Why Do Companies Continue to Use ERP/MRP Systems for Production Planning?

Executive Summary

  • Most companies run MRP from ERP systems.
  • Companies that use MRP from ERP are significantly worse off than if they run MRP external to the ERP system.

Introduction

This article discusses a number of misconceptions with respect to how ERP systems support production scheduling. One of the most important misconceptions is that ERP systems can perform production scheduling. This is not possible for several reasons, which I have listed below:

  1. Time Granularity.
  2. Insufficient ability to process detailed data.
  3. A lack of scheduling methods.
  4. A lack of user interface to provide sufficient degrees of information for manual adjustment of production jobs.

Following an ERP Centric Strategy

The ERP centric strategy proposes that the ERP system should be emphasized above all other systems. The ERP centric strategy emphasizes the ERP system to the disadvantage of all other systems. Following an ERP centric strategy often leads to the overuse of ERP functionality — that is where its functionality is weak. This is covered in the following article Are Your Company’s Decision Makers Suffering from ERP Centric Strategy (ECS)? And it is a real problem for enterprise software decision making.

Not knowing where to deploy ERP versus best of breed functionality is highly destructive to business efficiency. In fact, the reality of ERP systems is one of the great untold stories of enterprise software and one which I chronicle in the book The Real Story Behind ERP: Separating Fiction from Reality.

ERP and its Relationship to MRP

Since ERP systems were first introduced and up until the present time, most ERP vendors have proposed that ERP (and the MRP method contained within) was a satisfactory approach for performing production planning and scheduling. ERP (often with help from Excel) for production scheduling is not a satisfactory approach, rather it is simply what evolved – or was a fall back after the promises made by ERP vendors regarding their ability to support production were found to not be true.

How ERP/MRP Production Scheduling Environments Work

How these environments work in practice is that production scheduling is often performed by extracting information from the MRP run, and then performing scheduling in Excel.

The Definition of an Inefficient Process

This is an inefficient process — but is considered “good enough,” by many executive decision makers. What is often unknown is how much production efficiency is lost because the company places the centrality of the ERP system above its own manufacturing KPIs.

The typical sequence and what is used in an ERP production planning and scheduling environment is as follows:

  1. Initial Run: High-level production planning is of course produced by the MRP run, but its output is quite basic. MRP schedules to the day — but production scheduling is performed to the hour or to the minute.
  2. Capacity Leveling: The second step of production leveling is required that moves production orders to open slots of capacity — which can be manual or automatic, but this is still just a first cut. ERP systems again have very rudimentary functionality for this step as well.
  3. Detailed Scheduling: In most cases, effective production scheduling requires much more detail than any ERP system contains, hence the need to move the process offline into a spreadsheet. At this point, the ERP system is not even involved. Furthermore, once scheduling information is removed from the ERP system, work is required to move the changed schedule back into the ERP system — another tedious and time-consuming step.

Why Not Use a Spreadsheet for Scheduling?

A spreadsheet can hold a lot of very detailed information, but it has an enormous number of limitations with respect to production scheduling. Still, it continues to be the dominant approach used today. This is a great missed opportunity. In this article title Grading Your Production Scheduling System I go into the next phase of analysis, which how does one measure the current production scheduling system that the company is using.

Conclusion

ERP vendors tell their customers that their systems are effective at running MRP. We have tested numerous systems, even systems like SAP ERP that have a generally accepted credibility with MRP, and can say that none of the ERP systems we have tested are as good as running MRP outside of ERP. Companies that run MRP from ERP end up with poor outcomes. Even the hardware configuration that ERP systems reside upon are inappropriate for MRP processing, and this leads to unnecessary lengthy MRP run times, and this is combined with the general lack of sophistication and flexibility in the MRP engines that are used by ERP vendors. We offer a way of punching out from ERP systems to a customized MRP engine that runs on AWS or GCP, which is called Real Time MRP.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

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References

Repair MRP Book

 

MRP System

Repairing your MRP System

What is the State of MRP?

MRP is in a sorry state in many companies. The author routinely goes into companies where many of the important master data parameters are simply not populated. This was not supposed to be the way it is over 40 years into the introduction of MRP systems.

Getting Serious About MRP Improvement

Improving MRP means both looking to systematic ways to manage the values that MRP needs, regardless of the MRP system used. It can also suggest evaluating what system is being used for MRP and how much it is or is not enabling MRP to be efficiently used. Most consulting companies are interested in implementing MRP systems but have shown little interest in tuning MRP systems to work to meet their potential.re

The Most Common Procedure for Supply and Production Planning?

While there are many alternatives to MRP, MRP, along with its outbound sister method DRP, is still the most popular method of performing supply, production planning, and deployment planning. In the experience of the author, almost every company can benefit from an MRP “tune up.” Many of the techniques that the author uses on real projects are explained in this book.

Chapters

  • Chapter 1: Introduction
  • Chapter 2: The Opportunities to Improve MRP
  • Chapter 3: Where Supply Planning Fits Within the Supply Chain
  • Chapter 4: MRP Versus MRP II
  • Chapter 5: MRP Explained
  • Chapter 6: Net Requirements and Pegging in MRP
  • Chapter 7: Where MRP is Applicable
  • Chapter 8: Specific Steps for Improving MRP
  • Chapter 9: Conclusion
  • Appendix A: Calculating MRP