Optimized MRP

MRP Plays a crucial role in the working Capital reduction of the Organization, with a proper planning better cost optimization is possible. It identifies necessary materials, estimates quantities, determines when materials will be required to meet the schedule, and manages delivery timing – with the goal of meeting demands and overall productivity.

MRP systems are crucial for companies due to their role in managing material planning, production, and inventory. In complex and high-volume production scenarios, helps with accurate forecasting, planning, and scheduling, ensuring optimal use of resources. MRP enables companies to maintain the right inventory levels, minimizing costs, preventing stock-outs, and enhancing overall operational efficiency and customer service.

• It’s a tricky business! higher Sales Vs Lower Inventory, When order to Cash performance is directly impacted due to shortage situation. Can we go beyond the traditional approach like monthly stock strategies (or weekly), safety stock base ?
• What are the challenges? What are those influencing factors? What are the factors influencing? Is there a benchmark? Let’s find out.

MRP Means “Material Requirement Planning” in simple terms, the objective of MRP is to ensure the right quantity of ingredients (or components as we call it from business to Business) at the right time at the right location.

Ok What is the Big Deal on this? Yes it is a big deal as we have seen companies with complex business (Like Machine tool Industries) increased their revenue to close to 50% in the first year on streamlining their MRP and eliminating shortages – (of course this was the result of a bottleneck elimination, for another company it was a significant reduction in working capital to the tune for 60 Million about 1.5% of working capital reduction.

In this Blog we are taking a peek on not only the pure planning i,e the Calculation based on a BOM (Bill of Materials and its components), but the larger picture involving various strategies and possibilities right from simulations, stocking, coverages and not the least the profitability planning beyond the working capitals.

1. First and foremost the disclaimer, no one strategy fits all. Every industry is unique and has its own challenges and business environment. It is a pick and choose model that suits our industry best, here I am only talking about various options and may also mention some of this industry. As such here are a few factors that help you to set up your own strategies:
2. The industry you are in: The challenges faced by a Machine tool industry is very different from a consumer goods industry, so is for example a food or a pharma company. To each its own.

1. 1. The availability of the raw materials.
      • Seasonal procurements
        Long lead time Items
        Alternate supplies
        Availability/Developments of Job work contractors
   2. The Available lead time from Order to fulfillment
      • Seasonal Business
   3. Impact of change management
      • Designs changes
      • Customer specific adaptations of the same products
   4. The leverage you have with your vendors and customers, this is also an important factor in setting up a proper strategy.
      1. Flexibility in Pricing
      2. Monopoly of the Business (both Supplier side and Customer Side)
   5. The nature of the operations.
      1. Capacity constraints
      2. Space and storage constraints like temperature or shelf life
      3. Possibility of conditional processing.
   6. Critical Spares Planning
   7. Benchmarking the inventory as the percentage of your turnover:
      If you have not already done so, Benchmarking your inventory as a percentage of your Daily,Weekly,Monthly turnover is a good idea to know where you stand. This will bring up some interesting insights about your stock holding patterns.
      Additionally a few of the reports mentioned below will also help understand the efficiency of our planning .
      1. Days of coverage report: The number of days a component stock lasts based on the current consumption pattern against a realistic look on the supplier lead time.
      2. Expiry and Near expiry items lying with you.
      3. Fast ,moving items.
      4. Disruptions due to one off requirements.
   8. Planning Strategies for the Business
      1. The planning strategies of the Business will largely depend on the type of business and policies companies adopt to fulfill their customer needs.
      2. Basically they form into two groups Make to Order and Make to Stock.
      3. It will be not surprising to know that many companies claim that they are pure make to Order companies on dissecting we will find them more of MTS (make to Stock) and less of MTO (Make to Order), an interplay of how well you strategies this will eventually results in a best order fulfillment and ensure the company is customer focused top to bottom. A “Ready to Cook” strategy works best for example where lead times are comparatively shorter than the procurement times.
      4. Adoption of these blended strategies with flexibility to fulfill the customer’s schedule of delivery is a win-win situation and the key for reduction of working capital and thereby improving profitability of an organization. There are also other things to be done if you are having a mix and match of Bread earners and highly profitable products – more on this in a later blog.
   9. Considering the above factors, organizations should redraw their procurement policies , and practice. Ideally a yearly simulated plan with optimistic, pessimistic and realistic views will help draw the procurement plans and inventory levels to maintain at the optimum level.
      1. Here Rise with S/4 HANA system helps set up a variety of options to get the optimum results this includes considering various factors including these which are not discussed here like various scraps, Lot sizing etc.
   10. Making MRP System Driven
       1. One of the key challenges and a major factor in achieving this result is by making the planning system driven. This eliminates unwanted interference and consistency in the planning process. It also ensures the trust level in the inventory and process are the peak and have a uniform view across the stakeholders with a view of realistic fulfillment dates.
          Below are some of the proven results which we have observed by putting the above things in practice.

Please note as above to get the best results we need to look at the current challenges and adopt which best suits your industry , not by assumptions but by facts and corrections.

• Accuracy of Stocks
• BOM
• Lead times and Operation times
• Wait times
• Dependency
• Procurement reporting accuracy
• Lot sizing
• Stocking strategies
• Manufacturing strategies
• Alternate Items
• Change management – phasing in phasing out challenges
• Requirement Grouping
• And much more….

Nevertheless it is worth the effort as the benefits for the stakeholders are immense and the results are long term.

Please reach out to us for free evaluation.