17–1 Chapter Seventeen McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. 17–2 • LO17–2: Explain how ERP integrates business units through information sharing. • LO17–3: Illustrate how supply chain planning and control fits within ERP. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • LO17–1: Understand what an enterprise resource planning (ERP) system is. • LO17–4: Evaluate supply chain performance using data from the ERP system. 17–3 • ERP systems are, first and foremost, integrated. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • A comprehensive software approach to support decisions concurrent with planning and controlling the business. 17–4 Connecting functional units with ERP The need for standardization Support of MPC decisions Transaction processing Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. What is ERP? Performance metrics The ERP experience 17–5 – A comprehensive decision support software that plans and controls – A software system that integrates all applications from different functional areas Integration through a common database Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • ERP may mean different things. – Able to facilitate MPC activities 17–6 17–7 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. – Consistent numbers across all applications – Software should be: Multifunctional (manufacturing, service, etc.) Integrated (handled only once across all applications) Modular Able to facilitate MPC activities Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • ERP requires – Routine decision making – Capacity for all transaction processing 17–8 – Supports analysis of data for decision support – Helps make intelligent decisions – Note: People make decisions not software • Bolt-on software modifies and enables new approaches to decision making • Modifies existing procedures to make it more efficient Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • ERP software 17–9 – People make the decisions; software provides them with better tools and information. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • Helping users make decisions about running the business 17–10 • Data warehouse software may be added to facilitate queries not built into the ERP system. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • An ERP system is designed to process business transactions in real time, working from a single database. 17–11 17–12 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Eliminates reposting of data (errors) Ensures a common vision instantly displayed Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Data entered by one functional area updates all other functional areas and the data are processed in real time. 17–13 Production planning MPC Activity Support Material planning Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Forecasting Inventory management 17–14 – What is demand? – What is inventory? – How are exchange rates determined? – What transfer costs apply (for internal transactions)? – What labor rates are applied? Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • Without standard terminology, integration is impossible. 17–15 • Designed to measure the impact of decisions on the entire supply chain. • Avoids development of functional silos by developing metrics that reflect the entire supply chain. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • Developed by the Supply Chain Council. 17–16 Cash-to-cash cycle time = Inventory days of supply + Days of sales outstanding – Average payment period for material Procurement cycle • Purchase cost of material • Accounts payable Manufacturing cycle • Raw materials inventory • Work-in-process • Finished goods inventory Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • Integrates the finance function with purchasing, manufacturing, and sales/distribution Sales and distribution cycle • Distribution inventory • Accounts receivable 17–17 Purchasing pursues cost rather than quality. Manufacturing Distribution builds long focuses on cost runs rather of delivery than stages instead responding to of total system customers. costs. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Functional silos – Each area is responsible for optimizing its own operation, with no consideration for how the overall firm is affected. 17–18 17–19 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. 17–20 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Sd S d AR d Accounts receivable days (ARd) ARd Average daily cost of sales (Cd) Cd Sd CS I Cd Average days of inventory (Id) Id Accounts payable cycle time (APd) APd Cash-to-cash cycle time Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Average daily sales (Sd) AP Cd Cash to cash cycle time ARd I d APd 17-21 17–21 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • Sales over last 30 days = $1,020,000 S d S 1,020,000 34,000 d • Accounts receivable = $200,000 • Inventory value = $400,000 • Cost of sales = 60% of total sales • Accounts payable = $160,000 ARd 30 AR 200,000 5.88 days d 34,000 Cd Sd CS 34,000(0.6) 20,400 Id I 400,000 19.6 days Cd 20,400 APd AP 160,000 7.84 days Cd 20,400 Cash to cash cycle time ARd I d APd 5.88 19.6 7.84 17.64 days 17-22 17–22 – Integration of a global company – Process improvement – Simplified training – Strategic direction – Organizational flexibility Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • Eli Lilly and Company – Set of global policies 17–23 • To maintain data accuracy and realize efficiencies, information must be captured at the initial entry, using documented processes. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • Redundant transactions must be reduced or eliminated. • Processes need to be changed to support the data needs of the ERP system – hardware and software alone isn’t sufficient. 17–24 • IT economies of scale can be obtained from supporting fewer hardware and software platforms. Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. • The company must define a comprehensive set of performance measures, with policies and goals that correspond to these measures. 17–25