In the previous blog, we discussed the significance & key objectives of Material Requirement Planning (MRP). In this blog, we’ll take a look at some of the key determinants and value drivers for MRP.
The Key Determinants of Material Requirement Planning
1. Demand Plan: While Material Requirements Plan kicks off with Master Production Schedule (MPS), the latter is in turn derived from the Demand Forecast of the end-product. In other words, MPS acts as a bridge between sales and production. Thus changes to demand plan (or capacity) can impact Material Requirements Plan, and a robust demand plan is critical for a successful MRP.
2. Inventory: Be it stock of raw material (RM) or finished goods (FG), MRP calculations can’t be completed without considering the checks on availability of inventories across all storage points and stock locations. Materials Planner is expected to calculate what is needed to get the end-product demand fulfilled.
3. Vendor Lead Time: Another key criteria to be considered for an MRP is the time taken by each of the vendors to supply the Raw Material stock after they receive an order or demand signal from the enterprise. With growing needs to optimize supply chains across the globe, most organizations have arrangements with vendors to have a dedicated ‘Vendor Managed Inventory’ (VMI) for items that take a longer lead times to build. This gives an advantage to buyers to make room for additional production capacities if the organization decides to go aggressive on selling the finished goods during a peak season.
Optimize the Key Drivers
Finally, it is important for an enterprise to manage and balance the above drivers effectively. You need enough inventory to manage any fluctuations in price or demand (Demand Plan) – without tying too much working capital into raw material or finished goods (Inventory). This optimization has to be done taking into account the lead time required to procure materials & produce finished goods too (Lead Time).