The Material Requirement Planning

Published Date: 02 Nov 2017

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Introduction to Materials Management

Logistics/Materials Management; Bringing Concepts Together

Logistics or material management (MM) basically handles the processes of procurement to payments, from inventory management through final receipt of invoices and verification process. This includes overseeing a placement and movement of related tangible items. The basic elements associated with materials management are quality control and inventory management. Some analysts consider spare parts as one of the major elements as well. Materials management is vital in huge production and distribution environments. The prime objective of this type of management is to maximize quality service and to minimize the cost; to be able to fulfill customer demands at required place and time and to be able to manage this at minimum cost. Material management’s function here is to devise trade offs between the services’ level and their cost, generally costs increase with the increased service level; hence materials management key role is to set a combination of inputs efficient enough to provide maximized services at minimized cost.

Prime concepts associated with materials management are; Production Planning System, Material Requirements Planning, Master Scheduling, Production Activity Control, Capacity Management, Purchasing, Inventory Fundamentals, Forecasting, Order Quantities, Physical Inventory and Warehouse Management, Independent Demand Ordering Systems, Products and Processes, Physical Distribution, Total Quality Management , Lean Production. Discussed below are five of these concepts in an effort to bring these concepts together and to determine the relation between these concepts.

Production Planning System

The production planning system is concerned with planning the three ‘Ws’ and 1’H’ of production; that is what, when where and how to produce. The system involves all the procedures required to avoid any issues and inefficiency in the smooth operation of the plant or process. Production planning is about identifying techniques of forecasting each and every step in a series of individual operations, ensuring that each step is taken at the right place, at right direction, in the right degree and on right time at maximum efficiency level. In short, the production planning system involves foreseeing, anticipating bottlenecks and devising the necessary procedures to ensure uninterrupted flow of production which may involve determining the materials required machinery, equipment and manpower, coordinating with the customers and suppliers and establishing the accurate sequence of operations with specified schedules for the completion of the operation. An effective production planning system has to be flexible and adaptive enough to respond to the changes in the customer requirements, competitive arena, supply chain, strategy and other possible issues.

The production planning department works out the route, order and schedule of work, determines the required machine tools, arranges the operatives and workplace materials. An ideal production planning would aim to enhance the operating efficiency by stabilized production procedure and to facilitate customer service.

In order to implement the plan of production effectively, the managers need to have substantial knowledge regarding the related inputs for instance;

Information on various classes and types of equipment and tools required for production.

Engineering data with comprehensive analysis of the product, operations, methods and processes through which each class or component of the product must pass, assembly method and the nature and level of required inspection.

Machine analysis with complete information regarding the capacity and speeds of the machines, the per day, per week or per month output rate and the max plant capacity/ day for each operation.

Material analysis report carrying complete knowledge about the kind, quantity and quality of the required raw material.

Information regarding the power consumption and production, internal logistics and material handling service.

Job description and level of skill and qualification required to effectively perform the assigned job.

Production planning is basically done on three levels i.e. Factory, Process and Operation planning. At factory level planning is done on the schedules of building and arranging equipment and machines required for the manufacturing process. The departments at the workplace and other coordination concerns are also managed at factory planning level. Then comes the process planning, here the factory plans are categorized and the location, duration and sequence of the operations are determined. Finally the operations planning level; this level monitors the required methods, selected work centers, designing the required tools. It also is concerned about the proper and timely implementation of the operations.

Master Scheduling

A detailed planning process that involves tracking the manufacturing outputs and matching this with the customer order, in order to adhere to the requirements of the final product is generally known as master scheduling in material management. Master scheduling is done right after the completion of the process of sales and operations process, the results of which are used to lay out the final or master plan. This process determines when to start the production of a specific product, the deadlines, delivery dates and manufacturing capacity for new customer demand. In order to layout a successful master schedule, a master schedule record has to be maintained, this record shall carry information on company’s planning strategies and systems, forecasted demand, projected inventory, number of booked orders, quantity available to accept new projects, and the over all production quantity. The span that covers a period which is at minimum equal to the required time for the accomplishment of the plan is called the planning horizon. The planning horizon is normally longer, as with longer horizons there is better visibility and more efficient management.

The objectives of the master schedule are to balance the available material, equipment and labor with the demand set by the market. And to maintain the expected level of customer service through smart planning to be able to meet the delivery requirements of the customer or by maintaining the required level of inventory. In addition to that master schedule aims to make the most efficient use of the equipment, labor and material.

The required information to develop an effective master schedule is derived from the production plan, from the forecasts for individual final products, from customers’ original orders for replenishment of the stock. Inventory and blocking levels, time fence policy, distribution requirement details, intra-plant and interplant orders, bills of materials and actual supply and production levels also contribute to the inputs for the master schedule. All the information gathered from these resources is squeezed to get a comprehensive master schedule with defined project inventory status, future availability of the finished goods and information for ensuring future orders.

One of the most important functions that the master schedule performs is producing the information on the deadlines. The master schedule provides the marketing department the information to be used when negotiating the final delivery dates for the customers. Sales department, with this knowledge can better offer the delivery dates based on the available quantity to promise, also known as available-to-promise (ATP) inventory.

Another important concept in master scheduling is the time fence. In order to manage the schedule, the company freezes a certain period which is known as the ‘Demand Time Fence’. This is done to save cost of the changes done in the master schedule due to any reason.

Material Requirement Planning

Material requirement planning or MRP works out a schedule carrying the information on the required components at each assembly level and calculates the timing of when those components would be needed. In material management as well as generally there exist two types of demand, dependent demand and independent demand. As the name explains independent demand is not related to or concerned with the demand for other products, in case of the master schedule the item are independent demand articles hence a forecast is required. Whereas the dependent demand items are those required for the higher level products or assemblies thus can be calculated. The material requirement planning does this calculation.

MRP’s main objectives are to determine and prioritize the requirements, indentifying the components required to meet the master schedule and to calculate the time when the required components shall be made available. The MRP must evaluate what to order, when to order, the quantity to be ordered and the delivery schedule. As can be deduced the material requirement plan is derived from the master schedule plan hence can also be called a priority plan for the master schedule. The validity of the plan depends on the available capacity; therefore MRP also keeps a check on the availability of the capacity. This plan is further optimized by majorly two procedures of material management i.e. the purchasing and the PAC (Production Activity Control). Material requirement plan basically releases and receipts the dates and deadline for the orders.

The required inputs for an efficient material requirement plan are the bills of material, and the inventory records. The bill of material is the list of all the parts, intermediates, raw materials and sub assemblies that are used in constructing a parent assembly, with the required quantity of the material. The inventory records as the name indicates are the record of the inventory. Two types on inventory records are required for the MRP i.e. the planning factors and the necessary information on the status of the articles. The planning factors have the information about the quantity of the order, safety stock, lead times and scrap. All this information is maintained as inventory record and is used for material requirement planning.

Capacity Management

Capacity management is related to the supply of essential resources, without which the priority plan is unworkable. In the language of material management capacity is the total amount or limit of work done in a specific limit of time. It includes the capability of the machine, worker, work center, equipment, or organization to deliver output per unit time. Most importantly capacity inot the quantity, it is a rate at which work is done.

Capacity planning is the system to determine the required resources to meet the master schedule and to devise methods and techniques to ensure the availability of that capacity. The process of monitoring the production output and comparing and contrasting it with the capacity plans is known as capacity control, this process also takes corrective measures wherever needed. Hence capacity management is the function of measuring, establishing, adjusting and monitoring the levels or limits of the capacity so as to execute all.

The capacity planning process is as follows;

Determine the available capacity at every work station in each period of time.

Load determination at each work station in individual time period, this may consist of two steps;

Translating the master schedule into hours of required work at each work station

Summing up the required capacities for every item on every work station in order to determine the work load on each work station.

Work out the differences between the required and available capacities. It is better to adjust the available capacity to match the work load.

To manage the capacity, load is compared to the capacity available in order to check any imbalances, and to rectify those if there are any. Mainly there are two methods of balancing the load and available capacity; altering the load and changing the available capacity.