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Production Planning Pitfalls: Setting Sales Forecast for MRP

I am starting here a series of articles about why internal procedures are always the main problem for correct production, purchasing, and sales planning. These procedures usually drive ERP to deliver a bad sales and production plan. Thus, I would like in this article to list the usual mistakes people do and how they affect ERP and mainly MRP module. It is important to point out, that these issues can ruin all efforts done during ERP deployment.

 

Let’s go to the TOP 3 Issues for Production Planning

 

#1:  Sales Forecast set for a Monthly plan 

 

It is easy to do and understand but creates a mess. It means the Sales Forecast is going to be summarized in only one date. Usually the last or the first date on the calendar. It will drive ERP to not split orders, then MRP Is going to create Planned Orders so big, that users will delete and create another one. 

 

#2: Trying to fix the previous error with maximum quantity for production orders

 

This will create more orders, but not yet coupled with reality. The due date is not correct and also the quantity is not what production needs to execute to cover sales demand. It is going to increase the problem, creating orders in excess.

 

#3: Splitting Sales Demand by weeks.

 

To do this, people should use a correct algorithm, that is much more complicated than simply dividing demand by the number of weeks. Doing this will drive MRP to do create orders wrongly. 

 

Considers this example:

  1. Sales Demand = 3,800 units
  2. Number of weeks for the next month: 4 weeks
  3. Minimum Batch Size: 1,000 units
  4. Pallet: 100 units
  5. Then It will break into 4 demands: 4 x 950 units

Then MRP will create 4 orders of 1,000 units, and it will plan 200 nonrequired units for production

 

Then what I should do?

The correct approach is: Split the Sales Forecast by 3 like 1,300+1,300+1,200 units. It will drive planning to keep the inventory coverage at the correct level. 

 

Why 3?

If you divide the Sales Demand by Minimum Batch and round down it, the number is 3. We do it because we do not want to produce more than necessary.

 

But why the quantity is not the same?

It is due to the MRP having to respect the packing size and not produce any quantity more than required. Then there is no other alternative than doing this.

 

But Why not 1,400+1,200+1,200?

 Again, we should try to equalize the demand as much as possible. It is necessary to keep inventory as much as low as possible. By doing this, we also give more machine space for other items production.

 

Last Problem

The due date does not reflect machine and labor capacity as well as not organized in a correct production sequence, considering also setup time. Then it is necessary to execute MPS considering all resource constraints, campaigns, and any other characteristics that affect the production plan and sales order fulfillment. Pay attention that MRP was designed to be driven by an MPS module. That is the source of many issues.

 

Conclusion

All those bad behaviors contribute to the user’s frustration and also for people to abandon some ERP modules like MRP, returning to their spreadsheets. It is obvious that the problem is not the MRP, but how the information was inserted into them. By fixing this problem, users will use ERP better, expanding less time dealing with orders creation, and executing manually what the system is able to do. 

Production Planning

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