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By Travis Anderegg, CPIM, CIRM
Imagine traveling down a road and
you come to a sign for the town called Burp. Finding the
name a little strange you take a mental note of it. In
the future discussions with your friends and co-workers
you often refer to this town. Your friends and
co-workers get a little puzzled when you mention Burp,
but they never say anything. Several years later, you
see a newspaper article about the town that you had
passed through. The article tells the story about how a
road maintenance worker used a letter 'B', instead of a
letter 'M', when making a new road sign after the town
of Murp (the real name) acquired several new
subdivisions. The maintenance shop ran completely out of
letter M's so he used a letter B. as a humorous
substitute for the name Murp. Eventually the sign
changed back to Murp, but the name stuck as Burp for
thousands of travelers passing through.
Those of us on the journey to
support, maintain, and use modern-day ERP systems, have
found similar road signs in our travels. Some of the
road signs that have caused some confusion over the
years include: MRP, MRP II, ERP, and more recently: ERM.
A graphical depiction of the evolution of modern-day ERP
systems is shown in Figure 1. The earlier research in
material requirements planning and related topics
focused on four fundamental areas. These included:
economic order quantity (EOQ), safety stock, bill of
materials processing (BOMP), and work order management.
These served as the construction cornerstones for
emerging MRP systems to follow in the mid 1960's. These
cornerstones had been in practice throughout industry
since the turn of the century. What was the turning
point in the mid 1960's that allowed these cornerstones
to emerge into one system called MRP? The answer: the
computer. The four acronyms covered in this article
include:
MRP: Material Requirements
Planning
MRP II: Manufacturing Resource Planning
ERP: Enterprise Resource Planning
ERM: Enterprise Resource Management
How the computer changed
everything! The computer began the journey into
modern-day planning systems. The confusion started after
the introduction of the computer. By 1975 enough MRP
systems had been installed to begin the formation of MRP
II systems. Confusion began with the introduction of MRP
II. For the most part, there was a basic understanding
that MRP II evolved out of MRP. The problem began with
education and the generic definitions of MRP and MRP II.
When students, consultants, practitioners, and educators
started using the term MRP, it was unclear whether the
discussion was about MRP or MRP II.
The definition of MRP as defined
by the 9th edition of the APICS dictionary is: A set of
techniques that uses bill of material data, inventory
data, and the master production schedule to calculate
requirements for materials. It makes recommendations to
release replenishment orders for material. Further,
because it is time phased, it makes recommendations to
rescheduled open orders when due dates and need dates
are not in phase. Time phased MRP begins with the items
listed on the MPS and determines (1) the quantity of all
components and materials required to fabricate those
items and (2) the date the components and materials are
required. Time phased MRP is accomplished by exploding
the bill of material, adjusting for inventory quantities
on hand or on order, and offsetting the net requirements
by the appropriate lead times.
The definition of MRP II as
defined by the 9th edition of the APICS dictionary is: A
method for the effective planning of all resources of a
manufacturing company. Ideally, it addresses operational
planning in units, financial planning in dollars, and
has a simulation capability to answer "what if"
questions. It is made up of a variety of functions, each
linked together: business planning, sales and operations
planning, production planning, master production
scheduling, material requirements planning, capacity
requirements planning, and the execution support systems
for capacity and material. Output from these systems is
integrated with financial reports such as the business
plan, purchase commitment report, shipping budget, and
inventory projection in dollars. Manufacturing resource
planning is a direct outgrowth and extension of closed
loop MRP.
The definitions of MRP and MRP II
are generally well accepted by students, consultants,
practitioners, and educators. The lack of education was,
and still is, our only real reason for confusing MRP
with MRP II.
Remember BRP? It stands for:
Business Resource Planning. When BRP came out in the
early 90's, it really looked like it was going to stick.
It fit nicely with business process reengineering. BRP
did not last long. At about the same time ERP
(Enterprise Resource Planning) came to age.
Practitioners actively working with planning systems and
keeping abreast of the changes, saw ERP as exactly the
same thing as MRP II. The only difference was that the
name had changed.
Life went along as normal until
researchers and market analysts found out that certain
sources had not properly defined what an ERP system
really was. Some sources had defined an ERP system as:
An accounting oriented information system that uses new
technology such as graphical user interface, relational
database, fourth generation language, computer-aided
software engineering tools, and client/server
architecture.
Some practitioners found this
definition a little confusing. Whether talking about MRP
II or ERP, these business planning tools may or may not
include capabilities such as fourth generation language
or relational databases. Technology is important, but it
should not dominate the definition of an ERP system. A
definition of an ERP system should include the
functional silos needed to operate most businesses. Some
of these business silos include: accounting,
manufacturing, distribution, purchasing, sales,
inventory, quality, etc...
A complete definition of an ERP
system is defined as: ERP, standing for Enterprise
Resource Planning, is a complete enterprise wide
software solution. The ERP system consists of software
support modules such as: marketing and sales, field
service, product design and development, production and
inventory control, procurement, distribution, industrial
facilities management, process design and development,
manufacturing, quality, human resources, finance and
accounting, and information services. Integration
between the modules is stressed without the duplication
of information. ERP systems are an out growth of MRP II
systems.
That sounds pretty good. The
journey continues down the road of life satisfied with
our definitions of planning systems when all of a sudden
another road sign comes up for a town called ERM.
Stopping to ask the residents for the definition of ERM,
we learn it stands for Enterprise Resource Management.
That sounds pretty nifty, or is it? What is the
definition of ERM? That's a real good question, because
at the time of this writing, it had already been badly
mangled by some sources.
Despite all the different
definitions that have emerged for ERM, one common
concept exists for them all. That concept is that ERM is
an outgrowth of ERP. Is ERM the same to ERP as ERP was
to MRP II? The answer is no.
Some of the definitions that have
emerged directly define ERM as being a software system.
ERM stands for Enterprise Resource Management, the key
words of Resource and Management can be stressed.
Management and software are not the same! Software is a
tool to aid in management, not replace it! Enterprise
Resource Management can be thought of as the tools and
techniques for managing the resources of an enterprise.
ERP is only one of the many resources to be found in any
enterprise.
Looking at Figure 2, the ERM
model is defined for the first time. Towards the center
of the circle is the traditional ERP model consisting of
all the various support functions of an ERP system.
Moving towards the outer edges of the circle is the
integration with the software for the various activities
that occur inside that function. A function is defined
as marketing and sales, field service, product design,
etc...
The activities that occur inside
each function include: management, decisions, training,
people, documentation etc... This process of combining
the ERP system with functional activities of each module
makes up the ERM model.
How does a company's use of a
software planning tool determine if it is ERM or as ERP?
If a company uses a software package for the purpose of
replacing a legacy system without concern of how it will
integrate with functional activities, then the software
works as an ERP system. If a company uses an ERP system
with the intention of using the ERP system to support
and integrate with the various activities of the various
modules, throughout the enterprise, then an ERM solution
will be found.
The definition of an ERM system:
ERM standing for Enterprise Resource Management, is a
complete enterprise wide business solution that consists
of an ERP system and functional activities occurring
within each module of, and around, the ERP system. The
ERP system consists of software support modules such as:
marketing and sales, field service, product design and
development, production and inventory control,
procurement, distribution, industrial facilities
management, process design and development,
manufacturing, quality, human resources, finance and
accounting, and information services. The functional
activities occurring within each module consists of:
management, decisions, training, documentation,
communication, people, etc... The ERP modules and
functional activities must exist in harmony to become an
ERM solution. The integration/interface points of the
ERP system bind the entire ERM solution together.
The ERM model is not a passing
fad. The ERM model has existed since the mid 1970's, and
was clearly recognized, but never received a formal
definition. As long as there are companies that use ERP
systems and perform activities within functional
modules, the ERM model will exist. Whether or not the
term ERM will become another fatality like BRP is yet to
be seen. With proper education and nurturing,
practitioners and educators will be able to avoid
confusion that occurred with MRP and the confusing
definitions of ERP systems.
In conclusion, the origin
of MRP systems occurred in four fundamental areas that
created material planning systems. More complex and
functional systems later evolved into Manufacturing
Resource Planning (MRP II). The natural outgrowth of MRP
II was ERP systems. When MRP II systems were identified
as ERP solutions they were almost identical. Confusion
occurred along the way as ERP systems received poor
definitions. ERM has recently emerged as the next
evolutionary step of ERP systems. ERM will not suffer
the same confusing fate of its ancestors with proper
education and nurturing. And let us not forget the town
called Burp!
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MRP