MRP, ERP and Supply Chain Management

An Explanation

Over the last 25-30 years there has been a steady evolution of manufacturing system concepts. In the seventies, MRP (Material Requirements Planning introduced a new mechanism to more efficiently calculate what materials were needed, when they were needed and in what optimal quantities. Many companies, still to this day, do not have effective MRP systems in place or, due to poor procedural controls, do not use MRP effectively.

Many new business applications were developed using MRP concepts as a foundation . While this was effective, MRP failed to consider other important factors, such as capacity, space, capital, engineering changes, and cost.

MRP eventually evolved into MRP II (Manufacturing Resource Planning) which encompassed additional factors such as long range planning, high level resource planning, master scheduling, rough cut capacity planning, detailed capacity planning and shop floor control. One of the fundamental concepts of the MRP-II model was that of "closing the loop" and feedback. By continuous monitoring of what actually happened versus what was planned, companies could continually improve their processes to achieve more and more efficiency.

Although MRP II was the next logical step in efficient production and materials planning, companies quickly realized that profitability and customer satisfaction needed to be incorporated into the picture. These generated the need for integrated capabilities such as finance, forecasting, sales order processing, sales analysis and local and global distribution, quality control, and powerful reporting and monitoring tools. The new concept of this totally integrated enterprise is called ERP (Enterprise Resource Planning).

ERP is further extending to include the management of every operation of its value chain in order to minimize the cost and time of getting products to customers. This is usually referred to in the industry as Supply Chain Management or more recently Global supply Chain Management. An important element in this evolution is the "Web-enablement" of Supply Chain Management Software. As globalization, out-sourcing and Internet transactions become more the norm, this will play a vital role.