Ever baked cake before? Do you know the ingredients you need to make Vanilla cake?
I do!!
You need Butter, Sugar, Eggs, Self raising flour, Baking Powder, Vanilla extract and a Pinch of salt. Each and every one of these ingredients has an important role it plays in making sure that your vanilla cake comes out of the oven smelling amazing and tasting even better. Should you miss any of these ingredients you sure as daylight will not wind up with vanilla cake. I actually don’t think you’ll even be able to make the cake to begin with.
The same theory plays out in Manufacturing. Every finished good has its own individual components that make it up, and in the event that one of its raw materials is missing, the entire manufacturing function will be paralyzed until all the component raw materials are available. Production managers are fully aware of this and thus ensure that all the materials required to manufacture their products are ready and available beforehand. Same thing you need to do if you intend to bake cake for your best friend’s birthday party.
Without further adieu, I would like to introduce Material Requirements Planning, otherwise known as MRP. Material Requirements Planning (MRP) is a system for calculating the materials and components needed to manufacture a product. It consists of three primary steps: taking inventory of the materials and components on hand, identifying which additional ones are needed and then scheduling their production or purchase. MRP came to ancient production managers as a breathe of fresh air because it ensured that all component materials required for successful production were available early in advance. This worked perfectly with the Bill of Materials because we had the aspect of explosion which lets a manager know how much of each component material is needed for production of a specific number of unit products. This is actually perfect, as it makes life easier for everyone in the production cycle. It makes the Purchasing function very direct as it is quite clear just how much is needed and the generated numbers are easily ordered.
The diagram above illustrates a typical Bill of Materials. We are trying to make 2 units of product 101. We require 5 of product 201, 7 of product 202 and 6 of product 203 for successful production. The tree continues further to tell us the component raw materials required to manufacture the components of product 101. We have a well illustrated explosion of the BOM as it explains how much material is needed to manufacture 101. With this illustration, it is quite clear how much we need to purchase to manufacture 101.
The concept was genius!! If you have this on your computer, you get to compute how much you need to purchase by the click of a finger, and as it may seem, life can’t get any easier! But alas! It does 🙂
Join me in next week’s post when I will be discussing the flaws of traditional MRP and clearly explaining how to mitigate them. You do not want to miss this!!