Mrp, Mrp Ii, Erp

MATERIAL REQUIREMENT PLANNING
Introduction
* MRP is a simple system of calculating arithmetically the requirements of the input materials at different points of time based on actual production plan. * MRP can also be defined as a planning and scheduling system to meet time-phased materials requirements for production operations.
MRP Objectives * Reduction in Inventory Cost: By providing the right quantity of material at right time to meet master production schedule, MRP tries to avoid the cost of excessive inventory. * Meeting Delivery Schedule: MRP helps avoid delays in production thereby meeting delivery schedules more consistently. * Improved Performance: MRP focuses on having all components available at right place in right quantity at right time.
MRP System

* Master Production Schedule (MPS): MPS is designed to meet the market demand in future in the taken planning horizon. MPS mainly depicts the detailed delivery schedule of the end products. However, orders for replacement components can also be included in it to make it more comprehensive. * Bill of Materials (BOM) File: BOM represents the product structure. It encompasses information about all sub components. Information about the work centres performing build-up operations is also included in it. * Inventory Status File: It keeps an up-to-date record of each item in the inventory. E.g. quantity on hand, safety stock level, etc

After getting input from these sources, MRP logic processes the available information and gives information about the following: * Planned Orders Receipts: This is the order quantity of an item that is planned to be ordered so that it is received at the beginning of the period under consideration to meet the net requirements of that period. This order has not yet been placed and will be placed in future. * Planned Order Release: This is the order quantity of an item that is planned to be ordered in the planned time period for this order that will ensure that the item is received when needed. Planned order release is determined by offsetting the planned order receipt by procurement lead time of that item. * Order Rescheduling: This highlight the need of any expediting, de-expediting, and cancellation of open orders etc. in case of unexpected situations.
Drawbacks of MRP * Increased Ordering Costs: MRP do not lend to optimize materials acquisition costs. Because inventory levels are kept to a minimum, materials must be purchased more frequently and in smaller quantities. Ordering costs. * Higher Transportation Bills And Higher Unit Costs: The company must weigh the anticipated savings from reduced inventory costs against the greater acquisition costs resulting from smaller and more frequent orders. * Production Slowdown Or Shutdown: May arise because of factors such as unforeseen delivery problems and materials shortages. * Standardized Software Packages: Firms buying off-the-shelf software often will have to modify it, so that it meets their specific needs and requirements.

Manufacturing resource planning (MRP II) is defined as a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning, and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP. This is not exclusively a software function, but a marriage of people skills, dedication to data base accuracy, and computer resources. It is a total company management concept for using human resources more productively.
Objectives of MRP II: 1) Integrated System- MRPII is both incremental information integration business process strategies that are implemented using hardware and modular software applications linked to a central database that stores and delivers business data and information.

2) Closed Loop- MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human relations. The goal of MRPII is to provide consistent data to all players in the manufacturing process as the product moves through the production line.

3) Capacity Resource Planning (CRP) - Capacity requirement planning first assesses the schedule of production that has been planned upon by the company. Then it analyzes the company's actual production capacity and weighs the two against each other to see if the schedule can be completed with the current production capacity.

4) Financial Resources-In these capabilities of closed-loop MRP are extended to provide information on financial resources, personnel needs and labor budgets. It provides a means of simulating to provide information on the use of various assured plans.

MRP II ARCHITECTURE

MRPII systems begin with MRP, Material Requirements Planning. MRP allows for the input of sales forecasts from sales and marketing.
These forecasts determine the Raw materials demand. MRP and MRPII systems draw on a Master Production Schedule, the breakdown of specific plans for each product on a line. While MRP allows for the coordination of raw materials purchasing, MRPII facilitates the
Development of a detailed production schedule that accounts for machine and labor
Capacity, scheduling the production runs according to the arrival of materials.
An MRPII output is a final labor and machine schedule. Data about the cost of
Production, including machine time, labor time and materials used, as well as final
Production numbers is provided from the MRPII system to accounting and finance.

Drawbacks of MRP II:

1) MRP II is restricted to manufacturing units only and does not have any modules dealing with other business units. 2) Exorbitant costs of the system and its implementation is a major drawback of MRP systems. 3) In addition to costs highly skilled labor and machinery is required to carry out the operations as per the fixed schedule. 4) The integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data then the output data will also be incorrect ("GIGO": Garbage In, Garbage Out). 5) Data integrity is also affected by inaccurate cycle count adjustments, mistakes in receiving input and shipping output, scrap not reported, waste, damage, box count errors, supplier container count errors,production reporting errors, and system issues and all this leads to errors in preparing the MPS which in turn will affect the entire process.

Evolution of ERP:

ERP is an outcome of 40 years of trial and error. It has evolved as a strategic tool because of continuous improvement in the available techniques to manage business and the fast growth of information technology.

1. 1960-Systems just for inventory control.
Prior to 1960s, business had to rely on the traditional ways of inventory management to ensure smooth functioning of the organization. In this method, each item in the stock is analyzed for its ordering cost and the inventory carrying cost. A trade off is established on a phased out expected demand of one year, and this way the most economic ordering quantity can be decided.

2. 1970-Mrp (material requirement planning).
This was a proactive manner of inventory management. This technique fundamentally explodes the end product demand obtained from the Master Production Schedule (MPS) for a specified product structure (which is taken from Bill of Material) into a detailed schedule of purchase orders or production orders, taking into account the inventory on hand.

3. 1980-Mrp2 (manf requirement planning).
In this system only the finance and manufacturing where integerated for the production out put .

4. 1990-ERP(enterprise resource planning).
In this system the entire functions of the organization were interlinked so any update in the host computer the data was displayed in all the systems.

5. 2002 Onwards- erp2.
It describes web–based software that allows both employees and partners (such as suppliers and customers) real–time access to the systems.

What is ERP? 1. Business solutions addressing needs of the organisation using a software programme for connectiong the entire departments of the organization . 2. Covers all functions of the organization by interlinked with each other for better transaction between the organization for business needs. 3. It acts as link for the information flow and maintains coherence netween all departments hence reducing delays in work. 4. Integrated system that operates in real time which uses a software module working on a data base. 5. Meets organization goals and business requirement.

Types of ERP: It is divided in to two types that are closed loop and open loop .
Closed loop : In this system the software is so programmed that it has to be purchased in the complete entire sets and there cannot be any changes made after installation it in the host system. Examples are: Sap r/3, Sap b1,Ln/Bann ,Jdedwards .

Open loop : This are the software which can be purchased in individual modules as the company requirements they are open loop source and can b programmed accourding to the customer requirement.

Benefits of Erp: As per Aberdeen group after they installed erp system this were the benefits they were rewarded with :

1. 22% Reduction in operating cost which is the overall cost incurred by the company.

2. 20% reduction in administrative costwhich includes the entire cost from all the sources and departments

3. 17% inventory reduction and hence controlling the losses.

4. 19% improvement in completion & on time delay which resulted in high efficency.

ERP SYSTEM
The ERP System can be defined, then, would be a set of software applications that organize, define and standardize the business processes necessary to effectively plan and control an organization. Enterprise Resource Planning systems attempt to integrate all data and processes of an organization under one umbrella. Financial Management Accounts payable, accounts receivable, fixed assets, & other assets and liabilities.
Supply Chain Management Inventory management and planning, supplier scheduling, sales order, procurement planning, transportation and distribution.
Manufacturing Resource Planning Engineering, resource & capacity planning, material planning, work flow management, shop floor management, quality control, bills of material, manufacturing process, etc.
Human Resource Management Recruitment, benefits, compensations, training, payroll, time and attendance, labour rules, people management
Customer Relationship Management Sales and marketing, service, commissions, customer contact and after sales support.
ERP IMPLEMENTATION:
5 STEPS TO SUCCESSFUL ERP IMPLEMENTATION:
1. STRATEGIC PLANNING
• Assign a project team.
• Examine current business processes and information flow.
• Set objectives.
• Develop a project plan.

2. PROCEDURE REVIEW • Review software capabilities.N
• Identify manual processes.
• Develop standard operating procedures.
3. DATA COLLECTION & CLEAN-UP
• Convert data.
• Collect new data.
• Review all data input.
• Clean-up data.
4. TRAINING AND TESTING
• Pre-test the database.
• Verify testing.
• Train the Trainer.
• Perform final testing.
5. GO LIVE AND EVALUATION
• Develop a final Go-Live Checklist.
•Evaluate the solution.

VENDORS * JD EDWARDS * INFOR GLOBAL * RAMCO SYSTEMS * PEOPLESOFT * NETMAGIC * ORACLE * SAP * MICROSOFT DYNAMICS, etc.
COMPANY’S INTRODUCTION:- Hindustan Unilever Limited (HUL) is the largest FMCG Company in India with turnover of more than US $23bn. Before the implementation of ERP HUL comprised of:- * 100 Factories * 13 Sale Branches * 121 Warehouse Depots * 23 Central offices & 2 Research Centers

PRE-IMPLEMENTATION PROBLEMS:-
With over 1000 suppliers, 7000 stockiest filling up shelves in over one million retail outlets. Prior to implementation the distributors used to plan distribution based on the demand raised by stockiest. These people were given credit for 60 to 90 days against the goods. In 1995, HUL faced shortage of working capital or the liquid cash. As a result net current assets as percentage of capital employed were around about 44%. Also the supply chain faced chronic inventory problems. The supply chain of HUL in pre-implementation period:-

IMPLMENTATION OF ERP:-
To get rid of all these problems HUL implemented MFG/PRO ERP package from QAD. This was implemented at 234 sites (i.e. 100 manufacturing units, 13 sales branches and 121 warehouse depots). MFG/PRO was chosen so that supply chain module could be implemented at multiple sites; optimize the enterprise functions by increasing speed of internal processes. While implementing they faced problem because transport & telecommunication infrastructure was not so developed. Hence they decided to install 128 VSAT systems so that applications such as database connectivity, intranet, voice& video are easily accessible. The implementation of ERP was done in such way that all departments were connected with each other. The inter-connection of all departments is clearly seen form the model below.

BENEFITS OF IMPLEMENTATION OF ERP:- * Systems integrated 40 raw material suppliers, 60 finished goods suppliers and 600 large stockiest. * At the end of the day HUL factories were very well aware what needs to be dispatched based sales that evening. * HUL implemented Vendor managed inventory to integrate 750 large stockiest. * There was enough liquidity in the organization i.e. more avalibility of working capital. * Better inventory management. * Faster transfer of funds across business partners through relationship networks.

CONCLUSION:-

HUL shifted its decision making powers very close to customers thus it saved a lot of operating costs and time which is the most vital point which needs to be learned from this case.
Also HUL case can be considered as a unique case as to how an ERP package was helpful in maximization of resources across the value chain.

Hershey’s – A Brief Overview * One of the leading chocolate manufacturers across world. * Large chunk of sales from Valentine’s Day, Easter, “back to school,” Halloween and Christmas – 40% of profit. * Need of an efficient and reliable logistics system to cater to these large no. of seasonal requirements . * Reliable product availability is critical.

Existing System * A network of 19 manufacturing plants, 8 contract manufacturers and more than 20 co-packers. * The company was running on legacy systems, and with the impending Y2K problems, it chose to replace those systems and shift to client/server environment. * To tackle Y2K problem Hershey decided to replace existing legacy systems.

Expected Benefits * Fine-tune deliveries to suppliers. * Upgrade and standardize company’s business processes. * Efficient customer driven processes capable of managing changing customer needs. * Reduce order cycle times and boost inventory accuracy. * Reduce inventory costs.

Actual Scenario * Unable to deliver $100 million worth of Kisses and Jolly Ranchers for Halloween in 1999. * Stock price down 35% * Earnings drop by18% * Order fulfillment time doubled to 12 days. * Lost prominent shelf space for the season. * Several consignments were shipped behind schedule, and even among those, several deliveries were incomplete.

What went wrong? * Squeezed deadlines: * Project originally scheduled for 4 years * Company forced the implementation to 30 months * Wrong timing: * The company went live at their busiest time * Released the solution just before the Halloween * Big-Bang Approach: * To quicken the implementation process, Hershey opted for Big Bang implementation. * Simultaneously implemented a customer-relations package and a logistics package even without testing some of the modules * Increased the overall complexity and employee learning curve * Un-entered data: * “Surge Storage” capacity not recorded as storage points in the ERP * Orders from many retailers and distributors could not be fulfilled, even though Hershey had the finished product stocked in its warehouses.

FUTURE
Business Intelligence: * Business intelligence (BI) is defined as the ability for an organization to take all its capabilities and convert them into knowledge.

* This produces large amounts of information that can lead to the development of new opportunities.

* Identifying these opportunities, and implementing an effective strategy, can provide a competitive market advantage and long-term stability within the organization's industry.

* BI technologies provide historical, current and predictive views of business operations.

* Common functions of business intelligence technologies are reporting, online analytical processing, analytics, data mining, process mining, complex event processing, business performance management, benchmarking, text mining, predictive analytics and prescriptive analytics.