Chapter 9:
Enterprise Resource Planning
Chapter 9: Enterprise Resource Planning
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Introduction
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Elf Aquitaine
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Diversified French company with
interests in petroleum products,
chemicals, and pharmaceuticals.
Experiencing problems with the flow of
critical information across and within its
12 business units.
Ordering and production, and sales
forecasting and budgeting were not
integrated with one another.
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Elf Aquitaine continued
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Compounding the problem, each of the
12 business units developed a unique
approach for tracking and reporting
financial data.
To address these problems and better
integrate the flows of data, Elf Atochem
decided to implement SAP’s R/3 ERP
system.
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Elf Aquitaine continued
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Elf Atochem chose to focus on four key
processes: materials management,
production planning, order
management, and financial reporting,
rather than trying to implement ERP
across the entire organization.
Decided to implement the system in
one business unit at a time.
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Elf Aquitaine continued
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Using this phased implementation
approach, Elf Atochem was able to roll
out its ERP system ahead of schedule
and under budget.
The primary benefit Elf Atochem has
achieved is that it now has the realtime information needed to link sales
and production planning.
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National Semiconductor
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National Semiconductor’s CIO, has a
rather non-traditional view of the role
of IT.
Rather than viewing IT as a support
function, IT is part of the business that
creates technology solutions that in
turn position the company to capitalize
on business opportunities.
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National Semiconductor continued
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Maintaining the existing legacy systems left
little time or money for new systems
development.
National decided to focus its efforts on three
key areas: purchasing, inventory
management, and maintenance
management.
Considered adopting SAP’s R/3 system.
In the end National chose IFS as its ERP
vendor.
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MRP for Dependent Demand
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MRP for Dependent Demand:
Background
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Independent Demand
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Dependent Demand
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automobiles, televisions, cartons of ice cream
demand often occurs at constant rate
most raw materials, components, and
subassemblies
demand often occurs in lumps
Materials Requirements Planning (MRP)
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designed when lumps in demand are known
about before hand
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Constant and Lumpy Demands
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Relationship Between Finished Item Inventory and
Raw Material/Subassembly Item Inventory (ROP)
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Relationship Between Finished Item Inventory and
Raw Material/Subassembly Item Inventory (MRP)
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The Boardsports Company
Component
Sidewalk Special
Fiberglass board
Wheel assembly
Wheel mount stand
Wheel
Locknut
Spindle
Lead Time
1 week
3 weeks
1 week
4 weeks
1 week
1 week
2 weeks
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Skateboard Product Tree
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Material Requirements of
Sidewalk Special
Fiberglass boards: 1  number of specials
Wheel assemblies: 2  number of specials
Wheels: 2  number of wheel assemblies
Spindles: 1  number of wheel assemblies
Locknut: 2  number of wheel assemblies
Wheel mount stand: 1  number of wheel
assemblies
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Material Required to Produce 50
Sidewalk Specials
Fiberglass boards: 1  number of specials = 1  50 = 50
Wheel assemblies: 2  number of specials = 2  50 = 100
Wheels: 2  number of wheel assemblies = 2  100 = 200
Spindles: 1  number of wheel assemblies =1  100 = 100
Locknut: 2  number of wheel assemblies = 2  100 = 200
Wheel mount stand:
1  number of wheel assemblies = 1  100 = 100
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Delivery 50 Sidewalk Specials in
Week 10
1
2
3
4
Week
5 6
7
8
Sidewalk Specials
Boards
Wheel assembly
Wheels
Spindles
Mounting stands
Locknuts
Date needed
Order date
Date needed
Order date
Date needed
Order date
Date needed
Order date
Date needed
Order date
Date needed
Order date
9
10
50
50
3 week lead time
100
100
200
50
200
100
100
100
100
200
200
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Time-Scaled Assembly Chart for
Skateboard
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The Mechanics of MRP
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Primary Inputs to MRP System
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Master Production Schedule
Bill of Materials File
Inventory Master File
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Schematic of MRP System
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Master Production Schedule
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Based on actual customer orders and
predicted demand
Indicates when each ordered item will
be produced
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Bill of Materials (BOM)
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Indicates all the raw materials,
components, subassemblies, and
assemblies required to produce an
item
Shows way a finished product or
parent item is put together from
individual components
Parent item shown at highest level or
level zero
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Bill of Materials continued
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Parts that go into parent item are
called level 1 components and so on
Production planners explode BOM for
level zero item to determine the
number, due dates, and order dates of
subcomponents
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Product Structure Tree
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Inventory Master File
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Detailed information regarding the quantity of
each item, on hand, on order committed to
use in various time periods
MRP system using inventory master file to
determine the quantity available for use in a
given period
If sufficient items not available, the system
includes the item on the planned order
release report
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Low-Level Coding
Original product tree
structure
Low-level-coded product tree
structure
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MRP System Outputs
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Order Action Report
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Open Orders Report
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which orders are to be released and
canceled during the current time period
which orders to expedite or deexpedite
Planned Order Release Report
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time-phased plan for orders to be
released in future time periods
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MRP Computations
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Process all items in BOM level-by-level
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For each item at a level
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determine time phased gross requirements
subtract on-hand and on-order amounts from
gross requirements to determine net
requirements
apply lot-sizing rule to determine lot size
offset the order release for lead time yielding
time-phased planned order releases
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MRP Computations continued
Net requirements for planning period = gross requirements
for planning period - planned on hand at planning period
Planned on hand at planning period = current on hand +
scheduled receipts prior to planning period - scheduled
requirements prior to planning period
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MRP Computations continued
Zero-Level
Week
1
2
3
4
5
6
7
8
9
Gross requirements
50
150
50 100
On hand 400
400 400 350 350 350 200 200 200 150
Net requirements
---------Planned order receipts
Planned order releases
50
Lead time = 3 weeks
10
11
50
--
50
--
12
100
50
50
50
Level 1
Week
Gross requirements
On hand 50
Net requirements
Planned order receipts
Planned order releases
Lead time = 4 weeks
1
2
3
50
50
4
5
6
7
8
9
10 11
50 200
100 100 100 100 100 100 100 50 100
150
12
50
250
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MRP Extensions
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Capacity Requirements Planning
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Capacity Using Overall Factors
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production standards used to convert
MPS into loads on each work center
loads assumed to fall in same period as
finished goods in MPS
Bills of Capacity
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same as capacity using overall factors but
instead of using historical ratios, uses the
BOM and routing sheets
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Enterprise Resource Planning (ERP)
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MRP II extends MRP systems to share
information with other functional areas
Key component of MRP II is storing
operational information centrally
ERP systems seek to integrate all
business activities and processes
throughout the organization
Goal is to provide real-time information
to all employees that need it
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Typical ERP System
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The ERP Industry
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Forrester Research estimates that the
overall market for ERP software and
services was $21 billion in 2004.
Estimates are overall spending on ERP
systems will increase 4.2% annually
through 2008, spending on
maintenance will increase at almost
double this rate, or 7% annually
through 2008.
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Figure 9.12 Market share (based on 2004 revenues) of five top ERP
vendors.
Other, 18.7%
SSA Global,
3.3%
SAP, 44.0%
Microsoft, 3.4%
Sage Group,
6.1%
Oracle, 24.6%
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Planning
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Implementing ERP Systems
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Key drivers for the strong interest in
ERP include:
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The desire to standardize and improve
business processes.
The desire to integrate the organization’s
existing information systems.
The need for better and more timely
information.
The need to comply with Sarbanes-Oxley.
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Implementing ERP Systems
continued
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One to three years to implement an ERP system.
Actual costs of implementing an ERP are driven by a
number of factors including:
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The number of employees that will be using the system.
The number of modules that will be implemented.
The extent to which the organization attempts to integrate
its ERP system with an internal intranet.
How much the organization’s processes must be modified
to conform with the ERP system.
The amount of consulting and training required
The extent to which the organization’s existing data must
be converted to conform to the data requirements of the
new ERP system.
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Implementation Approaches
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The “Big Bang” approach: this approach
organizations implement the new ERP
system all at once and scrap their existing
legacy systems.
The “United Federation” approach: this
approach business units/divisions are free to
implement independent systems but
common processes such as financial
reporting are linked across the enterprise.
The “Test the Waters” approach: focus of this
approach is on a few key processes.
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Copyright
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