Step 1: Create the Bill of Materials (BOM)
The first step in MRP is to create a BOM for the final product. A BOM is a comprehensive list of all the raw materials required to produce one finished product. The BOM should include all components, their quantities, and specification details. Suppose a furniture manufacturer wants to create a sofa. In that case, the BOM will include the wood frame, foam cushions, fabric cover, nails, screws, and any other components necessary to construct the product.
Step 2: Determine the Lead Time
Lead time refers to the time required between ordering raw materials and receiving them. To ensure on-time production, it is necessary to estimate lead times accurately. Manufacturers should consider multiple factors, including supplier processing times, shipping, and inspections. Some lead times are standard, while others may change depending on the size of an order or supplier capacity.
Step 3: Enter Sales Orders
The next step in the MRP process is to enter sales orders for finished products. Sales orders include customer orders or forecasts of demand for finished products. By entering sales orders into the system, businesses can track demand and determine the required quantity of materials. For example, a furniture manufacturer may have a sales order for ten sofas to be delivered within a month.
Step 4: Determine Gross Requirements and Net Requirements
Gross requirements refer to the total quantity of raw materials required to fulfill the BOM and satisfy sales orders. To calculate gross requirements, multiply the required quantity of each component on the BOM by the number of finished products on order. Net requirements refer to the quantity of materials required to meet demand after considering inventory levels. To calculate the net requirements, subtract current inventory levels from gross requirements.
Step 5: Generate the Purchase Order
Finally, once net requirements have been determined, it is time to generate the purchase order. The purchase order specifies the quantity and type of materials required and is sent to the supplier. Suppliers use purchase orders to replenish inventory levels and meet customer demand. The MRP system will track the purchase order until the materials have been received and mark the order complete.
Conclusion:
The MRP system plays a vital role in the success of manufacturing businesses. By following the above steps, the MRP system can help businesses maintain efficient inventory levels and fulfill customer orders on time. Once BOM and lead time have been established, sales orders can be entered into the system, followed by determining gross and net requirements and generating purchase orders. Additionally, it is essential to monitor KPIs such as inventory turnover and lead times continually to optimize manufacturing operations. Implementing the MRP system is a valuable investment for manufacturing businesses seeking to streamline processes and increase productivity.