Your complete guide to MRP systems
Explore what MRP is, how it can help your business, and best practices for selecting and implementing your next solution.
What's the difference between an MRP system and ERP?
ERP stands for Enterprise Resource Planning and is defined as 'an information system designed to coordinate the resources, information and processes within an organisation'. It comprises of a common database that provides interfaces and information to every department within the business.
Many companies mistakenly believe (or sometimes steered into the decision by consultants with a vested interest) that they need ERP over an MRP system. Depending on which definition of MRP you follow there are different interpretations - Materials Requirement Planning (MRP) and Manufacturing Resource Planning (MRP II), which then evolved into ERP. As ERP systems have developed, some have moved away from their manufacturing roots. This has resulted in failed implementations due to the chosen ERP system's processes no longer matching the business requirements.
ERP covers areas such as:
- Accounting (nominal, sales and purchase ledgers, fixed assets, etc)
- Human resources (payroll, time sheets, training etc)
- Manufacturing (bill of materials, quality control (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)
Many of these areas are already covered either partially or completely by MRP. The perceived benefit of ERP is to have a single solution to manage an entire company's information structure and processes, only requiring a single supplier and potentially ironing out data conflicts between different applications.
Where does an MRP system stop and ERP start?
MRP systems focus on the processes from sales forecasting through to invoicing but traditionally tend to exclude processes such as CRM and accounting.
Some systems have evolved through acquisition of companies that produce one element (such as CRM) and trying to integrate it to the core product, rebranding it in the process to disguise its origins. More often than not, the end result is a mixture of two or more systems which may not be very stable, have a different user interface to the rest of the system and does not provide the completely seamless solution they aspire to.
What's the cost of MRP/ERP software?
Unlike standard 'office' apps, MRP/ERP software will often come with many additional costs. In the game of Scrabble the letter M is worth more than E, but when it comes to MRP and ERP the costings are reversed, as ERP spans more of the business and will therefore command a higher price. Costs start with the software itself - often a five or six figure sum which must be either partially or completely up-front. At this stage you may not be truly confident that the system will do what you want or even need it to do.
Next, there's the consultancy, needed to customise the software to fit your business. Customisation brings its own problems - what happens when it's time to upgrade, or if you are interfacing to other software? Often, that customisation can break, leading to more expensive consultancy... Finally, there will be annual maintenance, which could be anything up to 15%, sometimes more of your software costs.
And this is just the initial costs. Your 'account manager' will be targeted to generate X amount of business from you as a customer. This might be through further consultancy or up-selling new features.
A year or two after you go live there'll likely be a new version of the software, which will come with an upgrade fee on top of the maintenance you are already paying.
What savings can an MRP system make?
There are many immediate and obvious benefits that MRP/ERP deliver, with visibility being key. When you know all of the routings, bills of materials, stock and processes you can plan much more effectively. Lead times are more accurate and can often be improved. Furthermore, as data builds up you can identify trends, such as bottlenecks in certain departments or processes, which you can then resolve.
Stores can see significant benefits after MRP implementation. You have clear visibility of what you have in stock, what's coming in and where it's coming from. With the use of tablets, stock taking should be easier to perform, maintaining accuracy. You should also have more of the right products in stock, as you'll have better visibility of stock trends.
Stock items that may have a shelf life, such as food or chemicals can be easily tracked, ensuring that methods such as FIFO (First in, First Out) are applied automatically. Visibility of where those products are used also improves. You should expect to not only be able to quickly identify which finished products a component has been used in, but inversely you should also be able to take a finished part and identify which batch a specific component was supplied from.
Preceding that, purchasing can see massive improvements. A good MRP system will allow you to store not only all of the products you buy, but also multiple suppliers, quantities, price breaks, etc.
All administration tasks in general should be accelerated. Building quotes, converting to sales orders and then tracking them through the system should be far faster, as all systems are now connected.
Paper usage should drastically reduce, as staff no longer need to print information to pass between departments. Companies may even be able to go paperless on the shop floor, with shop floor data collection (SFDC) allowing staff to clock on and off jobs and record labour, either using a PC or tablet devices.
MRP can also help with social distancing in the office and on the shop floor, which has been essential during the pandemic. By having personal tablets staff can perform tasks where they need to perform them, rather than travelling to a PC shared by others. Some companies have opted to remove PCs from the shop floor altogether and relying solely on tablets, making further space available for social distancing. Many 123insight customers have done this by using 123mobile on either iOS or Android tablets.
Quality audits will see drastic improvements. Previously, you may have spent all day chasing paperwork when your auditor asked you to prove traceability. The right MRP system will allow you to show you instantly who ordered which product, the route it took through production, who supplied the parts and which company provided subcontract services. In fact, a good MRP system will be the backbone of your quality processes, ensuring users adhere to them but without adding to the workload. Quality and traceability happen by default.
How to choose between an MRP system or ERP
ERP is bigger and therefore better than MRP, right? Not necessarily! It really depends on what you need and what existing (and working) systems you may already have in place.
As we determined earlier, ERP essentially covers MRP plus other areas such as accounting, CRM, etc. However, if you're already happy with your accounts software why would you want to change that at the same time as implementing or changing MRP software? If an MRP system can connect to your accounts software then this will be much more cost-effective solution than replacing it and will also have less impact on the business.
Also, be careful to clarify the features that an ERP is offering over an MRP, and whether you really need them. For example, you might see a Human Resources (HR) module that handles staff time and attendance, but this may well be elegantly handles within an MRP system's functionality, with the ability for you to easily provide HR with the relevant information in a report.
The best practice should be to select the 'best in class' product for the task at hand. If, for example an ERP's built-in accounts facility is lacking or less suited to your business, then a better solution is a separate MRP and accounts system that can communicate with each other. Maybe you already have a tried and trusted accounts system and are considering your first foray into manufacturing software. Simple - keep the accounts software that you know and love and get a manufacturing system that works for you and links to your accounts software.
So what's right for me?
Before you even start to consider a new system, you need to understand what you need. Get each department head together and ask them to create a wish list of functions that they absolutely must have, alongside features they might want.
Each department may have different problems, although many might also be common. Companies with no manufacturing system will be suffering from disconnected spreadsheets and/or paper along with a lack of visibility. Companies with failing MRP systems will be bound by poorly performing processes, a lack of functionality or maybe even unreliable software.
Although creating your selection criteria is important, ensure that you are open to the possibility that there may be a better way than your current methods. Just because you've been doing things a certain way, it doesn't mean there isn't a more efficient alternative out there. More importantly, by hanging onto 'tried and trusted' methods you might be painting yourself into a corner in the future. Having said that, be aware that some suppliers might be trying to persuade you to make a significant change to your methods simply because they cannot deliver the capability that you need.
It's important to understand that MRP is not just software. You can divide it into four separate areas - software, processes, people and data. The right software won't help you if your processes are not streamlined, staff are not behind the project or you have poor data.
Once you have your 'selection team' in place and have identified what you need, the problems you are trying to solve and how you think you need to solve them (bearing in mind the earlier comment of keeping an open mind), you're ready to talk to prospective suppliers.
Do not underestimate how much time this process will take from your business. For example, if the pre-sales process for each supplier takes, say, 2 days for 5 members of staff and you look at 5 companies, it will require 50 man-days to evaluate them!
When talking with suppliers, don't just ask about the solution you are considering buying from them - find out more about their general business model for software, training, service, support and upgrades. For example, where is the line drawn between support and consultancy, is there a cost for upgrades, etc. See what reputation the supplier holds within the industry. Do they list case studies of satisfied customers on their website? Can they be found in manufacturing trade journals? You can generally check the press/media sections of their own website for this. This is all about trust - you are pinning your business data on a potential supplier, so you need to make sure that they are going to be around to support you in the future.
Finally, cost plays a major part in your decision-making process. You will have an approximate price band in mind, but it's not just about the cost of the software - there's training, implementation, consultancy, ongoing maintenance and upgrade fees further down the line. How much money will you have to commit before you even start the ball rolling with training and implementation? If the system doesn't deliver, what fail-safes do you have to potentially retrieve monies already spent? You may find that you have to write a hefty cheque up-front, with no real recourse if things go pear-shaped before, during or after go-live. Make sure that you are aware of all of the hidden and ongoing charges before committing.
An electronics company had developed an Access database to handle purchasing. After rapid expansion, the company won an order which took two weeks to raise all the purchase orders for using the bespoke system. The MD commented 'I'm never, ever doing that again'. He then started to research MRP, found 123Insight and was live just seven weeks later.
How easy is it to implement MRP/ERP?
This will differ greatly between companies, what you currently have in place and the system you select. A bespoke system that is highly customised to your specific way of working will probably take longer to implement than a system that can be configured out of the box. Transferring data between old and new systems will also take time. You need to decide what to transfer and perhaps also spend time cleansing the data - more on this later.
Do set a realistic timescale for the implementation. Understand that staff will need time away from the business for training, and time away from day to day work to manage the implementation.
Also consider whether you will roll out the system in stages or go live all at once. Each option has its own merits, and you'll need to make this decision based on your own circumstances. A drawback of the staged implementation is that the excitement and drive for the project can wane after the initial stage(s) when the main issues have been resolved. People then lose sight of the further benefits they can achieve with the entire project. So, if you do decide to break it down into stages, set dates for each stage and make sure that everyone understands the importance of sticking to them.
Due to its breadth of coverage across an organisation the problems associated with implementing ERP over MRP will be greater by default, potentially increasing risk of failure. More departments are affected, and legacy data for each area of the business needs to be manipulated into a format where it can be migrated. The setup of the system is also important - many make the mistake of mirroring the setup of their legacy systems, thus carrying on the mistakes of yesteryear.
While many implementers successfully switch over to a new single ERP system, for others this can prove too much to achieve in one hit. A more flexible approach is to allow companies to implement at their own pace, rolling the system out to specific departments first rather than forcing the entire company to go live from day one.
Remember that you can only start to achieve any return in investment once the system goes live. If you've spent a large sum up front then it will likely take years before you recoup your costs, perhaps before you factor in the ongoing maintenance, upgrades, training and additional consultancy costs that will be charged along the way. 123insight's fixed monthly subscription safeguards against this, with several customers citing it as 'the cheapest, most effective employee in the business'. The number of licences can be increased or decreased monthly, allowing for seasonal or performance fluctuations.
Initially relying on a series of Excel spreadsheets, a biscuit manufacturer decided to evaluate bakery-specific production software. After searching the market, they found that solutions were not flexible enough for their needs. They subsequently found and implemented 123Insight, thereby reducing their lead times and stock levels in the process.
Transferring data to a new system
It's a guaranteed certainty that your existing data is not going to just drop smoothly into a new system, but before you look at how you're going to import it you should consider a little housekeeping.
The chances are that you won't want to transfer every piece of data. There may be customers and suppliers that you no longer deal with, along with products that have not been manufactured for years. Take this opportunity to consider what data you will want to transfer and what can remain in the legacy system. Depending on your circumstances, it should still be there once your new system is up and running but will only be needed under rare circumstances.
Don't worry about the amount of data you have - that's actually not important. If you can import one record you can import a million. It's worth noting that many MRP suppliers will use this as a sales technique to show their technical prowess. There will be much furrowing of brows and scratching of chins, but they'll eventually say that the import can be handled - at a price. The larger the data, the bigger the cheque.
There are two types of data that you need to take into consideration - static and dynamic:
Data import is generally performed in stages - you'll work out how to convert/reshape your data, import it into a test environment of your new system, and once you're ready to go live you'll use the same mechanisms to import the current instance of the same data into your live system.
You will generally only be able to transfer your static items, but for the purpose of clarity you probably don't want or need to transfer dynamic items. You will still probably have your legacy system to refer back to, and it's often next to impossible to re-shape dynamic data between systems. Note that you don't have to worry about transferring the dynamic data itself - it's only the outstanding balances that are important. For example, if you've received half of an order from a supplier, then only enter what is remaining. Ensure that you use the same order numbers as your old system for consistency.
It's important to understand that your stock and work in progress (WIP) valuation could be affected, depending on the batch costs you enter in the system. If batch traceability is important to you, then speak to your supplier to confirm the appropriate way to handle this.
Data import can seem like a daunting task - so many data sets, different formats, legacy and redundant data, etc. Try to focus on the opportunity of being able to cleanse, restructure and optimise your data before transferring it to your shiny new system.
What are the problems with MRP/ERP?
The problems may differ depending on whether you have a highly bespoke MRP/ERP system or a packaged system (e.g., 'off the shelf' MRP/ERP). Bespoke MRP/ERP systems are designed to solve an individual company's specific problems. Companies often go the bespoke route because they have already experienced the pain of 'Excel Hell' (multiple spreadsheets, split across departments) and a member of staff has the capability to write something themselves. This will generally be based around an Access database or similar and will be highly customised to meet their needs.
Bespoke MRP/ERP systems on the surface appear to offer the best solution - they are tailor-made to match every aspect of the company, its products and their methods of manufacture, but for many it's a case of reinventing the wheel but coming up with a square. There will most likely not be an upgrade path - what you get is what you have, and therefore what you are stuck with. Upgrading a purchased bespoke system will often be expensive and painful, breaking links to external system and requiring significant effort to roll out.
Companies will often develop bespoke MRP systems themselves - perhaps a senior member of staff has the programming skills to develop a workable system. Then, one day they decide to leave, at which point the company is on borrowed time. Any further changes either require expensive subcontract programming or simply get left, and god forbid the system falls over, perhaps because of a Windows update or other problem elsewhere. New manual systems (often our 'old friends' Excel and paper) spring up to compensate for the inadequacies of the bespoke system, and as data continues to grow across each system the problem just multiples.
Packaged systems have their own issues. A common issue can best be described as 'the tail wagging the dog'. Companies have implemented a system and found that they have to modify their processes, often to detrimental effect, in order to accommodate the system rather than the other way around. A good system will be designed to meet the needs of its users with minimal or no customisation.
There is a sub-category of the packaged system: industry-specific systems. You may have considered evaluating manufacturing software designed specifically for your industry, but just because it says that it's been designed with 'you' in mind there is no guarantee that it will meet your needs. Often, such systems have been developed by a company in your industry for internal use and someone then had the bright idea to market the product. In effect, these are bespoke products that try to claim that because they are specific to your industry, they are better than generic solutions. However, generally they were designed to meet the perceived needs of just one company. You'll often find that rather than the product meeting more of your needs than a general system, it actually contains functionality so niche that renders it near unusable.
Another regular issue is the 'rusted handcuffs' problem. Companies implement a system only to find that the product is discontinued a few years down the line or, worse still, the supplier has gone out of business altogether. You are tied to the system with no prospect to upgrade and potentially no support. If there is a new version - perhaps based on an entirely new platform - the cost is often similar to buying an entirely new system, and of course you can expect to pay huge consultancy fees to migrate your system over.
There are many well-publicised horror stories of MRP/ERP implementation failures, few more prominent than Montclair State University and Oracle. Montclair claimed that they originally contracted Oracle for a system worth $4.3m, but due to serious mistakes and delays by Oracle it would now cost up to $20m more. They accused Oracle of missing deadlines, using unprepared staff and even rigging demos to suggest features were included in the core system. Oracle subsequently counter-sued, claiming that Montclair's actions were to cover their own shortcomings. They settled out of court after two years of legal wrangling.
In fact, a study showcased in Computer Weekly magazine, published in February 2018, also stated that businesses have less than a 50% chance of an SAP software implementation succeeding. The survey of 113 individuals across 105 companies for the 'Uncovering the factors that drive success for SAP customers study' from SAP advisory service Resulting IT, found that only 36% felt their SAP project kept to its original plan and just under half (48%) said their project failed to achieve business objectives.
Your MRP/ERP system does not need to be difficult to learn, but be aware that you may experience resistance to change from staff that are either concerned about job security or are scared of learning something new.
How difficult is it to learn MRP/ERP?
This will depend on several factors. Those coming from Excel/paper-based or home-grown systems will need to get used to a more structured approach. There may be initial resistance from staff to learn something new or questions such as 'why do we have to do it this way?'.
It's important to understand the software, not the process. Your system should be configured in such a way that it adheres to the processes you originally set out during implementation, so staff need to understand what the software is asking of them, rather than trying to think about the underlying processes. Software is designed to 'de-skill' processes, removing the possibility for error and channelling the user down specific paths. Off the shelf MRP systems will generally be easier to learn than bespoke systems. Training documentation should be standardised, as all customers use the same package, however some systems that promote themselves as 'standard' may still rely on significant customisation and therefore be more complicated to learn and train new staff on.
The method of training will differ depending on your selected system. Some suppliers will require all key staff to be trained on all areas of the system, which will be a considerable number of man-hours away from the business and come with a hefty price tag. Although some may provide on-site training (which is often seen as a benefit), you're paying for the supplier's training staff to be on-site and it's not uncommon for systems to need 30-40 days.
Make no mistake, training is as important as the system you choose. People often disregard training, citing 'I've implemented several MRP systems before - I'll be able to do it and if I can't then there's something wrong with the system.' That's a dangerous path to take. It's like saying 'I used to repair my ten-year old Ford Fiesta when I was younger, so I'll be able to repair a brand new car with all of today's technology crammed into it.'
Also, consider the cost of training weighed up against the cost of ignorance. One argument is often 'what if I train staff and they leave?'. The bigger risk could actually be if you don't train them and they stay! You could be opening yourself up to a wealth of problems, resentment and resistance because they don't know how to use the system, do not see the benefit of it and felt excluded from the implementation.
It's worthwhile for one or two staff to be designated 'Super Users' being trained on most, if not all elements of the system. This will give them the benefit of a wider view of the system, over and above each department head. They'll see how the system will interact between departments and can help others to 'connect the dots'.
Realistically, your decision on the number of staff that get trained may simply boil down to cost. It would be non-sensical to send your entire staff onto training, but the fact is that your implementation and go-live period will run much smoother the more staff that are competent with the system. Nobody ever complained about knowing too much!
Measuring success and calculating ROI
You've done it! A few months down the line, and the system is bedded in and working well, but how do you measure the success and, more importantly, your return on investment?
A widely acknowledged tool for categorising waste (and thereby improving performance and quality) is the Japanese philosophy of 'the seven wastes', a part of Lean Manufacturing. It is often referred to as Muda and was developed by Toyota's Chief Engineer Taiichi Ohno. These consist of:
- Overproduction: Making an item before it is required, which can increase lead times, storage costs and make it harder to detect defects.
- Waiting: Most of a product's lead time will be relating to waiting for the next operation to be performed, perhaps due to stock outages.
- Transporting: Having to move products between processes that are not located nearby takes time and risks damage.
- Inappropriate Processing: 'Using the sledgehammer to crack a nut'. For example, allocating a more costly, heavy-duty machine to manufacture something that could be done on a cheaper machine, which a better routing structure would avoid. In administration terms, doubling up on paperwork or multiple checks would be resolved with an effective manufacturing system, as these processes would be redundant.
- Unnecessary Inventory: Excessive inventory makes it more difficult to spot problems on the shop floor, takes up valuable space and ties up finances.
- Unnecessary/Excess Motion: Related to ergonomics, such as walking, lifting, etc. With everything available on-screen rather than having to push paper around a facility the reduction in motion is greatly reduced.
- Defects: Quality defects must be reworked or scrapped, impacting on inventory and capacity. Defects can often be a significant percentage of total manufacturing cost, so measuring a decrease in this area gives an instantly visible indicator of the new system's effectiveness.
Every business is different, so the KPIs for a mass production business will differ greatly from one making small-run bespoke products. However, there are commonalities between all businesses, so there are certain things that you can track before and after implementation to get an idea of where savings are being made.
Here is a summary of common savings after implementing MRP software:
- Stock: more accurate stock levels, less stock, more of the right products in stock, faster stock takes
- Quoting/Sales: faster to build quotes, with the figures being more accurate
- Lead times: much more accurate and often reduced, as production is scheduled more accurately and there are fewer stock outages
- Purchasing: more strategic purchasing leads to lower costs. Reduced workload in raising purchase orders
- Paperwork: reduced across the company
- Staff time: less paper means less pushing the paper around your facility. Instant access to information that previously might be spread across multiple systems or complex to find
- Quality: much quicker audits and faster reporting/traceability
- Despatch and delivery costs: the ability to forward plan allows grouping of orders. Factoring additional 'landed costs' makes quotes more accurate
- The human factor: less stress, and freeing staff up for more important tasks. Companies can often grow several hundred percent without adding further administration staff
- Reporting: the ability to quickly retrieve reporting data
- Environmental: less paper and less effort required
- Connectivity: connecting MRP to other systems, such as machine monitoring
Your new system should have tools available that allow you to analyse performance across all areas - from sales and purchasing through to stock control, production and despatch.
Every business is different, but success can generally be measured by a combination of the above factors. Do take the time to think about how you want to measure success and try to identify some of those smaller knock-on benefits that can further add to the bottom line. Also, when those intangible knock-on benefits come to light, make a mental note of them so that they can be included in any future performance analysis.