Material Requirements Planning System
How can businesses coordinate their purchasing, manufacturing, and delivery systems? In this lesson, we’ll explore material requirements planning systems, including what they are, their goals, and how businesses can use them.
Manufacturing
Susan owns a company that makes go-carts. They order parts (like wheels, metal, and engine parts) from suppliers and then put the parts together at their factory to make the go-carts. Once the carts are made, they are stored in a warehouse until it is time to ship them off.
What Susan ‘s company is doing is manufacturing, or the process of mass producing a product. Susan’s company has a pretty traditional manufacturing process: they buy materials, assemble them in the factory, store the inventory, and eventually sell the go-carts. That’s the way manufacturing businesses have worked for generations.
But Susan wonders if there’s a better way. With technology rapidly changing the world over the past 50 years, Susan thinks that there has to be a better way to use technology to help her make her manufacturing process better.
To help Susan explore how technology can streamline her manufacturing, let’s look at material requirements planning, including what it is, how it is used, and what its three main goals are.
Material Requirements Planning
Susan wants to bring her manufacturing into the 21st century. But what, exactly, can technology do for her business?
One tool that many manufacturing businesses use is a material requirements planning software, which helps companies plan the purchase of materials and the manufacture and selling of product. While material requirements planning systems can be done by hand, they are usually computer-based because it is easier that way.
So, how might a material requirements planning software work in Susan ‘s business? Imagine that Susan has a big order of go-carts that she needs to ship out next week. There are several possible options. If she has enough go-carts in her warehouse, she can just ship them out from there. But holding a large quantity of inventory is expensive, so Susan doesn’t think that having a lot of go-carts on hand is wise. She’d rather sell them as they are coming out of the factory and skip the warehouse altogether!
So, if she doesn’t have a lot of inventory of go-carts in her warehouse, then to fulfill the order, she has to make them at her factory. But remember that she needs certain materials to manufacture the go-carts. What happens if she doesn’t have enough wheels, for example? Then, she’s stuck until she can order and get more wheels from the wheel company. And if that’s not in time, then she can’t fulfill the order of go-carts.
From the situation we just discussed, you’re probably getting a sense that manufacturing is a balancing act. Susan has to balance the costs of storing materials and inventory with the possibility that having too few materials and inventory will leave her unable to meet the demands of her customers.
Material requirements planning systems can help Susan keep track of her orders, inventory, and materials on hand. It can tell her when she needs to order more materials and how many of each material she needs to order. That way, she can make sure that she’ll be able to meet the demand of her customers, while not storing a bunch of materials and finished go-carts in the meantime.
Goals
As we’ve just seen, material requirements planning can help Susan and business owners like her meet the needs of their customers while still keeping from having too much inventory and materials on hand. But what specific goals does a program like this have? There are three major goals of material requirements planning. They are:
Ensure materials and products are available to meet customer demand. Susan needs materials to make her go-carts, and she needs go-carts to deliver to her customers. Material requirements planning is about having the materials and inventory available to make and deliver products.
Maintain the lowest possible level of inventory. Remember that Susan doesn’t want to pay to store all her unsold go-carts. But she also needs to be able to quickly fill orders that come in, so she needs some inventory. Material requirements planning can help Susan figure out the lowest levels of inventory she needs to store and help her keep her inventory at that number, not above or below it.
Plan manufacturing, delivery, and purchasing schedules. In order to make sure that she’s not storing a bunch of inventory and not running out of materials to make her go-carts while still meeting the needs of her customers, Susan has to carefully coordinate the ordering and receiving of materials, the manufacturing of her go-carts, and the delivery to her customers. Material requirements planning allows Susan to plan each of these steps (ordering materials, manufacturing, and delivery of products) so that they are coordinated.