Advantages and Disadvantages of Using an MRP System
Even though MRP systems are quickly becoming the norm even among SMEs, manufacturers need to be aware of their advantages and disadvantages before deciding to implement new software. Apart from the general benefits and downsides that can be applied to most MRP systems, there are also aspects that can drastically vary from provider to provider.
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What is an MRP system?
MRP as either Material Requirements Planning or Manufacturing Resource Planning (MRP II) is a software-aided inventory and production planning methodology that has been around for nearly 30 years. Today, the term ‘MRP system’ is often also used to describe a manufacturing ERP (enterprise resource planning) system, which in addition to manufacturing resource planning also introduces CRM and accounting into the mix.
An MRP system is essentially designed to standardize and automate clerical tasks like data management and interdepartmental communication. It collects data across the business and ties everything together so that each part of the company would have up-to-date information related to their job, providing the so-called single source of truth. Inventory managers would know their inventory levels and requirements, production planners would know how much to manufacture and when resources would be available, accounting could keep an eye on cash flow and costs, etc.
All of this sounds great, but if you are planning on implementing MRP software in your business, you need to have a clear picture of all the advantages and disadvantages of these kinds of systems. Additionally, while the core premise of each solution might be similar, the pros and cons of different systems can vary. In this article, we will try to take a generalized look at the benefits and drawbacks of MRP systems.
Advantages of MRP systems
1. Proper implementation leads to results
As with any methodological approach to management, the key advantage of MRP is that by applying consistent discipline, you can get the benefits it is meant to deliver. And the MRP system certainly gives you much better results than acting randomly or trying to invent the wheel yourself, as many do. It does, however, take some time and patience before the results start to present themselves.
2. Improved internal communication
An MRP/ERP system acts as a business communication infrastructure, bringing all departments into the same information field. For example, when a sale is being made, the system uses available data to accurately estimate a lead time and the cost of the order. The customer order can then be instantly converted into a manufacturing order while also updating the production schedule, finding the optimal time for production to begin so that the CO would be completed in time. Inventory employees would know when and where materials are needed, and when items are consumed in production, this instantly reflects in the inventory levels within the software. With proper data inputs, some systems (perpetual inventory systems) can also continuously update the balance sheets of the company, making the life of accountants also much easier. All of the data collected (and converted into useful statistics) can be a tremendous help when making a variety of business decisions.
3. Streamlined manufacturing processes
The first premise of MRP is the standardization of processes, which allows companies to achieve consistency in their operation. Secondly, collecting and processing data within an MRP system allows you to detect inconsistencies and bottlenecks within manufacturing processes, identify their root causes, and improve your overall production efficiency. For example, if you track your workstations’ cycle times, you can immediately see if a piece of equipment or an employee is underperforming relative to the others. Having a real-time overview of your whole operation allows you to take immediate action whenever disruptions occur, improving your supply chain management and overall workflow.
4. Better material planning
Recording all of your inventory movements and tying your bills of materials to inventory data allows the software to book finished goods from stock and accurately estimate raw material requirements per each order. In addition to that, with the help of the safety stock and reorder point functionalities, along with low stock notifications, you can minimize shortages and avoid overstocking. By looking at the historical data in the system, you can also identify trends and create much better demand forecasts. With the backward scheduling functionality, you can implement the just-in-time model that enables you to order raw materials at the last possible minute for them to arrive just in time for when they are used in production.
5. Traceability in the supply chain
Software-aided inventory and production tracking also drastically improve traceability. When every event in the supply chain leaves a trail, you can trace back inconsistencies to their root cause, easily organize product callbacks, and eliminate the reasons for product non-conformity. This is especially important in industries with strict regulations such as food, pharmaceuticals, automotive, etc, but would come in handy regardless of what you produce.
6. Optimization of resources
Having readily available, up-to-date data whenever you need it gives you the chance to optimize costs, inventory levels, staffing, etc., leaving your company more flexible and efficient. MRP systems perfectly complement many inventory control methods – the amount of available data ensures more accurate calculations for MOQ, EOQ, safety stock, ABC analysis, etc. The efficient production scheduling software incorporated into MRP systems informs you about material and staff requirements and gives insight into whether you use too little of your production capacity or if you exceed it. An integrated accounting module offered by some solutions also allows you to keep an eye on the financial health of the company and identify cash drains.
7. Elimination of clerical tasks
An MRP system automates many clerical tasks related to data entry and communication. For example, tools such as barcode scanners can be used in conjunction with MRP software to eliminate pen-and-paper inventory management methods. Capacity planning and production scheduling are done automatically within the system, clearing up valuable time for production managers to spend on improving efficiency. Automated data entry and calculations also prevent human errors while automated information sharing helps avoid miscommunication between departments, with suppliers, or with customers. For example, with the multi-level BOM functionality, manufacturers of complex products can calculate material requirements and create manufacturing orders for hundreds of sub-assemblies in just a few clicks.
8. Better customer relations
The main concern of customers is that they receive their order as promised – in the timeframe, quantity, and with the price previously agreed upon. This is a complex task when you rely on many different data sources and gut feeling when providing clients with lead times and costs. An MRP system can automatically calculate these numbers based on your current inventory levels, supplier lead times, and available production capacity, making accurate deliveries the rule rather than the exception. Even when some unexpected roadblocks come up in your production process, you can immediately notify your customers about a late delivery so that they can take the necessary actions regarding their business in a timely manner. Effective communication with your customers, however, inevitably improves customer satisfaction and could lead to more business and a heftier bottom line.
Bonus advantage: improved scalability
Unlike pen-and-paper methods or spreadsheets, MRP systems can be easily scaled along with your business, providing you with the flexibility needed in today’s high-paced business environment. Managing hundreds of bills of materials (BOMs) and thousands of stock keeping units along with many suppliers, customers, and your own staff members is a gargantuan task. This is made many times easier when using proper manufacturing resource planning software that allows you to scale your business as needed.
Disadvantages of MRP systems
Along with an array of benefits an MRP system could provide, it may also have its disadvantages. These can, however, be mitigated by proper planning of the implementation process.
1. Implementation takes resources
It is not only the license or subscription cost of the MRP system that companies need to account for. Implementing business software always takes up time that has to be allocated from other activities, especially when you keep the implementation project inside the company. Before implementation, a lot of time is also spent on assessing different solutions. In case an implementation consultant is hired, you will also have to consider that their pay could often exceed what you pay for the software itself.
2. Business needs have to be clearly defined
When choosing a software, you should first map out every business need you want the new system to fill. Otherwise, you risk picking the wrong product for your company, which could either prevent you from reaping the expected benefits or become a money sinkhole due to complex implementation and use. The chosen MRP system should have all the functionalities you need, at a cost that is comfortable to the business, and with a level of ease of use that is reflective of the IT skills among your staff.
3. Everyone needs to be on board
Implementing software that affects the whole business cannot be done without having first the department heads, and later also the workers, support the change. A company has to change its processes according to the software, not vice-versa, and this can create a fair amount of discord among employees that are set in their ways and reluctant to “fix something that already works”. With reasonable arguments and effective communication, everyone can be made to see how the software could benefit both the workers and the company.
Read also about Change Management in Manufacturing – Implementing an ERP System
Data accuracy risk as a disadvantage
You might have heard that one of the major risks of an MRP system is that the data you have to put into the system needs to be consistent and accurate, otherwise it could produce underwhelming or even detrimental results. This, however, is not a disadvantage that is only specific to MRP/ERP systems. When you manage your business with a pen and paper, you can still make errors – and even more so. In an MRP system, it is actually much easier to track down a data entry error as it provides much easier navigation in the data. Fixing the error also automatically reflects in any other area that was affected by it, making corrections much quicker and less painful.
Important aspects that vary from provider to provider
There is a huge number of software providers that cater to manufacturers, with new ones popping up consistently these days. This variety on the market might be good if you have clearly defined criteria for the software, but the vaguer your requirements are, the harder it becomes to find the perfect solution. These are aspects that a company has to consider before even starting to look for an MRP system:
- Price. The price of an MRP system could range from $50 per month for a cloud-based system to hundreds of thousands of dollars for an on-premise one. Companies should also account for implementation costs when they require specialists to aid them in the process.
- Range of functionality. Many MRP systems have been developed as an extension of an already established accounting software, making the system very accountancy-centric. Functionality related to manufacturing could remain very underdeveloped in many solutions on the market. That is why manufacturers should opt for a solution that was developed specifically for the manufacturing industry. But even if a software was made for manufacturers, it might lack the functionality specific to your use case. Therefore, trialing different solutions is necessary to find the right one.
- Ease of use. MRP systems are notorious for being clunky and difficult to navigate – and with older systems, this issue is still valid. For a company that has no IT-savvy staff on their payroll, one of the primary concerns should be to choose a software solution that is easy to use for everybody, from management and accounting to the shop floor.
- An MRP system is essentially designed to standardize and automate clerical tasks like data entry and interdepartmental communication.
- Even though modern MRP systems have become a must for growth-oriented manufacturing companies, it is necessary to know the general advantages and disadvantages of this type of software, as well as the pros and cons of individual providers.
- The advantages an MRP system could offer are: improved internal communication, better material planning, traceability in the supply chain, resource optimization, elimination of clerical tasks, better customer relations, and increased scalability.
- Generally, these benefits can be achieved by applying constant discipline, i.e. by properly implementing the software and reviewing the internal processes of the company.
- Possible disadvantages include: a resource-heavy implementation process, the requirement to properly define business needs prior to the implementation, and the need to have everybody go along with the introduction of a new system.
- Some might say that a common drawback of an MRP system is that the data inputs need to be consistent and accurate for the system to bring results. This, however, can be said about any system, even a pen-and-paper one.
- Important aspects that manufacturers need to consider before choosing their MRP system are also: the price of the software, the range of functionality it offers, and its ease of use. These factors can vary substantially from provider to provider and need to be in tune with the needs of the company.
Frequently asked questions
MRP (Material Requirements Planning) is a systematic approach used by businesses to determine the necessary materials and quantities required for production, ensuring efficient inventory management and meeting customer demand. Manufacturing Resource Planning (MRP II) is an integrated system that extends Material Requirements Planning (MRP) to include other resources like labor, machinery, and capacity planning to optimize production processes and manufacturing planning.
The main advantage of MRP II is its ability to integrate and coordinate various resources, such as materials, labor, and capacity, leading to improved production planning, scheduling, and overall operational efficiency.
MRP I and MRP II are manufacturing-centric systems that focus on optimizing processes related to manufacturing, while ERP (Enterprise Resource Planning) is a broader system that integrates additional business functions such as finance, human resources, and sales, providing a comprehensive view of the entire organization’s operations.
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