Material Requirements Planning and Purchasing

Abstract

INTRODUCTION Material Requirements Planning and Purchasing The dual impact of increased world-wide competition and lagging U.S. productivity has produced an examination of ability of American industry to produce products of desired quality that can be marketed at competitive prices. Self-studies by many companies highlight need for more efficient and effective management in purchasing and production functions. Clearly, if a firm is to compete in 1980s, importance of these functions and their interactions cannot be overstated. Traditionally, purchasing function has been charged with providing the right materials, at right price, at right time. Successful performance hinges on ability of purchasing to interact effectively with production, engineering, and accounting functions, as well as with marketing representatives of supplier companies. All-to-often, however, internal relationships appear to have been adversarial rather than cooperative in nature. In many instances, top management has failed to create cooperative environment so essential to development of effective relationships between functional areas. Functional specialization, and its corresponding separation of responsibility, has resulted in establishment of performance standards that adversely impact these relationships. Reportedly, many companies do not demand as high a level of performance from purchasing function as from other areas.(1) Moreover, some top managers consider purchasing to be a fringe unit which exists to provide support services to other areas so that they can achieve their individual goals. In recent years, manufacturing companies in increasing numbers have adopted Material Requirements Planning (MRP) systems as a tool for problems in manufacturing/materials planning areas.(2) Successful implementation of an MRP system requires an active involvement by and accurate information inputs from purchasing function. Many purchasing practitioners, however, have not involved themselves with MRP implementation and therefore have not utilized potential benefits available to purchasing. The objectives of this paper are threefold. The first is to briefly describe and highlight basic concepts that make MRP work. Second, MRP-purchasing interface is examined. Finally, impact of implementing MRP within purchasing function is discussed. MATERIAL REQUIREMENTS PLANNING CONCEPTS Material Requirements Planning is an information processing system that seeks to develop and maintain a set of orders that support production plan, while simultaneously minimizing inventory levels within production system. Orders within an MRP system fall into two categories: (1) open orders which have been released but have not yet arrived; (2) planned orders which are developed in anticipation of future releases. Each category can contain both purchase orders and shop orders. Regardless of type, MRP monitors each order to maintain proper timing and sizing to insure adequate control of inventory levels. Clearly, purchasing function's goal (providing right quantity of right material at right time) is consistent with MRP's maintenance of order timing and sizing. MRP differs from traditional inventory planning approaches in several ways. For one, traditional methods use a historical approach to forecast future demand for individual items. This approach assumes that past data is representative of future demand, a doubtful assumption, in today's dynamic business environment. Instead, MRP actually calculates future requirements for each item rather than relying on forecasts. This process allows MRP to anticipate requirements based on current production plan of firm. Another departure from traditional methods is MRP's use of time buckets, or periods, usually a week long. …