MRP I , MRP II and ERP

1. Course: Operation engine II
Topic: Material Requirement Planning (MRP),
Manufacturing Resource Planning (MRP 2),
Enterprise resource planning (ERP)
 Material Requirement Planning (MRP)
 MRP Processing
 MRP Advantages
 MRP Drawbacks

2.  Conclusion
 Manufacturing Resource Planning (MRP II)
 Benefits of MRP II
 Disadvantages of MRP II
 Conclusion
 Enterprise Resource Planning (ERP)
 Advantages of ERP
 ERP Selection
 How do we start for ERP
 ERP involves
 Drawbacks of ERP
 Conclusion
INTRODUCTION
SUPPLY CHAINMANGEMENT:
Supplychainmanagementisthe flowof goodsandservicesbetweenentitieswhichincludesthe storage
and movementof rawmaterial,work-in-processinventoryandfinishgoodsfrompoint of origintopoint
of consumption tosatisfycustomersatminimumcost.
Manuallymanagingsupplychainefficientlyandeffectivelyisbecome very complex andtime consuming
task because the dataof suppliers,customers,raw materials,work-in-processandfinishgoodisinhuge
amountwhencompanylike P&Gor Unileverhas100 of productsso we couldimagine how difficultit
wouldbe forthemto manage data of all the inventoryaswell asto recorddata of customersand
supplierssomovingfrommanual workto software’slikeMRP,MRP2 and ERP can helpstreamline their
process.
ADVANTAGES OF USING SOFTWARE:
Aftermovingtowardsthese software’s ithelpsto:

3.  Avoidscostlyhumanerrors
If the companymanuallytracksthe entire inventoryandforecastitthenthe riskof errorin thismethod
ishigh.Imagine if the companyhave orderof only100 customerswitheachorderhave 10 different
inventoriesthe riskerroristoohigh andif the wronginventoryisdispatchedtothe customerthenitwill
obviouslyimpactoncustomersatisfaction,increase costof companyand order fulfillmentperformance.
 Intelligentmanagementofrealtimebusiness
Movingtowardspowerful software meansthe operationstaff canforecast andmanage inventory or
eventheycanmanage whole supplychainatone place.If the demandincreasessoftware make iteasy
to manage time scalesandmake it easyto adjustanykindof procurement,productionanddistribution
process.
 Avoid unnecessaryoverstocking
Software makesiteasyto manage inventorywithminimumleadtime,itisdifficulttomanually recheck
all inventoriesandforecasthowmuchamount of material isrequiredandhow muchis alreadyin the
stock,But withthe helpof software itbecome verymucheasyto maintainrecordof everyinventory
whichhelpstoavoidunnecessaryoverstocking.
 Managelogistics
IntegratedSoftware helpstomonitorinventory atone place eitheritiscomingfromsupplieroritisto
delivertocustomerorshiftingtowarehouse.Soithelpstocontrollingplannedandactual stock
transfersfromsupplierortransfertocustomersor warehouse.
 Reducepaperwork.
Movingfrom paperworkto software ensuredyouthatall transactions are enteredinone system,coded
up correctlyandwill give completerecordwheneverrequire.Soit minimizes paperwork,time andcost.
MATERIAL REQUIREMENT PLANNING (MRP):
Material requirementplanning(MRP) isacomputerbasedsoftware helptoassistmanagertoensure
enoughproductsare available fordeliverytocustomerand material isavailable forproductionandto
minimize stockinwarehouse italsohelpsinscheduling andplacingorderfordependentitems.
Dependentitemsare the componentsof finishgoodssuchasdifferentraw materialsanddifferent
componentpartsuse to make finishgood,like:tomake motorcar dependentitemsare wheels,seat,
engine,steal etc.

4. MRP managementsystemwasfirstevolvedaround1940’s and 1950’s. Inthe 1960s, JosephOrlicky
studiedthe TOYOTA ManufacturingProgram and givesthe conceptof MRP (Material Requirement
Planning).Black&Deckerin1964 was the firstcompanyto use MRP. Theyuse mainframe computerto
detonate informationfrombill of materialforfinishgoods intopurchasingplanandproductionfor
components.
MRP worksto developrequirementforraw material andfinishgoods,fromaproductionplan tofinish
goods. MRP startedwiththe schedule forfinishgoodswhichafterwardsconvertedinthe scheduled
requirementforthe subassemblies,the raw materials andthe componentpartsusedto make final
productswithinthe establishschedule.MRPbasicallydesignedtogive answertothree questions,what
isneeded?Whenitisneededandinwhatquantityitisneeded?
ImplementingandusingMRPcan helpmanagerto know how muchcapacity isneededtoallocate
productiontime.ButMRP for small businessisverycostlyandtime consumingtoimplementwhichmay
put themoutof range.In additionthe informationthatcomesoutfromMRP is as onlygoodas it posted
intoit.So companymust maintainaccurate bill of numbersandinventoryif they wanttoobtain
maximumpotentialbenefitsfromMRP.
MRP PROCESSING:
For supplychainprocess, MRPsystemuse informationcalledmasterschedule,material billsand
inventoryrecordfiles,anMRP systemcalculate the netrequirementforsubassemblies,component
parts and raw material foreachperiod. Inorderto compute the netrequirement,MRPcompute itas:
Gross material Requirement – Inventory on hand + Safety stock
Although workingbackwardfromproductionscheduletofinishgoodisseemtobe a simple processbut
it isactuallyan extremelycomplicated especially whenone material isusedinmanufacturingof number
of differentproducts. Frequentlychanginginorderquantity,size orproductionschedule isnotsimple
process.ButMRP made it easywhenone hasto track numberof material schedules thenitmanifests
the powerof computersoftware.

5. ADVANTAGES OF MRP:
 Helpsto minimizeinventorylevel.
 Increase inventoryturnover.
 Track material requirements.
 Identifiesshortage ininventoryitems.
 Helpsto track raw material,work-in-processandfinishgoods.
 Helpsto planthe procurementschedule.
 Determinesthe mosteconomical lotsizesfororder.
 Computesquantitiesrequiredforsafetystock.
 Calculate bill of material (BOM) andassembliesrequired.
 On time delivery.
 Customerservice andresponsiveness.
DRAWBACKS OF MRP:
Withthe above advantages,MRPalsohave several problems:
1) MRP onlygive accurate outputif accurate inputisprovidedtoit.If any of businesshasnot
maintainedaccurate recordsof inventoryorif failedto update all relevantchangesinBOM(bills
of material),itwillnotbe able toreceive accurate outputfromMRP systemwhichmaycause
seriousproblems. Theycouldencounteraproblemof missingparts,scheduledelays,excessive
orderquantitiesormissed deliverydates.Soif anybusinesswantsMRPtofunctioneffectively
and provide usefulinformationtheymusthave anaccurate masterschedule,currentinventory
levelsandgoodleadstime estimateswhichisobviouslynotaneasywork.

6. 2) AnotherdrawbackpossiblyencounteredwithMRPiscostly,time consuminganddifficultto
implement. ManybusinesseswhentryingtoimplementMRPface resistance fromemployees.
Because whenthe employee ishabitualof doingmanual workitbecome difficult forthemto
switchtowardsnewsoftware whichisnotan easyto use.
So to implementMRPthe mainworkof companyisto give trainingand educationtoall key
personnel anditisimportanttoidentifyatthe initial stage whose workwill be affectedbynewMRP
system. Therefore the MRPwasthe firststepto enhance the supplychainprocesswhichleadsto
the efficiencyandeffectivenessof the business.
MANUFACTURING RESOURCE PLANNING (MRP2):
The technologyof MRP expendedin1980 to create new approachcalledManufacturingresource
planningorMRP2. Inmanufacturingresource planning(MRP2) the validproductionschedule proved
itself tobe so successful thatorganizationknowsthatresourcescouldbe better controlledand planned
withvalidschedules.In the bookof ProductionPlanningandcontrollingwriterGordonMintynoted
that: “By the improvementincashflowprojections,personal managementprojectionsandcustomer
deliverycommitmentsthe mainareasaffectedweremarketing,personnel andfinance”.
Withmaster productionschedule MRP2facilitates the improvementof detailedproductionschedule
usedformachine and laborcapacity,provide schedulewhenthe productionistorunaccording to the
arrival of materials.Itprovidesthe dataforthe cost of productionincludinglabortime,material used
and machine time,alsoMRP2providesfinal productionnumberstofinance andaccountingdepartment.
MRP-2 or Manufacturingresource planningistoobeyondfromMRP1. WhenMRP stoppedreceivingthe
dock,MRP2 includesthe flowof value all the waytothe shippingdockthroughthe manufacturing
facilitywhere the productisfirstpackagedandthendispatchedtothe final customer.The streamvalue
includes Machine capacityscheduling,planning,analysismodules, demandforecastingandquality
trackingtools.MRP2 come up withsome toolsfortrackinglaborcontributionmargin,employee
attendance.
MRP2 maintainstrackof functionsandspecificcharacteristicsof the entire organization.Example
includes,butitis notjust limitedto,the following:
 Productspecification
 Quality control
 Productdesign
 Quality assurance
 Ordermanagement
 Shopfloorcontrol
 Inventory
 Purchasing

7.  Costcalculation
 Generalaccounting
 Costreporting
 Taxcalculation
 Cashflow
 Taxpayment
Manufacturingresource planning(MRP2) helpsbusinesstostandardize theirprocesses byproviding
themmechanizedmethodsfordifferentareasof the business.Standardizationprovideseasilyrepeated
processand a platformwhichhelpstoimprove those processes.ImplementingMRP2by the company
for the firsttime isgenerallyhavingproblemsincontrollingthe increasingtransactionsin
manufacturing,purchasing associatedwiththe growth.MRP2enablesemployeestodomore inthose
businessareasandhave bettervisibilityof the informationfortheirjobs. MRP2allows beingmore
competitivetothe companybyimprovinginthe wayworksget done.
BENEFITS OF MANUFACTURING RESOURCE PLANNING (MRP2):

8.  Bettercontrol of Inventories
 Productive relationshipwith
 Betterqualityandalsocontrol quality
 Improve designcontrol
 Improve cashflowthroughfastdelivery
 Accurate inventoryrecords
 Reducedworkingcapital forinventories
DISADVANTAGES OF MRP2:
Once implemented MRP2itwill require accurate information.Errorswill resultinautomatedplanning
processif the informationisusedinpoorqualityineitherthe bill of materialmodule orthe inventory
area. To manufacture orpurchase the planningpartuse averagesforlengthof time (leadtime),andon
purchase orderor manufacturedquantitiesthatisgenerallypurchase onworkorder(lotsizes). If the
actual lotsizesproducedorpurchasedandleadtimesfluctuatesconsistentlythenthe software will not
be able to produce plansthat matchwithcurrent scenario.Lackof understandingandpoorinformation
of thenimpacton average leadtimesandlotsizescancause executionfailure andcostly
reimplementation.
Conclusion:
It islongtime that MRP2 isintroducedinindustryandbusiness.Forproperunderstanding of the
applicationaspectsstaff mustbe fullytrained andforachievingbenefitsfromMRP2commitmentfor
implementationispre-requisite.Mostof the companiesinthe worldhavingMRP2 are implementing
(Enterprise Resource Planning) ERP gainmaximumproductive resultswithhighlyeffective software.
ENTERPRISE RESOURCE PLANNING (ERP):
ERP isthe solutionthataddressesthe enterprise needstakingthe processview of anorganizationto
meetthe organizational goalstightlyintegratingall functionsof an enterprise.
Enterprise resource planningisbusinessmanagementsoftware integratesall the internalandexternal
information,intosingle complete solution,whichisusedbythe organization.AnERPsolutionincludes
for the organizationthe practical systemwhichtheyuse fortheirbusinesstomanage the basic
commercial functions,suchas,inventory,management,planning,manufacturing,purchasing,
accounting,humanresources,finance,sales,servicesandmarketingetc.the purpose of ERP isto drive
the informationflowbetweenall internal business andmanage connectionwithoutsidestakeholders.
Enterprise resource planning(ERP) runona varietyof networkconfigurationsandcomputerhardware
includingclient/serveri.e.“onpremises”or hostedi.e. “cloudbased”
TypicallyERPsolutionuse acommondatabase,regardlessof the configuration,toholdinformationfrom
the differentbusinessfunctionsthat’seasilyavailableinsome formoranotherby differentusers.
Organizationsuse ERPto manage the solution’smulti-model applicationwithinageneral information
systemisone of the mostimportantERP benefitsover“pointsolution”of thiskindof system.

9. ADVANTAGES OF
ENTERPRISE RESOURCE PLANNING SYSTEM (ERP):
ERP systemhasreducedthe operational costsincurredinmanuallytrackingaswell asmakesiteasyto
track workflowacrossdifferent departmentsand alsoreducedduplicatingdatausingdifferentand
individualsystem.Followingare the advantagesof implementingEnterpriseResource Management
(ERP) system.
 CoherentandAutomaticworkflow fromone departmentorfunction toanotherto ensure
smoothtransition andcompletionof processes.
 Complete visibility(especially forseniormanagementpersonnel) of all the importantprocesses
across differentdepartmentsof the organization.
 Since single integratedsoftware is operatingbyall departments soERPhelpthemto avoid
maintainingorbuyingtheirownsoftware systems.
 A single andunifiedsystemtoanalyze the numbers,statistics andstatusetc.inreal-time across
all the departments.
 ERP systemsprovide advancede-commerce integrationwhichcanhandle web-basedorder
trackingand processing.
 ERP systemcouldalsobe extendedtoprovideBusinessintelligence functionalities.
 In an ERP systemthere are variousmoduleslike Accounts,Finance,HumanResource
Management,Marketing,Sales,Manufacturing,WarehouseManagement,SupplyChain,Project
Management,CRMetc.

10.  On the back endsingle database isimplementedtostore all the informationrequiredbythe
ERP systemwhichalsoenablescentralizedstorage of all enterprise data.
 ERP systemenablesfasterandbettercollaborationaroundall the departments.
 Centralizedsecuritypoliciescanbe appliedtoERPto make it more secure moreoverall the
transactionsmade throughERP systemscanbe tracked.
 As ERP isa modularsoftware system, soitispossible toimplementeithermanymodulesorfew
modelsbasedonthe requirementof anorganization.The moduleswillbe implementedthe
integrationbetweenvariousdepartmentswillbe better.
 Throughan (ApplicationProgrammingInterface) APIitispossible tointegrateothersystems(for
example likebar-code reader) tothe ERP.
 ERP make it easierforinventorytracking,revenuetracking,salesforecasting, ordertackingand
relatedactivities.
 ERP systemhelpsformanaginggloballydispersedenterprisecompanies
ERP SELECTION:
 Checkwhetherall functional characteristicof the businessare covered
 Checkwhetherall the latestITtrendsare covered.
 Checkwhetherall the business processes andfunctionsare fullyintegrated.
 Checkwhetherthe vendorhasimplementingandcustomizingcapabilities.
 Checkyour investmentcapabilityand ROI.
HOW DO WE START FOR ERP:
 Ensure that youhave enoughfinancial funds
 Ensure the managementisbehindyou
 Identifycore projectteam,specialist,projectmanagerandanalystfromall financial areas.
 Make an implementationplan.
 Evaluate andselectERP Package.
 Presentplanto the concerned committee of managementforsanction.
 Presentplantoemployeesgroupforfeedback.
ERP INVOLVES:
 BusinessandoperationAnalysis
 BusinessprocessRe-engineering
 Projectplanning
 Installationandconfiguration
 Restructure of organization
(BRPaimedto helporganizationfundamentally tothinkagain how they coulddotheirworkin
orderto considerably cutoperational costs,improve customerservice,andbecome worldclass
competitor)
 Businessrequirementmappingto software
 Projectteamtraining

11.  Systemmodificationandinterfaces
 Module configuration
 Customdocumentation
 Data conversion
 Conference roompilot
 End usertraining
 Production
 Acceptance testing
 Postimplementationauditsupport.
DRAWBACKS OF ERP:
The cost of implementingERP software,planning,configuration, customization, testingetc.isveryhigh.
It takes1-3 yearsto getERP implementedandgetcompletedandfullyfunctioned.
Too much customizationslow downthe projectanditwill be difficulttoupgrade itwhile toolittle
customizationmaynotintegrate the businessprocesswithERPsystem.
The return oninvestmentmaynotbe realizedimmediatelyafterimplementingERP& itis notan easy
task to measure the same.
There may be additional indirect costslike upgradingthe WAN links,new ITinfrastructureetc.
For successful implementationof ERPsoftware the participationof usersisveryimportant.So,simple
userinterface andexhaustive usertrainingmightbe critical.Butitisgenerallydifficulttouse or learn
ERP system.
It isalwaysdifficulttomigrate fromotherstandalone software’stointegratedERPsystemandthe
migrationof all the existingdatatonewERP systems.
In decentralizedorganizationsERPimplementationisdifficulttoachieve withdisparate business
processesandsystems.
ERP systemwhenonce implementeditcannotbe furtherupgradedorcustomizedasitbecomesasingle
vendorlock-in.
CONCLUSION:
An ERP benefitdoesn’tjustleadtoincrease SCMcompetencies;more soin the case of managerial,
strategicand operational ERPbenefits.
It isbelievedthat80% of respondentwhobefore developingSCMsystem, developedanERPsystemare
receivingmore positiveresult.