Production Management Materials Requirement Planning

Production Management

Materials Requirement Planning

Materials requirement planning is defined as an "integrated production planning and control technique that schedules materials needed to create a product" (Schermerhorn 1989, p. 492). It is used to manage resources and inventory needs and allow materials to be purchased efficiently. To consider how materials requirement planning can assist a business, Hickory Chest Company will be considered. Hickory Chest Company builds and sells thousands of chests each month and has an active assembly line that produces those chests. For more than 50 years, it has bought the materials it needed when it could get the best deal on those materials and kept the materials in its warehouse until they were needed. Sometimes they ran out of raw materials, but they think that buying cheap makes up for whatever costs they incur when they run out of raw materials. Hickory Chest Company will now be discussed to show how materials requirement planning can assist the company and make production more efficient.

The way that Hickory Chest Company currently approaches acquiring materials involves allowing the external environment to determine its buying process. That is, the company purchases raw materials when there prices are low. This approach does not take into account the needs of Hickory Chest Company and causes raw materials to run out on occasions. This lack of raw materials has a cost to the company, with it limiting production and also causing other resources to be underutilized. The approach where Hickory Chest Company stores raw materials also represents an inefficiency because there is a cost involved in storing these goods. In addition, Hickory Chest Company is paying upfront for raw materials it cannot use immediately. If Hickory Chest Company was paying for raw materials as they were needed it would be able to improve its cash flow. A more effective way to manage acquiring materials would be to base it on demand and production needs and have raw materials supplied as they were needed. Materials requirement planning can achieve this.

Materials requirement planning is a system that allows for raw materials to be purchased as they are needed. Meredith (1987, p. 456) explains that this is achieved by considering the demand forecast, the master production schedule, and the inventory information. Based on this information, a computerized materials requirement planning is able to quickly and accurately determine the best way to meet raw materials needs. Utilizing a materials requirement planning would provide Hickory Chest Company with many advantages. Firstly, it would be an efficient way to manage the ordering process. Since the system is computerized, it limits the need for human decision-making. This means that purchasing could become largely automated, which would provide for a saving in both time, resources, and money. The system would also ensure that Hickory Chest Company is always able to meets its demand and manufacture efficiently. This would reduce the need to store raw materials, as well as prevent a lack of raw materials from limiting production. In addition, a materials requirement planning system can manage changes. If there is a change in the demand forecast or the master production schedule, the materials requirement planning system can take these changes into account and quickly make adjustments. This would allow Hickory Chest Company a greater degree of flexibility.