1. Chapter 9: Enterprise Resource Planning1 Chapter 9: Enterprise Resource Planning

2. Chapter 9: Enterprise Resource Planning2 Introduction

3. Chapter 9: Enterprise Resource Planning3 Elf Aquitaine Diversified French company with interests in petroleum products, chemicals, and pharmaceuticals. Experiencing problems with the flow of critical information across and within its 12 business units. Ordering and production, and sales forecasting and budgeting were not integrated with one another.

4. Chapter 9: Enterprise Resource Planning4 Elf Aquitaine continued Compounding the problem, each of the 12 business units developed a unique approach for tracking and reporting financial data. To address these problems and better integrate the flows of data, Elf Atochem decided to implement SAP’s R/3 ERP system.

5. Chapter 9: Enterprise Resource Planning5 Elf Aquitaine continued Elf Atochem chose to focus on four key processes: materials management, production planning, order management, and financial reporting, rather than trying to implement ERP across the entire organization. Decided to implement the system in one business unit at a time.

6. Chapter 9: Enterprise Resource Planning6 Elf Aquitaine continued Using this phased implementation approach, Elf Atochem was able to roll out its ERP system ahead of schedule and under budget. The primary benefit Elf Atochem has achieved is that it now has the real- time information needed to link sales and production planning.

7. Chapter 9: Enterprise Resource Planning7 National Semiconductor National Semiconductor’s CIO, has a rather non-traditional view of the role of IT. Rather than viewing IT as a support function, IT is part of the business that creates technology solutions that in turn position the company to capitalize on business opportunities.

8. Chapter 9: Enterprise Resource Planning8 National Semiconductor continued Maintaining the existing legacy systems left little time or money for new systems development. National decided to focus its efforts on three key areas: purchasing, inventory management, and maintenance management. Considered adopting SAP’s R/3 system. In the end National chose IFS as its ERP vendor.

9. Chapter 9: Enterprise Resource Planning9 MRP for Dependent Demand

10. Chapter 9: Enterprise Resource Planning10 MRP for Dependent Demand: Background Independent Demand  automobiles, televisions, cartons of ice cream  demand often occurs at constant rate Dependent Demand  most raw materials, components, and subassemblies  demand often occurs in lumps Materials Requirements Planning (MRP)  designed when lumps in demand are known about before hand

11. Chapter 9: Enterprise Resource Planning11 Constant and Lumpy Demands

12. Chapter 9: Enterprise Resource Planning12 Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (ROP)

13. Chapter 9: Enterprise Resource Planning13 Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (MRP)

14. Chapter 9: Enterprise Resource Planning14 The Boardsports Company

15. Chapter 9: Enterprise Resource Planning15 Skateboard Product Tree

16. Chapter 9: Enterprise Resource Planning16 Material Requirements of Sidewalk Special Fiberglass boards: 1  number of specials Wheel assemblies: 2  number of specials Wheels: 2  number of wheel assemblies Spindles: 1  number of wheel assemblies Locknut: 2  number of wheel assemblies Wheel mount stand: 1  number of wheel assemblies

17. Chapter 9: Enterprise Resource Planning17 Material Required to Produce 50 Sidewalk Specials Fiberglass boards: 1  number of specials = 1  50 = 50 Wheel assemblies: 2  number of specials = 2  50 = 100 Wheels: 2  number of wheel assemblies = 2  100 = 200 Spindles: 1  number of wheel assemblies =1  100 = 100 Locknut: 2  number of wheel assemblies = 2  100 = 200 Wheel mount stand: 1  number of wheel assemblies = 1  100 = 100

18. Chapter 9: Enterprise Resource Planning18 Delivery 50 Sidewalk Specials in Week 10

19. Chapter 9: Enterprise Resource Planning19 Time-Scaled Assembly Chart for Skateboard

20. Chapter 9: Enterprise Resource Planning20 The Mechanics of MRP

21. Chapter 9: Enterprise Resource Planning21 Primary Inputs to MRP System Master Production Schedule Bill of Materials File Inventory Master File

22. Chapter 9: Enterprise Resource Planning22 Schematic of MRP System

23. Chapter 9: Enterprise Resource Planning23 Master Production Schedule Based on actual customer orders and predicted demand Indicates when each ordered item will be produced

24. Chapter 9: Enterprise Resource Planning24 Bill of Materials (BOM) Indicates all the raw materials, components, subassemblies, and assemblies required to produce an item Shows way a finished product or parent item is put together from individual components Parent item shown at highest level or level zero

25. Chapter 9: Enterprise Resource Planning25 Bill of Materials continued Parts that go into parent item are called level 1 components and so on Production planners explode BOM for level zero item to determine the number, due dates, and order dates of subcomponents

26. Chapter 9: Enterprise Resource Planning26 Product Structure Tree

27. Chapter 9: Enterprise Resource Planning27 Inventory Master File Detailed information regarding the quantity of each item, on hand, on order committed to use in various time periods MRP system using inventory master file to determine the quantity available for use in a given period If sufficient items not available, the system includes the item on the planned order release report

28. Chapter 9: Enterprise Resource Planning28 Low-Level Coding Original product tree structure Low-level-coded product tree structure

29. Chapter 9: Enterprise Resource Planning29 MRP System Outputs Order Action Report  which orders are to be released and canceled during the current time period Open Orders Report  which orders to expedite or deexpedite Planned Order Release Report  time-phased plan for orders to be released in future time periods

30. Chapter 9: Enterprise Resource Planning30 MRP Computations Process all items in BOM level-by-level  For each item at a level determine time phased gross requirements subtract on-hand and on-order amounts from gross requirements to determine net requirements apply lot-sizing rule to determine lot size offset the order release for lead time yielding time-phased planned order releases

31. Chapter 9: Enterprise Resource Planning31 MRP Computations continued Net requirements for planning period = gross requirements for planning period - planned on hand at planning period Planned on hand at planning period = current on hand + scheduled receipts prior to planning period - scheduled requirements prior to planning period

32. Chapter 9: Enterprise Resource Planning32 MRP Computations continued

33. Chapter 9: Enterprise Resource Planning33 MRP Extensions

34. Chapter 9: Enterprise Resource Planning34 Capacity Requirements Planning Capacity Using Overall Factors  production standards used to convert MPS into loads on each work center  loads assumed to fall in same period as finished goods in MPS Bills of Capacity  same as capacity using overall factors but instead of using historical ratios, uses the BOM and routing sheets

35. Chapter 9: Enterprise Resource Planning35 Enterprise Resource Planning (ERP) MRP II extends MRP systems to share information with other functional areas Key component of MRP II is storing operational information centrally ERP systems seek to integrate all business activities and processes throughout the organization Goal is to provide real-time information to all employees that need it

36. Chapter 9: Enterprise Resource Planning36 Typical ERP System

37. Chapter 9: Enterprise Resource Planning37 The ERP Industry Forrester Research estimates that the overall market for ERP software and services was $21 billion in 2004. Estimates are overall spending on ERP systems will increase 4.2% annually through 2008, spending on maintenance will increase at almost double this rate, or 7% annually through 2008.

38. Chapter 9: Enterprise Resource Planning 38 Figure 9.12 Market share (based on 2004 revenues) of five top ERP vendors.

39. Chapter 9: Enterprise Resource Planning39 Implementing ERP Systems Key drivers for the strong interest in ERP include:  The desire to standardize and improve business processes.  The desire to integrate the organization’s existing information systems.  The need for better and more timely information.  The need to comply with Sarbanes-Oxley.

40. Chapter 9: Enterprise Resource Planning40 Implementing ERP Systems continued One to three years to implement an ERP system. Actual costs of implementing an ERP are driven by a number of factors including:  The number of employees that will be using the system.  The number of modules that will be implemented.  The extent to which the organization attempts to integrate its ERP system with an internal intranet.  How much the organization’s processes must be modified to conform with the ERP system.  The amount of consulting and training required  The extent to which the organization’s existing data must be converted to conform to the data requirements of the new ERP system.

41. Chapter 9: Enterprise Resource Planning41 Implementation Approaches The “Big Bang” approach: this approach organizations implement the new ERP system all at once and scrap their existing legacy systems. The “United Federation” approach: this approach business units/divisions are free to implement independent systems but common processes such as financial reporting are linked across the enterprise. The “Test the Waters” approach: focus of this approach is on a few key processes.

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