MRP Calculations
Ideally, your manufacturing software performs several MRP calculations to optimize your inventory quantities to match incoming orders. MRP or materials requirements planning refers specifically to determining how much material you need to order to manufacture the finished product to meet sales.
MRP inputs can be defined as the master production schedule, BOM and current inventory levels.
- Net and Gross Requirement Calculations – both these calculations are determined for a set period. First, if you are determining your gross requirement, you will tally all ingredients or components needed to produce a set number of finished products. For that same period, you will determine the net by subtracting stock that is on hand at the start of the period.
- Incoming and Outgoing Orders – Balancing orders coming in from sales with the orders your business must place to vendors to match that demand must consider the lead time and amount of product that will sell within that time.
- Physical Inventory within a Time Frame – for each product in stock, you add the amount of stock you had at the end of the previous period to your sales for the period, then subtract the requirements to fill those sales by the end of the current period.
Back in the days prior to business software solutions, you would have to keep careful logs of ingoing and outgoing inventory and spend hours analyzing data to make educated guesses about future product demand.
Today, you’ve got great tools like SOS Inventory software that not only manages and balances inventory as it enters and leaves your system; it handles all the important MRP calculations to keep your business’ inventory optimized for anticipated sales.
When MRP Control Works Best
Traditionally, businesses hit snags with MRP when inventory is not up to date. Planning orders based on assumptions about how much was sold during a time frame when that number is inaccurate is counterproductive.
Another challenge was predicting future sales based solely on historical sales. This model would work just fine if demand remained constant throughout the year; however, seasons, trends, weather, and other variables can impact demand and availability.
Q: What is a MRP system?
A: A MRP system is software designed for planning and decision making in the production process based on levels of inventory, demand, and production capacity.
The MRP systems work best when a product has many tiers of BOMs and lower stock levels. In most cases, the predictions aren’t necessarily accurate, but serve to schedule workflows to keep production in timing to meet predicted order levels. The best approach is to calculate demand rather than predict it. Planning and scheduling begin with determining how much is required to produce a specified number of finished materials.
SOS Inventory allows manufacturers to set up many product templates to build one workflow stage at a time using a bill of materials. Once that stage is complete, the user selects the next stage, and a work order is assigned to the individual handling that part of the process. Your business can create an unlimited number of workflow stages, tracking inventory as it is used in production and adding inventory back to the total count once that workflow stage is complete. All costs, labor and overhead are tracked through each stage to provide accurate work in progress inventory counts and costs for accounting purposes.
And because SOS Inventory has perpetual inventory functionality, inventory can be updated regularly so your counts at any workflow stage match up with numbers in accounting. Reorders can be triggered automatically from reorder points calculated for each product, matching purchase orders up with the flow of incoming sales orders seamlessly.
MRP calculations represent just a few of SOS Inventory’s software talents. Why not give it a try to make inventory planning simpler and more accurate for your business?
