9 financial tips for material requirements planning (MRP)
Manufacturers use Material Requirements Planning (MRP) systems primarily because they give better visibility of their inventory. A well-developed MRP system is efficient, effective, and profitable to the manufacturer.
With the right MRP system, a manufacturer can do planning, cut costs, increase the productivity of their workers, improve the quality of their products, reduce material and labor costs, and the like.
Below are some financial tips that a manufacturer should look out for when considering an MRP system:
1. Manage your inventory
Stock levels influence production and manufacturing processes. There are three types of inventories relating to manufacturing firms. These are:
- Raw materials;
- Work in progress; and
- Finished goods.
Technological advancements have modified the systems to software applicable to most businesses. Incorporating the MRP system for small business help monitor inventory levels.
Depending on the manufacturer’s schedule, you can tell materials available for sale at a particular time, like a week or month. Having the correct value of materials can help make informed financial decisions. It’s also a strategic approach for the quality control team. It gives them visibility so they can compare their balances and make orders to help fulfill market demand without stretching their budgets.
2. Know your supplier lead time
Lead time is the difference in time between when a customer places an order and when it’s delivered. It’s necessary to input the correct purchase and sales order dates because they help track lead time. Once you know the lead time, managing your production plan becomes easy.
3. Manage purchase, sales, and work order
A sound MRP system analyzes supply depending on the open purchase orders and, in turn, helps the manufacturer in planning their finances better. Demand is analyzed with information on the available sales orders, so you can make informed decisions when planning for acquisition.
4. Have a current forecasting
Forecasting can help identify the materials required to fulfill the orders. Demand and inventory go hand in hand. It’s necessary to have a clear forecast.
As highlighted above, open sales orders can help predict the required materials. This can assist in the scheduling of production and workers to be needed.
You can plan for peak seasons and optimize production costs as well. This way, you create a working balance in and out of season.
5. Evaluate machine capacity
Before accepting an order, verifying that your plant equipment will sustain the demand is vital. The software has alerts that can notify your plant operators of malfunctions so they can schedule repair and maintenance.
And you’ll need to hire the right personnel to operate the equipment. It helps you minimize errors and maintains quality production.
6. Understand bill of materials and sub assembly dependencies
Bill of materials (BOM) is a list that describes the relationship of items used during a production process. It’s a detailed inventory of parts and components; all required raw materials, assemblies, and subassemblies.
For instance, your plant equipment can be assembled and disassembled. The features that can be attached and detached could be bought separately. With a BOM, you can make a consolidated purchase that earns you some discounts.
It’s best to explain the quantities required to sustain the production process. Furthermore, you can manage purchase costs by making bulk orders that meet your quantity demand.
7. Calculate the formula yield
During manufacturing, materials can wear out. For example, metal manufacturing firms may experience variance due to evaporation, reaction of some metals, and spillage.
The manufacturer should account for the difference by calculating the formula yield. The yield gives the difference between the product before processing and its final state. It’s vital for a firm that hopes to adopt lean production. Also, it helps estimate the profits and costs used in the production procedures.
8. Evaluate safety stock
Safety stock is the emergency inventory that prevents the eventuality of having no available stock at hand. Even with varying market demands, you must ensure you can fulfill production demands. MRP software ensures raw materials shouldn’t go past a particular level for a reorder. This way, you can make an informed decision on when to replenish their stock.
9. Audit your suppliers
Suppliers are vital stakeholders that can help create a reputation for your brand. As such, you should review all your suppliers’ performance regarding the time they take to deliver orders.
Assess the quality of the raw materials provided by your suppliers as they impact the end product. An efficient MRP system can give you an overview of all your customer’s product feedback to make sure that they’re satisfied with the quality of products you’re providing them.
Using MRP for your operations is a good business call. The system is a surefire way of taking charge of your finances. Therefore, consider MRP systems to optimize your inventory and satisfy your customers at reduced costs.