Material planning in times of scarce resources

Fragile supply chains will remain a serious challenge for material planning in the manufacturing industry for the foreseeable future. How can companies still achieve the best possible delivery readiness for high customer satisfaction with a short supply chain? The scheduling of products to be procured and manufactured needs tools for this in order to gain quick ad-hoc insights into critical items, even with the deepest parts lists.

Today, planners are faced with a multitude of complex problems that they can no longer solve with conventional planned requirements planning. Since the coronavirus pandemic, but at the latest since the outbreak of war in Ukraine, many industrial companies have been experiencing an unprecedented shortage of materials: suppliers to manufacturing companies are no longer able to deliver every conceivable primary product on time and in the desired quantities. Due to their lack of resources, they are forced to cancel orders or only supply them in smaller batches or at significantly higher prices. In the manufacturing industry at every stage of the value chain, this leads to the problem that individual parts list components are missing for countless finished products and only limited quantities of finished goods can be delivered. In this situation, it is crucial to know exactly what quantities of which components you actually need. In this way, you can at least meet the most urgent requirements of your own customers and, above all, use the insufficient quantities of purchased materials for the production of the finished products with the highest contribution margins.

The task seems simple. At first glance, every MRP planning run in an ERP system calculates exactly these material requirement quantities. On closer inspection, however, you realize that the quantities of semi-finished products, raw materials and purchased parts determined in an MRP run are much larger than the quantities actually required. The reason for this lies in a whole series of material number-specific MRP parameters and MRP settings that are taken into account in an MRP run and lead to the material quantities required at short notice being significantly inflated. However, the consequences of taking safety stocks, minimum order quantities and minimum production lots as well as rounding lot sizes into account are illustrated by a small calculation example (Fig. 1): Instead of the acute requirement of 4 tires and 28 screws, a normal material requirements calculation would determine 75 tires and 750 screws as order requirements.

The requirements for components determined as supposedly necessary can increase even further if not only existing customer orders are included in the calculation, but also planned independent requirements from statistical sales forecasts and sales plans.

Determine the pure demand

The quantities of items to be ordered and produced are therefore the result of complex calculations that usually take into account many thousands of material numbers. Such a high degree of abstraction with sets of rules for hundreds of scheduling parameters and numerous optimization algorithms considerably obscure the pure material requirements necessary for the actual existing order backlog.

“This clearly shows that the requirements for production and procurement parts determined using traditional material requirements calculations go far beyond the actual demand for these parts,” explains Andreas Capellmann, Managing Director of SCT Supply Chain Technologies GmbH(pictured right). The deeper and broader the BOMs and the more finished products, the more difficult and time-consuming it is to determine the real component requirements. It is simply impossible to manually check the required quantities of each BOM level and, in doing so, calculate away the MRP parameters described above when there are often many thousands of items to be planned!

SCT has therefore expanded its DISKOVER materials planning management system to include the strategic functions of the new Critical Parts Information System, or CPIS for short. This function can be used to determine the actual component requirements, freed from distortion variables such as safety stock, minimum lot sizes, minimum order quantities and planned independent requirements not caused by customer orders. “At the touch of a button, planners can deactivate or activate individual influencing variables and thus create a precise view of the changing framework conditions – right down to a view of the bare requirements for the actual existing order volumes – across all production stages,” says Capellmann.

He continues: “CPIS is a new crisis management function of our DISKOVER scheduling management system, which is used for critical items – i.e. components that are in short supply and therefore cannot be ordered in the normal batches as early as usual”

Automatically hide boundary conditions

“In the past, the critical factor in item requirements planning was not the available quantity of components, but rather the time factor. In the past, it was primarily a question of determining the optimum time to order or manufacture what and how much of it so that delivery readiness remained high and stocks low. Today, on the other hand, the critical factor is getting material at all in order to be able to service existing orders,” says Capellmann, summarizing the current framework conditions for industrial production. The use of DISKOVER’s CPIS function ultimately enables companies to create a reliable basis for order-related planning and allocation of critical items with just a few clicks. This enables them to decide much more quickly which real customer requirements they can and want to fulfill and in which end product critical items generate the most turnover or contribution margin.

Identify critical parts on a daily basis

But as practical as the tool is, it should only be used for these emergencies. “Factors such as safety stocks and minimum lot sizes are simply necessary for safe operations. You can’t completely ignore them in the long term,” says Capellmann.

Conclusion: DISKOVER’s CPIS function makes it transparent at component level on which critical articles the turnover on the timeline – usually in weekly grids – depends to what extent and provides reliable evaluations of the orders for which they can be used most economically in the event of a lack of stock.