Raw Material Inventory Control

𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 𝗰𝗼𝗻𝘁𝗿𝗼𝗹 𝗶𝘀 𝗻𝗼𝘁 𝗮𝗯𝗼𝘂𝘁 𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴 𝘀𝘁𝗼𝗰𝗸.  𝗜𝘁’𝘀 𝗮𝗯𝗼𝘂𝘁 𝗰𝗼𝗻𝘁𝗿𝗼𝗹𝗹𝗶𝗻𝗴 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄, 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝘀𝗲𝗿𝘃𝗶𝗰𝗲, 𝗮𝗻𝗱 𝗰𝗵𝗮𝗼𝘀. If you're not applying structured inventory techniques, you're inviting stockouts, overstocking, or worse—cash trapped in the wrong places. Here are 6 high-impact inventory control techniques used by top-performing supply chains: (1). ABC Analysis Categorizes items by value contribution: • A = High-value, tight control • B = Moderate-value, periodic review • C = Low-value, simple checks Focus where it financially matters most. (2). XYZ Classification Uses Coefficient of Variation (CV) to classify demand variability: • X = Stable • Y = Moderate • Z = Erratic Drives how much buffer or planning flexibility you need. (3). EOQ (Economic Order Quantity) Finds the optimal order size that minimizes total holding + ordering cost. Formula: EOQ = √(2DS/H) (4). ROP (Reorder Point) Calculates when to place the next order so you never run dry. Formula: ROP = Daily Demand × Lead Time (5). Safety Stock Holds extra inventory to cover demand or supply shocks. Formula: SS = Z × σ × √LT Z = service level, σ = demand variability (6). VED Classification Ranks inventory by criticality: • Vital – no stockout allowed • Essential – important, but manageable • Desirable – lowest priority Crucial in healthcare, aerospace, and military supply chains. 🧠 I use this exact framework when training supply chain teams or auditing stock strategies. Which technique do you use most? #InventoryManagement #SupplyChain #DemandPlanning

Material Requirement Planning (MRP) - Backbone for the #InventoryManagement #MRP is a system accelerates the #manufacturing production process by determining what raw materials, components and subassemblies are needed, and when to assemble the finished goods, based on demand and #billofmaterials Why Is MRP important? Therefore, the necessary raw materials must come first in order to manufacture anything. Obviously, we are unable to produce FG without RM! the RM's quality and quantity requirements must be checked before moving on to #procurement. The #QualityDepartment (#IQC) is in charge of maintaining quality; the Material Controller is in charge of quantity. Inadequate #management could lead to #shortages, excesses, #production #hiccups, issues with #warehousehandling, etc. MRP is completed ahead of time for the following period. The #PurchaseRequisition (#PR) is only placed in accordance with the MRP. MRP Steps and Processes 1.Identifying requirements to meet demand. Inputting #customerorders and #salesforecasts is the first step in the MRP process, which identifies customer demand and the requirements needed to meet it. 2.Checking #inventory and allocating #resources. It's crucial to know which items you have in #stock and where they are when using the MRP to compare #demand and inventory and allocate resources appropriately. This is particularly true if your inventory is spread out across multiple locations. 3.#Schedulingproduction. The system uses the #masterproductionschedule to calculate the amount of time and labor needed to finish each build step and when they must be completed in order for production to proceed on time. The #productionschedule also creates the necessary #purchaseorders, #transferorders, and #workorders and specifies the equipment and workstations required for each step. 4.Identifying issues and making recommendations. Finally, because the MRP associates raw materials with #workorders and customer orders. For Example:- We need to produce 100 cars next month. We've 13 tyres as balance from last month. As its festive season, consider up to 7% increase in demand. Also for next month, need to maintain balance of 106 tyres at month end. Now calculate stock-to-procure for tyres if historic rejection trend is 0.2%. Solution: #BOM per unit consumption = 4 wheels + 1 stepony = 5 tyres FG forecast demand = 100 Cars Wheels required = 100×5 = 500 tyres Prior balance = 13 tyres Buffer stock = (7% of 100)×5=7×5=35 tyres Safety Stock to maintain = 106 tyres Line rejection rate = 0.2% of stock purchased Now, Stock to procure = (500-13+35+106)×1.002= 629.256 tyres ~ 630 tyres So we need to procure 630 qty of tyres for next month period. Now it'll be distributed among those 30 days as per the lead time, #MOQ, batch size for RM, frequency/rate of Forecast

SAP MRP The Material Requirements Planning (MRP) process in SAP is a critical component for managing production planning and inventory control. It ensures that materials and products are available for production and delivery to customers, while maintaining the lowest possible inventory levels. Here’s an overview of how the SAP MRP process works: Key Objectives • Ensure material availability: Meet customer demands and production schedules by having the right materials in the right quantity. • Optimize inventory levels: Avoid excess inventory while preventing stockouts. • Plan production schedules: Align production activities with material availability and demand forecasts. Core Elements of SAP MRP 1. Master Data: • Material Master: Contains information on all materials within the company, including procurement type, MRP type, lot sizing, and lead times. • Bill of Materials (BOM): Defines the components and quantities required to produce a finished product. • Work Centers: Locations where production operations are carried out. • Routing: Sequence of operations needed to produce a product. 2. MRP Types: • Consumption-Based Planning: Based on historical consumption data. • Reorder Point Planning: Triggers procurement when stock falls below a certain level. • Forecast-Based Planning: Utilizes demand forecasts to anticipate material needs. 3. MRP Process Steps: • Net Requirements Calculation: Determines the quantities needed by comparing available stock and scheduled receipts against the required quantities. • Lot-Sizing: Determines the order quantity based on the lot-sizing procedure (e.g., fixed lot size, lot-for-lot, economic order quantity). • Procurement Proposal Generation: Creates purchase requisitions or planned orders based on net requirements and lot-sizing results. • Scheduling: Plans the start and end dates for production orders and purchase orders. 4. MRP Execution: • MRP Run: Executed using transaction code MD01, MD02, or MD03, depending on the scope (total planning, single-item planning, etc.). It can be run in regenerative or net change mode. 5. MRP Evaluation: • Stock/Requirements List (MD04): Provides an overview of current stock levels, planned orders, purchase requisitions, and sales orders. • MRP List: Shows the results of the last MRP run, allowing users to analyze planning results. Benefits • Improved Efficiency: Streamlines production planning and procurement processes. • Cost Savings: Reduces excess inventory and associated carrying costs. • Enhanced Customer Service: Ensures timely product availability to meet customer demands. Challenges • Data Accuracy: Relies on accurate master data and demand forecasts. • Complexity: Requires careful configuration and management to meet specific business needs. SAP MRP is a powerful tool that helps organizations balance demand and supply effectively, ensuring smooth production operations and optimal inventory management.