MRP/ERP why do you need it
Many companies struggle with Excel spreadsheets and paper or they are battling with an MRP/ERP system that never really meets their needs.
So, when it comes to considering MRP for the first time or replacing what you already have, what are the considerations?
In the first of a two-part article 123 Insight’s Martin Bailey reveals a tried and tested formula for selecting, evaluating and implementing a manufacturing system.
What kind of business are you?
Before you can decide what type of system you require, you need to define your business. There are generally four types of manufacturing business:
Make to order: Typically producing low volumes of a range of products, often for other companies with a high variation in the production cycle.
Quoting can be an issue and converting quotes to sales, works and purchase orders can be time-consuming.
If demand changes, it can be difficult to see the impact on stock, purchasing and production.
Subcontractor: Similar to ‘make to order’, subcontractors specialise in small quantities of tailor-made parts or custom-built assemblies where each job is finished before the next one is started.
Orders are less likely to be repeated and your company is not in control of product design.
Subcontractors often find it difficult to schedule production due to the wide range of products and a fluctuating production flow.
Volume production (often making for stock): This is a company often manufacturing its own products.
The range diversity is likely to be smaller, but with larger repeated runs.
Traceability is often key, as manufacturers often have to track serial numbers of components and the finished product.
Bespoke Project Manufacturer: Low quantity production that is unlikely to be repeated, often with massive bills of materials.
Traceability of serialised components is frequently important.
Such projects often have a service element to them and may need to track initial product performance as well as the unit being returned for service in the future.
It should now be clear that all manufacturers need the same thing – a framework to build their business upon with the necessity of tracking the flow of information.
MRP versus ERP
Many companies mistakenly believe (or are steered by consultants) that they need ERP over an MRP system.
But what is the difference and where do you draw the line?
ERP stands for Enterprise Resource Planning and is defined as ‘an information system designed to coordinate the resources, information and processes within an organisation’.
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.
Some ERP systems have moved away from their manufacturing roots, resulting in failed implementations as the chosen system no longer matches requirements.
ERP covers areas such as accounting, HR, manufacturing, supply chain, CRM, project management and data warehousing.
The perceived benefit is to have a single vendor solution to manage an entire company's information structure and processes.
Where does MRP 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 the acquisition of companies that produce one element and try to integrate/rebrand it into the core product.
The result can then be a mixture of a potentially unstable system with a different user interface.
Due to its breadth of coverage, the problems associated with implementing ERP over MRP will be greater by default.
A more flexible implementation approach is to allow companies to roll the system out to specific departments first, rather than forcing the entire company to go live from day one.
Before MRP – your current problems
Presently you will either be using a collection of Excel spreadsheets and/or paper-based systems, you may have outgrown a bespoke system or have invested in a ‘packaged’ system which is no longer fit for purpose.
Excel Spreadsheets/Paper-based
Firstly, only one person can work on a spreadsheet at any given time. Many staff print reports daily, which are quickly outdated and fragment your data.
A great example is quality audits, where data is scattered across your company and takes hours or days to compile.
The problem gets worse with paper as it takes a lot of manpower to ‘push’ it around a factory.
Documents are often in multi-part format, which also has an environmental impact.
Bespoke System
Companies often go down the bespoke route because they have already experienced ‘Excel Hell’ and a member of staff has written something themselves, highly customised to meet their needs.
As the business grows, the system needs to be able to cope.
However, it’ll generally be one (often senior) person within the company that has enough experience to develop something.
It might cover stock control, quoting or basic production management, but rarely does it cover true MRP.
One day the developer decides to leave….and suddenly your company is on borrowed time.
Any required changes either need expensive subcontracting or simply get ignored; and god forbid if the system falls over!
New systems (often Excel and paper) spring up to compensate, and as data continues to grow the problem just multiplies.
The Packaged System
A packaged system is an off-the-shelf product that should meet most of your needs.
Traditionally, the software is purchased up-front for a large sum, with similar implementation costs and around 15-20% of the software cost every year for maintenance.
There will be further costs for customisation, plus version upgrade and installation fees.
A common issue is ‘the tail wagging the dog’.
Companies implement a system and find that they must negatively modify their processes to accommodate it.
A good system will meet the needs of its users with minimal or no customisation.
You may have considered evaluating software designed for your industry, but this is no guarantee of a better fit.
Often, such systems have been developed by a similar company for themselves and someone then had the idea to market it.
These are bespoke products that claim they are better than generic solutions, however, generally they were designed to meet the needs of just one company.
Another regular problem is the ‘rusted handcuffs’. Companies implement a system only to find that the product is discontinued a few years later, or the vendor has gone out of business.
There are many well-publicised horror stories of MRP/ERP implementation failures, such as Montclair State University and Oracle.
Montclair claimed that they contracted Oracle for a system worth US$4.3m, but due to mistakes by Oracle, it would now cost up to $20m more.
Oracle counter-sued and they eventually settled out of court two years later.
123insight falls into the ‘packaged system’ category but differentiates itself through its flexibility, low vendor dependency, low monthly subscription, no-risk approach to implementation and no hidden extras.
Every single customer is using the same system without any core customisation due to its versatility.
Planning – What NOT to do
There are often common errors made at the start of the selection process:
It’s a Business System, not an I.T. System
Your I.T. department will have the skillsets to handle the hardware and software implications of the project but may have no idea of the needs of each individual department.
The project encompasses four main areas:
• Software, (plus associated IT hardware)
• Data – exporting, cleansing, re-shaping and importing
• People – training, managing expectation and ensuring commitment.
• And Processes – what you do today versus what you need to do going forward.
Team effort, not a one-man project
By having managers from all departments, you ensure that the needs for each area of the business can be addressed.
You’ll also embed a ‘level of redundancy’, so that knowledge is not confined to one individual.
Top-level commitment
Senior management need to fully understand what any proposed system is aiming to do and be involved at every major step to ensure goals are met.
Unrealistic time estimation
It is vital that management appreciate that the project will require resources. Staff will need training and time for data migration and testing.
Allow too little time, and staff are overwhelmed – allow too much time and the project simply fizzles out.
Don’t force a square peg into a round hole
Your current processes may not actually be the most efficient and customisation of a new system moves it away from being ‘standard’, making future software upgrades more problematic and inevitably, more costly.
Don’t set false barriers on implementation timing
Many companies delay implementing MRP believing it'll be better to do it after a certain deadline such as year-end.
It simply exacerbates the problems that made you consider a system in the first place.
Allocating the right people, time and resources from the start will ensure that you set-off on the right foot.
Now that you know why you need a manufacturing system and some of the things to watch out for, you are ready to consider the selection and implementation process.
In the next feature, we’ll be looking at how to select the best solution for your business and the various stages of implementation.
This article is taken from the book ‘How to implement a manufacturing system’.
You can pick up a free copy of the book at one of 123 Insight’s local Evaluation Workshop events, held around the UK each month.
Visit 123insight.com for dates and locations.
