Managing Production Resources With MRP and ERP

At a Glance

Materials requirements planning requires:

• Inventory control
• Master production schedules
• Sales forecasts

The most accurate MRP also includes communications with departments outside of production, keeping everyone aware of what’s going on

Introduction

An ERP (enterprise resource planning software) with an integrated MRP (materials requirement planning component) is a great way to boost production by ensuring materials arrive when the machines and manpower are available to use them.

Today’s top enterprise resource planning (ERP) software packages all include some form of MRP. These solutions helps the entire company, not just production, find ways to improve performance and boost profits.

Advantages of MRPs

Where MRPs shine is their ability to plan, schedule and control materials and their requirements, especially when managing inventory.

“The primary function of an MRP system is maintaining the right quantities of inventory. Inventory management includes what material is required, when it is needed and in what numbers,” one post states.

MRP’s are also great at helping production plants reduce human errors and working times by proactively planning ahead of schedule. For example, understanding what materials are needed and when, manufacturers are much less likely to run out of important ingredients.

Other materials requirement planning benefits of MRP software include:

• Simplified work scheduling and distribution
• Materials requirement forecasting, helping you determine what you will need and when
• Typically lower complexity than an ERP that may include finance and marketing functions

Effective material requirements planning has three main components:

• A master production schedule
• Sales forecasting
• Managing inventory

The first of these is the Master Production Schedule (MPS).

Master Production Schedules

“A Master Production Schedule (MPS) is the part of production planning that outlines which products need to be manufactured, in which quantity, and when,” a manufacturing blog states.

Key benefits of using an MPS includes gathering all information required for:

• Building, improving and tracking sales forecasts
• Determining desired inventory levels
• Calculating required raw materials purchases to meet production requirements
• Determining the labor mix of people and schedules
• Balancing plant capacity with actual load

Providing this information requires a certain amount of information. To work effectively, an MPS requires six essential inputs:

1. 1.Starting inventory: What is available right now?
2. 2.Sales forecast: What do you expect to sell this period?
3. 3.Current orders: How many orders are in the production pipeline?
4. 4.Required products: How many of which products need to be produced to balance supply and demand?
5. 5.Safety stock: What quantity of raw materials and subassemblies must be on hand to deal with spikes in demand?
6. 6.Production capacity: How many products can your equipment and staff produce when everything is running smoothly?

Having all of this information lets an MPS help you determine your rough-cut capacity. This involves knowing how much time it takes to produce each product and your total productive hours. (When used with a modular ERP, you can also learn what causes bottlenecks and find ways to boost the time machines and people are manufacturing products.) Another MPS function is considering batch sizes in production runs. The total production run should be a multiplier of your batches.

With all of your data in place, an MPS lets you simulate planned purchasing and production. Working with other MRP components, you can create an inventory plan for each selected MPS. You’ll know exactly what you need to build the products.

Like every business though, it’s impossible for an MPS to function in a vacuum. A key part of the MPS is also required for your MRP: your sales demand forecast.

Sales Forecasting in MRP

Sales forecasting, also known as demand forecasting,works to anticipate customer behavior using historical data and other information. Accurate sales forecasts are important to production because they help in multiple ways:

• Planning budgets and negotiate supplier contracts
• Planning and track inventory, reducing the time between raw materials coming in and finished products going out (i.e., the turn rate)
• Identifying production bottlenecks while letting managers make crucial decisions on tradeoffs

Demand forecasting works with MRP to determine material availability for potential sales. The BOM in turn determines the quantities of each raw material required to produce the final products. Using demand forecasting, an MRP can ensure that supply chain, production plan and expected demand match. You have what you need to keep your customers happy without overspending on inventory or missing crucial parts.

Demand forecasting also helps in supply chain management by planning production activities around expected delivery dates for each component. Instead of tying up all production resources to make everything at once, components can be produced when the raw materials arrive. The result is fewer bottlenecks caused by multiple processes requiring the same machines or people at the same time.

“Demand forecasting is a useful tool that can help businesses attain optimal inventory levels, efficient purchasing practices, and overall better supply chain management capabilities.

“When used in conjunction with MRP software, it can improve the efficiency and cash flow of your business by providing the necessary functions to utilize the data and use it to plan production better,” as mentioned in a previous post.

Effective materials resource planning requires access to sales demand forecasts, current and anticipated inventories plus a thorough knowledge of the production environment. The question is: Do you want to have different programs from several companies providing this information?

In this case, an ERP with MRP functions has some advantages over a less expensive stand-alone product.

Advantages of Using an ERP system for Production Planning

Previously mentioned, “An ERP in production planning keeps updating the status of materials in real-time and reorders them automatically when the stock needs replenishment. These systems also use a Just-In-Time scheduling strategy to further reduce the need for holding large quantities of work-in-process items.”

The inventory control system in a modular ERP also has the ability to automate inventory tracking by creating barcode and QR code labels. These can be attached to everything from individual items to pallet loads, and then scanned electronically. The result is an accurate inventory of raw materials. Knowing what you need in advance improves your ability to meet customer orders on time, which boosts customer satisfaction.

A modular ERP such as Microsoft Dynamics 365 has the ability to provide managers with a top-down view of a manufacturer’s entire operation. Unlike an MRP that focuses solely on production, enterprise resource planning software can monitor more than just production status in real time.

Key benefits of using an ERP with an MRP module include:

• Improved customer service by ensuring timely product delivery without sacrificing quality.
• Smoother workflows by automating repetitive tasks in areas beyond the production floor such as the warehouse and order management.
• Enhanced inventory control based on real-time access to information such as shipping schedules, sales orders, machine availability, staffing and key raw materials.
• Equipment maintenance scheduling to ensure key machines are kept in good working order during planned downtimes, not crashing in the middle of a production run.
• Better morale by reducing stress through enhanced coordination. One group is not left idle while waiting for another to finish.
• Enhanced use of your workforce, maximizing people, not just machines.
• Improved quality control by passing tests at production checkpoints.

The most important reason for using a modular ERP over a stand-alone MRP is communication: Data flows throughout the company. It’s not siloed in production, sales or inventory. Every department knows what is going on throughout the company.

For example, if a conflict or pandemic is identified near a key supplier, your supply chain management module can help locate a safer, more consistent supply. Knowing what products might be affected by materials shortages lets sales know what to push and what to back away from.

The Bottom Line

Effective resource planning in manufacturing is much more important than just assembling products. It means having plans that look at everything from the availability of the smallest components to ensuring key machines and staff are available at the right times. It also means having the money to stock up on materials when a shortage is expected. Balancing everything lets your company provide capital improvements without sacrificing quality or customer service.

Buying into MRP is no easy task, before diving in make sure you take a close look at every ERP to ensure your company ends up with a system that can support your goals, now and in the future. What you need is a system like Microsoft’s Dynamics 365.