Learn about MRP and ERP planning systems

- When you're in the business of manufacturing a product, having the components you need when you need them is essential for keeping your lines running. In this video, we'll look at two kinds of supply chain information systems that can help you decide what you need to order and when you need to order it to ensure that you don't run out. Now, let's clarify that for the purposes of supply chain management, resources include machines, people, and components. A manufacturing resource planning system, or MRP, for short, is the software that captures the goals for a factory, and then schedules production and decides when to order inventory. Let's say that you manufacture candy, and you've received an order to make pumpkin-flavored taffy. The MRP system will calculate how soon you have the manufacturing capacity available to make that taffy, and then it will create a production plan. Then, the MRP will look at the ingredients for the taffy. It'll check how much inventory you have for each item, factor in ordering lead times, and decide when to place the orders with your suppliers. In this case, the MRP will order three tons of pumpkins two weeks before the scheduled production date. In a perfect world, that whole process would be pretty straightforward. But in real-world supply chains, things change all the time. So, you might need to revise or replan your production schedule. And replanning can create problems with inventory. Let's say you have a supplier who needs three weeks' notice to fill an order. What happens if an emergency forces you to replan your production schedule, and you cancel an order just two days before they're scheduled to deliver it? Either they're going to end up with inventory they can't sell, or you're going to end up with ingredients for a product you've decided not to make. To fix this problem, MRP systems have a time fence, a set number of days during which the production schedule is frozen and no longer allowed to change. That time fence represents an important trade-off. The longer your time fence is, the easier it is to plan your production. The shorter your time fence, the more flexible and responsive you can be. MRP was really designed to create production plans for a single factory. But in today's supply chain environment, we often need to look across multiple facilities and take a more holistic view of our resources. An enterprise resource planning system, or ERP, can consolidate the MRP information from many different facilities. It's like an MRP, only bigger. It takes into account a broader range of information about customers, suppliers, and human resources. In a high-paced manufacturing environment, you simply can't keep track of what you're going to make and what you need to buy without having MRP and ERP systems in place. Understanding how they work can help you choose the right systems and use them correctly. And that will have a big impact on the performance of your entire supply chain.