If you are a product-based manufacturer, it’s essential to implement a standard supply planning process to evaluate inventory requirements. This way, your company can create a balance between supply and demand and, consequently, maximize the per annum revenue.
A material requirement planning system is a subset of a supply chain process to perform these tasks in lesser time:
- Inventory management
- Production scheduling
- Product delivery
As the name suggests, MRP is a system that calculates the material and other components required to manufacture a specific product. Generally speaking, MRP comprises of the following three steps:
- Creating an inventory of the raw materials and other desired elements
- Identification of the additional components
- Scheduling the production and purchase
Manufacturers use specialized software, such as NetSuite MRP, to create the proper inventory utilizing lesser resources, i.e., time and cost. As a result, the MRP enhances the overall efficiency of the manufacturing processes, offers flexibility, and ensures profitability by optimizing manufacturing operations.
- Production Schedule – It’s essentially a statement of the planning process consisting of forecasts, capacity, orders, and sales.
- Bill of materials (BOM) – Signifies the raw material and other basic elements necessary to manufacture a finished product.
- Inventory status file – A stock record that allows the businesses to adjust the gross requirements to the net inventory.
Importance of MRP
NetSuite MRP offers a comprehensive end-to-end insight into the inventory required to fulfil the market demand. Hence the complete visibility of the inventory allows the businesses to optimize the production schedules based on the inventory levels.
However, if the manufacturers don’t have access to the inventory information, they can order unnecessary raw materials, leading to higher costs. On the other hand, if the inventory has insufficient raw material at hand, the businesses won’t meet the demand resulting in cancellation of contracts, out-of-stock products, and consequently, below-target sales.
Lastly, the entire prosecution cycle disrupts, leading to delays in sub-assembly builds. As a result, the production cost increases exponentially while the output isn’t sufficient, courtesy of the NetSuite MRP.
An MRP process consists of the following four steps:
The first step of an MRP process is analyzing the market and identifying the customer demands to evaluate the manufacturing requirement. The only way to do this is to take customer orders and sales forecasts as inputs for identification and inventory planning.
Furthermore, the companies should also use the bill of material (BOM) to facilitate the MRP to segregate the market demand of a specific product into individual raw materials and other components. Not only that, but the MRP also considers any required sub-assemblies to conclude the build.
Once all the requirements are identified, the companies can always refer to the MRP to check the demand against the available inventory to allocate the resources. Not only that, but the MRP offers information about the available raw materials but also allows the businesses to locate them, especially in case of multiple inventories present globally.
The companies can access the available items’ status, count, and location. As a result, the management can allocate raw material to another product or build if the raw material is present in the warehouse at a different location.
In addition to offering visibility to the location of the raw materials, the NetSuite MRP also keeps track of the components on order or in transit.
The MRP generates a master production schedule for the system to calculate the total time, labour, and other required resources to complete different steps of the production line.
If the companies follow the schedule, the production takes place without delay and ships to its customers.
For example, if some products require subassemblies, the NetSuite MRP also considers the total time needed by each assembly and generates a foolproof schedule accordingly.
The production schedule also identifies how much machinery and workstations are required to complete individual steps. Consequently, the MRP generates the transfer orders, work orders, and other purchase orders for the machinery needed on different assembly lines.
One of the primary tasks of the MRP is to link the raw material to customer orders and work orders. Hence, the system alerts the relevant teams if an item is delayed. Furthermore, the MRP offers recommendations about the existing work orders, generates an exception or fallback plan, and performs what-if analysis.
An MRP solution can adequately work if it has the required inputs to make schedules and recommendations. That’s why an MRP requires the following inputs for efficient working:
- Market demand – Consist of information related to customer orders and sales forecasts. Integrating MRP with an ERP system allows businesses to perform prediction demand analysis by comparing the historical sales with sales projections of the coming years.
- Bill of material (BOM) – An MRP system using an updated bill of materials to offer planning and forecasting. Once the MRP system is integrated into the inventory management system, the businesses can prevent control issues and outdated bills.
- Inventory – A real-time view of the existing inventories allows the companies to evaluate the available materials and order additional components.
- Production schedule – Considers all the product requirements and plans he requires labour, workstations, and machinery to assemble a final product.
Once an MRP has the inputs, it calculates the required materials, time, and labour needed to manufacture a product.
After integrating all the information, the businesses can opt for just-in-time (JIT) production based on the material availability in a particular warehouse location.
An MRP system primarily focuses on planning and controlling the manufacturing process using the raw material present in the inventory. On the other hand, enterprise resource planning (ERP) allows the business to plan different operations, including:
- Supplier or vendor management.
An MRP offers a comprehensive manufacturing plan to streamline the production processes based on customer demand, production schedule, and available inventory.
Furthermore, NetSuite MRP eliminates the manual processes and calculations by offering a perfect prediction model. As a result, the teams no longer need to create production flows; instead, they’ll analyze the charts and make timely decisions to improve the manufacturing operations.Folio3, a certified NetSuite partner, can help you integrate a fully custom NetSuite into your operational model to help you get going and earn an edge over big players in the industry.