Enterprise Resource Planning

2. Enterprise Resource Planning • Enterprise Resource Planning Systems is a computer system that integrates application programs in accounting, sales, manufacturing, and other functions in the firm • This integration is accomplished through a database shared by all the application programs ERP can be considered an initiative launched to better manage business processes across the organization using a common, integrated database, shared data management applications and reporting tools.

4. Enterprise Resource Planning - Background An organization’s critical business processes often cut across many of its functional units. In most organizations, each process has its own data needs and applications that operate as distinct systems. The results of this approach: - Function-Centric view in the business units - Operational Inefficiencies Example: A customer order Logistics Accounting Purchasing Sales Production

5. Customer orders Forecasts Master production schedule Bills of materials Routings Time standards Inventory records Inventory transactions MRP explosion Material requirements plan Cost and financial data Manufacturing resource plan Enterprise Resource Planning - Background The Idea of MRP ERP evolved from MRP (Material Requirements Planning) and MRP II.

6. Enterprise Resource Planning - Background The Idea of MRP II “Instead of having one set of numbers for the operating system in manufacturing and one set kept by the financial people – once the manufacturing people have numbers that are valid, the financial people can use these to get their numbers. Of course, whenever there are two systems – the numbers are bound to be different. With MRP II, everybody can be working with the same set of numbers, but that’s only the technical difference. The big difference comes in the way management uses these tools…MRP II becomes a company game plan for manufacturing, marketing, engineering, and finance.” Oliver Wright, The Executives Guide to Successful MRP II, 1982.

7. Enterprise Resource Planning – Background Timeline

8. SAP System Functional Components

9. Reasons for implementing ERP • Desire to standardize and improve processes • To improve the level of systems integration • To improve information quality • Integrate Financial Information • Integrate Customer Order Information • Standardize and Speed Up Manufacturing Processes • Reduce Inventory • Standardize Human Resources Information • Global Outreach • Avoid Redundancies

10. ERP Disadvantages • Time-consuming • Expensive • Fit • Vendor Dependence • Too many features, too much complexity • Process Rigor (Standardized)

11. The General ERP Process • Product Analysis • Module Selection • Process Analysis • Data Analysis • Applications Integration • Testing and Installation • Employee Training

12. How Much Does an ERP Implementation Cost? • The size and geographic distribution of the company. • The size of the ERP package. • Hardware • Software • Consultants and Analysts Fees • Time • Training

13. Successful ERP Implementation Criteria • Top Management Support • Good Cost Estimation • Realistic Expectations • ERP Implementation • Cultural Impact • Training • Customization and Integration

14. Additional ERP Resources • SSA Global Technologies – www.ssaglobal.com • SAP – www.sap.com • Oracle/PeopleSoft – www.oracle.com • IBM -http://www-03.ibm.com/solutions/businesssolutions/erp • Microsoft (Great Plains) – www.microsoft.com • Also, American Software, i2, Manugistics

15. Additional ERP Resources http://www.google.com/Top/Computers/Software/ERP/Consultants/ http://www-304.ibm.com/businesscenter/smb/us/en/solutionsummary/xmlid/126783 http://www.cio.com/ http://www.computerworld.com/

16. Additional ERP Resources

17. Additional ERP Resources

18. less Long-Range Capacity Planning Resource Planning (some details) Aggregate Planning Chase Plan Level Plan Level of detail Master Production Schedule Bill of Materials Inventory Information Production Planning MRP more

20. MPS gets further broken down in the MRP.

21. Aggregate Plan

22. Materials Requirements Planning An information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. Aids in managing dependent demand inventory. Primary Inputs: Master Production Schedule Bill of Materials Inventory Records

23. Authorized master production schedule Other sources of demand Engineering and process designs Inventory transactions Inventory records Bills of materials MRP explosion Material requirements plan MRP Inputs

24. Master Production Schedule MPS for a single end item Aggregate Plan

25. Bill of Materials • A record of all components of an item • Shows the parent-component relationship • The usage quantities are derived from engineering and process design • Five common terms • End items • Intermediate items • Subassemblies • Purchased items • Part commonality (sometimes called standardization of parts or modularity)

26. Back slats Seat cushion Leg supports Seat-frame boards Back legs Front legs A Ladder-back chair Bill of Materials BOM for a Ladder-Back Chair

27. B (1) Ladder-back subassembly C (1) Seat subassembly D (2) Front legs E (4) Leg supports F (2) Back legs G (4) Back slats H (1) Seat frame I (1) Seat cushion J (4) Seat-frame boards Bill of Materials A Ladder-back chair

28. Bill of Materials If 50 units of of end item A are to be assembled, how many additional units of D are needed? Of E? A B(3) C(1) D(1) E(2) F(1) D(1) G(1)

30. Inventory Record • Inventory transactions are the basic building blocks of up-to-date records • Transactions include releasing new orders, receiving scheduled receipts, adjusting due dates for scheduled receipts, withdrawing inventory, canceling orders, correcting inventory errors, rejecting shipments, and verifying losses and stock returns • Inventory records divide the future into time periods called time buckets • Keep track of inventory levels and component replenishment needs

31. Scheduledor plannedreceipts inweek t Projected on-handinventory balanceat end of week t Inventory onhand at end ofweek t–1 Grossrequirementsin week t = + – Inventory Record • The time-phase information contained in the inventory record consists of: • Gross requirements • Scheduled receipts • Projected on-hand inventory • Planned receipts • Planned order releases

32. Planning Factors • Lot-sizing rules • Fixed order quantity (FOQ) rule maintains the same order quantity each time an order is issued • Lot for lot (L4L), order what is necessary • Periodic order quantity (POQ), order what is necessary to handle P periods

33. POQ • Lot-sizing rule • Periodic order quantity (POQ), order what is necessary to handle P periods • Component C, lead time 1 week, 8 week horizon • Period, P=3 weeks (planning horizon)

34. BOM A B(1) C(2) D(1) MRP Example, Given MPS, Inv Records, BOM MPS for End Item A, LT=1, Beg Inv=0 Inventory Records

35. MRP Example, Solution

36. Homework