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Fundamentals of Materials Planning in ERP
Monday, March 31, 2014

Materials Requirement Planning has been around for the past 40 years yet there are many organisations who struggle to get their heads around the power of the tool and how to use it effectively.

Many organisations we visit still use the min/max system of material replenishment using their ERP system in the mistaken belief that this is in fact the systems Materials Requirement Planning (MRP) capability. Others raise works orders and then run the MRP against the works orders to determine what materials they have and what materials
they need to order and expedite to complete the job. Whilst this type of planning is better than manual planning it is not what MRP was originally designed for. MRP is a powerful tool used to plan and control the movement of inventory in and through a manufacturing organisation.

The essential part of using MRP is to get the data used for the planning accurate and set-up in the system. MRP works off a Master Schedule (MPS) of what you want to make which in turns drives the MRP part of the system. Most ERP systems have a master schedule built into the ERP system which needs to be understood and set-up in the way the company wants to manufacture product.
Effective MRP requires an examination of the type of products and how they are manufactured to enable the correct structuring of the bills of materials (materials used in product) and routings (how the product is routed and through which work centres) Bills of materials must contain the parts used in manufacturing the product, even bulk issued parts, and must have a high degree of accuracy otherwise the calculation through MRP will not be correct.
The inventory records, on hand (in stock) and on order (from vendors or due from factory) must be accurate or the system will simply not be able to determine what is available and what needs to be ordered, in which time period to satisfy the needs of building in accordance with the MPS.

Tying the process together requires more than simply implementing a set of computer programs. This is typically not the job of the system integrators, their job is to assist with the implementing the software part of the ERP system and it is the responsibility of the scheduling and data set-up is the organsiations responsibility.

For the materials requirement planning part of the system to work effectively a lot of effort needs to be put into ensuring the data components of ther system are accurate and can support effective MRP. It is not unusual in ERP implementations for data to be tranferred from a legacy system to the new system without being effectively cleaned up or restructured creating errors in processing and business chaos. Shortcuts taken during ERP implementation may seem a way to cut implementation costs with little or no impact
during the implementation stage of the ERP system but the reality of the impact of the shortcuts become evident when the system is turned on and simply generates inaccurate and unuseable information for running the business. The cost of fixing the problems when the system is turned on far exceeds the cost of doing the job correctly during the implementation stage of the system. The statistics on failed and non performing systems continually highlight the failures to pay sifficient attention to the data integrity during the implementation stage of ERP implementations
with the resulting disappointing results when live running is activated.

MRP for manufacturing companies can provide enormous benefits in synchronising the delivery of materials when they are required and identifying which materials will not be available for the production cycle. Unfortunately the MRP part of the system is little understood for many companies which is why they try to duplicate the min/max or run MRP from individiual bills of materials. Education is an essential part of any ERP program and the distinction must be made of the difference between education and training. The education will provide the vision of what you want to do whilst the training wilol show you how to do it.

Ray Atkinson

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