1.3 ERP System Evolution

1.3 ERP System Evolution

Learning Objectives State the purpose of enterprise resource planning (ERP) systems List the challenges facing the industry List the development stages of the manufacturing planning systems List the features of ERP Understand functions of various ERP components Explain the benefits and downsides of ERP 2-2

Purpose of ERP Systems 1. To provide better customer service 2. To minimise inventory investment 3. To maximise plant operating efficiency

Evolution of Manufacturing Re-Order Level System Planning Systems Material Requirements Planning (MRP) Manufacturing Resources Planning (MRP II) Enterprise Resource Planning (ERP)

What drives the market? Challenges for enterprises: Global New product introduction Satisfy the needs of customers (demand-driven) Develop specific business methods and processes Integration with third party products

Demands on the Industry Aggressive cost control initiatives Need to analyse costs/revenues on a product or customer basis Flexibility to respond to changing business requirements More informed management decision making

Re-Order Level System Replenishment not linked to the market demands No forward visibility Entire process is highly time consuming

Material Requirements Planning (MRP) A computerised inventory control and production planning system that ordered material and scheduled production A timed-phased planning system that uses Backward Scheduling technique Does not take into account other resources of an organisation

Backward Scheduling Level MRP Time-Phased Planning 0 End Products 1 Assemblies 2 Components 3 Raw Materials Cumulative product lead time Due Date

Manufacturing Resources Planning (MRP II) Is an extension of MRP that plans all the resources necessary for manufacturing, including 1. Financial 2. Marketing analysis 3. Capacity requirements 4. Overall business plan Does not consider : 1. Human resource management 2. Customer oriented manufacturing management system

Enterprise Resource Planning (ERP) An outgrowth of MRPII that facilitates company-wide integrated information systems covering all functional areas Integration with Customer and Supply Chain

What is Customer Relationship Management (CRM)? It is a strategy to learn more about customers needs and behaviours in order to develop stronger relationships with them Examples of data CRM collects: 1. Shipping and fulfillment dates 2. Sales and purchase data 3. Service and support records 4. Web sales data 5. Web registration data

What is Supply Chain Management (SCM)? The interrelated organisations, resources and processes that create and deliver products and services to end customers It includes: 1. Warehouses & distribution centers 2. Transportation of goods 3. Demand forecasting 4. Inventory control 5. Production scheduling

Definition of ERP Software solution that addresses the enterprise needs taking the process view of an organisation to meet the organisational goals tightly integrating all functions of an enterprise

Features of ERP 1. Facilitates company-wide Integrated Information System covering all functional areas like Manufacturing, Selling and distribution, Payables, Receivables, Inventory, Accounts, Human resources, Purchases etc

2. Increases customer service Features of ERP 3. Bridges the information gap across the organisation

Features of ERP 4. Allows introduction of latest technologies like Electronic Fund Transfer (EFT), Electronic Data Interchange (EDI), Internet, Intranet, E-commerce etc 5. Eliminates problems like material shortages, productivity enhancement, customer service, cash management, inventory management, quality problems, prompt delivery etc 6. Provides business intelligence tools like Decision Support System (DSS), Executive Information System (EIS), Reporting and Data Mining enabling people to make better decisions and thus improve their business processes

Components of ERP 1. Sales and Marketing 2. Master Scheduling 3. Material Requirement Planning 4. Capacity Requirement Planning 5. Bill of Materials 6. Purchasing 7. Shop Floor Control 8. Logistics 9. Asset Management 10. Accounts Payable/Receivable 11. Financial Accounting

ENTERPRISE RESOURCE PLANNING FLOW CHART Business Planning Demand/Product Planning Operations Planning Resource Planning Top Management Planning No Resources OK? Yes BOM Master Scheduling Routings Inventory Materials Planning Capacity Requirements Planning Operations Management Planning No Planning OK? Yes Shop Floor Control Purchasing Operations Management Execution Performance Measurement

Business Planning A high level, long term (3-5 years) strategic planning process in dollar terms Deals with investment, profit, asset and capital planning Plan the desirable level of inventories or customer order backlog

Demand/Product Planning Determine Products lines to produce and market Market to be served Channels of distribution Market share Projected levels of demand

Operations Planning Statement of the company s planned overall level of production by planning period Expressed in aggregate terms

Resource Planning Determines the capacity required to meet the operations plan Provides the basis for planning of long lead time facilities Capacities required are compared with the capacities currently available Any discrepancies will need to adjust the available capacity or modify the operations plan

Master Production Schedule (MPS) Decomposition of the operations plan A plan that states the number of end items to be produced End items may be products or major components Planning horizon is typically 1 year

Material Requirements Planning (MRP) Explodes MPS and plans orders for components and materials needed to support the MPS Plans include order quantities, due dates and release dates

Capacity Requirement Planning (CRP) Uses MRP and routing data to determine capacities required Period to period fluctuations may be resolved by load levelling Overtime, alternate routing, revising MRP and MPS may be necessary

Shop Floor Control Release the job orders to the production floor Operation scheduling Detailed assignment of jobs to work stations and workers (dispatching) Expediting orders Production reporting

Purchasing Selection of vendors Placement of purchase orders Vendor scheduling Order follow-up

Performance Measurement Evaluates how well the system is operating Highlights trouble areas Points out the need for corrective actions Measurements include: 1. Targets 2. Tolerances 3. Methods Key areas include: 1. Customer service 2. Schedule performance 3. Data accuracy

Gartner Mid-market ERP Magic Quadrant

ERP Benefits vs Downsides ERP benefits: 1. Software communicates across functions 2. Better control of the overall operations 3. Connection with customers and suppliers ERP downsides: 1. Development time 2. Expense (equipment, personnel, maintenance) 3. Resistance to change

Reduced overheads and inventory Timely responsiveness Market share Summary Faster design to manufacturability Keep up with technology changes Integrate the systems for clients with multiple locations