Business planning systems typically fall into one of three categories: MRP (Manufacturing Resource Planning), ERP (Enterprise Resource Planning); or SCM (Supply Chain Management) systems. Although these terms are sometimes used interchangeably in some organizations, and despite the fact that as systems have matured the demarcation lines between MRP, ERP and SCM have become blurred; these terms and the systems they refer to generally indicate three different levels of system scope and complexity. As you might also have imagined, each step up the “evolutionary ladder” of business planning systems also typically represents a “step up” in purchase price and system maintenance costs. We’ll address this issue later in the article.
Automated Data Processing Systems the precursor to the modern business planning systems, these systems were focused on automating the bookkeeping functions within the organization. Companies such as IBM, ADP, Oracle and other big names cut their teeth automating business bookkeeping and accounting tasks. The lessons learned, the principles developed, and the benefits customers gained from these early business process automation efforts laid the foundation of the industry of business information systems we know today.
MRP (Manufacturing Resource Planning) Systems represent the first and, at least theoretically, the least complex stage of business planning system development. Initially titled “Material Requirements Planning” systems, MRP is now generally accepted to mean “Manufacturing Resource Planning” systems. As you might have guessed, current MRP systems typically encompass the manufacturing and manufacturing-related operations within a single organization or location. Some consider the early MRP systems to be the computer industry’s first attempt at building true management information systems outside the “pure accounting” functions of a company.
Typically built around the Bill of Material (BOM), early MRP systems were little more than computerized parts/material tracking and ordering systems, generating data and basic information for use by off-line planners. These systems were a huge improvement over older manual manufacturing planning methods. MRP systems also represented a watershed moment is computer systems development, proving to customers that the computer had many more possible applications than simplifying accounting & payroll functions.
As MRP systems technology matured and stabilized, systems capabilities naturally expanded from simple parts tracking and ordering systems to encompass more and more of the manufacturing and manufacturing-related planning, reporting and control tasks, activities & operations within customer organizations.
Although MRP systems have been with us the longest, they are by no means obsolete systems. The fact that they’ve been around quite a while means that most MRP systems are extremely stable, (relatively) easy to use and require little system maintenance. MRP systems are still being built, sold, maintained and improved by vendors and many companies find this level of business planning and control is sufficient to meet their needs.
ERP (Enterprise Resource Planning) Systems represent the second generation business planning and control systems. They generally encompass planning and reporting for all the operations, organizations and locations within a single company (or family of companies). Enterprise Resource Planning systems came about because, as customers’ reliance on MRP systems grew, system developers/sellers added more and more functions and capabilities to satisfy their customers’ needs. Unfortunately in many cases, these functions and capabilities were added to the systems piecemeal, tacked onto the system architecture wherever they would fit. . This often meant that the systems themselves got became cumbersome to use and a nightmare to maintain. And in many companies with operations spread across wide expanses of geography, each location / operation / division used a different MRP system, making the sharing of management information within the company a virtual impossibility.
Recognizing these problems, MRP system manufacturers started working with customers to develop more streamlined systems which could meet the management and control information needs throughout the customer’s entire enterprise. While ERP systems sometimes incorporate and often replace earlier (legacy) MRP systems, because they were being built as “next generation” systems, they were able to more effectively incorporate expanded technology capabilities and build on “lessons learned” from years spent developing, improving and maintaining MRP systems.
ERP systems also represent a step forward in the capabilities arena. Many of these systems were designed to encompass the virtually every area of a company’s operations – from manufacturing to finance, to human resources, purchasing and shipping and receiving. This allowed true “enterprise wide” business planning and control and, although the initial switch-over from a MRP to an ERP system could sometimes be painful, the ability to standardize and share planning and forecasting data and information among and between all organizations, divisions and locations of the organization gave early adopters a true competitive advantage over their competitors.
SCM (Supply Chain Management) Systems are the latest growth stage for business planning systems. As the name implies, Supply Chain Management systems typically offer all the functions and capabilities of the MRP & ERP systems, but expand their reach outside a single enterprise, allowing companies to standardize, share, and update business reporting, planning and forecasting information with their entire supply chain: including suppliers, customers, shareholders and, in some cases, government regulatory agencies.
Although the concept of a system to track, report on and manage a company’s entire supply chain has been around pretty much since the beginning of MRP development in the late 1960’s or early 1970’s, until the late 1990’s data storage and processor technology hadn’t developed sufficient robustness or speed (in other words, the cost was prohibitive) to handle the massive computing and storage requirements such a system demanded. The internet-driven demand for increased storage, processing and long-haul data transfer capabilities (which started in earnest the mid-1990’s) has increased computing capabilities and lowered prices to the point where true Supply Chain Management systems are not only feasible, they are now affordable for many companies.
True SCM systems almost always require cooperation between suppliers and customers, between developers and planners, and, often, between competing SCM systems.
As you can see, there is a definite hierarchy in business planning systems. Not every company needs or even wants a full-blown Supply Chain Management system, but most companies could benefit from at least some form of MRP, ERP or SCM system – even companies who deliver services rather than building product.
There are a myriad of MRP, ERP and SCM systems on the market. Each of these (and, dare I say, each of the selling companies) has its good points and its bad. Most have some “unique” feature - things that other companies don't offer and that the seller hopes to make you believe are indispensable to running and managing your business. And virtually all these business planning systems come complete with “maintenance agreements” which promise to (and sometimes actually do) keep your system up-to-date and growing right along with your business...and which, of course, ensure the seller builds and maintains a steady income stream in the years after the initial system sale.
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I'd love to hear what you think. Feel free to leave a comment here or e-mail me at: TomFawls@Council4SmallBiz.com.
