In addition to reducing manufacturing costs and focusing on inventory reduction, CEO’s and CFO’s of manufacturing companies are continuously striving to improve the operational performance of their companies. While it is true that companies employing MRP software derive significant operational benefits to help manage their businesses, many CEO’s and CFO’s of manufacturing companies believe several myths relating to age of MRP software.
Myth #1: The Age of MRP Software does not have an Impact on the Benefits Derived
Myth: Companies that run MRP software receive many distinct and measurable operational benefits despite the age of the system.
Truth: While it is true that companies that run MRP software have many distinct and measurable operational benefits, there are distinct differences in operational benefits depending on the age of the system. A 2011 report shows that MRP software operates at its best between the two and seven year range. In fact, software that is between two and seven years old has almost 30% more reduction in costs than systems older than 15 years. In order to receive all of the operational benefits MRP software can provide, companies should replace their software every seven to ten years.
Myth #2: Cost Reductions are seen more often in Older MRP Software Solutions
Myth: Companies see more cost and inventory reductions the longer they have a MRP software system in place.
Truth: The largest cost and inventory reductions are seen within the first two years of the software’s life. In fact, inventory reduction is 25% greater in systems that are two years old than systems that are two to seven years old. Newer systems also see an improvement in time to decision and a reduction in administrative costs.
Myth #3: Companies can Achieve the Same Results with Older Software
Research shows that a key aspect to consider when comparing the age and performance of older MRP software is how it is being used and how often it is being used. Users with newer systems (less than two years old) use over 10% more module functions than the oldest MRP software users. Since most modules were not available 15 years ago, this makes sense. In fact, the following modules have only been available in the past 10 years:
- Human Resources
- Project Management
- Supplier Management
- Event Management
- Workflow Technology
Technology-specific modules, such as workflow and event management, are especially lacking in the older systems. However, less mainstream and more recent MRP software modules show significant disparity in areas such as project management, supplier management and human resources. These are areas that MRP software companies were just starting to offer 10 years ago and are just now perfecting.
Where Do You Buy Your Extensions?
40% of users of newer MRP software buy their extension applications directly from their software vendors, while users of the oldest systems are five times more likely to depend on third party vendors not associated with their particular MRP software. Why the disparity in how companies view MRP software extensions? There are several reasons:
- Greater availability of extensions from software vendors
- MRP software vendors consolidating the enterprise application market
- MRP software vendors release of messaging, integration and middleware systems
- Lack of on-going support for older, legacy MRP software
Myth #4: Older Software is Easier to Install than Newer, More Complex Software
An important aspect in a company’s decision-making process around MRP software strategies is the time it takes to get the system up and running. Newer systems take 30% less time from install to operation than the oldest systems (7 – 15 years old). Over the last 15 to 20 years, MRP software vendors, user companies and implementation partners have become more efficient in getting software up and running effectively.
As you can see, an older MRP software has several drawbacks. It limits the ability to extend functions through modules and extensions and slows the access to critical information for decision-makers. Not only do older systems require twice as much customization as newer systems, they are also 40% less likely to be tailored to the system without programming. This leads to higher IT support costs and more difficult system upgrades; in addition to the greater support and staffing levels already required for older systems.
By keeping your system current, your operational costs should improve between 3% and 5% for several years on average. If your system is currently between two and seven years old, limit customization and stay as current as possible in order to maintain those benefits.
So What Should a Company Operating Older MRP Software Do?
If your system is more than seven years old, you should consider implementing newer MRP software. Not only will you reap the benefits that a newer system has to offer, but you will also significantly reduce your manufacturing costs.
Do you think this reduction is due mainly to the company’s focus on streamlining processes to work with the new MRP software or mainly the functionality of the new software?