Material requirements planning explained simply

The objective of material requirements planning is to use materials in a cost- and time-optimized way within a project. To achieve this, material requirements planning aims to procure materials at the ideal point in time – preventing shortages while also optimizing inventory levels. The goal is to keep only as much material in stock as is needed in the short term for the process.

The process of material requirements planning typically follows these steps:

1. Production planning
   The production plan defines which quantity of products should be manufactured at which point in time.
2. Bill of materials
   The bill of materials lists all materials and components required for the production of a product and defines assembly hierarchies as well as the relationships between the individual parts.
3. Master Production Schedule (MPS)
   The MPS is a timetable that shows which products should be produced in which quantities. It is based on incoming customer orders.
4. Material requirements calculation
   The required quantities of raw materials, intermediate products, and components are determined.
5. Inventory management
   Existing stock is also taken into account. Materials already available in the warehouse do not need to be ordered and can be used directly in production.
6. Timing
   Lead times from suppliers are factored in to ensure that components arrive on time and production can be completed punctually and in line with orders.
7. Safety stock
   To remain operational even in unforeseen cases, material requirements planning always keeps a defined amount of safety stock in the warehouse.
8. Proposals for requirements and orders
   Based on the previous steps, material requirements planning generates proposals for purchase orders and production orders across the entire production depth.
9. Monitoring
   Since material requirements planning is a continuous process, inventory and production must be monitored. This ensures ongoing adjustments to changing conditions.

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

1. In production planning, the manufacturer defines how many creams should be produced to meet forecasted demand.
2. A detailed recipe specifies which raw materials are needed for bulk production and filling into the desired sales units.
3. In the Master Production Schedule (MPS), the time periods are set in which a certain number of creams are to be produced.
4. Material requirements calculation is then carried out based on the created recipes and MPS.
5. In the inventory management phase, the current stock of raw materials and, if available, bulk product is reviewed.
6. Based on the results of inventory management, the manufacturer orders the missing raw materials.
7. To buffer unforeseen events, the manufacturer sets aside safety stock.
8. Throughout the production process, material requirements and production are monitored and adjusted as needed.

Material requirements planning is used to automate the production of goods. Since it affects many aspects related to a company’s efficiency, it plays a fundamental role. Essentially, it is important for the following reasons:

• It ensures that resources are used efficiently.
• It keeps company costs under control by optimizing procurement costs.
• It ensures that orders can be processed on time.
• It reduces risks in production by preventing downtime caused by unforeseen fluctuations.
• It optimizes the supply chain by ensuring that materials are available and consumed in line with production demand.

The key advantages of material requirements planning are:

• It prevents production bottlenecks by ensuring the required product quantities are available.
• It frees up capital within the company, as it is not tied up in excessive inventory.
• It optimizes warehouse usage by avoiding storage of items that are not needed.

Typical methods of material requirements planning include:

Planned requirements determination

In planned requirements determination, the parts and materials needed for the production of a product are defined. The required quantity, production location, and time of manufacture are also taken into account.

Demand-driven planning

Demand-driven planning calculates material requirements based on historical orders or purchase requests and additionally relies on forecasts. These forecasts are created using experience and trend data.

Consumption-based material requirements planning

Material requirements are determined based on actual consumption over a defined period. Planning is therefore carried out using real consumption volumes and actual production output.

Quantity-based requirements planning

Quantity-based requirements planning makes forecasts 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 needed at a defined point in time.

Kanban

Kanban creates a cycle between consumption (production) and procurement (purchasing). Kanban cards are issued, which trigger requirements as soon as a stock is depleted.

ABC analysis

ABC analysis classifies materials into three categories: A, B, and C. The classification is based on the value of the item and its turnover frequency within the company. This enables material requirements planning to prioritize more effectively and manage resources in a targeted way.

Material requirements planning varies greatly depending on the industry due to specific requirements and challenges. The following industries in particular have unique aspects that must be taken into account in planning. Here is a brief overview of the key points:

• Food industry: Requires special consideration of product shelf life and perishability, seasonal fluctuations, and lot tracking.
• Chemical industry: Must address handling of hazardous substances, special reaction conditions, as well as environmental and disposal regulations.
• Biotechnology: Involves temperature-sensitive products, complex production processes, and a high share of research and development.
• Pharmaceutical industry: Faces challenges such as strict regulatory requirements, necessary validations, and ensuring the availability of critical active ingredients.
• Medical technology: Characterized by long product life cycles, the need for sterility, and high safety standards.
• Cosmetics industry: Must remain flexible to respond to rapidly changing trends, comply with strict safety and health regulations, and manage a wide variety of raw materials.  

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

• Integrated MRP: Material requirements planning is fully integrated into Yaveon 365, enabling seamless calculation and management of material needs. This ensures optimal inventory management and prevents overstocking or shortages.
• Planner allocation: Material requirements can be assigned directly to individual planners, ensuring efficient and targeted processing.
• Consideration of shelf life data: The system checks whether material has expired and may still be used in production or if reordering is required.
• Lot status: The status of each lot (e.g. released, blocked) is factored into planning, ensuring that only released lots are used.