AN EXECUTIVE'S GUIDE TO MANUFACTURING SOFTWARE SYSTEMS
Manufacturing Software Mission
Manufacturing software systems provide the automation and computational support for complex manufacturing processes. Manufacturing companies leverage manufacturing software systems to carefully manage the timing, types and quantities of materials they purchase in order to ensure that they are able to meet current and future customer demand while at the same time achieving the lowest possible cost and inventory accumulation.
Making a poor inventory planning or procurement decision can cause both steep financial losses as well as contribute to lost business development opportunities. A few sample scenarios are illustrated below:
- If a company purchases incorrect raw materials or insufficient item quantities they may be unable to respond to new customer orders (e.g. stock-outs) or satisfy completed customer sales orders or contracts by agreed upon dates, thereby forfeiting sales transactions.
- If a company procures too much stock or too much inventory, cash flow is absorbed into idle inventory and thereby not available to other areas of the business that could leverage those funds to grow the business.
Manufacturing software methods can be applied to both finished goods (discrete inventory items) that are procured from suppliers as well as to sub-assemblies which are produced or assembled internally. Common elements managed by manufacturing software systems include the following:
- The finished good or end item being manufactured. This is often referred to as Independent Demand, or Level 0 on a BOM (bill of materials).
- Staged manufacturing input and scheduling (e.g. how much input is required when)
- Inventory forecasting (the timing of finished goods to meet customer or market demand).
- Shelf life and inventory expiration.
- Inventory management (net materials by location with status visibility (e.g. inventory available, on sale order, on purchase order, on back order).
- Work orders (instructions for assembly or manufacturing processes).
- Bills of materials. Assembly of components and subassemblies required to make each product and the back flushing of inventory items following the assembly.
- Planning and forecasting. Calculation methods that consider the directions, constraints and restraints necessary to manufacture assemblies or finished goods.
The manufacturing software calculation results produce two mission critical outputs:
- The first output is a "Recommended Production Schedule" which identifies a detailed plan and time-based schedule for the necessary minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the MPS.
- The second output is the "Recommended Procurement Schedule". This identifies a series of dependent dates necessary to meet product results. These dates include when the purchase orders must be sent to suppliers (accounting for necessary lead time), when purchased items must be received, and how items should be received, staged and delivered to the manufacturing floor in order to match the production schedules.
Note that the manufacturing system outputs are 'recommended'. Due to the high number of variables - many of which may not be systemic and require judgment - constantly changing (company and environmental) conditions and speculation, the recommended outputs need to be analyzed by trained staff before committed to action.
MRP HISTORY AND EVOLUTION
Material Requirements Planning (MRP) systems were introduced in the late 1940’s and became increasingly popular throughout the 1950’s. MRP evolved as a software based production planning and inventory management control tool used to manage manufacturing processes. MRP systems performed numerous functions, however, at their core they were intended to maintain low inventory levels, ensure materials and products were available for production and delivery to customers, and coordinate manufacturing activities such as purchasing requirements, delivery schedules and demand forecasts.
Early MRP applications took a bill of materials and exploded it into a production schedule and purchasing plan for the required components.
Simple MRP programs focused on order fulfillment and inventory back-flushing. However, as the information systems began to mature, MRP applications grew to include information feedback loops so that production staff could change the inputs into the system as needed.
These closed Loop MRP applications increased the focus to production scheduling and integrated to MPS schedules.
Manufacturing Resource Planning (MRP II) is most recognized by the APICS definition which loosely describes this term as a method for the efficient planning of all company manufacturing resources. MRP and MRPII are both business process methods that are normally implemented with modular software systems. Where MRP was largely focused with manufacturing materials, MRPII expanded its focus to include the entire manufacturing production, including materials, finance, and human relations. In most cases, MRP II describes operational planning in units, financial planning in dollars and makes thorough use of resource flexing and manipulation to answer "what-if" scenarios and achieve optimal production results.
MRP II came into its own in the early 1980s and extended closed-loop manufacturing methods with additional departmental or divisional operating units as engineering, accounting, marketing, finance, and human resources into the enterprise-wide planning process. Key MRP II characteristics include the following:
- Focus on integrated financial planning
- Treats the MPS as a decision variable
- Capacity is considered (Capacity Resource Planning)
Most MRP II software systems are modular in nature with traditional modules for the following functions:
- Master Production Schedule (MPS)
- Item Master Data (often an extension to the inventory item object)
- Bill of materials (BOM)
- Production Resources Data
- Inventories & Orders (cross modular with integration to Inventory and Accounts Receivable customers)
- Requisitions and Procurement
- Material Requirements Planning (MRP)
- Shop Floor Control (SFC)
- Capacity planning or Capacity Requirements Planning (CRP)
- Standard Costing (Cost Control)
- Cost Accounting (also called Job Costing, Project Accounting or Cost Control)
- Distribution resource planning (DRP) (sometimes a component with Supply Chain Management software)
Benefits of MRP II systems included improved inventory management, streamlined scheduling, improved design control, enhanced quality control, reduced (inventory) working capital requirements, accelerated cash flow and superior cost accounting and reporting.
Enterprise Resource Planning
MRP II systems performed well with inventory and production related variables, however, often failed to incorporate non-manufacturing centric planning. In fact, most companies that operated MRP II systems also operated other business software applications throughout the enterprise. MRP II systems eventually transcended into Enterprise Resource Planning (ERP) systems which accommodated additional enterprise resource variables such as sales forecasts (traditionally from a SFA system) and human resource variables and most importantly, set out to be the single enterprise-wide system of record.
Manufacturing Software Definition
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