Monday, March 28, 2011

ERP Functions: Planning 2

As promised, I am back on Monday with further sharing of my ERP knowledge. Last week we have learn basic functionalities of Planning department in an organization. We have got detail delivery plan for a month which is divided into weeks and days. With this document Planning department will start working on meeting the requirement of production completion according to the document.

As we discussed in last blog 3M's are inputs to the production. Out of them the most critical is Material. Since Manpower and Machines are already available in the organization the only one M to be procured from outside is Material. There are few aspects which are important in planning the procurement of material.

The Material has to be reached well before the planned production. Also the material should be of good quality. There will be several constraints to meet the Delivery and Quality requirement of the material required. 
1. A good quality material supplier may be located very far from factory which will increase lead time.

2. Customer may specify the material quality/supplier of the Material.
3. The Supplier may not accept the delivery schedule as per production planning dates.

Several other reasons like price, discounts,duties, taxes of the material, relationship with the supplier, legal requirements etc will also be considered. But these are more pertaining to Purchase Department functionalities which you will get to know in near future.

So considering these constraints the Material Requirement Planning (MRP) is done. MRP is done based on two major documents.
1. Production Planning Sheet  (Delivery Plan)
2. BOM (Bill of Material)
Lets understand the MRP in detail.

As Explained before Production Planning Sheet contains the production to be done during a period. It provides data on Product Quantity, Date, Customer.
Coming to BOM, every product will have the material requirement for its production. This is defined in Engineering and Design department. As we had learn earlier in feasibility study the draft material requirement and process flow will be defined. Further once the order is confirmed from the Customer the exact material requirement and process flow is defined for a product. This material requirement for a product is called Bill of Material of the Product simply BOM.

Now you must have got the calculation of MRP.i.e.
MRP = Quantity of the product as in Planning X Quantity of Material in BOM for the Product

However there is one more constraint of Lead Time. Lead Time is defined as the time between the Purchase order date and delivery date of the material. So in order to meet the production planning dates materials with lead time has to be procured well before the time. By taking into consideration of all these the MRP is done.  This is also called as Production Planning Based MRP.

There are some materials, usually consumables which are consumed in bulk and may not be defined in the BOM of the product. These materials are required for most of the types of products and hence are also critical. So for these materials there will level of stock defined which is to be maintained in order to have smooth production running.
1. Minimum Level: Minimum stock to be required for smooth functioning of factory
2. Maximum Level: Maximum stock capacity of the material. (Due to Inventory Management Constraints)
3. Reorder Level: The Stock at which the Purchase order has to be given to the supplier to ensure the stock will not reduce below minimum before delivery of the material. This is calculated based on consumption rate and lead time.

Based on above criteria another type of MRP is made. That is called as Min-Max Level based MRP

These MRP will be the out put document for the planning department to the Purchase Department to procure the material for the production.

With this I will end the long Blog on MRP. Further we will look into other Ms. Machine and Man Power Planning, termed as Capacity Planning. I hope my blog will clear the idea of Business functionalities in terms of ERP. Do comment your doubts and views. Will be back on next Monday. Keep looking this place...


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