Material requirements planning simply explained

The aim of material requirements planning is to use materials in the project in a cost- and time-optimized manner. To achieve this, material requirements planning aims to procure materials at the ideal time so that there are no bottlenecks and stock levels are optimized at the same time. To achieve this, only as much material should be in stock as is needed in the process at short notice.

The material requirements planning process is as follows:

1. Production scheduling
   In the first step, the production scheduling determines the quantity of products to be produced and when.
2. Bill of materials
   The bill of materials includes all materials and components for the production of a good and defines the assembly hierarchies and the relationship between the individual parts.
3. Master Production Schedule, MPS
   A master production schedule is a time schedule. It shows which products are to be manufactured and in what quantity. It is based on the incoming customer purchase orders.
4. Determination of material requirements
   The quantity of required raw materials, intermediate products and components is now determined in requirements planning.
5. Inventory management
   In the course of inventory management, goods that are already available in the warehouse are also taken into account. Existing quantities do not have to be purchased ordered, but can be used directly from the warehouse for production.
6. Timing
   Material requirements planning also takes into account the delivery times of suppliers. This ensures that components arrive on time and that production can be completed punctually and in line with orders.
7. Safety stocks
   In order to be able to act in unforeseen cases, material requirements planning always keeps a certain amount of materials in the warehouse as safety stock.
8. Proposals for requirements and purchase orders
   Based on the previous points, material requirements planning creates proposals for purchase orders and production orders across the entire vertical range of manufacture.
9. Monitoring
   Because material requirements planning is a continuous process, stock levels and production should be monitored. In this way, continuous adaptation to changing conditions takes place.

A good example to illustrate material requirements planning is the production of a new cream. The following processes are involved:

1. In production scheduling, the manufacturer determines how many creams it wants to produce in order to meet the forecast demand.
2. The raw materials required to produce the bulk and fill it into the desired sales units are then recorded in a comprehensive recipe.
3. The time periods in which a certain number of creams are to be produced are recorded in the Master Production Schedule (MPS).
4. The material requirements are then determined based on the recipes and MPS.
5. In the inventory management phase, the current stock of raw materials and any existing bulks is checked.
6. Based on the results of the inventory management, the manufacturer purchases orders for the missing raw materials.
7. In order to be able to intercept unforeseen events, the manufacturer creates safety stocks.
8. Material requirements and production are monitored throughout the entire production process and adjusted if necessary.

Material requirements planning is used to automate the production of goods. Because it influences many aspects that relate to the efficiency of the company, it plays a fundamental role. Essentially, it is important for the following reasons:

• It ensures that resources are utilized efficiently.
• It keeps company costs under control by optimizing procurement costs.
• It ensures that purchase orders can be processed on time.
• It reduces risks in production, as production downtimes due to unforeseen fluctuations are prevented.
• It optimizes the supply chain, as materials are optimally stocked and consumed in line with production volumes.

The main benefits of material requirements planning are:

• Production bottlenecks are counteracted as the necessary product quantity is available.
• Capital in the company can be used more freely as it is not tied up in excessively large stocks.
• The warehouse is used optimally as no items that are not needed take up space.

Typical methods of material requirements planning are

Planned requirements planning

In planned requirements planning, parts and materials are determined that are required for the production of a product. The required quantity, production location and production period are also taken into account.

Demand-oriented planning

Demand-oriented planning plans material requirements on the basis of historical orders or purchase orders and also relies on forecasts. These are created on the basis of empirical values and trends.

Consumption-based material requirements planning

Material requirements are determined on the basis of actual consumption over a defined period of time. Planning is therefore based on actual consumption quantities and actual production.

Quantity-oriented requirements planning

Quantity-oriented requirements planning makes predictions based on past data and is suitable for companies with stable demand and fixed production patterns. The basis for planning is the calculation of fixed quantities that are required at a defined point in time.

Kanban

Kanban creates a cycle between consumption (production) and procurement (purchasing). Kanban types are created that trigger requirements as soon as a stock is exhausted.

ABC analysis

The ABC analysis divides materials into different classes: A, B and C. The basis for this is the value of the goods and their turnover rate in the company. This makes it easier to prioritize and control material requirements planning.

Material requirements planning varies greatly depending on the industry due to specific requirements and challenges. The following industries in particular have unique characteristics that need to be taken into account in planning. The most important aspects are briefly summarized here:

• In the food industry, material requirements planning requires special attention to the shelf life and perishability of products, seasonal fluctuations and traceability.
• The chemical industry must take into account the handling of hazardous substances, special reaction conditions as well as environmental and disposal regulations.
• In biotechnology, temperature-sensitive products, complex manufacturing processes and the high proportion of research and development play a role.
• The pharmaceutical industry faces challenges due to strict regulatory requirements, necessary process validations and ensuring the availability of critical active ingredients.
• In medical devices, long product life cycles, the need for sterility and high safety standards are important.
• The cosmetics industry must react flexibly to rapidly changing trends, comply with strict safety and health regulations and work with a wide variety of raw materials.

The Yaveon 365 industry-specific ERP solution offers powerful support for material requirements planning for the process manufacturing industry. Here are the key features:

• Integrated MRP: Material requirements planning is fully integrated into Yaveon 365, enabling seamless determination and management of material requirements. This leads to optimal inventory management and avoids over- or understocking.
• Allocation by MRP controller: Material requirements can be specifically assigned to individual MRP controllers, ensuring efficient and targeted processing.
• Consideration of expiration dates: The system takes into account whether material has expired and may still be used in production or whether it needs to be reordered.
• Batch status: The status of each batch (e.g. released, blocked) is taken into account during planning so that only released batches are used.