During the material requirements planning (MRP) process, the Bike Company ensures that they have the necessary materials available at the right time and in the right quantity. You will now learn more about the processes of this step.
Material Requirements Planning Types
First, the Bike Company needs to decide how they want to fulfill their demands of their products. This can be defined by the MRP type. There are two main MRP types: consumption-based planning and deterministic planning.
Consumption-Based Planning
Consumption-based planning provides a simpler and more automated approach to materials planning by relying on historical consumption data and triggering replenishment based on predefined thresholds.
This approach mainly focuses on managing less critical low-value parts. The Bike Company can apply this approach to manage items such as screws and nuts.
Deterministic Planning
Deterministic planning usually relies on demand forecasts or sales orders to calculate material requirements. MRP is executed for a product, including its components and sub-assemblies (multilevel).
Deterministic planning primarily focuses on high-value parts. For instance, the Bike Company employs deterministic planning for their high-end bikes.
Let’s get to know the two MRP types in more detail:
Reorder Point Planning – an Example for Consumption-Based Planning
Within consumption-based planning, one approach is known as reorder point planning. The following image illustrates how this method works:
In reorder point planning, a predefined reorder point is established for each material. When the stock level of a material falls below the reorder point during production, for example, the number of screws fall below 500 pieces, a replenishment order is triggered to ensure that the stock is replenished in a timely manner.
Deterministic Planning
A finished product often consists of a high number of assemblies, sub-assemblies down to the level of raw materials. All these elements needed to produce a finished product are defined in a bill of material, called BOM. This BOM structure will be exploded for each demand over all levels.
This process considers factors such as procurement lead times, production lead times, transit times, and any other relevant factors that impact the availability date of materials.
In the case of a net requirement (shortage), the system calculates the quantity of the necessary receipt element to resolve this shortage.
As a result of the previous step, we have now determined the quantity we want/need to replenish. After lot sizing has determined the quantity needed to be replenished, the next step is to determine whether the material will be produced in-house or procured externally.
Finally, the system executes the calculation of the start date for inhouse production, which also indicates, whether the plan can be realistic at all from a time perspective.
