Murat Kaya, Sabancı Üniversitesi 1 MS 401 Production and Service Systems Operations Spring MRP-II and ERP Slide Set #13

Murat Kaya, Sabancı Üniversitesi 2 MRP-II Manufacturing Resources Planning (MRP-II) – Evolved from MRP in 1980s because manufacturers recognized additional needs MRP-II expands the scope of MRP to include – Closed-Loop MRP: When MRP-II includes feedback loops to assess the feasibility of production plans in terms of available capacity

Murat Kaya, Sabancı Üniversitesi 3 MRP-II MarketingFinanceMarket Demand Resource Plan Manufacturing Production Plan Problems? No Yes Adjust Production Plan

Murat Kaya, Sabancı Üniversitesi 4 MRP-II Master Production Schedule Material Requirements Planning Rough Cut Capacity Plan Problems ? No Yes Adjust MPS Requirements Schedules CRP

Murat Kaya, Sabancı Üniversitesi 5 Enterprise Resource Planning (ERP)

Murat Kaya, Sabancı Üniversitesi 6 What is ERP*? ERP is a software system that integrates all departments (and functions) across a company onto a single computer system that can serve all those departments’ needs Without ERP: Functions have their own special purpose software systems that cannot communicate with each other –For example, the finance department cannot see whether a particular order has been shipped. They have to contact someone at the warehouse Single software and single database facilitates information sharing and communication among departments ERP implementation requires to change the way business is conducted. Hence, the implementation can take years * Partially based on the discussion “The ABCs of ERP” in Stevenson’s book, Chapter 14

Murat Kaya, Sabancı Üniversitesi 7 How does ERP Improve Performance? Example: Order fulfillment with ERP When a customer representative takes an order from a customer, she has access to all information she needs: –customer’s credit rating and order history –the company’s inventory levels –the trucking schedule at the shipping dock The other functions can also access the same order info When one department finishes with the order, the order is routed automatically to the next department This is what happens ideally… The reality may be different, though

Murat Kaya, Sabancı Üniversitesi 8 Consistency Requirements ERP requires the company to have consistent definitions across functional areas Example: How is a “sale” defined? –when manufacturing completes an order? –when items leave the finished goods inventory? –when the order is invoiced? –when the items arrive at the customer site? Example: Common part numbers among different plants

Murat Kaya, Sabancı Üniversitesi 9 The Aspects of the ERP Software Multifunctional in scope –produce results that relate closely to the needs of the units that use the system Integrated –when a transaction is entered by one function, the data regarding other related functions should change as well Modular –so that it can be combined into a single expansive system, narrowly focused to a single function, or connected with other applications –can even be bought module by module, from different vendors Facilitates classical MPC activities such as forecasting and inventory management

Murat Kaya, Sabancı Üniversitesi 10 The Cost of ERP Meta Group survey with 63 companies in different sizes, in a range of industries reveals that –average cost of ownership: $15 million –minimum cost: $400,000 –maximum cost: $300 million –it takes 8 months on average to observe any benefits More than 50% of implementations result in “failure” –depending on how failure is defined

Murat Kaya, Sabancı Üniversitesi 11 The Hidden Costs of ERP –employees need to learn a new software, and also a new processes –the links with other company software –most data in legacy systems is of not much use –even clean data takes time for conversion : Implementation teams within the company –some of the best personnel dedicated full time to implementation –some may leave their jobs to become ERP consultants

Murat Kaya, Sabancı Üniversitesi 12 Future of ERP ERP is likely to be around for a long time Growth will continue, but has slowed down Three new strategies for ERP vendors: –target additional niche areas customer relationship management (CRP) advanced demand planning (ADP) –move down the market offer products to smaller companies –focus more on “web-enablement”

Murat Kaya, Sabancı Üniversitesi 13 ERP Example SAP R/3

Murat Kaya, Sabancı Üniversitesi 14 SAP R/3 SAP: Systeme, Anwendungen, und Produkte in der Datenverarbeitung Version R/2 released in 1979, R/3 released in 1994 Total license revenue in 2001 exceeds $17 billion Sources of success –client-server technology –modularity, functionality and integration modules from different vendors can be used together –marketing strategy SAP partnered with most large consulting firms together, they sold R/3 to executives as part of a broader business strategy rather than to IS as a piece of software

Murat Kaya, Sabancı Üniversitesi 15 Sample SAP Screen Copyright 1996 SAP America, Inc

Murat Kaya, Sabancı Üniversitesi 16 R/3 Usage Each screen carries out a different transaction Most common business processes include multiple transactions and cut across more than one functional area or R/3 module Configuration accomplished by changing settings in R/3 configuration tables (approximately 8000 tables) Installers build models of how a process should work, then turn these into scripts

Murat Kaya, Sabancı Üniversitesi 17 Example: Order Management Process in SAP

Murat Kaya, Sabancı Üniversitesi 18 Advantages of SAP R/3 Standardizes processes across a firm and all of its sites Runs on standard desktop machines and client-server architecture that most companies use Single fully integrated database Seamless and truly integrated components Consistent user interface –common “look and feel” across all screens Oriented around processes, instead of company functions One-stop shopping

Murat Kaya, Sabancı Üniversitesi 19 Disadvantages of SAP R/3 Intended to be used within a single company –not easily support partnerships with other companies Based on a closed programming standard –not easy to modify or extend Not designed for electronic / internet commerce Assumes a push-based model of production –rather than pull-based, or JIT Does not deal well with capacity and material availability constraints –“supply chain planning” software better addresses this issue provided by vendors such as i2 and Manugistics