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When MRP Fails
Wednesday, February 20, 2013

It doesn’t take a genius to work out that a failure to effectively implement an ERP system is going to have significant ramifications on the entire supply chain. Turning demand into product that can be shipped is one area that will cause a lot of heartache for organisations as inventory planning driven by Materials Requirements Planning (MRP) just gives out rubbish numbers for the procurement and planning people to work with.

Irrespective of the incorrect numbers that is being pumped out of a non-performing ERP system the day to day business of running the company, buying materials, planning production, picking inventory, producing product and shipping it must go on. The MRP function of the system is processing, as it should, but the problem is you probably took shortcuts during the implementation of the system to cut the costs with the belief that you would come back to it later only to find that the cost of the disruption to the business and loss of control over the supply chain will cost far more than it would have if you had done the job properly in the first place. You may have scrimped on the training or had it too early and don’t know how to run the MRP properly.

MRP cannot provide you the right numbers if the right information is not set-up in the system to process in the first place.

The consequences of this are obvious:

- Procurement does not have accurate information on which to place orders so they resort to looking at historical numbers for forward orders. The results are too little or too much inventory and the flow on to urgent transport and increased inventory holdings.

- Inventory blows out and you end up with too much of the wrong thing and too little of the right things to build product

- Production now have shortages so that they cannot complete product and end up with a factory full of half built jobs

- Expediting and urgent transport blows out the costs

- You can’t ship product to the customer, due to incomplete orders or problems with invoicing that weren’t dealt with during the implementation stage.

These implications flow through to finance and costs and the results can be disastrous and even cause companies to go bankrupt.

So you think you can cut corners in the implementation of your ERP system? It is simple to say MRP is not working, the reality is it can be catastrophic for the company.

This scenario is repeating itself all over the world even though you are paying or paid big dollars for external expertise from the software house and their partners. They accept no responsibility and simply point to your shortcomings in the project for the blame.

This can be avoided by looking at the project from a business change perspective and not a technology solution. Assess yourself against the 26 steps and see where you are likely to run into trouble. This can be done at any stage of your project.