ERP in Manufacturing
ERP refers to a range of business solutions supported by multi-module application software that enables organisations to manage essential business operations, such as product planning, maintaining inventories, tracking orders, providing customer service, etc.
ERP is an application of the Management Information Systems (MIS), and integrates and automates various business practices related to production, operation and distribution aspects of a manufacturing firm.
Table of Content
- 1 ERP in Manufacturing
- 2 ERP Manufacturing Modules
- 2.1 Computer-Aided Design/Computer-aided Manufacturing (CAD/CAM)
- 2.2 Material Requirement Planning (MRP)
- 2.3 Distribution Requirement Planning (DRP)
- 2.4 Product Data Management (PDM)
In order to sustain competition, organisations need to achieve high customer satisfaction, maintain good relationships with suppliers and minimise operational and distribution costs. This can be possible if organisations produce goods of high quality and add unique features for product differentiation. ERP solutions aid organisations in achieving these goals.
According to Panorama’s Manufacturing ERP Report 2014, there are some major reasons for implementing ERP in manufacturing organisations, which are shown:
It is not surprising that one of the major objectives of most multinational manufacturing organisations today is to integrate systems across multiple locations through ERP.
ERP Manufacturing Modules
- Computer-Aided Design/Computer-aided Manufacturing (CAD/CAM)
- Material Requirement Planning (MRP)
- Distribution Requirement Planning (DRP)
- Product Data Management (PDM)
ERP manufacturing modules include designing and manufacturing of products with the help of Computer-Aided Design (CAD)/Computer-Aided Manufacturing (CAM), Product Data Management (PDM) and various planning tools like Material Requirement Planning (MRP) and Distribution Requirement Planning (DRP).
Let us now discuss how these ERP manufacturing packages help manufacturing organisations.
Manufacturing organisations use CAD/CAM to design and manufacture products. Where CAD systems are used to create, modify, analyse and optimise a product design, CAM systems convert these graphics and designs into components/products through computer-controlled production equipment, such as robots or machine tools.
PDM involves controlling and distributing data and processes efficiently. MRP systems are used by organisations for both production scheduling and inventory control. DRP is usually used with the MRP system to integrate inventory information with physical distribution activities for efficient production planning and control.
DRP aids manufacturing organisations (involved in maintenance of distribution inventories) by integrating market requirements and manufacturing activities. We will further discuss these ERP manufacturing modules in detail in the subsequent sections.
Benefits of ERP Manufacturing Modules
ERP systems provide many benefits to manufacturing organisations. Some of these are given as follows:
- Enhanced project management for customised orders
- Improved designs in manufacturing units. This is particularly true for companies involved in designing unique features in their products by CAD/CAM tools.
- Automated manufacturing processes
- Controlled inventory levels at various manufacturing levels
Let’s consider here the case of Epicor Software Corporation. It is a business consultancy firm based in Texas. The company offers comprehensive ERP solutions to manufacturing organisations that promote effective planning, scheduling, executing and monitoring of all manufacturing processes.
The following are the benefits derivable through Epicor’s ERP system:
- For production planning and scheduling: Managers can plan and schedule production activities easily, and within limited cost and deadlines – as the ERP system offers clarity and accuracy regarding the utilisation of existing and potential resources across plants and resources.
- For quality management: It defines certain quality metrics that help manufacturers in achieving desired levels of quality in processes as well as products.
- For inventory control: Managers can achieve better control on inventory levels, as well as compliance, through enhanced and serialised tracking and tracing systems.
Computer-Aided Design/Computer-aided Manufacturing (CAD/CAM)
CAD systems are integrated computer packages that allow manufacturers to easily draw and modify designs on a computer. They also allow manufacturers to store the design characteristics of current products and components. In addition, these systems let automatic evaluation of product specifications. This helps manufacturing organisations to reduce their overall development time and cost, and simultaneously enhance the product quality.
CAM helps in converting these computerised designs automatically into software programs for computerised production machines, Computer Numerical Control (CNC) machining for example. This automatic conversion helps manufacturing organisations to save both cost and time. Various models and assemblies can be developed through the CAM software. In addition, this software helps to generate tool paths to drive the machines that turn designs into physical parts. CAM software is most commonly used for machining of prototypes and finished product parts.
Earlier, only organisations in some specific sectors such as automobile, aerospace etc., used to employ the services of CAD and CAM. However the increasing competition has led more and more manufacturing organisations to use CAD and CAM for product designing.
Mahindra and Tata Johnson Controls have successfully applied CAD and CAM to their manufacturing systems. The application has helped Mahindra to enhance its production design capacity, which in turn has improved the manufacturing capacity and business development of the organisation. The use of CAD/CAM in manufacturing systems has not only improved product designing capacity but has also increased the customer base of the organisations.
Material Requirement Planning (MRP)
Material Requirement Planning (MRP) can be defined as an ERP manufacturing planning module that evaluates materials requirement and schedules supply to meet the demand of a variety of products at different manufacturing units.
The main objective of MRP is to enable manufacturing organisations to get the right materials at the right place at the right time. An effective MRP helps to maintain proper cash levels in an organisation and determine the minimum possible time required for buying materials and producing goods to meet production demands.
Due to these benefits, MRP is considered by manufacturers to be an effective tool for planning inventory, making purchase-and storage-related decisions, and controlling production procedures.
The three types of inputs required by an MRP system:
- Master Production Schedule (MPS)
- Bill of Material (BOM)
- Inventory Records (IR)
On processing of these inputs, the following outputs are obtained:
- Planned order quantities
- Planned order release dates
- Planned order due dates Let us now discuss these inputs in detail.
Master Production Schedule (MPS)
Master Production Schedule (MPS) can be defined as a schedule developed by a manufacturing organisation for producing goods, planning inventory, staffing, etc. It is referred to as a detailed production schedule linked to finished products.
The information can be related to the nature and amount of finished products and the time taken for manufacturing these products. MPS is usually prepared on the basis of customer demands, product demands, etc. It is usually a longterm schedule as it covers the lead time of almost all the components needed to manufacture the finished product.
Features of MPS are:
- It operates at an aggregate level, which means it focusses on the entire production levels of the organisation.
- It is cost-driven, which means it aims to meet the production scheduling of the organisation at minimum costs.
Some of the MPS inputs include the following:
- Demand forecast
- Production lead times
- Resource capacity
- Inventory levels
- Shelf life
- Batch size rules
Some of the MPS outputs include the following:
- Manufacturing plan
- Resource requirements
- Available stock projections
Bill of Material (BOM)
Bill of Material (BOM) can be defined as a comprehensive list of parts, assemblies, subassemblies, etc., required to create a final product. It details all the information about the materials to be purchased, how to purchase them, from where to purchase them and how to assemble products.
A well-organised, accurate and updated BOM facilitates smooth functioning of various business activities such as parts sourcing, outsourcing, manufacturing, etc.
Organisations that outsource manufacturing activities usually provide a well-planned BOM to their suppliers or contract manufacturers. It helps in ensuring that the product is built correctly as per the given specifications and on time.
Following are the information that needs to be included in a BOM:
- BOM Level
- Part Number
- Part Name
- Unit of Measure
- Procurement Type
- Reference Designators
- BOM Notes
A well-documented BOM must include the following information:
- BOM level: It refers to the number of a part or assembly, which enables manufacturers, having the knowledge of the BOM structure, to decipher the BOM quickly.
- Part number: It refers to a number assigned to a part or assembly so that each part can be recognised quickly. Manufacturers need to remember not to create multiple part numbers for the same part.
- Part name: It refers to the unique name of each part or assembly, which enables manufacturers to recognise parts more easily.
- Phase: It refers to the stage of each part at a specific time in its lifecycle. For example, ‘In production’ is used for parts in production, ‘Unreleased’ or ‘In design’ is used for unapproved parts. This helps in new product introduction, tracking progress and setting up well-defined project timeframes.
- Description: It helps in part identification and distinction more easily by providing detailed information.
- Quantity: It helps to record the number of parts required per assembly or subassembly. This helps in taking effective buying and manufacturing decisions.
- Unit of measure: It outlines a classification of the measurement in which a part will be bought or used. For example, measures such as inches, feet, etc., can be used as suitable classifications. The measures have to be same for each similar part as the information will ensure that correct levels are bought and delivered to production lines.
- Procurement type: It documents the manner in which each part is bought or made. This helps to make manufacturing, planning and procurement activities efficient.
- Reference designators: These designators provide detailed information about the location where a part fits, especially if a product consists of printed circuit board assemblies. This prevents time loss and confusion.
- BOM notes: These are notes that provide any other necessary information to the personnel working on BOM.
Inventory Records (IR)
Inventory records (IR) are the manuals or computer-based records that are maintained to keep track of inventories at various production levels. These records may comprise lead time information, stock level details, scrap material details, physical location, quantity, required floor space, supporting equipment required, amount of supplies, etc.
Any errors related to maintenance and storage of inventories can be identified and addressed using an effective IR. A sample IR format is shown in Table below.
|Description of Article
|Name of Manufacturer
|Date of Sale
The traditional MRP system lacks flexibility in operating many processes. The issue has been addressed by revising the system. The revised MRP system is known as the closed loop MRP as it provides feedback at almost every stage – from planning to the execution of tasks. This enables manufacturers to evaluate and modify plans as and when needed.
Later, manufacturers further revised the closed loop MRP to efficiently translate the manufacturing terms (expressed in units, e.g., kilograms) to financial terms (e.g., rupees) in their operating plan. This extended iteration of the closed loop system is known as MRP II.
Let’s now discuss the closed-loop MRP and MRP II.
Closed Loop MRP
MRP helps to develop plans and schedules for the production system of a manufacturing organisation. However, due to uncertainty in lead times, differences in the number of parts supplied or produced, inaccurate inventory records, variation in customer orders, inadequate production capacity, etc., MRP plans and schedules are frequently disrupted.
A closed loop MRP system helps here by providing a continuous and systematic feedback from various manufacturing entities. This feedback helps the management to keep inventory records and other production data in valid, updated and accurate form.
Furthermore, the closed loop MRP system enables manufacturing organisations to finish all production operations on time, thereby enhancing the organisation’s production capacity. It also helps to synchronise the materials procurement plan of a manufacturing organisation with its MPS.
Manufacturing Resource Planning (MRP II)
MRP II system is an extension of the closed loop MRP system. It encourages interaction among various manufacturing units by facilitating continuous information flow.
MRP II system is defined as an integrated technique of operational and financial planning for manufacturing organisations.
A typical MRP II system applies a modular organisational structure with separate modules to maintain and regulate different organisational functions such as product design and specifications, order management, purchase, inventory, etc.
Some of the benefits provided by MPR II system to the many departments of an organisation are discussed as follows:
- Sales and Marketing department: MRP II offers product availability information to this department, which helps in providing accurate delivery dates to customers.
- Finance department: MRP II helps organisations to carry out their financial planning by converting material schedules into capital requirements.
- Production department: MRP II helps organisations to compile an effective production plan and manage their production processes by providing integrated management information. This, in turn, increases the production efficiency of the organisation.
Distribution Requirement Planning (DRP)
The requirement for more elaborate distribution planning led to the emergence of DRP during the 1970s. DRP is commonly used as a technique for helping outbound logistics systems to manage and reduce inbound inventories.
In the 1980s, DRP became an established approach for planning and controlling distribution logistics activities. The concept has now become applicable in all business functions in the supply channel, and not just in inventory and logistics.
The underlying rationale for DRP is to forecast demand more precisely and then utilise that information to develop delivery schedules. In this way, distribution firms can reduce inbound inventory by applying MRP in conjunction with other schedules.
The key information regarding DRP is stored in the DRP table, which comprises the following elements:
- Forecast demand for each Stock Keeping Unit (SKU)
- Present inventory level of the SKU
- Target safety stock
- Recommended replenishment quantity
- Replenishment lead time
Some of the main benefits of DRP are given as follows:
- It reduces freight costs through better coordination of shipments.
- It enables an organisation to manufacture the right quantity of products at the right time, resulting in reduction of excess inventory.
It helps to synchronise both logistics and manufacturing activities.
- It helps in forming a correct estimation of the inventory and transportation needs under multiple planning situations.
DRP is usually used with an MRP system; however, most DRP models are more comprehensive than the stand-alone MRP models. Table depicts the differences between DRP and MRP
|It operates on the basis of the production schedule, which is formulated and managed by the organisation.
|It operates on the basis of demand of the market, which is not under organisational control.
|It enables an organisation to coordinate materials in the manufacturing system.
|It enables an organisation to coordinate between demand and supply sources.
|It helps in inventory control until the completion of the manufacturing and assembly processes of an organisation.
|It helps in inventory control at the end of manufacturing and assembly processes.
Product Data Management (PDM)
Managers in manufacturing organisations need accurate product data in order to take right business decisions.
The product data must be such that it can be retrieved as and when needed. Product Data Management (PDM) is defined as a tool that helps manufacturers to manage product-related data throughout the production process (from product design to shipping).
The product-related data usually comprises technical product specifications, manufacturing details, product development specifications, etc. PDM tools also offer revision management and storage, enabling multiple users to share information in a combined manner.
In addition, PDM tools help in securing essential files, search capabilities, revision, lifecycle states, etc. They help in automatic file routing for quicker approvals. In some manufacturing organisations, PDM systems also enable the creation of customised workflows for file review and approval. This helps in the integration of the system in an organisation’s internal processes.
A PDM system manages various data types such as number of parts, description of parts, vendors of materials, product price, CAD drawings, material data sheets, etc. Thus, in order to manage and control product-related data, a PDM system mainly carries out two major activities: data management and process management. Let us now study these activities in detail.
A manufacturing organisation requires effective maintenance of detailed data related to components, parts and assemblies; for example, structure, size, weight, usage, etc. Data needs to be managed efficiently so that it can be accessed easily and timely. A PDM system enables an organisation to organise product-related data by storing it at a reliable location so that it can be retrieved as and when needed.
For this, the following two key activities are carried out by the PDM:
- Product component classification: Product components are placed under various classes in a database. These classes are, in turn, put under various heads. In this way, manufacturing organisations can easily access the data.
- Document classification: The assembly and component documentation are classified according to their attributes such as quantity, entry date, etc. This helps manufacturing organisations to easily acquire information from the documents related to various components.
Process management is defined as the application of knowledge, skills, tools and various approaches to measure, control and enhance performance of business processes. Its objective is to meet the requirements of customers.
Process management incorporates mainly three activities:
- Work management: PDM helps managers to access updated product information, which facilitates work management.
- Workflow management: PDM enables manufacturing organisations to manage all activities involved in product development. Furthermore, it offers a routing list, which comprises various activities required in product development, and the list of activities differs across organisations.
- Work history management: Along with maintaining a database of the current set of activities, a PDM system also records the activities at various stages of product development for future reference. In this way, PDM also serves as a major source for product audits
Benefits of PDM
PDM supports concurrent task management and secures data management of products by allowing only authorised access. PDM system also offers the following benefits:
- Time-to-Market: PDM helps in speeding up tasks by making data instantly available as and when needed.
- Enhanced productivity: The time taken for retrieving, storing, filing, etc., documents can be minimised with a PDM system. Search capabilities and classification help in data retrieval.
- Enhanced control: PDM allows only authorised personnel to work with the confidential data, thereby providing better and secure options to control data.