2.4 MRP parameter governance

Material Requirements Planning (MRP) is a deterministic engine. It calculates supply execution directly based on the variables configured in the Item Master. If the Minimum Order Quantity (MOQ) is inaccurate, the system may generate excess stock. If Safety Stock levels are set arbitrarily, the supply chain may oscillate between line-down shortages and excess inventory. Parameters act as the control mechanisms of your supply chain. Uncontrolled modifications by individual planners can destabilize the procurement signal across the enterprise.

Parameter architecture & ownership

To maintain system integrity, write access to specific ERP parameters must be segregated by function. Clear ownership ensures data accuracy.

Commercial constraints (supplier-defined)

• Parameters: MOQ, Order Multiple (Pack Size), Standard Cost.
• Owner: Sourcing / Procurement.
• The Source: Vendor Contract or valid Quotation.
• The Protocol: These values must mirror physical reality. If a vendor sells components in reels of 1,000, setting the ERP Order Multiple to 1 will likely cause receiving discrepancies or rejected POs.

Strategic buffers (internal risk strategy)

• Parameters: Safety Stock (SS), Reorder Point (ROP), Target Days of Supply.
• Owner: Planning / Supply Chain Manager.
• The Source: Statistical calculation based on historical demand volatility (σdemand) and measured lead time variance (σ_LT).
• The Protocol: These act as financial levers. Significantly increasing Safety Stock requires working capital approval from Finance.

Planning policies (mathematical logic)

• Parameters: Order Policy (e.g. Lot-for-Lot vs. Fixed Period Supply), Shrinkage/Yield Factor.
• Owner: Master Scheduler.
• The Source: Driven by physical production methodology (e.g., Batch Manufacturing vs. Continuous Flow) and historical yield data.

The change control protocol

Changing parameters based on intuition or isolated incidents must be avoided. Parameter changes should be driven by data.

The “evidence” guideline

Significant supply chain parameter changes (e.g., > 10%) should be supported by documented sources.

• Valid Evidence: A formal Supplier Quote, an Engineering PCN (Product Change Notification), or a proven change in the consumption rate (Rolling Quarterly Average).
• Invalid Evidence: Unverified assumptions or speculative sales projections not reflected in the formal forecast.

Decision logic: when to trigger a system change

When Demand Volatility Statistically Increases:

• The Safety Stock must be recalculated.
• The formula must be ensured to cover the new variance, not just the arithmetic average.
• If the resulting capital requirement exceeds defined thresholds, formal Finance approval must be sought before updating the system.

When the Supplier Imposes Allocation:

• The Lead Time must be updated and switching the Order Policy to “Fixed Period” should be considered.
• Batching small orders into larger scheduled buckets can sometimes secure better production slotting at the vendor’s facility during allocation.

When the Minimum Order Quantity (MOQ) exceeds 6 Months of Historical Demand:

• Flag the item for Engineering Review.
• The financial carrying cost and obsolescence risk of this inventory might justify the Non-Recurring Engineering (NRE) cost of redesigning the PCBA to use a more readily available component.

The parameter change log (auditability)

Maintaining an audit trail is essential for understanding why specific inventory levels exist.

A “Parameter Change Log” must be maintained (via system tracking or a controlled document):

Date	Part Number	Parameter	Old Value	New Value	Reason Code	Approver
10/24	RES-0402-1K	MOQ	5,000	10,000	Vendor Product Change Notification (PCN) (New Reel Size).	J. Doe
10/25	MCU-STM32	Safety Stock	0	500	New Customer Contract (Risk Buy).	S. Smith
11/01	CONN-USB	Order Policy	Lot-for-Lot (L4L)	Fixed (4 Wks)	Freight Consolidation strategy.	Director

Strict Constraint

Restrict edit access to the “Order Multiple” field in the ERP to Procurement only. If a part comes on physical reels of 3,000, the system must enforce ordering in those multiples to prevent orphaned inventory errors in the Warehouse Management System (WMS).

Governance cadence (data maintenance)

Parameter data requires routine reviewing to prevent data rot from impacting Material Requirements Planning (MRP) accuracy.

1. Quarterly Review (The “Sweep”):
   • The Action: Compare current ERP MOQ/LT parameters against recent physical receipts.
   • The Logic: If Procurement consistently orders 5,000 units to secure a price break, but the system MOQ is set to 1,000, update the system to 5,000 to align with actual commercial practice.
2. Annual ABC Re-Classification:
   • The Action: Re-rank all active items based on current trailing 12-month spend and volume.
   • The Logic: An item that was “Class C” last year might be “Class A” today due to volume shifts, requiring its Safety Stock policy to be adjusted accordingly.

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Recap: MRP Parameter Governance

Parameter	Owner	Requirement / Trigger	Action / Constraint	Evidence / Log
MOQ, Order Multiple, Standard Cost	Sourcing / Procurement	Must match vendor contract / quote. MOQ > 6 months historical demand.	Enforce ordering in physical pack multiples (e.g., reels of 3,000).	Vendor PCN or formal quote. Flag for Engineering Review if MOQ > 6-month demand.
Safety Stock, ROP, Target Days	Planning / Supply Chain Manager	Statistically calculated from demand (σdemand) and lead time (σLT) variance. Increase >10% in demand volatility.	Recalculate to cover new variance. Seek Finance approval for significant working capital impact.	Rolling quarterly average demand change. Formal approval for capital threshold exceedance.
Order Policy, Shrinkage/Yield	Master Scheduler	Driven by production methodology (batch vs. continuous). Supplier imposes allocation.	Consider switching to “Fixed Period” policy during allocation.	Historical yield data. Allocation notice from supplier.
All Parameters	System / Process	Quarterly review of MOQ/LT vs. actual receipts. Annual ABC re-classification.	Update system to align with actual commercial practice (e.g., price break quantities). Adjust policies per new ABC class.	Parameter Change Log with Date, Part, Old/New Value, Reason Code, Approver.