Material Requirments Planning (MRP) using Fixed Order Quantity

Introduction

This tutorial provides a step-by-step guide on Material Requirements Planning (MRP) using the Fixed Order Quantity method. MRP is a production planning, scheduling, and inventory control system that helps businesses manage their manufacturing processes efficiently. Understanding MRP can optimize your inventory levels, reduce costs, and improve service levels.

Step 1: Understand Basic MRP Concepts

Before diving into MRP using Fixed Order Quantity, familiarize yourself with key concepts:

• Material Requirements Planning (MRP): A system for calculating the materials and components needed to manufacture a product.
• Fixed Order Quantity: A method where a set amount of inventory is ordered whenever stock reaches a predetermined level.

Practical Tips:

• Consider the lead time for materials to ensure timely ordering.
• Understand your demand patterns to set accurate reorder points.

Step 2: Gather Necessary Data

Collect the following data to implement MRP effectively:

• Bill of Materials (BOM): A list of raw materials, components, and subassemblies required to produce a product.
• Inventory Levels: Current stock levels for each item.
• Lead Times: Time taken to receive materials after an order is placed.

Practical Tips:

• Ensure your BOM is up-to-date to avoid production delays.
• Use inventory management software to track levels accurately.

Step 3: Set Reorder Points

Determine the reorder point for each item based on the following:

1. Lead Time: Time taken to replenish stock.
2. Average Daily Usage: The average amount of material used per day.
3. Safety Stock: Extra inventory held to prevent stockouts.

Calculation:

Reorder Point = (Average Daily Usage x Lead Time) + Safety Stock

Step 4: Calculate Order Quantity

Use the Fixed Order Quantity approach to determine how much to order when the reorder point is reached.

Common Formula:

• Order Quantity: A predetermined fixed quantity that you will order each time inventory hits the reorder point.

Practical Tips:

• Ensure the order quantity is based on supplier minimums and storage capacity.
• Regularly review and adjust order quantities as demand changes.

Step 5: Implement MRP Software

Consider using MRP software to automate calculations and facilitate planning. Key features to look for include:

• Production Scheduling: Helps optimize manufacturing processes.
• Inventory Tracking: Monitors stock levels in real-time.
• Reporting Tools: Provides insights into inventory turnover and demand forecasting.

Common Pitfalls:

• Failing to train staff on new software can lead to errors.
• Regularly update the software to accommodate changes in your processes.

Conclusion

MRP using Fixed Order Quantity can significantly enhance your production efficiency and inventory management. By following these steps, you'll be able to set up a robust MRP system that meets your business needs. Consider reviewing your processes periodically to refine your approach and adapt to changes in demand. For further improvement, explore additional MRP methodologies and tools to enhance your planning capabilities.