Transcript of "MRP, MRP2 and ERP system in supply chain"
Supply chain Management
Material Requirement Planning (MRP),
Manufacturing Resource Planning (MRP 2),
Enterprise resource planning (ERP)
Systems in SCM
Sir Sohail Majeed
Saad Munami (8103)
Syed Muhammad Shahzaib Zaidi (8100)
Introduction of supply chain management
Advantages of using software
Material Requirement Planning (MRP)
Manufacturing Resource Planning (MRP II)
Benefits of MRP II
Disadvantages of MRP II
Enterprise Resource Planning (ERP)
Advantages of ERP
How do we start for ERP
Drawbacks of ERP
SUPPLY CHAIN MANGEMENT:
Supply chain management is the flow of goods and services between entities which includes the storage
and movement of raw material, work-in-process inventory and finish goods from point of origin to point
of consumption to satisfy customers at minimum cost.
Manually managing supply chain efficiently and effectively is become very complex and time consuming
task because the data of suppliers, customers, raw materials, work-in-process and finish good is in huge
amount when company like P&G or Unilever has 100 of products so we could imagine how difficult it
would be for them to manage data of all the inventory as well as to record data of customers and
suppliers so moving from manual work to software’s like MRP, MRP2 and ERP can help streamline their
ADVANTAGES OF USING SOFTWARE:
After moving towards these software’s it helps to:
Avoids costly human errors
If the company manually tracks the entire inventory and forecast it then the risk of error in this method
is high. Imagine if the company have order of only 100 customers with each order have 10 different
inventories the risk error is too high and if the wrong inventory is dispatched to the customer then it will
obviously impact on customer satisfaction, increase cost of company and order fulfillment performance.
Intelligent management of real time business
Moving towards powerful software means the operation staff can forecast and manage inventory or
even they can manage whole supply chain at one place. If the demand increases software make it easy
to manage time scales and make it easy to adjust any kind of procurement, production and distribution
Avoid unnecessary overstocking
Software makes it easy to manage inventory with minimum lead time, it is difficult to manually recheck
all inventories and forecast how much amount of material is required and how much is already in the
stock, But with the help of software it become very much easy to maintain record of every inventory
which helps to avoid unnecessary overstocking.
Integrated Software helps to monitor inventory at one place either it is coming from supplier or it is to
deliver to customer or shifting to warehouse. So it helps to controlling planned and actual stock
transfers from supplier or transfer to customers or warehouse.
Moving from paper work to software ensured you that all transactions are entered in one system, coded
up correctly and will give complete record whenever require. So it minimizes paperwork, time and cost.
MATERIAL REQUIREMENT PLANNING (MRP):
Material requirement planning (MRP) is a computer based software help to assist manager to ensure
enough products are available for delivery to customer and material is available for production and to
minimize stock in warehouse it also helps in scheduling and placing order for dependent items.
Dependent items are the components of finish goods such as different raw materials and different
component parts use to make finish good, like: to make motorcar dependent items are wheels, seat,
engine, steal etc.
MRP management system was first evolved around 1940’s and 1950’s. In the 1960s, Joseph Orlicky
studied the TOYOTA Manufacturing Program and gives the concept of MRP (Material Requirement
Planning). Black & Decker in 1964 was the first company to use MRP. They use mainframe computer to
detonate information from bill of material for finish goods in to purchasing plan and production for
MRP works to develop requirement for raw material and finish goods, from a production plan to finish
goods. MRP started with the schedule for finish goods which afterwards converted in the scheduled
requirement for the subassemblies, the raw materials and the component parts used to make final
products within the establish schedule. MRP basically designed to give answer to three questions, what
is needed? When it is needed and in what quantity it is needed?
Implementing and using MRP can help manager to know how much capacity is needed to allocate
production time. But MRP for small business is very costly and time consuming to implement which may
put them out of range. In addition the information that comes out from MRP is as only good as it posted
into it. So company must maintain accurate bill of numbers and inventory if they want to obtain
maximum potential benefits from MRP.
For supply chain process, MRP system use information called master schedule, material bills and
inventory record files, an MRP system calculate the net requirement for subassemblies, component
parts and raw material for each period. In order to compute the net requirement, MRP compute it as:
Gross material Requirement – Inventory on hand + Safety stock
Although working backward from production schedule to finish good is seem to be a simple process but
it is actually an extremely complicated especially when one material is used in manufacturing of number
of different products. Frequently changing in order quantity, size or production schedule is not simple
process. But MRP made it easy when one has to track number of material schedules then it manifests
the power of computer software.
ADVANTAGES OF MRP:
Helps to minimize inventory level.
Increase inventory turnover.
Track material requirements.
Identifies shortage in inventory items.
Helps to track raw material, work-in-process and finish goods.
Helps to plan the procurement schedule.
Determines the most economical lot sizes for order.
Computes quantities required for safety stock.
Calculate bill of material (BOM) and assemblies required.
On time delivery.
Customer service and responsiveness.
DRAWBACKS OF MRP:
With the above advantages, MRP also have several problems:
1) MRP only give accurate output if accurate input is provided to it. If any of business has not
maintained accurate records of inventory or if failed to update all relevant changes in BOM (bills
of material), it will not be able to receive accurate output from MRP system which may cause
serious problems. They could encounter a problem of missing parts, schedule delays, excessive
order quantities or missed delivery dates. So if any business wants MRP to function effectively
and provide useful information they must have an accurate master schedule, current inventory
levels and good leads time estimates which is obviously not an easy work.
2) Another drawback possibly encountered with MRP is costly, time consuming and difficult to
implement. Many businesses when trying to implement MRP face resistance from employees.
Because when the employee is habitual of doing manual work it become difficult for them to
switch towards new software which is not an easy to use.
So to implement MRP the main work of company is to give training and education to all key
personnel and it is important to identify at the initial stage whose work will be affected by new MRP
system. Therefore the MRP was the first step to enhance the supply chain process which leads to
the efficiency and effectiveness of the business.
MANUFACTURING RESOURCE PLANNING (MRP2):
The technology of MRP expended in 1980 to create new approach called Manufacturing resource
planning or MRP2. In manufacturing resource planning (MRP2) the valid production schedule proved
itself to be so successful that organization knows that resources could be better controlled and planned
with valid schedules. In the book of Production Planning and controlling writer Gordon Minty noted
that: “By the improvement in cash flow projections, personal management projections and customer
delivery commitments the main areas affected were marketing, personnel and finance”.
With master production schedule MRP2 facilitates the improvement of detailed production schedule
used for machine and labor capacity, provide schedule when the production is to run according to the
arrival of materials. It provides the data for the cost of production including labor time, material used
and machine time, also MRP2 provides final production numbers to finance and accounting department.
MRP-2 or Manufacturing resource planning is too beyond from MRP1. When MRP stopped receiving the
dock, MRP2 includes the flow of value all the way to the shipping dock through the manufacturing
facility where the product is first packaged and then dispatched to the final customer. The stream value
includes Machine capacity scheduling, planning, analysis modules, demand forecasting and quality
tracking tools. MRP2 come up with some tools for tracking labor contribution margin, employee
MRP2 maintains track of functions and specific characteristics of the entire organization. Example
includes, but it is not just limited to, the following:
Shop floor control
Manufacturing resource planning (MRP2) helps business to standardize their processes by providing
them mechanized methods for different areas of the business. Standardization provides easily repeated
process and a platform which helps to improve those processes. Implementing MRP2 by the company
for the first time is generally having problems in controlling the increasing transactions in
manufacturing, purchasing associated with the growth. MRP2 enables employees to do more in those
business areas and have better visibility of the information for their jobs. MRP2 allows being more
competitive to the company by improving in the way works get done.
BENEFITS OF MANUFACTURING RESOURCE PLANNING (MRP2):
Better control of Inventories
Productive relationship with
Better quality and also control quality
Improve design control
Improve cash flow through fast delivery
Accurate inventory records
Reduced working capital for inventories
DISADVANTAGES OF MRP2:
Once implemented MRP2 it will require accurate information. Errors will result in automated planning
process if the information is used in poor quality in either the bill of material module or the inventory
area. To manufacture or purchase the planning part use averages for length of time (lead time), and on
purchase order or manufactured quantities that is generally purchase on work order (lot sizes). If the
actual lot sizes produced or purchased and lead times fluctuates consistently then the software will not
be able to produce plans that match with current scenario. Lack of understanding and poor information
of then impact on average lead times and lot sizes can cause execution failure and costly
It is long time that MRP2 is introduced in industry and business. For proper understanding of the
application aspects staff must be fully trained and for achieving benefits from MRP2 commitment for
implementation is pre-requisite. Most of the companies in the world having MRP2 are implementing
(Enterprise Resource Planning) ERP gain maximum productive results with highly effective software.
ENTERPRISE RESOURCE PLANNING (ERP):
ERP is the solution that addresses the enterprise needs taking the process view of an organization to
meet the organizational goals tightly integrating all functions of an enterprise.
Enterprise resource planning is business management software integrates all the internal and external
information, in to single complete solution, which is used by the organization. An ERP solution includes
for the organization the practical system which they use for their business to manage the basic
commercial functions, such as, inventory, management, planning, manufacturing, purchasing,
accounting, human resources, finance, sales, services and marketing etc. the purpose of ERP is to drive
the information flow between all internal business and manage connection with outside stakeholders.
Enterprise resource planning (ERP) run on a variety of network configurations and computer hardware
including client/server i.e. “on premises” or hosted i.e. “cloud based”
Typically ERP solution use a common database, regardless of the configuration, to hold information from
the different business functions that’s easily available in some form or another by different users.
Organizations use ERP to manage the solution’s multi-model application within a general information
system is one of the most important ERP benefits over “point solution” of this kind of system.
ENTERPRISE RESOURCE PLANNING SYSTEM (ERP):
ERP system has reduced the operational costs incurred in manually tracking as well as makes it easy to
track workflow across different departments and also reduced duplicating data using different and
individual system. Following are the advantages of implementing Enterprise Resource Management
Coherent and Automatic workflow from one department or function to another to ensure
smooth transition and completion of processes.
Complete visibility (especially for senior management personnel) of all the important processes
across different departments of the organization.
Since single integrated software is operating by all departments so ERP help them to avoid
maintaining or buying their own software systems.
A single and unified system to analyze the numbers, statistics and status etc. in real-time across
all the departments.
ERP systems provide advanced e-commerce integration which can handle web-based order
tracking and processing.
ERP system could also be extended to provide Business intelligence functionalities.
In an ERP system there are various modules like Accounts, Finance, Human Resource
Management, Marketing, Sales, Manufacturing, Warehouse Management, Supply Chain, Project
Management, CRM etc.
On the back end single data base is implemented to store all the information required by the
ERP system which also enables centralized storage of all enterprise data.
ERP system enables faster and better collaboration around all the departments.
Centralized security policies can be applied to ERP to make it more secure moreover all the
transactions made through ERP systems can be tracked.
As ERP is a modular software system, so it is possible to implement either many modules or few
models based on the requirement of an organization. The modules will be implemented the
integration between various departments will be better.
Through an (Application Programming Interface) API it is possible to integrate other systems (for
example like bar-code reader) to the ERP.
ERP make it easier for inventory tracking, revenue tracking, sales forecasting, order tacking and
ERP system helps for managing globally dispersed enterprise companies
Check whether all functional characteristic of the business are covered
Check whether all the latest IT trends are covered.
Check whether all the business processes and functions are fully integrated.
Check whether the vendor has implementing and customizing capabilities.
Check your investment capability and ROI.
HOW DO WE START FOR ERP:
Ensure that you have enough financial funds
Ensure the management is behind you
Identify core project team, specialist, project manager and analyst from all financial areas.
Make an implementation plan.
Evaluate and select ERP Package.
Present plan to the concerned committee of management for sanction.
Present plan to employees group for feedback.
Business and operation Analysis
Business process Re-engineering
Installation and configuration
Restructure of organization
(BRP aimed to help organization fundamentally to think again how they could do their work in
order to considerably cut operational costs, improve customer service, and become world class
Business requirement mapping to software
Project team training
System modification and interfaces
Conference room pilot
End user training
Post implementation auditsupport.
DRAWBACKS OF ERP:
The cost of implementing ERP software, planning, configuration, customization, testing etc. is very high.
It takes 1-3 years to get ERP implemented and get completed and fully functioned.
Too much customization slow down the project and it will be difficult to upgrade it while too little
customization may not integrate the business process with ERP system.
The return on investment may not be realized immediately after implementing ERP & it is not an easy
task to measure the same.
There may be additional indirect costs like upgrading the WAN links, new IT infrastructure etc.
For successful implementation of ERP software the participation of users is very important. So, simple
user interface and exhaustive user training might be critical. But it is generally difficult to use or learn
It is always difficult to migrate from other stand alone software’s to integrated ERP system and the
migration of all the existing data to new ERP systems.
In decentralized organizations ERP implementation is difficult to achieve with disparate business
processes and systems.
ERP system when once implemented it cannot be further upgraded or customized as it becomes a single
An ERP benefit doesn’t just lead to increase SCM competencies; more so in the case of managerial,
strategic and operational ERP benefits.
It is believed that 80% of respondent who before developing SCM system, developed an ERP system are
receiving more positive result.