Introduction
In the quest to handle inventory and to run firms efficiently, entrepreneurs have resolved to computerize their operation activities. The commonly used system is the Material Requirement Planning (MRP). According to Groover (741) MRP is a computer-based system that translates the operation master plan into series of activities and operation from the final product to the raw material acquisition point.
By adopting the current state-of-the art technology, firms have been able to manage their inventory effectively and consequently improved inventory related decision-making.
MRP ensures that three critical goals in inventory management are met. First, through use of MRP, organizations ensure a stable supply raw material for processing and availability of finished products to meet customer demand. Secondly, application of MRP systems helps to keep a low stock level in order to avoid tying-up cash in terms of inventory.
Finally, MRP governs key operation activities such as manufacturing, delivery and purchases activities to avoid overlapping and interrupting of production (Stevenson and Hojati 16). MRP is tailored to meet specifications of the enterprise depending on main activity of each firm.
Operation of MRP in UAE
MRP is an evolution in line Economic Order Quantity (EOQ) stipulations, which is aimed at maintaining the lowest level of inventory. It also states the replenishing amount, which is termed the re-order level while stating the maximum stock level as well as the minimum stock level.
Unlike the EOQ system, which is manually executed, the MRP is automated and provides a systematic response depending on the level of inventory and recommends the remedial measure to each fluctuation.
Due to the dynamic nature of demand and uncertainty in the market, production decisions are often difficult to project and therefore MRP systems help production managers in making their decisions.
Generally, all manufacturing firms face production dilemmas because consumers require supplies promptly while a long time is required to manufacture them. To meet these conflicting time demands, MRP remains the most reliable tool that enhances continuous production.
MRP system is designed to work backward from an estimated finished product amount to determine the number of labor and raw material requirements. The preceding processes are systematically scheduled and subdivided into subassemblies, components, parts, and materials (Groover 742).
Each process is assigned a specified time limit and cost function, by integrating all the sub-processes the operation manager is able to understanding the duration and cost of producing each product. According to Stevenson and Hojati (16), MRP helps the management to answer three production questions. The three questions relate to what is needed, what quantity is required and at what time.
Thorough understanding of what to produce, amount to produce and at what time, simplifies the operation decision design to ensure that only the required supplies are bought in their right proportions. Childe (77) emphasizes the importance of counter checking the data entering the system to avoid erroneous end products. For instance, inaccurate input compositions will not produce the expected final products.
MRP sub-divides inventory needs into planning periods to ensure timely and systematic production process. All the planning periods are optimal in nature and they strive to maintain low inventory level and the subsequent carrying costs at their minimal.
Effective adoption of an optimal MRP helps the management in understanding how to step up production capacity depending on the quantity of capital available and the time considerations.
In addition, a successful implementation of the MRP helps the firm to avoid contractual conflicts with consumers and suppliers because only the required raw materials and supplies are ordered and supplied. Stevenson and Hojati (18) highlight the importance of understanding inventory requirements in order to operate within the operation range.
MRP input is generated from three sources; the bill of materials, master schedule and inventory records. The bill of materials contains all the details of the inventory such as raw materials, components and assemblies needed to complete each unit of production.
Bragg (22) asserts that the bill of material is the bedrock of all operation and a high accuracy level should be maintained to avoid spill over effects to the subsequent operations.
Bearing the importance of this item, each manufacturer should maintain bill of materials depending on the type of products one produces. MRP system deducts the quantity of materials, which are used to product a complete product from the inventory records in order to achieve the ordered requirements.
According to Groover (742), the master schedule forecasts the production activities of the firm. The production projections are estimated using both the internal projections and consumers orders rates. The master schedule indicates the outstanding orders in terms of the products and the time they are due for collection.
The schedule is designed to cover a long time enough to produce the final product. In other words, the schedule is a function of demand and it does not entirely depend on the production capacity of the plant.
It is worth noting that the period should accommodate all the sub-assemblies ant operation until the final product is generated. Nevertheless, the feasibility of the schedule is not ascertained not unless the operation managers tried the prototypes until their reliability was proven.
Inventory record files supplies information that pertain inventory in go-down against the amount ordered. In inventory accounts, current stock is deducted from the material requirements. Bragg (20) adds that inventory records captures all inventory items on time basis such as gross requirements, planned receipts and projects stock level. Other information recorded, include suppliers’ details, re-order level and the re-order quantity.
Challenges of implementing MRP in Local UAE Organizations
There are several challenges that hinder successful implementation of the MRP system. The main challenge remains to be data integrity; this challenge is often overlooked but its consequences are massive. A thorough screening of the data input should be done in order to realize the expected output. For instance, a wrong composition of input ingredients would result in inferior quality of final products.
Generally, computerized systems produce quality depending on whatever it has been fed with. Childe (76) commented that the data integrity is conversely hampered by inaccurate phase adjustments, errors in the input and delivery of outputs, by-products unrecorded, spoilt materials and arithmetical errors.
Similar sentiments were shared by Groover (758) who emphasizes on the need to counter check data enter to avoid distortion of latter processes. All these errors lead to a wrong assessment of the inventory and the overall process and may eventually cause collapse of the firm.
The other challenge that faces MRP systems is the determination of time required for the development of the product from the initial stage to the final product (Childe 73). The assumption of a uniform lead-time is habitually imposed on all the products although this is not usually the case due to changes in demand and other uncertain issues.
The assumption is also wrong since the lead-time is also affected by the quantity of products being produced simultaneously in the plant -large quantities require longer lead-time required. Hence, the management needs to allow some spare time to cater for risks and uncertainties, which characterizes the nature of random elements such as demand and supply.
Most firms, which operate various branches in different regions, are left in dilemma of whether to order for new supplies, when they have a huge backlog of such supplies in other branches. However, each factory needs to maintain a separate MRP to avoid emergence of future challenges and mix up between the branches.
Nevertheless, with proper communication, MRP can still interlink various branches; but this is only possible if systems adopted by the firm work efficiently before the use the MRP system. Besides, a keen attention should be borne in mind concerning the lead-time, which may be adversely affected by the carriage eventualities.
The other challenge that inhibits successful implementation of MRP is the lack of technological integration. Technology is dynamic and each firm should embrace the new technology to ensure a steady flow of operations without any delays and maintaining the quality of output. For big firms, the number of components and process involved becomes exceedingly enormous and only specialized computers should handle such transactions without major hiccups.
Works Cited
Bragg, Steven M. Inventory Accounting: A Comprehensive Guide. New Jersey: John Wiley & Sons, 2005
Childe Stephen J. An Introduction to Computer Aided Production Management. London: St. Edmundsbury Press, 1997
Groover, Mikell P. Automation, Production Systems, and Computer-Integrated Manufacturing. New Jersey: Prentice Hall, 2008
Stevenson, William J. & Hojati, Mehran. Production/Operation/ Management. New York: McGraw-Hill, 2001