Material Planning 101: Guide for Small-Scale Manufacturers
A 2022 Gartner survey on organizational responsibilities of material planning found that 59% of organizations experienced raw materials and/or commodity price inflation in the past year. [1] These price increases are partially due to manufacturers being forced to depend on third-party suppliers as they execute a materials planning strategy. As a result, they find themselves at the whim of their providers. But it’s possible to take control of your material and component management, increase efficiency, and reduce costs with the right materials resource planning solution.
What is material planning, and why is it important?
Material planning involves setting up systems to make it easier for businesses to manage inventory in a way that efficiently supports their production processes. It’s a common consideration for manufacturers since they build products using raw materials or components.
Material planning is particularly important for small- to midsize manufacturers, many of whom can’t afford to keep and maintain excess inventory yet need to have enough stock to keep their production processes moving.
Material planning focuses on facilitating a fast, smooth manufacturing process by examining each product’s bill of materials and then determining what has to be done to source them. To optimize this process, the manufacturer has to determine:
What materials or components are needed
How much has to be purchased
When the materials need to reach the manufacturing facility
As they design a material planning strategy, some small-scale manufacturers choose to segment their supply chain planning into phases ranging from one week to five years. Short-term planning can cover a period between one and 12 weeks, as leaders strategize how to meet the immediate demands of their clientele. Long-term planning, which can cover as many as five years, requires the development of a comprehensive supply chain network, as well as the capacity and strategy to manage the materials being sourced.
Tips for material requirement planning in the short term
Short-term planning aims to accomplish the following objectives:
Deciding the material requirements for each site or plant.
Keeping track of how well the team is executing the plan on a daily and weekly basis.
Identifying how sales and operations execution (S&OE) are impacted when the team deviates from the plan.
Short-term material planning
Figure out the raw materials you have to order to support production and timely distribution. As you do so, note potential issues that could impact the availability or price of your materials.
Follow up on and review purchase orders in a way that supports your master production schedule. If your purchase orders aren’t frequent enough to support your master production schedule, for example, you may need to make significant adjustments.
Keep track of the materials each product requires on a daily basis. By tracking daily needs, you may discover ways to reduce the amount of inventory you keep in storage. This could result in lower overhead expenses when it comes to leasing or maintaining storage space.
Over the course of 12 weeks, monitor customer demand, looking for how it changes for different products. As demand fluctuates, changes in your production schedule — and material planning — will be inevitable. Monitoring demand over 12 weeks can highlight opportunities to boost efficiency.
Track customer complaints and collaborate with customer fulfillment, as well as other stakeholders, to make sure complaints get resolved. Resolving complaints not only keeps customers happy but can also underscore weaknesses in your production and material planning systems.
Monitor issues regarding shipping and returns and make sure customer fulfillment resolves them. Monitoring shipping and returns should be a primary component of your material planning because you can use the data to adjust inventory levels — up or down.
Connect with suppliers to monitor whether materials are moving in a way that supports your master production schedule. By doing this, you can often predict production gaps long before they hit your company. By addressing issues with suppliers early, you may be able to source material from someone else or encourage a supplier to prioritize your order.
Collaborate with your logistics team to track the success of the transportation process. If you have to make changes, discuss these in an S&OE meeting with you, the procurement department, the supplier, and your logistics staff. By getting all stakeholders around the same table, you can combine minds and come up with creative solutions to make sure logistics aligns with your material planning goals.
Connect with your legal team to head off any issues related to getting materials or components through customs. Issues in customs can be both costly and time-consuming. Sometimes countries adjust the duties they charge on items and how certain materials get classified. Staying on top of these regulations can prevent problems in the future.
Tips for material requirement planning in the long term
Material requirement planning in the long term not only involves identifying materials and suppliers but also factoring in the capacity of each supplier.
Here are six tips for a successful long-term material requirement planning process:
Long-term material planning
Collaborate with procurement to figure out how you source materials. This can make it easier to get materials whenever you’re faced with unexpected production requirements or time frames.
Communicate with your procurement team about your material cost constraints. With this information, procurement can make better decisions regarding which suppliers to go with, as well as ways to optimize costs.
Figure out how much each supplier can produce now and in the future. This will also involve determining whether your suppliers can support your demand for their products.
Using the master production schedule, figure out how much lead time you need to provide each supplier. You also can take this data and assess how supplier lead time may impact your production schedules.
Evaluate each supplier according to how well they’re performing when it comes to supporting your manufacturing process. If necessary, enlist procurement’s help in identifying more suppliers.
Figure out how changes in suppliers could impact your inventory and manufacturing processes. Changing suppliers can make it take longer to produce goods or increase or decrease the cost of production, for instance.
Key considerations/inputs for material planning
Here are some things to keep in mind while optimizing your material planning process:
Leverage your master production schedule. Your master production schedule lays out everything you need to build each product, as well as the labor, machinery, and workstations needed to manufacture the products clients have ordered. This should serve as the foundation of your material planning strategy.
Set up a reliable bill of materials system. Smaller manufacturers should establish a single bill of materials system because this plays a key role in your materials planning. If you have materials resource planning (MRP) software that factors in inventory across your business, you can avoid confusion, mistakes, and wasting time clearing up issues.
Factor in demand for your products. Small- to midsize businesses in the manufacturing sector should factor in the impact of sales forecasts and customer orders while formulating their material planning strategy. This is easier when you use enterprise resource planning software to factor in sales and order data.
Ensure you can see your inventory in real time. To maintain agility and uninterrupted production, a small manufacturer needs to have visibility into not only the inventory that’s on hand but also the items that are on the way and orders your suppliers are still working to fulfill.
Next steps: Focus on these specific processes to boost your material planning strategy
Where to focus | How to get started |
|---|---|
Engage with your materials and supply planners and review how plans change on a daily basis, as well as how materials are being delivered. You can also pinpoint additional suppliers and take the lead in qualifying each one. | |
Align your logistics system with your material planning by figuring out how each raw material gets transported. Then, you use this info to manage how you’ll warehouse each of your materials. For instance, you can organize items in the warehouse according to the products they’re used to making. | |
Give all stakeholders visibility into how your production system is working — in connection with the materials they’re sourcing or managing. You should also make sure your production continues to align with your master production schedule. If it doesn’t, and the issue stems from your materials sourcing, you should address the issue right away with any decision-makers involved. | |
Invest some time in analyzing your production needs while taking into account the lead times each supplier requires and how these may cause delays in your production schedule. To stay a step ahead of potential problems, you can send suppliers demand forecast reports and inform them of what’s coming down the road so they can prepare accordingly. |