Enterprise Resource
Planning
module-3
ERP- A curtain Raiser
• The business has changed more in past five years
than it did over the previous five decades
• The ability to respond to new customer needs
and seize market opportunities as they arise is
crucial.
• Enterprises are continuously striving to improve
in the areas of quality, time to market, customer
satisfaction, performance and profitability.
What is an Enterprise?
• An Enterprise is a group of people with a common goal,
which has certain recourses at its disposal to achieve the
goal.
• In traditional approach, the enterprise is divided into
different units based on the functions they perform.
• Each of these depts. have their own goals and objectives.
• For any organization to succeed , all business units or depts.
should work towards this common goal
•
Each departments will have its own goals and objective and
some time be conflicting. (Finance Vs Marketing on the basis
of Advertisement)
• The result is that instead of taking the organization
towards the common goal, the various department
end up pulling it in different directions.
• This is because one dept does not know what the
other does.
• To manage this problem, the only solution is to get
to know about what happens in the other
departments
• To make this possible for the companies to execute this
vision, there is a need for an infrastructure that provide
information across all functions and locations within the
organization.
• ERP software fulfils this need
• In ERP, the functional departments are integrated by
providing the information that is stored centrally in it.
What is ERP?
• An Enterprise is a group of people with a common goal,
which has a certain resources at its disposal to achieve
that goal
• Resources include are money, man power, materials
and all other things that required to run the enterprise.
• Planning is done to ensure that nothing goes wrong
• Thus ERP covers the techniques and concepts
employed for integrated management of businesses as
a whole, for the effective use of management
resources, to improve the efficiency of an enterprise
• ERP software is designed to model and
automate many of the basic processes of a
company, with a goal of integrating information
across the company
• In other words ERP is complete solution for all
the operational problems of the company
• Introduction of the ERP system to the company
dramatically changes the overall efficiency of
organization in its levels of activities.
Integration of different ISs in
ERP
Before ERP
• Multiple systems, different interfaces,
difficult to extract info about customers,
sales,...
• Hard to maintain, many languages,
databases, inconsistencies
• Can take weeks or months to obtain info
about customers, or where systems
changes are needed
After ERP
•
•
•
•
•
•
Integrated systems
Consistent interface
One database
Access to current data
Improved planning capabilities
Multinational capabilities
Consider a practical example….
• Consider a Customer order
• A data entry operator enters the data to the
system…
• With the implementation of good ERP system,
the order entry clerk becomes an action
initiator.
• As soon as he enters the order into the system,
the information is passed on toe the sales,
distribution and finance module…. And so on…
• All these actions take place automatically and
fulfils the customer order at the earliest.
Reasons for the growth of ERP
market
• To enable improved business performance
• Cycle time reduction
• Increased business agility (the ability to think and draw
conclusions quickly & intellectually)
• Inventory reduction
• Order fulfillment
• To provide flexible, integrated, real-time decision
support
• Improve responsiveness across the organization.
• To support business growth requirements
• New products, new customers
• To have competitive advantage
• Increased functionality at a reasonable cost
• Client-server, open technology
Advantages of ERP
• ERP has many advantages- direct and
indirect
• Direct………
•
•
•
•
Business Integration
Flexibility
Better analysis and planning capabilities
Use of latest technology
• Indirect………
• Better corporate image
• Improved customer goodwill
• Improved customer satisfaction
Why are ERP packages being used
now?
• Main Reasons are
• ERP handles the entire range of business functions
necessary for the company’s operations
• Highly flexible for a long term prosperity of the company
• Global adaptation by ERP packages’ multi-lingual, multicurrency capability. Helps the organization to grow
globally
• Helps in reduction of organization’s operating costs
• Integrates all parts of an organization
• Increases the efficiency of operations as a result of this
integration
• Integration of information systems which enables
seamless flow of information across the organization.
• Enables consolidation of different software in the
organization
• Helps in better customer service
Top 5 ERP vendors and their
products
Vendors
Product
SAP AG
R/3
Oracle Corporation
Oracle Applns
J D Edwards World Solns
Co.
One World
People Soft inc.
People soft
Baan co.
BaanIV
ERP Evolution
ERP Evolution
ERP evolution contd…..
• In the 1960’s inventory control assumed prime
importance and most of the software at that time
were designed to help in inventory management.
Typically, these were handled by tools called BOM
processors (Bill of materials)
• The focus shifted in the 1970’s to Material
Requirement planning (MRP) as the complexity of
manufacturing operations increased.
• The MRP system integrates the inventory control
with finance and HR departments
• Then in the 1980's the concept of Manufacturing
Resources planning (MRP-II), which was nothing
but extension of MRP which integrates all the
functional units of the manufacturing industry.
• In the early 1990’s, increased complexity of
businesses and the need to integrate all the
functions within an enterprise to sustain in the
dynamic environment lead to development of ERP
(Enterprise Resource planning) tool. ERP was
extension of MRP II to cover the range of
activities within any enterprise
Bill Of Materials (BOM)
• BOM defines the relationship of components to
end items.
• BOM identifies all components used in the
production of an end item.
• BOM also called the Product Structure Diagram
• Eg--- consider a chair. A chair is composed of
many components like seat, leg assembly, back
assembly etc.. As in the figure below
• The key to MRP is time-phasing of requirements
for components in the BOM structure
• If we know the time required to manufacture or
purchase components, we can determine when
orders should be released to the shop floor or to
the external suppliers
BOM of a Chair
Level
0
1
Chair
Leg
Assembly
2 Legs (2)
3
Cross
bar
Seat
Back
Assembly
Side Cross
Back
Rails (2) bar Supports(3)
Materials Requirement
Planning
What is MRP?
*
Computerized Inventory Control
*
Production Planning System
*
Manufacturing Control System
Deals with ……
what material needed?
when & how purchased?
how managed?
maximize efficiency of physical, financial
assets.
MRP is a…..
• Computerized Inventory Control
• Production Planning System
that…..
• Schedules Component Items as Needed
which will…..
• Track Inventory and…..
• Help you in many other aspects of business
Overview of the MRP System
Product
Structure
File
Master
Production
Schedule
Inventory
Master File
Material
Requirements
Planning
Manufacturing
Orders
Purchase
Orders
Various
Reports
MRP Inputs
• Product Structure File (e.g.– BOM)
• Master Production Schedule
• Inventory Master File
Master Production Schedule
• Schedule of Finished Products
• Represents Production, not Demand
• Combination of Customer Orders and Demand
Forecasts
• What Needs to be Produced
Inventory Master File
•
•
•
•
•
•
On-Hand Quantities
On-Order Quantities
Lot Sizes
Safety Stock
Lead Time
Past-Usage Figures
MRP Outputs
• Manufacturing Orders
• Purchasing Orders
• Various Reports
Advantages of MRP
• Reduce Inventory Levels
• Reduce Component
Shortages
• Improve Shipping
Performance
• Improve Customer Service
Improve Productivity
• Simplified and Accurate
Scheduling
• Improve Communication
• Improve Plant Efficiency
• Reduce Freight Cost
• Reduction in Excess
Inventory
• Reduce Purchasing Cost
• Improve Production
Schedules
• Reduce Manufacturing Cost
• Reduce Lead Times
• Less Scrap and Rework
• Higher Production Quality
• Reduce Overtime
• Improve Supply Schedules
• Improve Calculation of
Material Requirements
• Improve Competitive
Position
Summary of MRP
MRP is a…..
• Computerized Inventory Control
• Production Planning System
that…..
• Schedules Component Items as Needed
which will…..
• Track Inventory and…..
• Help you in many other aspects of business
Closed Loop MRP
• For an MRP system to be useful, the production
system must be able to complete component orders
in time
• Closed Loop MRP uses capacity planning and feed
back to improve the ability of the production system
to complete the work as planned.
• Timely Feedback to MRP planners allows them to
develop alternatives, or at least minimize the effect
of the problem.
• For e.g.--- if production of a set of component may
not finish on time, then decision based on this feed
back can be applied to the entire production of the
company
Rough-cut Capacity
Plans (RCCP)
Manufacturing Resource Planning
(MRP II)
• MRP II is an extension of closed loop MRP for
managing the entire manufacturing company.
• MRP II systems provide information that is useful
to all functional areas and encourage crossfunctional interaction.
• MRP II support to link marketing, sales
department with production, manufacturing
departments to get to know about the product
variety, availability.
• Thus they get the ability to give customers
accurate delivery dates.
• MRP II support financial planning by converting
materials schedule into capital requirements
• Thus, proper information is required to
successfully plan and schedule production in the
company
• MRP II systems increase a company’s efficiency
by providing a central source of management
information