MS 401
Production and Service Systems Operations
Spring 2009-2010
MRP-II and ERP
Slide Set #13
Murat Kaya, Sabancı Üniversitesi
1
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
2
MRP-II
Marketing
Finance
Market Demand
Manufacturing
Production Plan
Resource Plan
Adjust
Production
Plan
Yes
Problems?
No
Murat Kaya, Sabancı Üniversitesi
3
MRP-II
Master Production
Schedule
Rough Cut Capacity
Plan
Adjust
MPS
Material Requirements
Planning
CRP
Problems?
Yes
No
Requirements Schedules
Murat Kaya, Sabancı Üniversitesi
4
Enterprise Resource Planning (ERP)
Murat Kaya, Sabancı Üniversitesi
5
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
6
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
7
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
8
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
9
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
10
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
11
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
12
ERP Example
SAP R/3
Murat Kaya, Sabancı Üniversitesi
13
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
14
Sample SAP Screen
Copyright 1996 SAP America, Inc
Murat Kaya, Sabancı Üniversitesi
15
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
16
Example: Order Management Process in SAP
Murat Kaya, Sabancı Üniversitesi
17
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
18
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
Murat Kaya, Sabancı Üniversitesi
19