accurate cause and effect models.
Another new development in today’s planning methods is the integration of the Industrial Internet of Things or Industry 4.0, the technology of interconnected sensors and devices that control every aspect of the supply chain. It is Industry 4.0 that provides the data to the planning systems that feed the AI and machine learning engines.
Although not so new, cloud integration has also brought enormous benefits to MRP, making it capable of having collaborative tools without compromising the security of company data. The round-the-clock availability of data to nearly any worker also aids rapid communication, and the cloud creates a fail-safe backup and recovery if a problem occurs.
If you are looking for a technical specialist in industrial distribution or you do not know how to manage your MRP, you can always count on the services of a professional company, you can count on Servitec. We are a company specialised in the industrial distribution of quality products. Our team stands out for its flexibility and commitment, providing a personalised service adapted to the needs of each client.
If you have any doubts about our services or you want to include an MRP in your company but do not know where to start, you can contact our team for advice on the best procedure.
