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5 Biggest Material Requirements Planning Pitfalls

Visual Business Solutions
By: Scott Jessup

Material requirements planning (MRP) plays an essential role in manufacturing, enabling the production process to proceed smoothly and efficiently. As an inventory management system, MRP helps production managers plan and schedule the raw material purchases required for manufacturing. Without the proper MRP processes in place, the ability to reliably and consistently manufacture products is put in jeopardy.

To ensure that an MRP system runs smoothly, it’s important to avoid five major material requirements planning pitfalls:

1. Inadequate bill of materials (BOM)

All production planning starts with a bill of materials – if that is wrong, virtually everything else affecting production will be wrong as well. The BOM drives operations, purchasing, manufacturing, and logistics – the data from a manufacturing BOM is used to inform ERP, MRP, and the manufacturing execution system (MES). Inaccuracies in a BOM such as ordering the wrong parts or the wrong quantities can result in significant problems, especially for companies operating on a lean strategy. The more complete and accurate a BOM, the better the decisions made regarding inventory levels, operational efficiency, and the most cost-effective and profitable way to get products to customers.

2. Incorrect or obsolete material requirements planning policies

ERP and MRP systems are essentially sophisticated calculators – they utilize mathematical inputs to determine how much stock to buy and keep in inventory, what lead times should be, and other policies affecting the manufacturing operation. Unfortunately, some planners “set-‘em-and-forget-‘em.” They set up the system to manufacture a certain product, input some numbers that may or may not be based in reality, and then never revisit the numbers once they’re in place. If those inputs are wrong, all the planning will be, too.

3. Lack of understanding of planning fundamentals

Proper material requirements planning is a complex process that requires good analytical skills and strategic thinking. However, many companies have the wrong person in the position – often they’ll use buyers and simply call them planners. What’s important to understand is that planning is a strategy and purchasing is a task. The individual in the planning role may not be familiar with the principles of supply and demand or know how to interpret the information coming out of the MRP system. This can be a major stumbling block for effective material requirements planning.

4. Absence of forecasting

An MRP planner must anticipate what the company will need to successfully manufacture and deliver products. The only way to do that is to have a forecasting mechanism and model. Without proper forecasting there is no planning. Material requirements planning becomes reactive instead of proactive – that’s not an MRP strategy, that’s simply purchasing.
 
5. Treating suppliers as vendors, not partners

Your main suppliers are the initial key to effective material requirements planning. Without their cooperation, you will have no materials to make your products. It’s critical to involve your key suppliers in your MRP beyond simply sending them purchase orders. By developing a close relationship with them, you can have a better view of the supply chain and create supplier agreements that work well for both parties to ensure a ready supply of raw materials for production.

These five major material requirements planning pitfalls all highlight the need to establish good metrics and business analytics. Metrics enable you to measure planning accuracy and facilitate the continuous improvement critical to optimizing ERP and streamlining manufacturing operations.