Using MRP and ERP for production planning
The 7 limitations of MRP for production planning
The promise of ERP (Enterprise Resource Planning) to manufacturing companies is to provide integrated business software that supports the entire organization. So when combined with a Material Resource Planning (MRP) module, you as a manufacturing company are covered for the automation of your production planning. Or is it? Production planning includes the planning process of production activities for a coming period. Good production planning takes into account factors such as available production resources, current orders, and efficient use of labor, materials, and equipment. Here we distinguish the somewhat longer term and the short term, also called production scheduling.
Many ERP packages offer an MRP module, this abbreviation stands for Material Resource Planning. MRP refers to a system for planning the required resources (material, people and machines). But is MRP also suitable for short-term production planning? We will explore that in this blog.
What is an MRP system?
Let’s start with what the terms MRP and ERP actually mean. An MRP system and an ERP system are both software solutions used to manage business processes, but they have different purposes and functionalities that we briefly list below:
MRP or Material Resource Planning
- An MRP system focuses primarily on planning and managing material requirements for production.
- Based on production planning, orders, inventory levels and delivery times, the MRP can identify what materials and quantities are needed to meet production needs.
- MRP systems help schedule needed orders or production of materials, with the goal of minimizing inventory costs while meeting demand from the production environment.
The purpose of an MRP system is to ensure that the right materials are available at the right time in order to keep production processes running smoothly and to prevent over- or under-stocking.
ERP, or enterprise resource planning:
- An ERP system has a much broader scope than an MRP system and integrates various business functions and processes into one central database.
- In addition to materials management, an ERP system often includes modules for finance, accounting, HR, sales, purchasing, inventory management, production planning, CRM (Customer Relationship Management), and more.
- An ERP system strives for seamless integration of all business processes, making the same information consistently available throughout the organization.
The purpose of an ERP system is to improve efficiency, reduce costs, improve decision making and optimize overall business performance through standardized processes and data.
MRP is temporally a precursor to ERP. But now MRP is more likely to be an integral part or module of an ERP package.
Can you use an MRP module or your ERP system for production planning?
An MRP module within an ERP system focuses on efficiently managing materials and inventory in a company. The primary goal of an MRP module is to ensure that the right materials are available at the right time to meet production needs while minimizing inventory costs.
The MRP module begins by analyzing the production schedule and the associated need for raw materials, components and other materials. This considers factors such as production schedules, supplier delivery times, current inventory levels and expected demand. Thus, by its nature, a production schedule is an input to the MRP system (what materials are needed for expected production) rather than an output for the MRP system.
Based on analysis, the MRP module generates detailed plans and schedules for ordering or producing materials. This includes determining the optimal quantities to be ordered, taking into account factors such as minimum order quantities, safety stocks and economic order quantities to minimize overall costs.
An important aspect of an MRP module is its ability to account for supply chain complexity. This includes managing multiple suppliers, varying lead times and uncertainties in demand. By incorporating these factors, the MRP module can accurately predict when and how many materials are needed to meet production needs. In addition, an MRP module provides, for example, insight into the availability of materials and the progress of pending orders or production processes.
In short, an MRP module within an ERP system acts as the lynchpin for materials and inventory management. To achieve that goal, functionality often exists that can help plan production, but there are significant limitations to this.
The limitations of MRP and ERP on production planning
For short-term production planning, or production scheduling, MRP and ERP are less suitable. This is related to the broad integrated functionality of ERP and the desire for centralized consistent business information throughout the system at all times.
Because of its broad functionality, an ERP system is like a cube. When you change something in one place, it affects all kinds of other places within the system. This also applies to making schedules. For example, if a raw material that forms part of the bill of materials is rejected on the basis of quality, this leads to a new integral planning. The result is that you cannot flexibly and quickly calculate scenarios, for example with different staffing levels, preconditions for production processes or desired delivery times for certain orders. Because all kinds of processes are linked together, such calculations take a lot of time and put an enormous strain on the calculation capacity.
Because of the relationships an MRP module within an ERP system establishes with a variety of other components within the ERP system, production planning with MRP has the following limitations:
- Static planning: One of the main limitations of MRP is that it is mostly based on static planning and forecasting. This means that the planning functionality does not take into account dynamic changes in demand, disruptions in the supply chain or unexpected events such as machine failures or quality problems. As a result, the MRP system can lead to suboptimal production.
- Calculation time and demand on computing power: Because all kinds of functionality are interconnected in an ERP system, the calculation of a new or alternative production planning scenario takes into account all kinds of things that do not yet have to be taken into account. Only when the planning is finalized and realized can these changes ‘pass through the administration’. As a result, calculation times can increase enormously and it is often impossible to compare a number of scenarios in a short period of time to see which one is optimal.
- Lack of relevant data: The philosophy of an ERP system is that all relevant information is available centrally. However, for good planning, data outside the ERP system can also be relevant. For example, consider a good demand forecast that is partly influenced by weather forecasts, traffic density or special events that affect demand. Several years ago, the Covid pandemic outbreak was a good example of this.
- Insufficient flexibility: MRP systems can be inflexible when it comes to adapting to changing circumstances. They are often based on fixed lead times and standard plans, making them difficult to modify as circumstances change. This can be problematic in situations where quick adjustments are needed, such as sudden changes in demand patterns or unexpected supplier problems. Especially when additional constraints apply, such as changeover times and boundary conditions on machines.
- Assumptions about data reliability: MRP systems rely heavily on the accuracy of the (sometimes preset) data they use, such as lead times, inventory levels and demand forecasts. If this data is inaccurate or outdated, it can lead to suboptimal decisions. Moreover, small errors in the data can have major implications for overall planning and production efficiency.
- Complexity and implementation costs: Setting up and maintaining an MRP system can be complex and costly. It often requires sophisticated software, extensive employee training and ongoing support to operate effectively. For smaller companies, the initial investment and ongoing operational costs can be a barrier to implementing an MRP system.
- Focus on efficiency at the expense of flexibility: MRP systems are designed to maximize inventory management efficiency through tight planning and control. However, this can come at the expense of production flexibility and adaptability. In dynamic and unpredictable market environments, an over-focus on efficiency can lead to inflexibility and reduce the ability to respond quickly to changes in market demand.
Thus, while an MRP module within an ERP system can offer many advantages in terms of automated inventory management and planning, it is important to consider these drawbacks and limitations. An MRP module can, however, offer a solution when the production process has few mutations. For example, when approximately the same production takes place every day of a few products with a simple production process.
Custom production planning
Because MRP is not really built for production scheduling, customization on this is often offered by ERP service providers. In some cases, customization can be a godsend, provided the production processes and preconditions are not too complex. But soon the customization required becomes larger than anticipated with all kinds of additional disadvantages, such as;
- High cost of development
- Problems when upgrading the MRP/ERP system
- Customization does not always prove an improvement
- When changes occur, customization does not change with them
- Customization is usually not covered by the support contract
A golden rule in in ERP projects is that the return on investment becomes minimal if the implementation takes longer than 10 months. Customization stretches the implementation time and the ERP business case then quickly comes under pressure. Not to mention the additional costs that follow with new releases, for example.
Production Planning Software
The ERP system, despite the presence of an MRP module or customization, often falls short in functionality for creating flexible production schedules. Many organization feel the need to resort to self-built planning calculations in Excel. But even that often leads to all sorts of challenges. In many cases, therefore, separate production planning & scheduling software offers advantages. Read more on production planning software in our blog. Or take a look at the planning software of Data Refinery Amsterdam.
Planwisely APS
Want to learn more about the Planwisely APS system? Download the factsheet with more information.
Related inspiration papers
Schedule a demo
And get a sense of how Production Planning and Demand Forecasting tools work in practice.
