Manufacturing resource planning software, sometimes called material requirements planning, also known as MRP II software, is the core technology that sets manufacturing applications apart from other types of business software. This added functionality also adds complexity, both in implementation and in operation. We wrote this buyer’s guide to help buyers navigate the maze of top MRP solutions.
Here’s what we’ll cover:
- What is MRP Software?
- What Type of Buyer Are You?
- The Vendor Landscape
- Market Trends You Should Understand
- Benefits & Potential Issues
- Recent Events in the MRP System Market
What is MRP Software?
“If you fail to plan, then plan to fail” is equally true in sports and manufacturing. Manufacturing MRP software was the first attempt to bring software tools, such as a materials forecast, to formal manufacturing techniques. These systems answer the four basic questions: What do I make? What do I buy? When do I buy? When do I make?
MRP is a subset of enterprise resource planning (ERP). It covers the period of time from when a product is conceived, the raw materials are identified and procured, resources are identified, to when production steps are planned. At that point, manufacturing execution systems (MES) take over.
ERP combines the tools of an MRP system and an MES system, and extends both. MRP and MES focuses on planning for individual jobs, ERP is concerned with a manufacturer's entire chain from buying raw materials to delivery of finished goods to the customer, over the course of time. In other words, MRP ERP software focuses on increasing efficiencies for the course of a job and ERP takes a wider and longer view, over all jobs from end to end.
Basic functions include inventory control and procurement, production forecasting, job costing, procurement scheduling, and process scheduling applications. Job costing is usually the core function. It determines what is made versus what is bought. Job costing works with the inventory system to check quantities on hand and lead times for parts that must be ordered as well as production logs to determine lead times for any sub-assemblies that must be fabricated.
Manufacturing resource planning systems are adaptable to many different philosophies but favor the lean manufacturing and just-in-time (JIT) system. It can support all modes including discrete, process, make to stock (MTS), assemble to stock (ATS), assemble to order (ATO), make to order (MTO), and engineer to order (ETO). However, planning and inventory control functions are generally more important to the “to order” modes due to the time constraints that these modes impose.
MRP ERP systems are generally run on premise. Small shops may have only a single-user system or a small network, while larger organizations may have networks with workstations throughout the facility. Manufacturers have been slower to adopt Cloud-based materials requirements planning programs but there is an emerging group of vendors offering a Cloud program.
What Type of Buyer Are You?
The first step in evaluating programs, is determining what type of buyer you are. Over 90% of buyers fall into one of these three groups:
- Full-suite buyer. These buyers value the seamless integration of data and processes that comes from having one system for all functions. For example, they would prefer a full-suite system for estimating, work-in-progress management and accounting that can automatically turn an estimate into a budget for project management and then match invoices to project status and allocate job costs. These buyers favor complete suites like Oracle, SAP, Sage ERP or Microsoft Dynamics.
- Departmental buyer. Specialists in one function, such as job costing, may value the feature depth of best-of-breed solutions designed for their function. These buyers may need specific functionality, like the ability to interface with a specific departmental procurement system.
- Small manufacturer. Small and organizations often have limited budgets and fewer IT resources available. In many cases, they may be deciding between a new system and a new piece of equipment. These businesses need cost-effective small business MRP solutions that are easy to implement and use. Others may be interested in evaluating free MRP software, which is typically offered in an open source model. Some will prefer full-suite systems, while others may just want one application, such as resource planning or production inventory control.
The Vendor Landscape
The scale of solutions varies greatly; different buyer types need to “right size” and compare the vendors that can meet their needs.
|This type of buyer...||Should evaluate these systems|
|Enterprise resource planning suite buyer||Microsoft Dynamics, Oracle, SAP, Sage|
|Departmental buyer||Microsoft Dynamics, Epicor, SYSPRO, Casco|
|Small manufacturer||E-Z-MRP, ECi, Exact, Fishbowl|
Market Trends You Should Understand
While you evaluate programs, make sure you consider these market trends:
- Advanced planning techniques. As the cost of computing power and storage decreases, more powerful planning models are available which yield better results.
- Harmonization. For many years, the goal for MRP and ERP was a single corporate-wide data store. However, that thinking is now evolving to strategically selected systems for specific purposes, sharing information as required.
- Use of mobile devices. Until recently, most system designers assumed that the users would be working from a fixed location. Any information had to be entered, remembered, or written down and brought to the computer. The new trend is have to mobile systems in the warehouse or shop floor. Operators enter pertinent information directly into mobile systems without having to go to a permanent workstation.
- Vendor consolidation. Large vendors like Oracle and Microsoft are buying niche vendors to round out manufacturing application libraries. With so many vendors and products available, this trend will continue for the foreseeable future.
- Intelligent inventory tagging. The use of one-dimensional bar coding for equipment and inventory tagging is well established in systems for manufacturers. Recent systems use radio frequency identification (RFID), which can be read remotely to check inventory levels and to confirm equipment availability. Other systems use two dimensional bar codes which contain descriptive information in addition to an identifier like a part number.
- Functional integration with ERP. While there are still numerous stand-alone systems, generally the functions are part of a larger ERP system that is broader in scope than just a facility.
Benefits & Potential Issues
MRP systems, whether stand-alone or incorporated in an ERP system, offer distinct benefits over less formal production planning systems. These include:
- Better planning and resource allocation. One of the greatest strengths of ERP MRP systems is better data and greater insight into the actual costs of inventory, people, and equipment, and the actual time costs for each step of the planning and production process.
- Greener operations. Better planning and tracking leads to operations that generate less waste and less scrap, reducing environmental impact for those firms. Additionally, as more documentation is kept electronically, it reduces waste paper and cuts paper costs.
- Integration with accounting systems. The basic purpose of an MRP ERP system is to decide what to buy and when. Integration with the general inventory makes it easier to track the inventory costs as well as determining lead times. The accounts receivables system handles ordering and payment.
Material requirements planning as a discipline, and the software in general, does have some limitations which can cause problems if not addressed. Planning is based on what should be possible; it ignores current limitations. The inventory and resource planning are based on the assumption that everything is idle. Care must be taken not to over-allocate resources.
Inventory levels are another area of concern. Inventory items tend to two extremes. Either too much is carried in inventory, tying up valuable capital and credit, or too little is carried in inventory, requiring stock to be acquired and delaying production. These systems are supposed to solve this particular problem, but if the model does not adapt to changes in the inventory supply chain, inventory levels on key items will tend to one of the two extremes.
There are also problems that develop over time. The bills of materials, work orders and schedules are based on the assumptions made when the program is first installed. If assumptions are not updated to reflect changes over time as costs fluctuate and and productivity changes, the estimates from the MRP will increasingly diverge from the actual costs.
There is also a scope issue. MRP planning is based around particular jobs. While it can increase the efficiency for those jobs, it is possible that over the course of many jobs, the costs will add up. For example, if three jobs are costed that each use four pounds of salt, the system will miss the discount available if 12 pounds of salt are purchased all at once. Among other things, ERP systems expand the scope to solve this issue.
Recent Events in the MRP Market
There are several recent trends in the market that buyers should know about:
- Demand Driven MRP - For quite some time, there’s been a conflict between lean manufacturing advocates and proponents of MRP. Advocates of lean manufacturing believe that MRP ERP software tools are too rigid to reflect production environments. Meanwhile, MRP proponents believe that the manufacturing challenges of today require sophisticated software programs to accurately plan production. One emerging solution to this rift, put forward by the Demand Driven Institute, is demand driven MRP. Demand driven MRP looks to improve the inventory control and planning by aligning material requirement planning closer to demand signals to dynamically plan production.
- Web based MRP - Until recently, many involved in the manufacturing industry believed that material resource planning was too complex to run in the Cloud. However, an increasing number of vendors are beginning to offer web-based solutions for the industry. Although most are still maintained on premise, it’s now possible to plan materials and production in the Cloud. Of course, these types of solutions are geared toward small to medium-sized manufacturers at the moment because of limited computational ability. However, Cloud-based systems are beginning to move up market.
- Integration with Social Tools - While still in its nascent stages, social tools are beginning to make their way into MRP software packages. At the moment, most of these tools are aimed at improving internal collaboration. One tool making its way into manufacturing is Salesforce’s Chatter, which can be used to create an activity stream for anything from a purchase order (PO) to a bill of materials (BOM). These activity streams can be useful for adding a qualitative perspective to the quantitative data produced by the MRP application. For instance, as the MRP program optimizes inventory levels and capacity, employees can use an activity stream to leave notes on what will help optimize customer satisfaction and company revenue for a given plan.
To get a sense of the history behind this material requirements planning and related technologies, visit our timeline that details get events, people and milestones in the history of this technology.