The Importance of a MRP and ERP in Small Business


Published on

Many firms begin similarly - a couple of individuals have a suggestion, develop a business and then build the manufacturing processes required to make it happen. The monitoring and reporting on these procedures are frequently a responsive afterthought, normally as a result of complications induced via a lack of production preparation. The question is CRM alone or Mrp?..Let's check this out

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

The Importance of a MRP and ERP in Small Business

  1. 1. Manufacturing AndEnterprise Planning Systems:Taking Your Company To The Next Level All Content Is Taken From Directory
  2. 2. Table of ContentMRP - Why You Need It and What It Can Do for Your Business.............. 3History And Evolution Of ERP Software From MRP ................................. 8MRP Software Or ERP Software, Which is Right For You? ...................... 9MRP Versus ERP ........................................................................................... 11 All Content Is Taken From Directory
  3. 3. MRP - Why You Need It and What It CanDo for Your BusinessMost companies start in the same way - a few people have an idea, create a business andthen build the manufacturing processes required to make it happen. The tracking andreporting on these processes are often a reactive afterthought, usually as a result ofproblems caused through a lack of production planning. Does your business suffer from thesame problems and what can an MRP system do about it?Common problemsAs a business grows fragmented processes often develop with it. For example, a productioncontrol department may use an Excel spreadsheet to track orders through the various stagesof manufacture, but this will not talk to sales, stores or dispatch, each of which may havetheir own system. Companies have even been known to plan schedules using post-it noteson a wall! Staff in each department have to continually duplicate data, drastically increasingthe possibility of error. Data is not updated between departments, which often results inwrong or no information being available when staff need it. Reporting is also an issue, ascollating data across departments and then number crunching to get the required figurestakes time and may even be impossible if the data simply isnt there.The paper trail generated by each order can also be frightening, as each departmentstruggles to maintain data integrity on its own localized system and pass information to thenext or previous link in the chain.One of the biggest areas for potential losses is stores. With no accurate way to forward planor purchase, companies often wildly over-stock, tying up significant amounts of cash. Also,the above mentioned issues of duplicate entry of data and paper trails can require constantstock checks which take up valuable time and often throw up scarily inaccurate figures.All of this has a negative knock on effect for management, as they are unable to makeinformed decisions without a clear view of the companys position.How and why MRP should workMRP, or Materials Resource Planning, takes ownership of the data from the quotationstage, through the sale, the raising of the works order, through all stages of productionincluding stores (goods in/out) and subcontracting, through to dispatch and invoicing. Byholding a single source of data all departments should have visibility of relevantinformation. As sales orders are loaded on the system, purchasing can immediately seefuture requirements plus view an items order history in order to make informed purchasingdecisions. Additional information such as alternative suppliers and quantity break priceinformation can also help to bring further purchasing efficiencies. All Content Is Taken From Directory
  4. 4. With purchasing correctly loading orders onto MRP, your stores department will havevisibility of what is arriving and when. Implementing barcode scanners can speed up goodsin/out, assist with providing batch traceability and reduce booking errors across alldepartments on the shopfloor. This will filter down to a reduction of stock inaccuracies,which in turn will require less frequent stock checks, saving further time and resources.As an order works its way through each stage of the production process, each update to thesystem is immediately accessible across the company. Office staff can report more accuratedelivery times to customers, and many companies see a significant reduction on productlead-times post MRP implementation as stock shortages are reduced/eliminated and allorder-related processes can be enacted quicker.Once orders have been dispatched and invoiced the MRP systems job is done and it canpass over data to the accounting system for debt collection/processing.Why it often doesnt workThe single biggest reason for failure is not having sponsorship from the top. If the IT orProduction Manager is trying to implement a system that the MD/FD or other departmentheads do not agree with, then there is little or no hope of getting others on board, or indeedgetting budget allocated to acquire a suitable system. Directors need to drive the systemthrough the company and, rather than forcing it on an unwilling team of managers theyshould concentrate on demonstrating the benefits that will be delivered to each departmentand across the company. By their nature, people are resistant to change unless it is clearlydemonstrated to them that they will benefit. Furthermore, in these economically toughtimes staff are fearful of anything that can reduce a companys dependence on them.Choosing the right system can also be a minefield. Remember, the software should beflexible enough to fit with your business requirements rather than you having to remouldyour business in order to work within the constraints of the software. Having said that,maybe its time to reassess the way you currently operate. Is it efficient? Does it complywith some of todays forward thinking strategies such as lean and Six Sigma? Having aclear view of the goals, both for each department and for the business as a whole isparamount before you sign on the dotted line.Many companies delay implementation of a system (even after spending time selecting it)because they are simply too busy, however this is a false economy leading in everdecreasing circles. They are busy because they dont have MRP running, so by notimplementing it or by doing so half-heartedly they simply make the situation worse.SummaryIn short, companies that need an MRP system but refuse to adopt run the risk of beingovertaken by competitors or even failing altogether. Companies that adopt the wrongsystem, or do not fully embrace implementing a selected system run a similar risk. Theones that will be successful are those that make the decision, stick with it and implement asystem in a swift but structured approach. Gone are the days when the market was limited All Content Is Taken From Directory
  5. 5. to a few traditional systems costing a six figure sum. A well implemented system does nothave to cost a fortune and will be able to deliver quantifiable return on investment in a veryshort space of time. All Content Is Taken From Directory
  6. 6. Key things you should know about anMRP SystemAn MRP System (Materials Requirements Planning) helps a manufacturing companyutilize built-in scheduling logic to manage the flow of materials in the manufacturingoperation. Companies are looking at ways to reduce inventory costs, drive down lead timeswhile improving customer service, improve the manufacturing process and improveproduct quality. Using an MRP system, a manufacturer can become much more efficientand better plan the needs for resources, both in terms of materials as well as capacity withinthe factory and better serve the customer.There are two types of MRP Systems that can be discussed. First is Material RequirementsPlanning and the second is Manufacturing Resource Planning or MRPII. A traditional MRPSystem is one where the software uses the Bills of Materials, Inventory levels, and theMaster Production Schedule to calculate and plan the need for replenishment orders. AnMRPII system is a system that plans many more functions of the entire manufacturingprocess, including Capacity Requirements planning, Master Production scheduling, PlanSimulations and all the aspects of the classic MRP system.Most systems today are MRPII based systems, so from this point forward, if we arereferring to an MRP System, we are really discussing MRP II systems as that is what ispresently offered in the market and includes the earlier aspects of MRP.Researching an MRP System often brings about a lot of questions and uncertainty. Not somuch about the planning system and how it calculates the requirements, that is usually justa calculation that you can get from a good Material Requirements Planning book from anybookstore or online. Really, the question usually comes about as to where the differencesare between the material requirements planning systems.Essentially, the key differentiators of these systems would be the ease of their ability forthem to allow you to see the multiple layers of planning. But even more, the ease in whichyou can keep the data clean. With thousands of parts and possibly thousands of Bills ofMaterials (along with the many variations), you will need to be able to easily update oreven mass update parts, BOMs, routings and all of the detail surrounding them.MRP System as part of an ERP solutionAs most manufacturing system software is a subcomponent of ERP (Enterprise ResourcePlanning), it is worth looking at how the materials planning aspect of the ERP interactswith the rest of the system. For example, how well does the system communicate orderrequirements to the shop floor control system? How well does the Product DataManagement aspect of the ERP interact with the Bills of Material module? How well does All Content Is Taken From Directory
  7. 7. the inventory control system work with the Quality Management system? For example, ifyou receive inventory into the system, is there a way to isolate it from the MRP Systemwhile it undergoes quality inspections?When looking at requirements planning systems the real concern is how the users will useit. It needs to be as simple as possible to interact with from a user perspective. However, itneeds to be able to drive all of the capacity and material plans that you need to run thebusiness. An important thing to try is to let your material planning or purchasing people tryout the system during the demo phase. They wont be able to run the system without help,but at least they can get a feel for the screens and the depth of information provided.Another important tip is to make sure that all of your people who are interacting with thesystem, such as buyers, planners, and inventory managers all have training on the conceptsof MRP. This will help them get up to speed quickly once a new system is in place.Your Future MRP SystemWhen you get down to a short list of vendors, it would be a great idea to start looking at thequality of the information from your existing MRP System. Clean up the Bills of Materials.Obsolete any that are out of date. Ensure that your inventory counts are accurate. Make surethat your customer orders are clean and old back-orders that will never ship are closed. Youshould begin the cleanup of the data in the source system long before you even think abouttransferring it to the new system. If you do it a little at a time over a period of months, bythe time you are ready to migrate the data to the new system, you will be ready to utilize thenew system immediately. At some point the data needs to be clean, it might as well be now.Lastly, find out early from the software provider of the new system what additional dataelements you will need to support their system. You may not be capturing that datacurrently, so start building the list now. Moving to a new MRP system does not need to bedifficult, but it will take some cleanup and planning.What if you cannot make a decision on an MRP solution?We know how hard it is to try and make a software selection on your own, but if you wantto really be successful and choose the perfect fit software for your organization, you willneed to find the right guidelines to help you be successful. All Content Is Taken From Directory
  8. 8. History And Evolution Of ERP SoftwareFrom MRPThe history and evolution of ERP dates back to the time of existence of MRP. EnterpriseResource Planning system has evolved from the Manufacturing Requirement Planning(MRP II). ERP software has expanded from coordination of manufacturing processes to theintegration of enterprise wide backend processes. The history and evolution of ERP goesback to the 1960s when the systems were designed to help in the manufacturing processes.MRP was developed in the 1970s and then MRP II was developed. The Material ResourcePlanning software was helpful in the manufacturing processes but the other sector did notbenefit from it. MRP required large technical expertise like machines and manpower. Itinvolved a lot of costs and practical problems. MRP application took care of the productionplanning, reporting, raw material purchasing, inventory status and delivery methods.Earlier on, Inventory Management and Control application in the 1960s was introduced totake care of the inventory management. It was used for keeping the targets, monitoringusages, reporting, analyzing inventory status, etc. This was followed by MRP applicationsand then the Enterprise Resource Planning or ERP. This is the history and evolution of ERPsoftware. ERP software was introduced in the 1990s with modular applications. It ismodule based application software which streamline the flow of data between the variousfunctional departments in an organization.ERP integrates the different departments such as inventory control, accounting, humanresources, product planning, sales, etc. They all have a single database which leads toefficient communication. ERP was used by most of the big organizations. With successfulimplementation, the organizations realized a change in their business environment andinformation flow for the better. The working process improved and increased theorganizations efficiency and profitability. This is how the popularity of EnterpriseResource Planning increased after the history and evolution of ERP.Due to the huge investment involved in implementing ERP, the small and mediumenterprises could not afford to implement ERP. But as ERP has evolved, the trend is thateven the medium scale companies are now implementing ERP. The vendors are working atcost effective ERP software which can match the medium company budget. With webbased software now available, the prices are cheaper and they target the small and mediumscale companies. ERP keeps evolving and the latest trends are to reduce the expenditureinvolved to realize the benefits with low implementation costs. The ERP implementationtime is being reduced and need based applications are more in demand.Companies are looking at need based applications rather than buying the whole package.The latest web technologies have made it possible to make this process online for easyaccess from any part of the world. Open Source ERP has reduced the costs and made itmore flexible. It does away with the hefty license fees and vendor dependence. Theevolution of ERP has made it possible for the small and medium enterprises to implement All Content Is Taken From Directory
  9. 9. ERP and realize its benefits. ERP has been transforming itself since the history andevolution of ERP over the past years.MRP Software Or ERP Software, Which isRight For You?You are the operator of a small to medium size manufacturing company. Your business hassome maternity and you have systems in place and working. A business analysis revealsthat your firm is facing some stagnation for the immediate future, so you begin to look forways to optimize what you have. Software immediately comes to mind, as you currentlyuse computers in your operation, but not necessarily in a cohesive and coordinated way.As you begin your research, and begin contacting possible vendors, you notice somerecurring buzz word-abbreviations; MRP, MRP II, and others. Lets explore some of theselook at how you can determine if they are suitable for you. Lets begin with MRP, orMaterial Resource Planning. As the name implies, the function of this type ofmanufacturing software is to enable the business to have the materials on hand in a timelyand efficient manner. This type of software can also be handily for a small to medium sizecompany because the Bill of Material, the basic building block of MRP software can servedual purpose as a shop router. Many systems include routers, but many less sophisticatedcompanies, have managed with just the basics.A major weakness of MRP software is that it did not function well or often at all forcapacity planning. This led to the dynamic duo of the MRP system sheparded by abuyer/planner. While one of the main reasons for the purchase of Manufacturing Softwarewas to realize labor reduction, MRPs inherent weakness became a buyer/planners jobsecurity. This does however work well with some companies, so even though MRPsoftware is not an all encompassing solution it may just work for you.Next is MRP II, which grew out of MRP as an answer to the question of how to use MRPsoftware to make other business decisions. These decisions included how to not only ensurematerials were available on time, but how to capture manufacturing costs, how to accountfor the materials, and how to manage payment of materials. MRP II software was thus notmaterials focused software solution, but a big picture solution that piece by piece brought inthe entire organization.As can be expected, MRP II is also more labor and capital expensive to deploy. As withMRP software, there is still the basic core of setting up the Bill of Material, however, thebill of material and supporting systems require not only more labor hours to set up, butinputs from other disciplines as well. Accounting now gets a major piece of setting upfinancial systems. These are not limited to accounting, but also ties into manufacturingengineering on the floor, where accounting and manufacturing develop standard costs. All Content Is Taken From Directory
  10. 10. These costs can then be used to drive cost improvements and it this synergy that justifiesthe increased costs of setting the MRP II software in place. All Content Is Taken From Directory
  11. 11. MRP Versus ERPMany companies mistakenly believe or are steered into the decision by consultants with avested interest that they need ERP over an MRP system. But what is the difference andwhere do you draw the line between those that need it and those that dont?ERP stands for Enterprise Resource Planning and is an information system designed tocoordinate the resources, information and processes within an organisation. It comprises ofa common database that provides interfaces and information to every department within thebusiness. Depending on which definition of MRP you follow there are differentinterpretations - Materials Requirement Planning (MRP) and Manufacturing ResourcePlanning (MRP II), which then evolved into ERP. As ERP systems have developed somehave moved away from their manufacturing roots. This has resulted in failedimplementations due to the chosen ERP systems processes not matching the businessrequirements.ERP covers areas such as:  Accounting (nominal ledger, fixed assets, accounts sales/purchase ledger etc)  Human resources (payroll, time sheets, training etc)  Manufacturing (bill of materials, QC, managing the manufacturing process etc)  Supply chain (stock control, purchasing, scheduling)  CRM (sales and marketing, support and customer service)  Project management (managing costs, time and activities)  Data warehousing (document management)Most of these areas are already covered either partially or completely by MRP. Theperceived benefit of ERP is to have a single solution to manage an entire companysinformation structure and processes. There is generally a reduction of data duplication asinformation is entered only once, and users often benefit from a common interface, therebyreducing training. A single solution only requires a single vendor, potentially ironing outdata conflicts between different applications. Or at least this is the idea.Any system - MRP or ERP - needs to also provide security at user level to ensure that theright employees have access to the right information. Each and every section mentionedabove needs the ability to either block access or provide read-only access.So where does MRP stop and ERP start?MRP systems focus on the processes from quote, sales, raising works orders, stock control,purchasing and all stages of manufacturing through to invoicing, but traditionally tend toexclude processes such as CRM and accounting. These lines have been increasingly blurredin recent years as systems rely on similar database structures. Previously an MRP, CRM All Content Is Taken From Directory
  12. 12. and accounting system may have each relied on their own bespoke databases, requiringsignificant customisation and consultancy from the relevant vendors in order to get thesystems communicating together. With some systems today running on platforms such asSQL Server it is now much easier to set up permanent, stable data links between systems.In fact many companies offer seamless interfaces between key applications such as MRPand accounts.There are caveats to the above. The statement often given that we are the authors and canprovide a single source solution is often a falsehood. Many systems have evolved throughacquisition of companies that produce one element (such as CRM) and trying to integrate itto the core system, rebranding it in the process to disguise its origins. More often than notthe end result is a mixture of two or more systems which may not be very stable, have adifferent user interface to the rest of the system and do not provide the completely seamlesssolution they aspire to.ImplementationDue to its breadth of coverage across an organisation, the problems associated withimplementing ERP over MRP will be greater by default, potentially increasing risk offailure. More departments are affected, and legacy data for each area of the business needsto be manipulated into a format where it can be migrated, assuming that this is possible atall. The scale of the task can also be too daunting for some, with many failed installationsoccurring due to incorrect or lack of use of the system. The setup of the system is alsoimportant. Many make the mistake of mirroring the setup of their legacy systems, whichmay require considerable customisation of the new system and runs the risk of carrying onthe mistakes of yesteryear.Of course, at this point you have already parted with your cash, spending tens or evenhundreds of thousands of pounds, so many companies feel compelled to shoe-horn theircompany to fit the system.While many implementers successfully adopt the approach of switching all applicationsover to a new single system, for others this can prove too much in one hit. A more flexiblesystem would allow companies to implement at their own pace rather than forcing them togo live across all departments from day one. Many start with concepts that are simple tounderstand such as stock control or purchasing before implementing complex routings orfull MRP part ordering.After Go-liveCompanies often fail to take into account the ongoing costs associated with traditionalMRP/ERP software. You cannot compare it to off-the-shelf products like MS Office which,once paid for you just get on and use. As staff leave, their replacements require training,perhaps off-site. Many systems require days of training per module, so if a staff membercovers more than one department you may have to consider several days out of theirschedule as well as the daily training rate. All Content Is Taken From Directory
  13. 13. Furthermore, you will invariably want to customise elements of the system or generatebespoke reports, which often requires consultancy services from the vendor. Every timeyou need to store or analyse data differently there may be a costly invoice tied to it. Manyvendors are service-led in the fact that they cannot survive on the initial sale value alone -they have to generate revenue through ongoing annual value added services, training andconsultancy. The industry standard for calculating maintenance renewal cost is generallyanywhere from around 15%-22% of the initial software cost - the more enterprise-wide thesoftware, the higher the initial cost, the higher the ongoing maintenance contracts. All Content Is Taken From Directory