After studying about material requirements planning (MRP) and how critical this process is to the overall performance of a company. I spent some time trying to search articles about how to make a reliable MRP. I found an interesting article about how to make MPR process successful. I am formalizing it on 6 key steps which will help companies increase on time shipments, additional satisfied customers, lower inventory carrying costs and less inventory shortages.
Inventory Accuracy
If you have incorrect quantity on hand, your MRP is going to plan around those inaccurate amounts. The one saving grace is that at a minimum, your MRP should be able to provide you a summary of the material requirements.
Forecasting
MRP systems will use open sales orders or forecast to calculate the demand. the forecast can be a sales forecast or production forecast. In both way, MRP system will utilize this information to generate requirements. Therefore, we can approximate material needs beyond the time needed to get all sales orders. Also, forecast helps us in scheduling production process and staffing requirements.
Lead Times
Date accuracy for sales order and purchase orders is a necessity. However, we need to know how long it generally takes for materials to arrive from the moment we order or how long it takes to make our finished product. ERP systems will have a series of fields where we can enter this information and use in to suggest when to place that PO depending on the lead time.
Safety Stock vs. Reorder Point
Reorder point is commonly used as the level of an item signaling the need for action. Safety stock can be treated as a hard number that we can’t go below, or as a soft number, suggesting a quantity we don’t want to go below with a certain buffer or flexibility.
Blanket Orders
In MPR, blanket order is a great tool to have a purchasing flexibility. For example, we ask our vendor for a certain quantity of raw materials over the next 12 months and proceed to enter that into our system. However, we won’t have a definitive date for each shipment. Therefore, we only enter one date in the system and enjoy a flexible supply chain.
Capacity Limits
Capacity limits is about knowing the production limitations of our work centers. Most MRP systems will create a suggested production schedule and must take all the capacity requirements into account for planning.
source: http://www.sikich.com/blog/post/Top-Ten-Tips-for-Successful-Material-Requirements-Planning#.WCllXfkrLIU