Production System in Operations Management

A production system in operations management refers to the organised set of activities, processes,
and resources involved in transforming inputs into finished goods or services. It includes planning,
scheduling, inventory management, quality control, and other operations-related functions.

Definition: A Production System implies the set-up consisting of assets such as facilities, machines
and equipment that transform resources into valuable output using processes and technology.

What is an example of production management system?

An example of production management system is Enterprise Resource Planning (ERP) software. An
ERP integrates various functions such as production planning, inventory management, and
scheduling into a centralised system. Another example is Manufacturing Execution Systems (MES).
It provides real-time monitoring and control of production processes on the shop floor.

In other words, we can understand it as a system that converts factor inputs into outputs which is
capable of satisfying the market demand.

Majorly, it focuses on the system aspect of the production/operations function. It is a combination

of three significant components given below:
1. Input (Capital, Machines, Equipment & Tools, Labour)
2. Conversion Process
3. Output (Goods and Services)

Production implies the transformation of several Inputs into Outputs, i.e., the Product. A system is a
mechanism consisting of a set of things working together. Companies use production systems to
cater for the demand of their target market. However, the requirements of the customers keep
varying with time. Therefore, the requirement of the production also changes accordingly. The
production system depends on the type of products offered by the company. In addition, it is also
affected by the strategies adopted to meet distinct customer needs.

The companies need to take some crucial decisions in this regard:

• Choice of the technology to be used for production.
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 • The capacity of the production systems.
• Production volume as per market demand.

The entire system operates in an environment. Some factors from the internal and external
environment affect the production process. Thus, companies consistently take feedback and make
suitable adjustments in the production system.
The system may even fail if the production processes do not generate the desired output.

Production System Types

The type of production system depends upon the type and volume of output. Besides, it differs
across industries and target consumer markets.

The major determinants that aid the selection of a production system are:
• Volume: It indicates the average quantity of goods for production.
• Variety: It is the product variants, alternatives and range for production.
• Flow: It indicates the nature and intensity of the production process.
Broadly, the production system is classified into two categories as follows:
1. Intermittent Production
◦ Job-shop Production
◦ Batch Production
2. Continuous Production
◦ Mass Production
◦ Process/Flow Production

1. Intermittent Production
It is a type of production system where the production flow is intermittent or irregular. It means the
production process begins and stops at irregular intervals.
Here the production is carried out based on the customer orders, i.e. Make-to-order. Consequently,
the producer can customize their products as per the orders received.

Each time the jobs and route are changed depending on the order received. Therefore, the producer
needs to install general-purpose production equipment.
Features of Intermittent Production
• Order-based production of goods.
• Production on a smaller scale.
• Flexibility in production.
• Production of a greater variety of products.

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a. Job-shop Production
Job-shop production or Unit Production facilitates the manufacturing of customized products. Here,
the production of one or a few products takes place. Moreover, it is completely based on the user
specifications and within a stipulated period and cost. Each task has a different set of technical
requirements because of personalization. For this reason, the jobs and demand are both
unpredictable.
Example: Hairdresser, Aircraft, Gold Jewellery and Tailor.

Advantages
1. A wide variety of products can be offered to customers.
2. The workers are more skilled in comparison to other systems.
3. Ease in management due to limited resources and workers.
4. Flexibility in process and creative methods to generate unique output.
Disadvantages
1. The higher lead time of the system.
2. Under-utilization of equipment.
3. Requirement of highly skilled labours.
4. The cost of production is high due to small-scale production

b. Batch production
This production system is more than a unit production but less than mass production. Here, the
production happens in lots and batches at regular intervals.
The batch contains a limited number of similar products manufactured simultaneously.
The product is disintegrated in the form of Jobs. Further, the whole batch passes through these jobs
one at a time. The production of the next batch begins post-completion of the ongoing batch.
Example: Medicines, Shoes and Bags

Advantages
1. Usage general-purpose machines.
2. Risk can be substituted among Batches.
3. Better resource utilization.
4. Per-unit cost is lesser in comparison to unit production.
Disadvantages
1. It requires specific fixtures.
2. High cost in sourcing materials.
3. High work-in-progress inventory.
4. More lead time due to changes in set-up.

2. Continuous Production
Here, the production occurs continuously with a consistent supply of materials. In other words, the
products are constantly in motion. Unlike intermittent production, there are no frequent halts. The
production is carried out on a large scale. The companies maintain the inventory as per demand
forecasts. Identical goods are produced due to product standardization and bulk production.

Features of Continuous Production

• Complete utilization of equipment and raw materials.
• Production at large scale.
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 • Per-unit cost is less due to bulk production.
• Less lead time as the set-up is required only at the beginning.
• Highly automated and capital-intensive system.

a. Mass Production
Companies use it for carrying out production in very large quantities. It involves the manufacturing
of discrete parts, popularly known as Assemblies. Here, the companies adopt a Make-to-
stock business strategy. The flow of this production system is constant and continuous. And, the
facility arrangement is in line or per product layout.
Example: Soaps, Pens and Toothpaste

Advantages
1. The cycle time is comparatively less.
2. Automation of material handling.
3. Low work in progress.
4. The cost of production is low.
Disadvantages
1. Default at one place may stop the entire production.
2. Line layout needs changes with the change in product design.
3. High capital investments.

b. Flow Production
As the name suggests, the flow of production is uniform and standardized. All the processes are
arranged sequentially, and all the products pass through them.
This production system is rigid. Companies stock the products and use them to fulfil the quick
demand of the market.
Examples: Chemical Plants, Tv and Engines.

Advantages
1. Less amount of wastage.
2. Semi-skilled can also be employed.
3. Higher profit margins.
4. The process flow is constant.
Disadvantages
1. Less flexible to increase or decrease the number of processes.
2. Restrictions on product differentiation.
3. Incapable of fulfilling individual demand.

Characteristics of Production System

The varied characteristics and importance of production systems are as follows:
• Organized Activity: The production system is an organized activity. As all the activities or
processes within the system are defined and run for a specific purpose.
• Transformation: This system’s main work is converting Inputs into Outputs.
• Coordination: Here, every part of the system is well coordinated. The absence of
coordination may lead to system failure and losses.
• Control: It is a crucial function of this system. This is because, review and maintenance of
the system are required for its healthy functioning and productivity.

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 • Value Addition: Through this process, manufacturers add value to the inputs. Consequently,
the output generated serves the needs of the consumers.

Example of Production System

Nestle
It is a multinational food and beverages corporation having headquarters in Switzerland. Some of its
bestselling products are – Nescafe, Kitkat and Maggi. It uses Batch Production as its type of
production system.
Ford Motor
It is an America-based multinational automobile manufacturer. Ford’s SUV is one of its best-selling
cars, making it America’s best SUV brand. It uses Moving Assembly Line as its production system.

Difference between Intermittent and Continuous Production

The table below clearly differentiates between Intermittent and Continuous production systems:

INTERMITTENT PRODUCTION CONTINUOUS PRODUCTION

BASIS
SYSTEM SYSTEM

Flexibility More Flexible Less Flexible

Lead Time The lead time is more as it requires a Here, lead time is less; once set, it
frequent change in set-up doesn't require changes

Wastage More amount of waste is generated Less amount of waste is generated

Product Variety of products in less quantity Identical product in large quantity

Cost per unit of The price is high due to the customization Cost is low due to standardization and
Product bulk production

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Production Planning
Business success often hinges on making the products that customers want in a timely and cost-
effective way. Production planning helps companies achieve those goals. It maps out all the
processes, resources and steps involved in production, from forecasting demand to determining the
raw materials, labor and equipment needed. Production planning helps companies build realistic
production schedules, ensure production processes run smoothly and efficiently, and adjust
operations when problems occur.

What is a Production Plan?

A production plan describes in detail how a company’s products and services will be manufactured.
It spells out the production targets, required resources, processes and overall schedule. The plan also
maps all of the operational steps involved and their dependencies. The goal is to design the most
efficient way to make and deliver the company’s products at the desired level of quality. A well-
designed production plan can help companies increase output and save money by developing a
smoother workflow and reducing waste.

What Is Production Planning?

Production planning involves developing a comprehensive strategy for making the company’s
products and services. Initially adopted by large manufacturers, production planning has since
become more popular among small and midsize businesses in multiple industries — largely because
technology has made it easier to plan and track production processes with less effort. Production
planning covers many different aspects of production, from forecasting demand to determining the
raw materials, workforce, equipment and steps needed to make the company’s products.

Production Planning vs. Production Scheduling

While production planning provides an overview of what the company plans to do, production
scheduling creates a more detailed view of exactly how the company will do it. The production
schedule describes when each step in the production plan will occur, as well as the workers,
machinery and other specific resources assigned to the job. Production scheduling can be extremely
complex, especially when there are many interdependent production steps and the company is
making multiple products simultaneously. Production scheduling software can help businesses
create complex schedules, monitor progress in real time and quickly make adjustments when
necessary.

Key Takeaways
▪ Production planning describes in detail how a company’s products and services will be
manufactured.
▪ A production plan defines the production targets, required resources and overall schedule,
together with all the steps involved in production and their dependencies.
▪ A well-designed production plan helps companies deliver products on time, reduce costs and
respond to problems.
▪ Technology has made it easier for small and midsize companies in multiple industries to use
production planning to optimize operations.

Production Planning
Production planning is a broad discipline that involves much more than a focus on manufacturing
process efficiency. It is intertwined with nearly every other aspect of the business, including
finance, sales, inventory and human resources. Production planning activities include demand
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forecasting to determine the right mix of products to meet customer needs, as well as selecting the
optimal approach to building those products. Production planning also assesses the resources
needed to meet production goals and lays out in detail all the operations in the production process.
Production plans must include the flexibility to make operational adjustments when problems occur
— such as machine breakdowns, staffing shortages and supply-chain problems.

Why Is Production Planning Important?

A well-constructed production plan can help to boost revenue, profit and customer satisfaction,
while a poorly designed plan can cause production problems and perhaps even sink the company.
Specific benefits of production planning include:
▪ Knowledge. A production plan provides a framework for understanding the resources and
production steps required to meet customer needs. It also helps companies understand the
potential problems that may occur during production and how to mitigate them.
▪ Efficiency. Detailed production planning reduces bottlenecks and helps minimize costs. It
also helps ensure the high quality of a product, and it keeps expenses on budget.
▪ Customer satisfaction. Production planning helps ensure that the company can make and
deliver products to customers on time, leading to higher customer satisfaction and a greater
likelihood of repeat business.

Types of Production Planning

The design of a product plan depends on the production method that the company uses, as well as
other factors, such as product type, equipment capabilities and order size. Here are three of the main
types of production planning:

▪ Batch production planning.

Refers to manufacturing identical items in groups rather than one at a time or in a continuous
process. For some businesses, batch production can greatly increase efficiency. A bakery
creating items for sale the next day might first make a batch of chocolate chip cookies, then
move on to oatmeal raisin cookies followed by loaves of semolina bread. A clothing
manufacturer making goods for the summer might first set up its cutting and sewing
machines to make 500 navy-blue T-shirts, then switch to red fabric and thread to make 400
tank tops. A good production plan for batch processing should look out for potential
bottlenecks or delays when switching between batches.
▪ Job- or project-based planning.
Used by many small- and medium-sized businesses, job production planning focuses on the
creation of a single item by one person or team. Job-based planning is typically used where
the specificity of each client’s requirements means it is difficult to make products in bulk.
Many construction businesses use this method. Makers of custom jewelry and dresses are
other examples of businesses that may use job production planning.
▪ Flow production planning.
In flow production, also known as continuous production, standardized items are
continuously mass-produced on an assembly line. Large manufacturers use this method to
create a constant stream of finished goods. During production, each item should move
seamlessly from one step along the assembly line to the next. Flow production is most
effective at reducing costs and delays when there’s steady demand for the company’s
products. Manufacturers can then readily determine their needs for equipment, materials and
labor at each stage along the assembly line to help streamline production and avoid delays.

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 The automotive industry and makers of canned foods and drinks are among the companies
that use this method.

5 Steps to Make a Production Plan

Production planning is a robust undertaking that starts with forecasting and includes process design
and monitoring. Here are five typical production planning steps:

1. Forecast product demand.

Estimate how much of each product you’ll need to produce over a designated period. Historical
data can help with forecasting, but you’ll also need to pay attention to other factors that can
affect demand, such as market trends and the economic situation for your customer
base. Demand planning software can help companies make more informed decisions about the
right amount of product needed to meet demand.
2. Map out production steps and options.
This step determines the processes, steps and resources needed to produce the required output.
At this stage, the company may also examine different options for achieving its production
goals, such as outsourcing some stages. The production mapping identifies which steps are
interdependent and which can be performed simultaneously. Let’s say the job is to produce
1,000 children’s bicycles. Manufacturing the bicycle frames consists of a series of steps that
must happen in sequence — cutting metal tubes, welding and painting — while other activities
like assembling wheels can occur in parallel. Do you have all the right equipment? What
happens if a machine breaks down? Are your suppliers able to meet your demand?
3. Choose a plan and schedule production.
Select a production plan after comparing the cost, time required and risks for each option.
Sharing the selected plan with all necessary stakeholders typically helps assure a smoother
production process since all the stakeholders are aware of what’s needed. Create a detailed
production schedule that lays out in detail how the company will execute the plan, including the
resources and timing for each step.
4. Monitor and control.
Once production has begun, you’ll need to track performance and continually compare it
against the targets described in the production plan. Careful monitoring helps the company to
detect any issues as soon as they pop up, so they can be quickly addressed.
5. Adjust accordingly.
It’s almost inevitable that production will be affected by events that you can’t plan for or
predict. Those events can include changes to client specifications, supply chain lags, equipment
failures and worker illness. You may also see ways to improve the production plan after seeing
it in action for a while. So it’s vital to keep production plans flexible enough to allow for
adjustment when needed. Football coaches often make adjustments to their game strategy at
halftime — and the same holds true for production planning.

3 Common Production Planning Mistakes

Being aware of potential pitfalls ahead of time can help companies avoid or mitigate problems once
production has started. Here are three of the most common production planning mistakes.

1. Not anticipating hiccups along the way.

In any complex production process, plans can go awry. Production planning should therefore
include risk management strategies, including backup plans companies can rely on in the event
of problems. Failing to do so can result in serious problems. For example, if a machine breaks
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 on the line and you didn’t budget for repairs and workforce overtime, the issue may strain the
company’s financial resources.
2. Keeping your distance.
Though production management software can provide real-time visibility into a company’s
production status, it’s a good idea to supplement that information with in-person visits to the
production line. Those visits can provide valuable insights into how production works in
practice — insights that you might not gain if you’re stuck behind a desk.
3. Failing to maintain equipment.
There’s a tradition in football that the quarterback buys presents for his offensive linemen at the
end of each season. Why? Because they protect him and enable him to do his job. Your
manufacturing equipment is your company’s offensive line, so don’t neglect it. Tracking usage
and paying for regular preventive maintenance helps ensure that your machines can keep your
business functioning.

Production Planning KPIs

Key performance indicators (KPIs) are important metrics that help companies track the health of
their production processes. By monitoring KPIs and comparing them to target values defined in
production plans, businesses can determine whether production is on track and pinpoint problems
that need to be addressed. Typical production KPIs include:
▪ Downtime.
This key efficiency metric tracks the percentage of time that production is not occurring
during scheduled operating hours. Causes include machine breakdowns, tool adjustments
and accidents. Some downtime may be necessary for functions such as machine
maintenance, but generally, the less downtime the better.
▪ Setup time.
Also referred to as changeover time, this is the amount of time it takes to switch between
jobs. Setup time impacts overall productivity because production is halted during these
periods. Production schedules should consider how much time and effort it takes to
reconfigure production for each job, including changes to the equipment, raw materials and
workforce. Designing production schedules to minimize changeover time can increase
efficiency.
▪ Production rate.
In a manufacturing environment, this is typically measured as the number of units produced
during a specific period. Comparing the actual production rate for each process with the
planned rate can help businesses identify strengths and weaknesses and begin to address
problems.
▪ Overall equipment effectiveness (OEE).
This is a measure of overall manufacturing productivity that accounts for quality,
performance and availability. The formula for OEE is:
OEE = Quality x performance x availability
Quality is typically measured as the percentage of parts that meet quality standards.
Performance is how fast a process is running compared to its maximum speed, which is
expressed as a percentage. Availability is the percentage of uptime during a company’s
scheduled operating hours. Increasing OEE can be achieved by lowering downtime, reducing
waste and maintaining a high production rate.
▪ Rejection rate.
This is the number or percentage of products that failed to pass quality checks. Depending on

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 the nature of the product and the problem, it may be possible to salvage some rejected items
by reworking them, while others may need to be scrapped.
▪ On-time orders.
Production delays can be costly both in terms of money and reputation. Generating products
on schedule means you’re less likely to need costly expedited shipping or other emergency
measures to meet deadlines. And delivering orders on time helps keep customers happy,
which means they’re more likely to keep doing business with your company.

Production Planning Tools

Businesses rely on a variety of tools to build production plans and track progress, ranging from
visualization tools to sophisticated software that automates many of the steps involved. Typical
tools include:
▪ Gantt charts.
A Gantt chart is a detailed visual timeline of all the tasks scheduled for a particular job. More
than 100 years since its invention by mechanical engineer Henry Laurence Gantt,
this chart remains integral to manufacturing and many other industries. Production planning
involves coordinating and scheduling many tasks, and the Gantt chart visually represents
when each task will take place and how long it will last. Manually creating and updating
Gantt charts to reflect complex, ever-changing production schedules can be a time-
consuming and error-prone job, however.
▪ Spreadsheets.
Small companies sometimes start out by tracking simple production plans using
spreadsheets. However, for most companies, the inherent complexity of production planning
quickly outstrips the capabilities of spreadsheet software.
▪ Production planning software.
Production planning involves a wide range of activities, including forecasting, managing the
supply chain, tracking inventory and scheduling jobs. Those activities require information
from across the company and beyond. Production planning information is integral to
business operations and is used by other groups within the company, including finance.
That’s a key reason many companies use enterprise resource planning (ERP) application
suites that include production planning software and provide a single solution for managing
the entire business.

Material Requirements Planning- I (MRP I), Material Requirements Planning- II (MRP II),
Enterprise resource Planning (ERP)

What is MRP?
The first generation of MRP helped manage the production process and control inventory. It was
used to ensure the availability of materials in the right quantity at the right time. An MRP system
uses demand data to create a Bill of Materials (BOM), a purchasing plan, and a production
schedule. Material Requirements Planning (MRP) is a standard supply planning system to help
businesses, primarily product-based manufacturers, understand inventory requirements while
balancing supply and demand. Businesses use MRP systems, which are subsets of supply chain
management systems, to efficiently manage inventory, schedule production and deliver the right
product—on time and at optimal cost. Below are the core functionalities of MRP:
• Maintain the minimum required inventory
• Ensure the availability of raw materials for production
• Determine when materials need to be purchased
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 • Plan and schedule manufacturing for on-time deliveries
• Reduce customer lead times

How MRP Works

A Material Requirements Planning (MRP) system accelerates the manufacturing production process
by determining what raw materials, components and subassemblies are needed, and when to
assemble the finished goods, based on demand and bill of materials (BOM). It does this by asking
three main questions:
▪ What is needed?
▪ How much is needed?
▪ When is it needed by?
The answers to these questions provide clarity into what materials are needed, how many and when
to fulfil the required demand and help facilitate an efficient and effective production schedule.

Why Is MRP important?

MRP gives businesses visibility into the inventory requirements needed to meet demand, helping
your business optimize inventory levels and production schedules. Without this insight, companies
have limited visibility and responsiveness, which can lead to:
▪ Ordering too much inventory, which increases carrying costs and ties up more cash in
inventory overhead that could be used elsewhere.
▪ Inability to meet demand because of insufficient raw materials, resulting in lost sales,
canceled contracts and out-of-stocks.
▪ Disruptions in the production cycle, delaying sub-assembly builds that result in increased
production costs and decreased output.
Manufacturing companies rely heavily on MRP as the supply planning system to plan and control
inventory, scheduling and production, but MRP is also relevant in many other industries, from retail
to restaurants, to create balance between supply and demand.

MRP Steps and Processes

The MRP process can be broken down into four major steps:
1. Identifying requirements to meet demand.
The first step of the MRP process is identifying customer demand and the requirements needed
to meet it, which starts with inputting customer orders and sales forecasts.
Using the bill of materials required for production, MRP then disassembles demand into the
individual components and raw materials needed to complete the build while accounting for any
required sub-assemblies.
2. Checking inventory and allocating resources.
Utilizing the MRP to check demand against inventory and allocating resources accordingly, you
can see both what items you have in stock and where they are—this is especially important if
you have inventory across several locations. This also lets you see the status of items, which
gives visibility into items that are already allocated to another build, as well as items not yet
physically in the warehouse that are in transit, or on order. The MRP then moves inventory into
the proper locations and prompts reorder recommendations.
3. Scheduling production.
Using the master production schedule, the system determines how much time and labor are
required to complete each step of each build and when they need to happen so that the
production can occur without delay.
The production schedule also identifies what machinery and workstations are needed for each
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 step and generates the appropriate work orders, purchase orders and transfer orders. If the build
requires subassemblies, the system takes into account how much time each subassembly takes
and schedules them accordingly.
4. Identifying issues and making recommendations.
Finally, because the MRP links raw materials to work orders and customer orders, it can
automatically alert your team when items are delayed and make recommendations for existing
orders: automatically moving production in or out, performing what-if analyses, and generating
exception plans to complete the required builds.

MRP Inputs
How well your MRP system works depends on the quality of the data you provide it. For an MRP
system to work efficiently, each input must be accurate and updated. Here are some of the inputs an
MRP depends on:
▪ Demand
Including sales forecasts and customer orders. When working with predicted demand, a
system that is integrated with an enterprise-wide ERP system allows forecasting using
historical sales vs. just sales forecasts.
▪ Bill of materials (BOM)
Keeping a single updated version of the bill of materials is essential for accurate supply
forecasting and planning. A system that’s integrated into the enterprise-wide inventory
management system avoids version control issues and building against outdated bills, which
results in reworks and increased waste.
▪ Inventory
It’s essential to have a real-time view of inventory across the organization to understand what
items you have on hand and which are en route or have purchase orders issued, where that
inventory is and what the inventory’s status is.
▪ Master production schedule
The master production schedule takes all build requirements and plans machinery usage,
labor and workstations to account for all outstanding work orders to be completed.

MRP Outputs
Using the provided inputs, the MRP calculates what materials are needed, how much is needed to
complete the build and when in the build process they are needed.
With this information defined, businesses can execute on just-in-time (JIT) production, scheduling
production based on material availability. This minimises inventory levels and carrying costs, as
inventory is not stored in the warehouse for future production but arrives as needed. By scheduling
materials to arrive and production to begin soon after, businesses can move materials through the
workflow process without delay.
The MRP lays out the plan of when materials should arrive, based on when they’re needed in the
production process, and when subassemblies should be scheduled. Using a master production plan
and taking into account subassembly build times minimises materials sitting on shelves and
bottlenecks in the build process.

Advantages of Material Requirement Planning

The adoption of MRP brings forth a plethora of advantages, propelling businesses to new heights of
operational excellence.
1. Streamlined Inventory Management

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MRP enables businesses to maintain an optimal level of inventory by aligning it with production
needs. This prevents overstocking and stockouts, ensuring that materials are available when needed.
The result is a streamlined and efficient inventory management system.
2. Enhanced Production Scheduling
Using MRP, companies can create accurate production schedules using up-to-date information on
customer demand and inventory levels. This improved scheduling helps to minimize delays, shorten
lead times, and maintain a seamless workflow during production.
3. Cost Optimization
One of the primary objectives of MRP is to optimize costs through judicious resource allocation. By
preventing excess inventory and minimizing wastage, businesses can significantly reduce
operational costs, contributing to improved profitability.
4. Improved Coordination Across Departments
MRP acts as a central hub that connects various departments involved in the production process.
This improved coordination ensures that everyone is on the same page regarding material
requirements, production schedules, and resource utilization, fostering a collaborative and efficient
working environment.
5. Timely Order Fulfilment
By aligning material availability with production schedules, MRP facilitates timely order fulfilment.
This not only enhances customer satisfaction but also strengthens the overall reputation of the
business in the market.
6. Accurate Demand Forecasting
MRP relies on accurate demand forecasting, which is crucial for planning production activities. By
analyzing historical data and market trends, businesses can make informed decisions regarding
material procurement and production schedules, reducing the risk of shortages or excess inventory.

Disadvantages of Material Requirement Planning (MRP)

Material Requirement Planning (MRP), while advantageous in many aspects, comes with its own
set of challenges and drawbacks. Here are some of the notable disadvantages:
1. Implementation Costs
Introducing MRP systems can be a substantial financial investment for businesses. The initial costs
associated with software implementation, employee training, and system integration can be a
barrier, particularly for smaller enterprises.
2. Complexity and Learning Curve
MRP systems are inherently complex, and their successful utilization requires a certain level of
expertise. Employees may face a steep learning curve, and the complexity of the system can lead to
errors in data input or interpretation.
3. Data Accuracy Dependency
The effectiveness of MRP heavily relies on the accuracy of data input. Inaccurate or outdated data
can result in flawed calculations, leading to incorrect production schedules, procurement orders,
and, ultimately, disruptions in the supply chain.
4. Overemphasis on Forecasting
MRP is reliant on accurate forecasting to anticipate future demand. If market conditions change
unexpectedly or if the forecasting methods are flawed, it can lead to overproduction or shortages,
impacting the efficiency of the entire production process.
5. Rigidity in Handling Changes
MRP systems may struggle to adapt to sudden changes in demand, supply chain disruptions, or
modifications in production processes. This lack of flexibility can result in inefficiencies and
difficulties in responding promptly to evolving business conditions.
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MRP Challenges
Although using an MRP solution is a far better than using spreadsheets for supply planning, it’s
only as good as the data you put into it. The better a business understands and documents its
processes, the better an MRP system can serve them.
You need to make sure you input correct inventory availability, time to complete a subassembly,
waste calculations and lead-times from vendors. Otherwise, your production schedule will be
inaccurate—an MRP can’t define the production build timeline and materials required if the data
isn’t accounted for in the inventory record, bill of materials and master production schedule

The other major drawback of MRP is that takes no account of capacity in its calculations. This
means it will give results that are impossible to implement due to manpower or machine or suppler
capacity constraints. However this is largely dealt with by MRP II. Generally, MRP II refers to a
system with integrated financials. An MRP II system can include finite / infinite capacity planning.
But, to be considered a true MRP II system must also include financials. 4 In the MRP II (or MRP2)
concept, fluctuations in forecast data are taken into account by including simulation of the master
production schedule, thus creating a long-term control. A more general feature of MRP2 is its
extension to purchasing, to marketing and to finance (integration of all the function of the
company), ERP has been the next step.

What is MRP II?

With increasing competition and demand for customized products, manufacturers have become
more strategic about acquiring raw materials. It has led to more complexities in the supply chain
and manufacturing operations. MRP II includes all the functionality of MRP as well as capacity
planning, forecasting, and demand management. MRP II enables manufacturing businesses to
explore contingency planning when issues arise and plan purchases according to production needs.
Below are the core functionalities of MRP II:
• Material requirements planning
• Bill of Materials (BOM)
• Inventory management
• Capacity planning
• Master Production Schedule (MPS)
• Purchasing management
• Customer order management
• Forecasting and demand management
• Cost accounting
• General accounting

What is ERP?
MRP II has some great functionality. It is still missing many critical functions that are very
beneficial to manufacturers. ERP is an extended version of MRP II to include all core business
functions and processes. It manages production and inventory, finances and accounting, sales,
CRM, HR, and more. ERP solutions are more complete, streamlined, and integrated as compared to
MRP systems. Enterprise resource planning includes all the features in MRP II and much more.
ERP is a fully integrated suite of business management tools that use a central database, streamline
business processes and tasks, share accurate information, increase manufacturing efficiencies, and
reduce costs across your organisation. As all the activities are visible in a single database within the

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ERP system. That allows everyone to work from the same information. Below are the core
functionalities of ERP:
• Financial Accounting
• Warehouse Management
• Procurement
• Manufacturing
• Order management
• Inventory Management
• Supply Chain Management
• Customer Relationship Management
• Human Capital Management
• Order Management
• Quality Management
• E-Commerce

What are the benefits of ERP?

1. Improved productivity
ERP streamlines processes across the company. It automates your workflow and minimizes errors.
ERP improves communication and collaboration between employees. It streamlines operational
processes through innovation and best practices. There is no redundancy because the information is
only entered once. And information is immediate and accurate for better decision-making.
2. Saves time and money
ERP helps organizations lower costs by keeping their inventory at optimal levels. Month-end
closings are faster. Streamlined processes provide greater efficiency. It provides insight into all
aspects of the business to identify areas to cut costs. Orders are faster and shipped on time.
Increased capacity helps to increase production. ERP optimizes your workflow and keeps costs low.
3. Easy forecasting and reporting
ERP forecasts and reports for all parts of a business. Manufacturers can understand what factors are
responsible for increased sales. It identifies optimal inventory levels to meet future demand. It helps
procurement managers buy needed items in the most cost-effective manner possible. Intelligent
reporting helps to manage complex data. Powerful business intelligence tools give management an
accurate view of the entire organization.
4. Greater collaboration
ERP has a centralized database so everyone sees the same information. Because departments are
connected it allows for greater communication and collaboration. ERP integration eliminates
redundancy and provides everyone with consistent and accurate data. By having everything
connected, there are no data silos. ERP provides employees with greater productivity and efficiency.
5. Enhanced data security
ERP systems have excellent data security. Managers and supervisors can enhance data restrictions
with user-permission settings. Data inserted into a modern ERP system is secure and coded.
Vendors provide ERP updates timely to remove the risk of data theft.
6. Mobility and flexibility
ERP users can access business data from their mobile devices. Mobile-friendly ERP allows
employees to be on the move. Sales and service teams can work in the field. Employees can get
answers from supervisors who are out of the office. Purchase requests get approved in seconds.
Mobile alerts can notify of items needing attention.
7. Better decision making

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ERP provides KPIs and forecasts on easy-to-read dashboards. Real-time data provides insights into
purchasing, production, inventory movement, and warehouse management. Accurate and up-to-date
data also helps you generate greater sales revenue while also identifying deficits. Drilled-down data
provides a more granular view to better analyze situations to make smarter business decisions.
8. Achieve compliance
ERP systems keep on top of regulatory compliance. They enforce industry-specific requirements
and track, verify, and audit transactions. Material tracking lets manufacturers notify the supplier if
there are any quality issues. These safety measures ensure industry rules aren’t violated and
financial penalties aren’t incurred.
The global ERP software market is expected to reach $93.34 billion by the year 2028. The features
of MRP and MRP II are included in ERP. This is why businesses are adopting ERP solutions instead
of any standalone tools.

Relationship Between ERP and MRP

MRP can be considered a subsystem of an ERP solution as it delivers material and resource
information to an ERP system. This information can be combined with key business departments to
enhance business processes, increase productivity, and improve the business’s bottom line. For
example, the finance department can leverage the data of MRP to calculate the cost of
manufacturing and accounts receivables to set product prices. Both technologies significantly
impact the manufacturing industry by improving efficiency, boosting productivity, and shortening
the production cycle. The core difference is that MRP primarily focuses on materials management,
and ERP assists with processes across the company.
MRP systems focus specifically on planning and controlling how goods are assembled using
multiple raw materials or components by controlling inventory, componentry and the manufacturing
process.
Enterprise resource planning (ERP) systems are an offshoot of MRP systems, spurred by businesses
finding a need for the same level of planning and oversight for other operations such as payroll,
finances and supplier management. ERP systems plan for resources across the entire organisation,
including: financial management, order management, customer relationship management, people,
procurement, warehousing and fulfilment.

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Role of Technology in Operations Management
Technology can help operations management in a number of ways, including:
1. Automating tasks: Technology can automate things like typing in data, getting orders ready,
and answering customer questions. When it does these things, people can spend their time on
important tasks that help the business grow.
2. Improving visibility and communication: Technology helps us see and talk to each other
better in the supply chain. It’s like a map that shows problems early and helps us work together
more effectively.
3. Analyzing data: Technology collects and analyzes data from different sources. This helps find
trends, patterns, and ways to improve.
4. Making better decisions: Technology can be used to develop decision support systems that can
help businesses make better decisions about their operations.

Technology is improving operations management in different industries, and here are some specific
examples.
Manufacturing: Robots are like helpful workers on the production line. They put things together,
and they’re super precise. Special sensors are also used to check if products are good and if the
machines are doing a good job.
Retail: Shops use tech to keep track of what they have in stock and make customers happy. They
use special tags called Radio Frequency Identification (RFID) to follow where the products go from
the factory to the store.
Logistics: Companies are using technology to improve the efficiency of their transportation and
warehousing operations. For example, companies are using routing software to optimize delivery
routes and reduce fuel costs.
Healthcare: Hospitals and doctors use machines to make sure they take really good care of patients
and do it faster. They have special computer records to share your health information among the
different parts of the hospital.

Automation & Robotics in Operations Management

Automation and robotics significantly enhance efficiency, accuracy, and cost-effectiveness in

operations management.
Automation and robotics have revolutionised operations management in various ways. Firstly, they
have significantly improved efficiency. Automated systems can operate 24/7 without breaks,
holidays, or shifts, thereby increasing productivity. They can also perform tasks faster than humans,
which reduces lead times and increases throughput. For instance, Amazon uses robots in its
warehouses to fetch items, which has reportedly reduced the time taken to fulfil an order from hours
to minutes.
Secondly, automation and robotics enhance accuracy. Automated systems are less prone to errors
compared to humans, especially for repetitive tasks. This reduces the risk of defects, rework, and
waste, thereby improving quality. For example, car manufacturers use robots for tasks such as
welding and painting, which require precision and consistency.
Thirdly, automation and robotics can be cost-effective in the long run. Although the initial
investment can be high, the ongoing costs are typically lower compared to human labour.
Automated systems do not require salaries, benefits, or training, and they can also reduce costs
associated with errors and accidents. Moreover, they can lead to savings in space, as robots can
often be stored more compactly than humans.

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However, the impact of automation and robotics is not entirely positive. They can lead to job losses,
as machines replace humans for certain tasks. This can have social and economic implications, such
as unemployment and inequality. Furthermore, they can make operations more dependent on
technology, which can increase the risk of disruptions due to technical issues or cyber-attacks.
In conclusion, automation and robotics have a profound impact on operations management. They
offer numerous benefits, such as improved efficiency, accuracy, and cost-effectiveness. However,
they also present challenges, such as job losses and increased technological dependence. Therefore,
businesses need to carefully consider these factors when deciding to automate their operations.

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