Why small business should embrace MRP/ERP systems

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What is an MRP or ERP system and how is it different from the financial package I run today?

Put simply an MRP or ERP system is a means of holding most of the information that you use in your business on a day to day basis. It enables you to plan what has to be done, when it has to be done, and to inform you of any issues which need to be addressed.

It encompasses quoting and estimating, sales orders, product costing, production planning, shop floor documents, recording of production, advanced stock control, purchasing of materials used in manufacturing, purchasing of all other product including spares. It may offer forecasting of demand, inventory planning, and a production planning board. All this is integrated with financials.

The terms MRP and ERP mean Materials Requirements Planning and Enterprise Resource Planning respectively and refer to the fact that the systems offer, as a minimum, planning of materials based on your finished product requirements. ERP systems typically offer additional functions such as scheduling, advanced inventory planning, customer relationship management and supplier relationship management. The purpose of these functions is to enhance the flow of materials and information between your suppliers, you, and your customers.

What companies are MRP/ERP systems suitable for?

Modern MRP/ERP systems are designed to cater for many different manufacturing environments including make-to-order, engineer-to-order, batch process and mixed. The essential information needed by such a system to effectively plan is: when is it required, when do I need the materials, and when do I need to start the job without it running late? It should be as suited to your business as it is for General Motors.

Companies as small as 5 employees have implemented such a system successfully.

Will I need more staff to run a more complex system? The experience is that after the normal settling in period the number of staff you need is no higher and often less than you had before.

Why you should implement an MRP/ERP system

Let us then look at the realisable benefits of implementing an MRP/ERP system for a small manufacturer.

It is true that these benefits are all intangible but they have been achieved time and time again by companies both large and small. For any small company prepared to make the effort it will pay for itself many times over.

The benefits listed below are categorised under Data, Inventory, Processes, and Business Value.

Data
· One of the primary benefits is that information is available to everyone in your organisation who has the right to see it. That information is as up-to-date as the last keystroke. Stock levels, or when it will arrive into stock, are instantly available. The status of production orders, and the current cost to manufacture, can be viewed and changed where authorised.
· The information is consistent throughout the company. No more personal spreadsheets with information that is not completely up-to-date.
· Errors based on out-of date information or lack of information are eliminated.

Inventory
· Stock is only ordered when required and for the time it is needed.
· Stock levels are set to improve availability as well as keep the investment low.
· Emergency expediting is normally reduced by 50-80%.
· You have the information to negotiate with suppliers to further lower material costs.
· You have the tools to manage consignment stock effectively.
· Forecasting of demand, if feasible, improves availability and reduces stock levels even further.
· Since inventory costs about 25% of its value each year to hold in stock, any improvement is an improvement to the bottom line as long as availability is kept high.

Processes
· Quoting and estimation integrated with sales orders and manufacturing improves accuracy, fewer unprofitable quotes and better follow up.
· Sales Orders are not forgotten (quoted as happening by many companies).
· Re-costing of your whole product range based on current material costs and labour rates can take as little time as 2 minutes.
· Purchasing of required materials is not forgotten.
· You have the means to stratify your products and materials and work on improving the performance of your most profitable or critical items - divide and conquer.

Business Value
· When it comes to succession or sale of a company all the information which is in the head of a business owner needs to be transferred to the new operator. (Like pulling hens teeth.)
· Implementation of an MRP/ERP system involves the transfer of that information into the new system.
· Any small company that has invested the money and effort to implement an MRP/ERP system has the transition to the successor made so much easier and the sale value of the company is significantly increased.

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