Why can’t ERP do Production Planning?
As manufacturing companies undergo Industry 4.0 transformation, it’s essential to understand the limitations of ERP (Enterprise Resource Planning) systems, particularly when it comes to production planning. While ERP systems are central to managing a company’s finances, they are not designed to meet the specific and dynamic needs of production planning.
The Role of ERP: Financial Management and Planning
ERP systems are the backbone of a company’s financial and resource management. They provide a comprehensive view of the organization’s financial health, enabling executives to make informed decisions about resource allocation, budgeting, and strategic planning. In the daily routine of a manufacturing business, ERP systems play several critical roles:
- Profit Projections:
For example, an ERP system allows a production manager to forecast the profit margins on an upcoming order. If a large order is scheduled for completion in the next quarter, the ERP system will calculate the expected profit based on current costs, prices, and labor rates. This enables executives to make strategic decisions, such as whether to accept additional orders or focus on optimizing existing ones. - Cost Optimization:
ERP systems help identify areas where costs can be reduced. For instance, by analyzing production data, an ERP might reveal that one machine costs more to run per minute. Therefore, it is crucial to run that machine with minimum throughput time, idle time, and changeover time. - Component Reduction Savings:
Another example involves optimizing components in assembly processes. Suppose a company assembles complex machinery using multiple sub-components. An ERP system can analyze the bill of materials and show how much production cost can be saved by reducing the number of components or finding alternative parts.
By integrating these financial insights into daily business routines, ERP systems ensure that manufacturing operations are not just efficient but also financially sustainable. However, the strength of ERP systems in managing finances also highlights their limitation: they operate under the assumption that all processes will proceed as planned, which is often not the case in dynamic production environments.
Why can’t ERP do Production Planning?
Simply put, ERP cannot handle production planning reliably because they are financially based. ERP cannot measure and quantify production plans, which are future-oriented and efficiency-based. Therefore, they cannot differentiate between a good and bad plan.
Here are the different focuses of ERP and Production Planning:
- Financial Focus vs. Operational Flexibility:
ERP systems are fundamentally focused on financial metrics—tracking costs, profits, and used resources in monetary terms. This focus is excellent for high-level strategic planning but lacks the flexibility needed to account for production resources (e.g., workers, machines, fixtures) availability. For example, an ERP system might tell you how much money you can save by minimizing the throughput time of a machine or cutting off a work step entirely, but it can’t tell you if this is realistic or executable on the production floor due to machine availability or labor scheduling. - Assumptions of “Perfect Productions”:
ERP systems often operate under the assumption that production processes are always executable and predictable. They assume that if an order is placed, the resources will be available, and the processes will proceed without disruption. However, production environments are highly dynamic—machines break down, suppliers delay shipments, and unexpected orders come in. These variables require constant adjustments that ERP systems are not equipped to handle. For example, if a key machine breaks down, an ERP system might flag the financial impact but won’t offer solutions for reallocating tasks or resources in real-time. - Lack of Real-Time Data Integration:
Production planning requires real-time data on machine status, workforce availability, and material supply. ERP systems typically lack this integration, relying instead on periodic data updates. This lag means that ERP-driven production plans can be outdated within days, hours, or even minutes, leading to inefficiencies or, worse, meaningless planning. In real life, production planning always needs up-to-the-minute data sources to adjust plans dynamically as situations change on the shop floor constantly.
In summary, while ERP systems excel at managing the financial aspects of production, their static, high-level approach can only let you know your financial loss after your production has run into the ground with huge delays and catastrophic bottlenecks.
ERP is not suited for production planning, and this is where Production Planning Systems (PPS) come into play.
The Unique Role of Production Planning and Control (PPC): Proactive Management of Future Production
Production Planning and Control (PPC) systems, sometimes referred to as Production Planning Systems (PPS), are specifically designed to manage and optimize future production activities. Unlike ERP and MESs, which are more reactive, PPC systems are proactive, focusing on predicting and resolving potential issues before they impact production. In the daily operations of a manufacturing business, PPC systems are crucial for several reasons:
- Predicting Schedule Feasibility:
For example, a PPC system can analyze the current production schedule to predict whether all tasks will be completed on time. If the system identifies a potential delay—such as a step that took longer than usual or a key component that might not arrive on time—it can alert the production manager. The manager can then take action, such as adjusting the schedule, reallocating resources, or expediting the delivery of materials, to ensure that the production timeline remains on track. - Identifying Resource Conflicts:
PPC systems excel at detecting and resolving conflicts before they disrupt production. Suppose two different products are scheduled to use the same machine at the same time. A PPC system will flag this conflict and let the production manager adjust the plan easily, such as dragging and dropping one of the tasks to the next day or finding an alternative machine. This proactive approach prevents bottlenecks and ensures that production runs smoothly. - Preventing Delays:
In addition to identifying conflicts, PPC systems help prevent delays by reallocating tasks as needed. For instance, if a key machine breaks down unexpectedly, the PPC system can automatically reschedule the affected tasks, shifting them to other machines or moving them to a later time slot. This ensures that production continues with minimal disruption and that deadlines are met. - Optimizing Future Efficiency:
Beyond immediate scheduling concerns, PPC systems are also used to optimize future production efficiency. For example, a PPC system might analyze data from past production runs to identify trends, such as underperforming machines or processes. Armed with this information, a production manager can make strategic changes—such as upgrading equipment, retraining staff, or altering the production layout—to improve efficiency in future production cycles.
PPS systems are not merely add-ons to ERP; they are essential tools for any manufacturing company looking for stability on the ever-changing shop floor.
By providing the foresight needed to navigate the complexities of modern manufacturing, PPC systems enable companies to plan proactively, avoid production conflicts, and maintain smooth operations even in the face of unexpected challenges.
Conclusion: The Importance of Integrated Production Planning in Digital Transformation
While ERP systems provide the financial oversight necessary for strategic decision-making, they are not fully equipped to handle the forward-looking demands of production planning. This is where PPC systems come in, offering the proactive management tools needed to optimize future production activities.
As manufacturing executives chart the course for their companies’ digital future, they must recognize that true transformation requires more than just upgrading existing systems. It requires a collaboration between ERP and PPC systems, each playing its unique role in creating a resilient, stable, and cost-efficient manufacturing operation.
