How To Enhance Your Materials Planning by Tracking These Key Metrics
As a manager in the manufacturing or supply chain industry, you understand the importance of efficient and effective materials planning, but getting it right can be a challenge. Stockouts, production delays, and inefficiencies can significantly impact your bottom line, but the good news is: There are ways to minimize these issues.
By tracking the right key metrics, you can gain valuable insights into the performance of your materials planning process and use data to help you make decisions that will optimize your operations. Whether you’re seeking to save money, time, and resources or simply looking to improve your overall operations, tracking these metrics can help you get there.
Let’s get started by looking at what is involved in materials planning and why it is critical to the success of your business.
What is materials planning, and why is it important?
Materials planning refers to the process of organizing, scheduling, and controlling the flow of raw materials in an organization, with the aim of ensuring that the right materials are available at the right time, place, and quantity to meet the production and customer demands efficiently. It is an important aspect of supply chain management and involves coordinating the activities of procurement, production, and distribution.
Materials planning is important because it helps to:
Reduce costs by optimizing the use of resources and avoiding overstocking or stockouts.
Improve customer satisfaction by ensuring the timely availability of products.
Enhance operational efficiency by avoiding production delays caused by material shortages or excess inventory.
Minimize the risk of obsolescence and waste by accurately forecasting demand and adjusting inventory levels accordingly.
In short, materials planning helps organizations ensure a smooth and efficient flow of materials and products, which is crucial for success in today’s highly competitive business environment.
Enhance your materials planning with these key metrics
To enhance materials planning, focus on determining the key metrics that will provide insights into your process performance. After identifying these metrics, analyze them to determine the underlying reasons why they are not meeting these targets. This process helps guide the implementation of a more comprehensive approach to materials planning, preventing unnecessary waste of resources.
Supply chain managers can use the research in this area to evaluate three key aspects of their materials planning: the accuracy of the master data used in materials planning, the performance of their raw materials inventory, and the performance of their suppliers.
Master data accuracy in materials planning
This refers to the accuracy and completeness of the data used in the materials planning process. Materials planning master data accuracy is essential for ensuring that these decisions are based on accurate and up-to-date information. Inaccurate master data can cause disruptions in the materials planning process, including shortages of materials and delays in production.
Here are some of the metrics you should track to ensure your master data is accurate:
Manually created purchase orders: This metric will give you the percentage of orders created manually, which can be time-consuming and error-prone, often resulting in delays in the procurement process.
Lead time accuracy: This metric compares lead time data with actual lead time and plays a crucial role in ensuring that materials are available when needed without overstocking or running out of stock.
How do you get started? By implementing a material resource planning (MRP) system. MRP systems are a subset of enterprise resource planning (ERP) that cover the time from when you come up with the idea of a product to when production steps are planned. Browse our extensive list of MRP systems to find the right one for your business.
Raw materials inventory performance
This relates to the management and use of the raw materials a business has in inventory. The goal of raw materials inventory management is to ensure that sufficient raw materials are available to meet production requirements while minimizing the amount of resources tied up in inventory.
Here are some of the metrics you can track to assess the performance of your raw materials inventory:
Raw materials inventory turnover days/days of raw materials inventory: Evaluates the length of time raw materials remain in inventory before they are used to produce final products. Having a low value for this metric can indicate that the company is efficiently managing its inventory, while a high value may indicate overstocking.
Raw materials inventory obsolescence: Can also be described as the reduction in the value of raw materials that are stored in inventory but are no longer needed or usable. This results in the inventory being written off from the company’s balance sheet, reflecting a decrease in the value of the assets.
Raw materials inventory control within design range: Involves defining a suitable range for inventory levels. You can achieve this by taking into account various factors such as order multiples, minimum order quantities, lead time, target service level, forecasting volatility, cycle stock, hedging strategies, and any new product launches.
Raw materials inventory accuracy: Evaluates the consistency between the actual physical inventory count and the quantity recorded in the main system of record.
Percentage of expedited materials orders: Calculates the proportion of orders that require accelerated delivery compared to the typical delivery schedule.
It’s important to keep in mind that the metrics outlined should align with the end-to-end decision-making process. To get started tracking these metrics efficiently, take a look at the extensive selection of inventory management software.
Supplier performance
This refers to the performance of suppliers in delivering materials and products to a company in accordance with agreed-upon terms and conditions. Measuring and tracking supplier performance is important for supply chain managers as it provides valuable insights into the performance of their suppliers and helps them discover where improvements can be made and prevent supply chain disruptions.
Here are some of the supplier performance metrics you should be tracking:
On-time in full: Measures the proportion of products received with the agreed-upon quantity within the agreed timeframe in normal business conditions.
Supplier lead time adherence: It is important to find a balance between the length of lead time and inventory carrying costs. A lead time that is too long can result in delayed production and lost sales, while a lead time that is too short can lead to increased costs for maintaining extra inventory.
Materials quality: This data point will help you track the quality of the goods you get from your suppliers.
Confirmed purchase orders: Assesses whether suppliers are acknowledging the purchase orders you have placed, as a lack of confirmation is equivalent to a missed opportunity.
How do you get started tracking the performance of your suppliers? By browsing our list of supply chain management software and finding the solution that works best for your business.
Benefits and limitations of tracking these metrics
Each of these metrics will help you improve the efficiency of your materials planning, but they also have limitations. Here is a breakdown of the advantages and disadvantages of each metric we covered:
Materials planning master data accuracy
The benefits and limitations of tracking manually created purchase orders: It can help you identify incomplete or inaccurate sections of your master data and spot inefficiencies in purchase order generation. It is limited because it only tracks the upstream part of your process and doesn’t provide a complete view of planning.
The benefits and limitations of tracking lead time accuracy: This metric can help you find inaccurate data points in your master data and fix them. It is limited by the fact that it doesn’t evaluate whether the lead time is optimal for your process.
Raw materials inventory performance
The benefits and limitations of tracking raw materials inventory turnover days/days of raw materials inventory: It can be used by the entire supply portfolio at a site. It can find obsolete or slow-moving inventory that is taking up unnecessary space so you can put it to use. It is limited by the fact that it only accounts for speed of use, not service levels.
The benefits and limitations of tracking raw materials inventory obsolescence: This metric will give you feedback on the long-term impact of strategic choices and will help you weigh performance management options. But it is not a forward-looking metric and aggregates the results of many decisions.
The benefits and limitations of tracking raw materials inventory control within design range: This is a forward-looking metric that helps you measure inventory positioning against future needs so you don’t over- or understock. It is limited by the fact that assumptions can lead to a less definitive range between your upper and lower stock control limits.
The benefits and limitations of tracking raw materials inventory accuracy: This will help you identify inventory shortages, but when using a physical stock count, human error can lead to inaccuracy.
The benefits and limitations of tracking the percentage of expedited materials orders: This metric will help you identify expedited orders. It is limited by the fact that it will just tell you an order has been expedited, and you will have to track down the cause to avoid them in the future.
Supplier performance
The benefits and limitations of tracking on-time in full: This will give you a view of supplier performance, and you can aggregate it at various levels of detail for more granular metrics on a specific transaction or product. In order to get valuable insights, though, you need to use a consistent data source in your calculations (supplier commit date vs. buyer’s request date).
The benefits and limitations of tracking supplier lead time adherence: This metric is easy to calculate, can be used for proactively tracking active orders, and can be aggregated at different detail levels to show you if lead times are in line with your manufacturing process to prevent delayed manufacturing or unnecessary inventory carrying costs. It is limited because it only focuses on speed and doesn’t tell you about the quality of materials.
The benefits and limitations of tracking materials quality: This will help you detect trends of low-quality shipments so you can replace suppliers if needed. But it doesn’t tell you why there are defects, which could be caused by transportation as well as the supplier.
The benefits and limitations of tracking confirmed purchase orders: This metric will highlight any risk associated with a supplier missing orders, but it doesn’t tell you why purchase orders aren’t getting confirmed.
It’s important to keep in mind that individual metrics by themselves, may not provide a full picture. The usefulness of these metrics lies in the relationships and interconnections between them. For instance, examining the relationship between low inventory days of coverage and supplier on-time delivery can uncover the root cause of an issue. These interdependencies make these valuable metrics even more useful for making informed decisions.
Next steps
The metrics discussed in this article play a crucial role in the materials planning process. Accurate master data, supplier performance, raw materials inventory performance, and other metrics help organizations make informed decisions about procurement and inventory management.
However, it is important to note that these metrics should not be viewed in isolation, as they are interdependent and can provide a more complete picture when used together. By monitoring these metrics together, companies can ensure efficient and effective materials planning, minimize disruptions, and reduce costs.