For manufacturing and distribution companies the heart and sole of an ERP system is the capability of running a materials requirement plan (MRP).
MRP was the first of the computer systems, back in the late 1960s, to calculate material requirements albeit in a very basic form. A simple bill of material or parts list was multiplied by the quantity of whatever was to be built or procured. The onward development over the next few years of adding inventory, master schedule etc., evolved a name change to MRPII and in the 1990s another name change to broaden the appeal to other industries and organisations and the systems were called Enterprise resource Planning (ERP).
Fundamental to ERP systems of today for manufacturing and distribution is still MRP. To drive an effective MRP the base data in the parts master must be accurate and maintained if the information resulting from an MRP run is to be useful to the company.
There has been many ERP systems implemented which produce less than useful information for the purposes of planning, procurement and manufacturing. The necessity to get the base data correct to support effective MRP include:
1. Correct Bills of Materials (BOM) These must be a minimum of 98% accurate. That is 98 bills out of 100 must be 100%. Some argument always takes place on the definition of that around small hardware items and bulk issue components. The argument generally is a confusion of BOM accuracy and inventory control. If the item is on the BOM then the product costing will pick it up, be recognised by kit lists but be flagged as bulk issue and can also be recognised easily in any engineering change process affecting those items.
2. Inventory Accuracy. In order to effectively support MRP the inventory accuracy must be maintained to an accuracy of minimum 95% within a counting tolerance. That is 95 items out of 100 must fall within the + or – tolerance given for that part.
3. Routing Accuracy. Routing accuracy is the sequence and timing of events in each work centre that requires the materials being planned. This also requires an accuracy of minimum of 95% to enable the MRP to correctly time the arrival of materials. For many organisations the MRP is used to provide a forecast to vendors but the actual call-off is executed via just-in-time kanban systems. For those organisations where kanban is practical it is an excellent marrying of MRP and Lean principle for materials supply.
The information against each part is contained within the item or parts master file against each product and major assembly. Structures of bills of materials is an important part of any ERP implementation as poorly, under-structured or over-structured bills of materials can cause problems in planning, inventory control and production. For example highly optioned products should not have unique bills of materials for every combination of end product. These should be broken down into the main assembly options and a product configurator used to bring them together at the sales order entry stage. This dramatically reduces the number of bills of materials that need to be maintained in the system.
There are many elements to the parts master that need to be carefully examined for consistency and accuracy otherwise the MRP calculation can produce numbers perceived as nonsense and unusable.
Any shortcuts taken in cleaning up and establishing an accurate parts master file will impact your MRP output and can cause chaos when the system is turned on to live running. Poor MRP outputs will not support the supply chain and the purchasing and planning people will resort to other methods in obtaining information that will ultimately result in too much inventory, not enough inventory and the flow-on to production and ultimately the impact on product costing and customer service.
The rush to turn systems on to get the return on investment and complete ERP projects can result in far more money being spent to clean up a system post-live tunning than the cost of doing it correctly prior to turning the system on. A lesson many companies have learnt to their cost. In some cases that cost ends up in bankruptcy!