Materials Requirement Planning (MRP) a Balancing Act

Materials Requirement Planning (MRP) is a Critical Supply Chain Function

PurchTips Edition #405

MRP or Materials Requirement Planning is a critical Supply Chain Function in many organizations. It is one part of six essential components that make up a Manufacturing Planning Control System or MPC.

The respective parts of a Manufacturing Planning Control System are:

  1. Environmental Scans to understand customer requirements, financial, industry, technological, ecological, and socio-demographics forces impacting an organization
  2. Strategic Plans to best position an organization in the market to respond to the findings in the environmental scan. Types of the strategy include, First to Market, Fast Followers, Niche and Reactors.
  3. Production Plans to synchronize customer demand with the available capacity and resources an organization has. The primary goal of production plans is to implement business strategies.
  4. Master Production Schedule is a detailed plan that itemizes the number of units and timelines for the manufacture of finished goods and services.
  5. Production and Purchasing Activity Control (PAC) which is split into production plan deployment and control mechanisms. The flow from raw material acquisition to conversion to finished goods and services are carefully managed. Attention to the timing and efficiency of all processes in the MPC to avoid shortages, stockouts, delays and loss of sales is crucial.
  6. Materials Requirements Plans (MRP) are leveraged to ensure the production, supply and procurement of components required to make the products demanded in master production schedule. MRP is underpinned by on-hand levels of component inventories, the production schedule and the bill of materials file (BOM). An example of a BOM File would be the recipe list for making a product like a loaf of bread. This individual recipe would be aggregated to reflect the total amount of each ingredient type needed to make the total number of loaves of bread, to meet the demand required in the production schedule.

Procurement Professionals are pivotal in creating a sense of balance in the above six dimensions, which are critical to the health of modern business operations. Many organizations are bogged down by operational silos and the lack of cross-functional collaboration and synergy.

The key for MRP and MPC success is:

a) For functional leaders to be realistic about the true capacity or capability of their business to strike the balance between, demand and supply. This will depend on the ability to leverage their resource assets (people, skills, raw materials, research & development, technology, equipment and plant) to meet customer demand and other critical priorities.
b) Customer demand must be met in ways that satisfy end users, key stakeholders, in a cost-effective and efficient manner.
c) Special care must be taken assure that there is an absence of obsolete inventories in the supply chain. This objective can be achieved by creating a strong visibility of materials movement, strong collaboration and information sharing amongst all departments in a perspective company and its suppliers.
d) Selecting suppliers which possess progressive technology, process capability and culture. The key here is for business leaders to leverage the core competencies of their suppliers.

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Copyright 2018. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By David Millington, SPSM, SPSM2, SPSM3 - Director of Education (Next Level Purchasing Association)

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