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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. 2

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 Sales AccountingPurchasingProduction Logistics 4

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

Enterprise Resource Planning - Background “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,

Enterprise Resource Planning – Background Timeline 7

SAP System Functional Components 8

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 9

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

The General ERP Process 1.Product Analysis 2.Module Selection 3.Process Analysis 4.Data Analysis 5.Applications Integration 6.Testing and Installation 7.Employee Training 11

How Much Does an ERP Implementation Cost? 1.The size and geographic distribution of the company. 2.The size of the ERP package. 3.Hardware 4.Software 5.Consultants and Analysts Fees 6.Time 7.Training 12

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

Additional ERP Resources SSA Global Technologies – SAP – Oracle/PeopleSoft – IBM - Microsoft (Great Plains) – Also, American Software, i2, Manugistics 14

Additional ERP Resources

Additional ERP Resources 16

Additional ERP Resources 17

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

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20 MPS gets further broken down in the MRP.

Aggregate Plan 21

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 22

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

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

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

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

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

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? ItemABCDEFG LT (wks) Amt. OH A B(3)C(1) G(1) E(2)F(1)D(1) 28

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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 30

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 =+– Projected on-hand inventory balance at end of week t Inventory on hand at end of week t–1 Scheduled or planned receipts in week t Gross requirements in week t 31

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 Planning Factors 32

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) POQ 33 ITEM C (POQ, L=1) Gross Requirement Scheduled Receipts Projected OH, Beg= Planned Receipts Planned Order Releases

MRP Example, Given MPS, Inv Records, BOM MPS for End Item A, LT=1, Beg Inv=0 A B(1)C(2) D(1) BOM ItemABCD LT1123 Sch Rec 200 wk 1, 100 wk 6 Amt OH Rule L4L, min 120L4LLot Size, Q=500 Inventory Records 34

MRP Example, Solution 35

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