March, 1998 Feature Article ERP Systems Promise a Quantum Leap Over MRPII Systems Manufacturers seeking to improve supply chain management or just the internal aspects of their order-to-delivery process should be looking into the new enterprise resource planning (ERP) systems as an alternative to the no-longer-current MRPII systems, according to management consultant Mike Donovan, president of R. Michael Donovan & Co. (Natick, Mass.; rmdonovaninc@msn.com ). "Some of the ERP system products on the market today are quantum improvements over the old, rigid and often illogical MRPII systems installed during the 1970s, '80s and early '90s," Donovan observed. "With today's configurable and more flexible ERP systems, there's been a dramatic improvement in both the speed and ability to conform to logical, customer-oriented business processes," he continued. "In fact, a number of ERP products come 'pre-packaged' with multiple best practice options that management can choose from." For manufacturers, the number of practical business choices has increased manyfold. The old conventional MRP systems, according to Donovan, were "hard coded" systems with rigid, predefined business processes embedded in the software that were difficult to adapt to the real needs of a manufacturing business. "To customize an off-the-shelf MRP system was expensive, difficult, risky and unusually time-consuming," he said. As a result, companies had to make their order fulfillment process accommodate the vendor's predefined MRP software process, and that greatly limited management's ability to adjust their order fulfillment process to cope with changing customer requirements and to create a competitive advantage. "It was a situation where one size had to fit all, and so there wasn't much leeway for tailoring the MRP system to fit a company's competitive opportunities without a significant investment," he noted. "With today's enhancements in ERP software technology, manufacturers have more flexibility to configure business processes at much more reasonable cost and risk, but more importantly, creating the opportunity for a competitive advantage," Donovan said. "One of the biggest bottlenecks in MRP systems was order data moved at the speed of light inside the computer until the system would cause information to queue and wait until functional specialists made decisions and released information for further processing. As a result, several days to a week might pass by before a plant scheduler or inventory control person would go to work on the new customer orders that had been accumulating." Naturally, this and other problems added to the delay in getting orders shipped, creating longer cycle times. That doesn't have to happen with a good ERP system with logic that ensures that the right information goes immediately to where it is needed. Also, the computer can efficiently and quickly prompt each specialist in the order-to-delivery process to act as soon as the data arrives. "By eliminating information queuing, production and delivery cycle times can be radically shortened, which means faster response to customer's needs," Donovan said. "Cycle time reductions can pay off in lower inventories, higher predictability and better service, which are the types of improvements that improve financial performance. When vendor improvements surfaced in the old MRP systems, there was usually more sizzle than substance to the change, Donovan believes. User interfaces would be made more visually attractive and easier to navigate, but the internal logic behind the screens hadn't really changed. "What I call the illogical logic of the old MRP system was still rigidly in place -- like pouring old jug wine into a Rothchild bottle," Donovan observed. "By contrast, vendors of today's better ERP systems usually offer a variety of best practice, business processes to choose from, each of which can be more easily customized by the manufacturer to fit specific needs and opportunities." The much improved new ERP software systems do more than just eliminate data flow queuing. "The truly quantum gain in functionality that you can get with the right ERP system is a very significant improvement in the entire order-to-delivery process, increasing your ability to service customers at a lower cost but also much more predictability, which is a competitive advantage," he said. Predictability means that the right inventory will be available, at the right time, to fill customer orders. And it also means getting those orders moving at high velocity and to have your goods arrive at the customer's site when they are needed. In the not-too-distant future, companies who cannot do this will be out of the game, without exception, Donovan predicted. "Predictability is what manufacturers who are determined about staying on top of their competitors need, by providing what today's more demanding customers insist on," he continued. "Once achieved, improved predictability can work magic on the company's bottom line." Whereas MRP allowed a specialist in order fulfillment to determine the *date* when an order was *scheduled* to be shipped, it could not tell the worker when in fact the order *would be shipped*. As a forecasting decision support tool, MRP had one important flaw: It worked with data that often lagged what was actually going on in the plant. For example, it could tell the plant scheduler the time when an order was placed or the amount of inventory that had been ordered, but the dates captured in the computer data bases weren't necessarily in alignment with what was actually happening in the warehouse, the assembly line or the shipping department. Data flow realities didn't match up with the physical realities of what was going on in the business. During the so-called MRPII era, sales forecasting and simultaneous inventory deployment planning was most often ignored, and because of some of the teachings of the era, sales forecasting was relegated to the status of witchcraft and of little real value. However, thanks to today's much improved understanding of the value and doability of sales forecasting and appropriately calculated inventory deployment, inventories can now be managed coincident with expected customer demand, creating a competitive advantage in the order-to-delivery process, Donovan said. Those responsible for order fulfillment can ask important "what if" questions and make rapid, precise inventory and production adjustments to maximize customer service performance as well as other performance gains. "The quantum leap in ERP system capability includes far superior visibility and time links into the flow of vital information needed to manage the entire supply chain," Donovan explained. For example, if management needs to better manage inventory availability and customer service, an ERP system can quickly make the necessary calculations for customer service objectives to be achieved with a high degree of predictability. It's the difference between MRP's cumbersome and often reaction approach using more static information versus dynamic real-time monitoring of information which allows for a proactive mode of operation. This trend will continue with increasing emphasis on manipulating the vast number of order fulfillment variables in real time using various "what if" scenarios, after deciding which performance metrics management wants to optimize -- whether it's the fill rate, order-to-delivery cycle time, inventory levels, or possibly all in combination. For those manufacturers who do not have a real need to step up to modern ERP and are still using earlier MRPII systems, there is some good news. The enhanced functionality of today's software -- for sales forecasting and finished goods inventory deployment, plant scheduling and inventory control can be added to MRPII systems at a very reasonable cost. Although prices can range from as low as $500 to as high as $500,000 for a sales forecasting system, robust decision support tools that will do the job for most companies can be installed for $25,000 to $75,000. "This is an area in which management should get involved," Donovan emphasized, "given that the potential return-on-investment can be a multiple of 10 to 100 times the investment in the new add-on software. That's because performance improvements can be had in many areas, including reduced cycle time, improved fill rates, enhanced customer service, increased sales, and lower inventory costs, among other benefits." Donovan pointed out, however, that management needs to be well informed regarding their options and not just rely on software upgrades alone to do the job. "You have to analyze your business processes thoroughly, especially in the order-to-delivery area and then implement strategic business process improvements supported with the information technology (IT) to get the job done properly," he said. "Just throwing IT into a business to increase a company's performance is plainly the wrong thing to do. New IT for systems that are not based on appropriate business process designs is a real waste." Donovan's final bit of advice for management: "Avoid the temptation of the 'quick fix' or the new software fix. Do it right the first time. Although it won't be easy, and it won't be quick, it will be worth it." The Manufacturing Report © Copyright 1997, 1998 by Lionheart Publishing, Inc. All rights reserved. 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