Assignment

Course:
Topic:

Supply chain Management

Material Requirement Planning (MRP),
Manufacturing Resource Planning (MRP 2),
Enterprise resource planning (ERP)
Systems in SCM

Submitted to:

Sir Sohail Majeed

Date of
submission:

16/2/2014

Submitted by:

Saad Munami (8103)

Syed Muhammad Shahzaib Zaidi (8100)

 Introduction of supply chain management

Advantages of using software
Material Requirement Planning (MRP)

MRP Processing
MRP Advantages
MRP Drawbacks
Conclusion
Manufacturing Resource Planning (MRP II)
Benefits of MRP II
Disadvantages of MRP II
Conclusion
Enterprise Resource Planning (ERP)
Advantages of ERP
ERP Selection
How do we start for ERP
ERP involves
Drawbacks of ERP
Conclusion

INTRODUCTION

SUPPLY CHAIN MANGEMENT:

Supply chain management is the flow of goods and services between entities which
includes the storage and movement of raw material, work-in-process inventory and
finish goods from point of origin to point of consumption to satisfy customers at
minimum cost.
Manually managing supply chain efficiently and effectively is become very complex
and time consuming task because the data of suppliers, customers, raw materials,
work-in-process and finish good is in huge amount when company like P&G or
Unilever has 100 of products so we could imagine how difficult it would be for them
to manage data of all the inventory as well as to record data of customers and
suppliers so moving from manual work to softwares like MRP, MRP2 and ERP can
help streamline their process.

ADVANTAGES OF USING SOFTWARE:

After moving towards these softwares it helps to:

Avoids costly human errors

If the company manually tracks the entire inventory and forecast it then the risk of
error in this method is high. Imagine if the company have order of only 100
customers with each order have 10 different inventories the risk error is too high
and if the wrong inventory is dispatched to the customer then it will obviously
impact on customer satisfaction, increase cost of company and order fulfillment
performance.

Intelligent management of real time business

Moving towards powerful software means the operation staff can forecast and
manage inventory or even they can manage whole supply chain at one place. If the
demand increases software make it easy to manage time scales and make it easy to
adjust any kind of procurement, production and distribution process.

Avoid unnecessary overstocking

Software makes it easy to manage inventory with minimum lead time, it is difficult
to manually recheck all inventories and forecast how much amount of material is
required and how much is already in the stock, But with the help of software it
become very much easy to maintain record of every inventory which helps to avoid
unnecessary overstocking.

Manage logistics
Integrated Software helps to monitor inventory at one place either it is coming from
supplier or it is to deliver to customer or shifting to warehouse. So it helps to
controlling planned and actual stock transfers from supplier or transfer to customers
or warehouse.

Reduce paperwork.
Moving from paper work to software ensured you that all transactions are entered in
one system, coded up correctly and will give complete record whenever require. So
it minimizes paperwork, time and cost.

MATERIAL REQUIREMENT PLANNING (MRP):

Material requirement planning (MRP) is a computer based software help to assist
manager to ensure enough products are available for delivery to customer and
material is available for production and to minimize stock in warehouse it also helps
in scheduling and placing order for dependent items.
Dependent items are the components of finish goods such as different raw materials
and different component parts use to make finish good, like: to make motorcar
dependent items are wheels, seat, engine, steal etc.
MRP management system was first evolved around 1940s and 1950s. In the
1960s, Joseph Orlicky studied the TOYOTA Manufacturing Program and gives the
concept of MRP (Material Requirement Planning). Black & Decker in 1964 was the
first company to use MRP. They use mainframe computer to detonate information
from bill of material for finish goods in to purchasing plan and production for
components.
MRP works to develop requirement for raw material and finish goods, from a
production plan to finish goods. MRP started with the schedule for finish goods
which afterwards converted in the scheduled requirement for the subassemblies,
the raw materials and the component parts used to make final products within the
establish schedule. MRP basically designed to give answer to three questions, what
is needed? When it is needed and in what quantity it is needed?
Implementing and using MRP can help manager to know how much capacity is
needed to allocate production time. But MRP for small business is very costly and
time consuming to implement which may put them out of range. In addition the
information that comes out from MRP is as only good as it posted into it. So
company must maintain accurate bill of numbers and inventory if they want to
obtain maximum potential benefits from MRP.

MRP PROCESSING:

For supply chain process, MRP system use information called master schedule,
material bills and inventory record files, an MRP system calculate the net
requirement for subassemblies, component parts and raw material for each period.
In order to compute the net requirement, MRP compute it as:
Gross material Requirement Inventory on hand + Safety stock
Although working backward from production schedule to finish good is seem to be a
simple process but it is actually an extremely complicated especially when one
material is used in manufacturing of number of different products. Frequently
changing in order quantity, size or production schedule is not simple process. But
MRP made it easy when one has to track number of material schedules then it
manifests the power of computer software.

ADVANTAGES OF MRP:

Helps to minimize inventory level.

Increase inventory turnover.
Track material requirements.
Identifies shortage in inventory items.
Helps to track raw material, work-in-process and finish goods.
Helps to plan the procurement schedule.
Determines the most economical lot sizes for order.
Computes quantities required for safety stock.
Calculate bill of material (BOM) and assemblies required.
On time delivery.
Customer service and responsiveness.

DRAWBACKS OF MRP:
With the above advantages, MRP also have several problems:
1) MRP only give accurate output if accurate input is provided to it. If any of
business has not maintained accurate records of inventory or if failed to
update all relevant changes in BOM (bills of material), it will not be able to
receive accurate output from MRP system which may cause serious problems.
They could encounter a problem of missing parts, schedule delays, excessive
order quantities or missed delivery dates. So if any business wants MRP to
function effectively and provide useful information they must have an
accurate master schedule, current inventory levels and good leads time
estimates which is obviously not an easy work.
2) Another drawback possibly encountered with MRP is costly, time consuming
and difficult to implement. Many businesses when trying to implement MRP
face resistance from employees. Because when the employee is habitual of
doing manual work it become difficult for them to switch towards new
software which is not an easy to use.
So to implement MRP the main work of company is to give training and
education to all key personnel and it is important to identify at the initial stage
whose work will be affected by new MRP system. Therefore the MRP was the first
step to enhance the supply chain process which leads to the efficiency and
effectiveness of the business.

MANUFACTURING RESOURCE PLANNING (MRP2):

The technology of MRP expended in 1980 to create new approach called
Manufacturing resource planning or MRP2. In manufacturing resource planning
(MRP2) the valid production schedule proved itself to be so successful that
organization knows that resources could be better controlled and planned with valid
schedules. In the book of Production Planning and controlling writer Gordon Minty
noted that: By the improvement in cash flow projections, personal management
projections and customer delivery commitments the main areas affected were
marketing, personnel and finance.
With master production schedule MRP2 facilitates the improvement of detailed
production schedule used for machine and labor capacity, provide schedule when
the production is to run according to the arrival of materials. It provides the data for
the cost of production including labor time, material used and machine time, also
MRP2 provides final production numbers to finance and accounting department.
MRP-2 or Manufacturing resource planning is too beyond from MRP1. When MRP
stopped receiving the dock, MRP2 includes the flow of value all the way to the
shipping dock through the manufacturing facility where the product is first
packaged and then dispatched to the final customer. The stream value includes
Machine capacity scheduling, planning, analysis modules, demand forecasting and
quality tracking tools. MRP2 come up with some tools for tracking labor contribution
margin, employee attendance.
MRP2 maintains track of functions and specific characteristics of the entire
organization. Example includes, but it is not just limited to, the following:

Product specification
Quality control
Product design
Quality assurance
Order management

Shop floor control

Inventory
Purchasing
Cost calculation
General accounting
Cost reporting
Tax calculation
Cash flow
Tax payment

Manufacturing resource planning (MRP2) helps business to standardize their

processes by providing them mechanized methods for different areas of the
business. Standardization provides easily repeated process and a platform which
helps to improve those processes. Implementing MRP2 by the company for the first
time is generally having problems in controlling the increasing transactions in
manufacturing, purchasing associated with the growth. MRP2 enables employees to
do more in those business areas and have better visibility of the information for
their jobs. MRP2 allows being more competitive to the company by improving in the
way works get done.

BENEFITS OF MANUFACTURING RESOURCE PLANNING (MRP2):

Better control of Inventories

Productive relationship with
Better quality and also control quality
Improve design control
Improve cash flow through fast delivery
Accurate inventory records
Reduced working capital for inventories

DISADVANTAGES OF MRP2:
Once implemented MRP2 it will require accurate information. Errors will result in
automated planning process if the information is used in poor quality in either the
bill of material module or the inventory area. To manufacture or purchase the
planning part use averages for length of time (lead time), and on purchase order or
manufactured quantities that is generally purchase on work order (lot sizes). If the
actual lot sizes produced or purchased and lead times fluctuates consistently then

the software will not be able to produce plans that match with current scenario.
Lack of understanding and poor information of then impact on average lead times
and lot sizes can cause execution failure and costly reimplementation.

Conclusion:
It is long time that MRP2 is introduced in industry and business. For proper
understanding of the application aspects staff must be fully trained and for
achieving benefits from MRP2 commitment for implementation is pre-requisite. Most
of the companies in the world having MRP2 are implementing (Enterprise Resource
Planning) ERP gain maximum productive results with highly effective software.

ENTERPRISE RESOURCE PLANNING (ERP):

ERP is the solution that addresses the enterprise needs taking the process view of
an organization to meet the organizational goals tightly integrating all functions of
an enterprise.
Enterprise resource planning is business management software integrates all the
internal and external information, in to single complete solution, which is used by
the organization. An ERP solution includes for the organization the practical system
which they use for their business to manage the basic commercial functions, such
as, inventory, management, planning, manufacturing, purchasing, accounting,
human resources, finance, sales, services and marketing etc. the purpose of ERP is
to drive the information flow between all internal business and manage connection
with outside stakeholders.
Enterprise resource planning (ERP) run on a variety of network configurations and
computer hardware including client/server i.e. on premises or hosted i.e. cloud
based
Typically ERP solution use a common database, regardless of the configuration, to
hold information from the different business functions thats easily available in some
form or another by different users. Organizations use ERP to manage the solutions
multi-model application within a general information system is one of the most
important ERP benefits over point solution of this kind of system.

ADVANTAGES OF
ENTERPRISE RESOURCE PLANNING SYSTEM (ERP):
ERP system has reduced the operational costs incurred in manually tracking as well
as makes it easy to track workflow across different departments and also reduced
duplicating data using different and individual system. Following are the advantages
of implementing Enterprise Resource Management (ERP) system.
Coherent and Automatic workflow from one department or function to
another to ensure smooth transition and completion of processes.
Complete visibility (especially for senior management personnel) of all the
important processes across different departments of the organization.
Since single integrated software is operating by all departments so ERP help
them to avoid maintaining or buying their own software systems.
A single and unified system to analyze the numbers, statistics and status etc.
in real-time across all the departments.
ERP systems provide advanced e-commerce integration which can handle
web-based order tracking and processing.
ERP system could also be extended to provide Business intelligence
functionalities.
In an ERP system there are various modules like Accounts, Finance, Human
Resource Management, Marketing, Sales, Manufacturing, Warehouse
Management, Supply Chain, Project Management, CRM etc.

 On the back end single data base is implemented to store all the information
required by the ERP system which also enables centralized storage of all
enterprise data.
ERP system enables faster and better collaboration around all the
departments.
Centralized security policies can be applied to ERP to make it more secure
moreover all the transactions made through ERP systems can be tracked.
As ERP is a modular software system, so it is possible to implement either
many modules or few models based on the requirement of an organization.
The modules will be implemented the integration between various
departments will be better.
Through an (Application Programming Interface) API it is possible to integrate
other systems (for example like bar-code reader) to the ERP.
ERP make it easier for inventory tracking, revenue tracking, sales forecasting,
order tacking and related activities.
ERP system helps for managing globally dispersed enterprise companies

ERP SELECTION:

Check
Check
Check
Check
Check

whether all functional characteristic of the business are covered

whether all the latest IT trends are covered.
whether all the business processes and functions are fully integrated.
whether the vendor has implementing and customizing capabilities.
your investment capability and ROI.

HOW DO WE START FOR ERP:

Ensure that you have enough financial funds
Ensure the management is behind you
Identify core project team, specialist, project manager and analyst from all
financial areas.
Make an implementation plan.
Evaluate and select ERP Package.
Present plan to the concerned committee of management for sanction.
Present plan to employees group for feedback.

ERP INVOLVES:

Business and operation Analysis

Business process Re-engineering
Project planning
Installation and configuration
Restructure of organization
(BRP aimed to help organization fundamentally to think again how they could
do their work in order to considerably cut operational costs, improve
customer service, and become world class competitor)

Business requirement mapping to software

Project team training
System modification and interfaces
Module configuration
Custom documentation
Data conversion
Conference room pilot
End user training
Production
Acceptance testing
Post implementation audit\support.

DRAWBACKS OF ERP:
The cost of implementing ERP software, planning, configuration, customization,
testing etc. is very high.
It takes 1-3 years to get ERP implemented and get completed and fully functioned.
Too much customization slow down the project and it will be difficult to upgrade it
while too little customization may not integrate the business process with ERP
system.
The return on investment may not be realized immediately after implementing ERP
& it is not an easy task to measure the same.
There may be additional indirect costs like upgrading the WAN links, new IT
infrastructure etc.
For successful implementation of ERP software the participation of users is very
important. So, simple user interface and exhaustive user training might be critical.
But it is generally difficult to use or learn ERP system.
It is always difficult to migrate from other stand alone softwares to integrated ERP
system and the migration of all the existing data to new ERP systems.
In decentralized organizations ERP implementation is difficult to achieve with
disparate business processes and systems.
ERP system when once implemented it cannot be further upgraded or customized
as it becomes a single vendor lock-in.

CONCLUSION:
An ERP benefit doesnt just lead to increase SCM competencies; more so in the case
of managerial, strategic and operational ERP benefits.
It is believed that 80% of respondent who before developing SCM system,
developed an ERP system are receiving more positive result.