At a Glance
Growing companies need to keep tight rein over inventories. Having too much in terms of raw materials means capital outlays will suffer. Having too little prevents them from meeting unexpected demands. Materials requirements planning (MRP) lets these firms plan their production, ensuring needed supplies are available without hampering other business functions. The benefits of using MRP software, such as that found in Microsoft Dynamics 365 Supply Chain Management, include:
- Using MRP and supply chain planning as essential drivers for growth
- Managing customer expectations and reality behind the scenes
- Addressing real-life pain points
- Planning production campaigns
- Overcoming workforce resistance to change while adapting to newer, more efficient planning methods
Supply Chain Planning Methods Benefit All Companies
Whether you’re a bakery or a pharmaceutical manufacturing company, planning your inventory is an essential part of daily operations. If a bakery does not order enough flour, yeast, or eggs, it can’t meet customer demands. Order too much and the company loses money from spoiled or wasted materials.
In chemical companies, waste is not like throwing away a loaf of bread. The repercussions to unplanned operations in highly regulated industries are much worse. Bad batches of hazardous or volatile chemicals, plus constantly yielding unplanned co-products or by-products require storage or disposal based on quality tests.
For example, consider a pharmaceutical company. The production of batches with lower than planned potency can result in an over-extended campaign, over-consumption of raw materials and lower production yields. If a batch is planned for a certain potency, the production process is not complete until quality confirms it meets test specification. After reworking the batch a few times, it may be reclassified to a lower potency when it does not yield the desired results.
While the concept of MRP was originally only intended for manufacturing companies, it now extends itself into all industries, including those whose products are services.
Material planning becomes even more critical in small-to-medium manufacturing companies: the smaller a company is, the more precise allocating materials and resources must be. Planners and buyers need clear and precise signals that allow them to make informed decisions on when to buy and when to produce. The availability of materials and capacity of resources is everything in optimizing and streamlining a plant’s supply chain.
Understanding MRP needs is part of optimizing a company’s overall supply chain. That is why the once independent product is now integrated into Enterprise Resource Planning (ERP) software.
Combined with other parts of supply chain management, MRP lets companies serve their customers better while lowering inventory costs.
A Real-Life Example
Your “A” customer requests a quote for a specific product they need quickly. You know that your customer has already reached out to secondary vendors for quotes.
Pleasing this customer, especially with stiff competition, requires a thorough inventory evaluation. You need to know if you can meet their deadline.
Without a proper MRP system, you must build complex spreadsheets with sales orders, supply and demand forecasts plus production schedules. After that, you have to superimpose inventory availability and resource capacities into the same spreadsheet. If this process sounds complicated, it is.
Using this method may take 2-3 days to determine if you can meet their deadline. The work and precision required puts tremendous pressure on planners, alienates customers and impairs organizational growth. Competitors using an MRP system integrated into their ERP platform can provide a realistic promise date and close the sale while those using the manual method are still making calculations.
Meeting customer demands by a request date requires at least three inputs:
- 1.Planned supply
- 2.On-hand availability after all allocations and reservations are considered
- 3.Resource capacity
If you are unable to quickly provide an available-to-promise (ATP) date, then your customer will work with suppliers who can commit and deliver on time.
What Happens on the Ground?
Preparing a production schedule is challenging without knowing inventory levels plus labor and machine resources availability. Even with a forecast in place, it is hard to schedule production while facing capacity issues in terms of machine time or labor. (Read “Standard Costing in Pharmaceutical Manufacturing – Industry Challenges and Solutions.” It has an example of batch manufacturing processes and the data inaccuracies that can occur while consuming inventory.) Add data inaccuracies to a lack of resource capacity and chaos ensues.
These problems illustrate the need for accurate production planning and scheduling. These plans are critical in any manufacturing or distribution company, especially those trying to streamline operations.
Not only do customers often expect 99 percent-plus service levels within 24 to 48 hours, but supply reliability is also becoming more tenuous as once local supply chains now extend around the world.
Boosting production efficiency while having fast, accurate inventory plans are critical in today’s business environment. Companies face mounting pressure to perform, especially with growing competition when customer loyalty is related to a company’s perceived value.
Meeting Customer Demands
Can your planner meet a demanding customer’s requirements to provide important information such as:
- Overall Customer demand
- Worker availability
- Machine capacity
- Raw material availability
- Stocked supplies
- Quality requirements
- Batch potency requirements
Dumping data into Microsoft Excel sheets from different sources, creating a supply chain plan and then generating a manual production schedule is a basic requirement. Companies who work reactively without these plans and schedules waste materials and have chaotic operations.
Even with basic planning, a company operating reactively will lose inventory and suffocate resource availability. The result is a waste of time and money.
Consider all the stress and cost a manual or reactive approach generates. Wouldn’t using a system that can use an algorithm to generate needed results in minutes be more efficient and ultimately cost less? That is what Microsoft Dynamics 365 Supply Chain Management can do.
Book a free assessment to get tailored Microsoft solutions for your company
Lack of capacity means waiting for one machine operation to finish before the next job starts. Knowing how long each process takes is crucial in providing a reliable promise date.
Companies who don’t meet or beat customer deadlines can easily lose any edge over their peers. Firms lacking proper supply chain planning—and those whose staff resist change—stunt their own growth. The resisters prevent the company from obtaining an effective, efficient planning and scheduling tool.
Top-quartile FMCG companies still perform at 98.6 percent service level
Source: McKinsey and Company
Real-life Example #2
Your planner is proactively planning out the work orders, creating a schedule for the upcoming week. Lacking the ability to compare material availability and resource availability forces the planner to create a calendar schedule and then manually track the production plan.
This plan involves producing a batch and then packing it out to meet the customer’s deadline. Using the company’s older system, the planner assumes there is enough inventory on-hand. However, the inventory counts are wrong and the containers are actually empty. Once the planner spots the inventory error, they must find alternatives or push out the scheduled production start.
The lack of accurate inventory data causes a ripple effect. With production delayed, the sales team has to go back to the customer with a new delivery date.
Other problems occur, delaying the project even more: Skilled workers required for this project are required to re-do a high priority lot that failed quality testing, pushing out their scheduled jobs. Lack of scheduled maintenance causes an important machine to break down, adding more delays and altering production schedules.
Those are some worst-case scenarios. Not every pharmaceutical production plant manager has to suffer like this, though.
Those with a well-integrated mobile supply chain and planning system can skip those pain points. An integrated ERP system with MRP functions automatically feeds data into each area. It keeps an accurate frequent cycle count on fast moving products. It generates a capacity schedule that can predict labor and machine capacities with a secondary backup in place.
Having that information readily available, plus planning an alternative route of operations, can remove or reduce the real-life problems mentioned earlier.
Benefits of an Integrated MRP and Forecasting System
An integrated materials requirement planning and forecasting system ploughs through the system. It uses coverage settings such as lead times and time fences for upcoming projects, and creates production signals based on material availability plus resource capacity and capability.
The system’s algorithm looks at all products that require planning while sharing the same raw materials and resources. It shows the planner schedules for all material requirements to meet supply and demand based on the calendar with working time.
The planner sees the same visual schedule similar to what they could create manually on a spreadsheet but with the ability to make informed decisions. The planner can decide how and where reprioritization needs to happen and then which lot production runs to schedule first.
A good MRP algorithm empowers the user to proactively plan. They can keep watch on raw material and resource allocations. Adding stringent production floor operating procedures with stop gaps will reduce or eliminate uncontrolled activities that can alter inventory projections.
Role of People
Having a well-trained, experienced workforce is invaluable. It is your biggest strength. But because some people are comfortable performing tasks a specific way, they may not be willing to adapt to changes designed to streamline your supply chain. How do you convert workers who are unwilling to change?
Some proven ways are:
- Educating your workforce on how adapting to newer methods and tools to increase supply chain optimization benefits them
- Explaining and showing them how the modern tools are actually simpler to use and follow standard execution methods
- Creating a change management process
- Involving them in the overall transformation from no planning or manual planning to a systematized planning and scheduling tool
- Teaming your workforce with newer team members who act as change agents during the software implementation process
More than 40% of financial services executives feel cultural or behavioral change is the biggest challenge they face in pursuing their technology transformation.
Source: Inference from McKinsey
Key Takeaways to Proactively Plan your Supply Chain
There are several steps any company can take to proactively plan its supply chain. They include:
- Looking at current cycle count procedures and then re-categorizing the top items for better visibility
- Using better clock-in/ clock-out and time management procedures to better allocate operators for the right jobs
- Providing proper handoffs for machines and operators from one step in the production process to the next
- Proactively scheduling jobs and finding more efficient operating methods
Finally, ask yourself this question: Is your company meeting your competition right now or are you lagging behind them? Could you gain more sales and improve customer service by delivering quotes faster and meeting—ideally, beating—deadlines?
If you aren’t beating your competition and meeting deadlines, take a close look at Microsoft Dynamics 365 Supply Chain Management.
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