L2-Intro to ERP

8/3/2019 L2-Intro to ERP

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Introduction to ERP


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ERP Overview

Enterprise Resource Planning (ERP) programsare software used by companies to manageinformation in every area of the business.

ERP programs help manage company-widebusiness processes using a common databaseand shared management reporting tools.

ERP software supports the efficient operation ofbusiness processes by integrating activitiesthroughout a business.


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Data Flow between FunctionalAreas

Marketingand Sales

HumanResources

Accountingand Finance

Production and

MaterialsManagement

CentralData

Figure 2-4 Data flow within an integrated information system


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What is ERP? ERP is an abbreviation for Enterprise Resource Planning and

means, the techniques and concepts for integrated management ofbusinesses as a whole from the viewpoint of the effective use ofmanagement resources to improve the efficiency of enterprisemanagement.

ERP packages are integrated (covering all business functions)software packages that support the ERP concepts.

ERP software is a mirror image of the major business processes ofan organization, such as customer order fulfillment andmanufacturing.

ERP integrates all business functions into a single, integratedsoftware program that runs on a single database so that the variousdepartments can more easily share information and communicatewith each other.

The integrated approach of ERP has tremendous power andpotential in improving the efficiency, productivity, andcompetitiveness of the organization.


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Common Myths about ERP

1. ERP means more work and procedures2. ERP will make manyemployees redundant and jobless

3. ERP is the sole responsibility of the management

4. ERP is just for the managers/ decision-makers

5. ERP is just for manufacturing organizations

6. ERP is just for the ERP implementation team

7. ERP slows down the organization

8. ERP is just to impress customers

9. ERP package will take care of everything

10. One ERP package will suit everybody11. ERP is veryexpensive

12. Organizations can succeed without ERP


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History of ERP

Origins in the manufacturing industry

1960s Inventory management and controlsystems

1970s Materials Requirement Planning(MRP) and Closed-loop MRP

1980s Manufacturing Requirements

Planning (MRP II) 1990s Enterprise Resource Planning (ERP)

21st century ERP II


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In the beginning Around 1960 was Joe Orlicky at IBM

Recognized difference between dependent and

independent demand Independent demand should use statistical reorderpoints (ROP), reorder quantities (EOQ), and safetystocks (SS)

Dependent demand is deterministic and should not

be controlled statistically as in classical inventory.Developed MRP(Material requirement planning)as a computer-based information systemdesigned to handle ordering and scheduling ofdependent-demand jobs/parts.


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Independent demand (Inventory).Dependent demand (MRP)

Independent Demand (forecasted, uncertain)

X

B(2) C(1)

D(3) E(1) E(2) F(2)

Dependent Demand (MRP canback-figure release times givendue dates for independent demands)

Independent

AA

d e

f1 f2 g1 g2

Dependent


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What is MRP?KEY IDEA: If the finished product is due at time T,

when to begin assembly?

when to begin subassembly?when to begin fabrication?

when to procure raw materials?


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Rough Example of MRP Planning Horizon

1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly


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Materials Requirement Planning(MRP)

Outgrowth of bill of material (BOM) processing

Uses the master production schedule (MPS) to find outwhat products are going to manufactured.

Gets the details of the materials required to make theproducts from the bill of materials (BOM).

Searches the inventory records to find out what items arein stock.

Calculates the items that need to be purchased forproducing the goods.

MRP solves manufacturing and production planningproblems and made manufacturing of goods easier.


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Material Requirements Planning (MRP) Logic Starting with independent demand and working

down the bill of material, do following1. Net demand against existing orders and

inventory

2. Lot-size (determine batch size, possibly by EOQ)the netted demand for efficiency in presence of

setups and inventory carrying costs3. Time-phase lot-sized, netted demand to

determine planned order release times

4. Planned order release times become demand fornext level in Bill-of-Material (BOM)


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MRP Inputs MRP Processing MRP Outputs

Master Prod.schedule

Bill ofmaterials

file

Inventoryrecords

file

MRP computerprograms

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-controlreports

Inventorytransaction

Primary

reports

Secondaryreports

MRP


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But there were problems An MRP system is capacity-insensitive, and

properly so, as its function is to determine what

materials and components will be needed andwhen, in order to execute a given masterproduction schedule. There can be only onecorrect answer to that, and it cannot thereforevary depending on what capacity does or does

not exist.

Joseph Orlicky

The problems were by design. They assumed

INFINITE Capacity plants! And a lack of abetter way, which we still struggle with today.


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MRP II MRP II (Manufacturing Resource Planning)

expanded MRP with and emphasis placedon integration

Financial planning

Marketing

Engineering

Purchasing

Manufacturing


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Manufacturing Resource Planning(MRP II)

Evolved from closed-loop MRP

Contains additional capabilities like sales and operationalplanning, financial interface and simulation capabilitiesfor better decision-making

MRP II is a method for the effective planning of all theresources of a manufacturing company

Utilizes software applications for coordinatingmanufacturing processes, from product planning, partspurchasing, inventory control to product distribution.


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Manufacturing Resources PlanningMRP II Several modules added to MRP to check

capacity

Rough-cut Capacity Planning (RCCP)- before MRP run

Capacity Requirements Planning (CRP) -after MRP run

Note that RCCP and CRP both assume fixed

lead times! Input/Output Control

Procedure was to iterate by changing theMaster Production Schedule


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MRP II

MarketDemand

Productionplan

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Adjust

production plan

Master ProductionSchedule (MPS)

Problems?Requirements

SchedulesWere Done!

AdjustM

PS

Problems?

Manufacturing

MRP Run

Capacity RequirementsPlanning (CRP)


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Possible reasons for failureInaccurate data

Lack of top management commitment

Unrealistic master production schedules

Lack of education of those who use the system


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Then Came ERP

ERP is a Planning philosophy enabled with the

software that attempts to integrate all thebusiness processes of different departments andfunctions across a company onto a singlecomputer system.

Management by Collaboration (MBC)

Manage the enterprise by collaboration with vendors, enterprise

departments, productions and customers

Vendors CustomersEnterprise

Dept1

dept2


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Enterprise Resource Planning (ERP)

Fundamentals of ERP are the same as that of MRP II.

ERP is broader in scope and is capable of dealing with more businessfunctions and has a better and tighter integration with the finance andaccounting functions.

ERP is an enterprise-wide set of forecasting, planning and scheduling

tools, which links customers and suppliers into a complete supplychain.

The goals of ERP include high levels of customer service, improvedproductivity, cost reduction, better inventory turnover (just-in-timeinventory), etc.

ERP is more powerful because it applies a single set of resource

planning tools across the entire enterprise, provides real-timeintegration of sales, operating and financial data and connectsresource planning approaches, to the extended supply chain ofcustomers and suppliers.


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ERP (Enterprise Resource Planning)

Mfg

Sales

Financial

AccountingCapplanning

Demand

planning

Controlling

HRMM

Vendors

Customers


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ERPs PUSH planning

MRPOrlicky

1980s

1960s

1990s

Client-server based,Transaction-orientedDatabase systems

= ERP

1970s CRPRCCP+MRP II


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3-Tier Client-Server Architecture of SAP R/3

Presentation Server

(SAP GUI, Web interface)

Application Server

(Application Programs/Processes)

Database Server

(RDBMS like Oracle)


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3-Tier Client-Server Architecture

Presentation Layer: Collects user input and creates process requests

and presents the results back to the user. Systems capable of providingGUI are used.

Application Layer: Uses the application logic of SAP programs to

collect and process the process requests. Servers providing an optimal

processing env are used.

Database Layer: Stores and manages the retrieval of the data. Serverswith very large and fast storage space are used.


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Reasons for the Growth of the ERP Market The Market for ERP is in great demand. According to AMR

study market revenue grew to more than $25B in 2005.

The answer is

1. To enable improved business performance through

Cylcle Time Reduction: Is the time available at eachstation for the performance of the work allocated orthe time elapsing between completed units coming ofan assembly line.

Increased Business Agility Inventory Reduction

Order Fulfillment Improvement.

2.To Support Business Growth requirement through: New Product,New Customer

Global requirement including multiple language andcurrencies


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3.To provide flexible,integrated,real time decision support in: Improving responsiveness across the organization

4.To eliminate the following limitations of the legacy systems: By fragmentation of data and processing

Inflexibility to change

Insupportable technology

5.To take advantage of the untapped mid market through: Increased functionality at a reasonable cost

Client server/Open system technology

Vertical market solutions


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Advantages of ERP

Business integration - ERP packages integrates the informationprocessing and automates data updating (automatic data exchangeamong applications) between related business components.

Flexibility - Diverse multinational environments such as language,currency, accounting standards, etc. are covered in one system,

which makes the ERP systems very flexible. Better analysis and planning capabilities ERP systems enables the

comprehensive and unified management of related businesses andits data. This unification makes it possible to fully utilize many typesof decision support systems and simulation functions.

Use of latest technology - ERP vendors uses the latest developmentsin the field of information technology. This technology adoptionbenefits the organizations using the packages as they get betterproducts and with better capabilities.


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Why ERP?

Why ERP? ERP offers solutions for all business functions

Packages available for organizations of all sizes and types

Global nature (multi-lingual and multi-currency support)

Over Expectations abut ERP (One of the main reasons for failed implementations)

Insufficient pre-implementation preparation

Lack of awareness among employees Lack of awareness among management about costs

Wrong concepts about ROI and payback period

Successful ERP Implementations

Conduct Gap analysis to find out company requirements and the functions a packagepossesses.

Select experienced and professional consultants

Select the right package

Select employees with the right attitude for implementation team

Ensure that knowledge transfer happens between consultants and employees as well asbetween vendors and employees

Ensure that there is enough in-house consultants and integrators during the operation andmaintenance phase

L2-Intro to ERP

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