What is ERP?

Enterprise resource planning (ERP) is business process management software that

allows an organization to use a system of integrated applications to manage the
business and automate many back office functions related to technology, services
and human resources. ERP is multi-module application software designed
specifically to integrate seamlessly various departments and activities to enhance
flow of information and easy access to that information which helps in formulating
plans and policies of the company.

It is a single software solution platform for all the business related data entry,
warehousing and mining of that data that links every business aspect centrally into
a single software system.

Q1) How did ERP evolve?

A1) Evolution and introduction of ERP is directly linked to the need for a system that
could provide certain amenities and counter the drawbacks that the concurrent
system of the past had. So to understand the evolution of ERP we shall first discuss
the need of such a system.

Need for Enterprise Resource Planning - Why ERP?

Separate systems were being maintained during 1960/70 for traditional business
functions like Sales & Marketing, Finance, Human Resources, Manufacturing, and
Supply Chain Management. These systems were often incongruent, hosted in
different databases and required batch updates. It was difficult to manage business
processes across business functions e.g. procurement to pay and sales to cash
functions. ERP system grew to replace the islands of information by integrating
these traditional business functions.

Evolution timeline of ERP

The Evolution of Enterprise Resource Planning

The 1960s Growth of Enterprise Information Systems (EIS)
Early systems were based on automation for individual functions, like financial
accounting or inventory management.

The 1970s Shift to Material Requirements Planning (MRP)

MRP systems tapped into the master production schedule, allowing businesses to
plan the parts and product requirements.

The 1980s Manufacturing Resource Planning (MRP II) Introduced

MRP II software emphasized an optimized manufacturing process that coordinated
materials and production requirements, extending services to:
 The shop floor
Finance
Human resources
Engineering
Project management
Distribution management

The 1990s Birth of Enterprise Resource Planning

By the early 90s, MRP-II had been extended to include enterprise-wide functions
and integration.
Extended MRP II systems were renamed enterprise resource planning systems.
ERP uses a single database containing all the data that keeps the processes running
smoothly, ensuring visibility, accessibility, and consistency.

2000s and Beyond Extended Enterprise Resource Planning

Extended ERP systems include:
Customer relationship management
Supply chain management
Advanced planning and scheduling
Continuing ERP trends include capabilities for:
Cloud
Mobile
Analytics

The Evolution of ERP is shown below with the help of diagram:

Img 1: Evolution Of ERP [Img Src: http://www.ctnd.com/wp-content/uploads/2014/06/72.jpg]
Q2) Explain about MRP-I (Nature of functioning applications)

A2) Material Requirements Planning (MRP) is software based production planning

and inventory control system used to manage manufacturing processes. Introduced
in the 1970s, its main purpose was to calculate material requirements and schedule
supply to meet demand of all products and parts in a single unit or centralized over
a number of units maintained at each unit individually. The core purpose of MRP is
getting the right materials to the right place at the right time, which basically is the
modern day principle of JIT or just in time. Specific objectives often associated
with MRP design and implementation may be identified among three main
dimensions, namely: inventory, priorities and capacity.

Objectives of MRP can be easily stated with respect to its input and output:

Inputs are stated via: master production schedule, labor and machine standards,
BOM, quality and testing standards, EOQ etc. whereas,

Outputs are stated via Production and Purchasing Schedule.

Nature of functioning applications

MRP begins by compiling a Bill of Materials (BOM) for each end product or
component of interest. This is a listing of the components and quantities that are
needed to manufacture the end product or component. Theoretically, the
compilation of BOMs continues recursively, enumerating the subcomponents that
are needed to manufacture each component, until only raw materials appear in the
generated BOMs. In practice, a manufacturer may prefer to extend the BOM
enumeration for only a specified number of levels and to assume that components
and/or raw materials beneath that level are available on demand.

Next, MRP requires information on the lead times associated with each
manufacturing or assembly procedure that is required to produce the components
and end products. Lead time is the time required to assemble or manufacture the
needed components into the end product (or higher-level component), and thus is
the time elapsed between the point at which all needed components are present
and the end of assembly or manufacturing. These lead times may be compiled per
unit of each component/product or may be based on predetermined batch sizes.

MRP combines the BOMs, the lead times, and estimates of demand for end products
to generate the Master Production Schedule, which details a schedule of assembly
and production that enables the manufacturer to meet the estimated demand. This
schedule addresses only the final level of assembly or production (resulting in end
products), and includes both the timing and quantities of production. The Master
Production Schedule serves as the basis for all further output information from MRP.
Using the Master Production Schedule as a starting point, it is a conceptually simple
(but computationally demanding) task to combine it with the data on lead times and
BOMs to derive a schedule of component (and possibly raw materials) requirements,
through as many levels of assembly and production as the manufacturer chooses.
This schedule can account for such factors as work-in-progress, current inventory of
and pending orders for materials and components, and direct demand for
components as service items. Using this schedule of requirements, the
manufacturer must determine a material replenishment strategy that satisfies these
requirements. A wide variety of ordering rules and heuristics can be incorporated
into computer-based MRP models.

In addition to the material requirements, other useful data can be generated from
the Master Production Schedule. These include the projected inventory levels for
any end product, the projected schedule for any assembly or production process,
and the projected utilization of capacity for a particular production operation. Any of
this information should aid in evaluating current or potential materials
replenishment strategies.

Q2) Elaborate MRP-II. (Key elements)

MRP-II
An MRPII system incorporates modules from virtually every function in a factory,
from master production scheduling to document management and bill of materials.

MRP II brings under its umbrella many areas of the manufacturing aspect into a
single entity for planning and control purposes, from strategy management level to
operative and from five-year plan to day to day shop-floor operation. It builds on
closed-loop Material Requirements Planning (MRP) by adopting the feedback
principle but extending it to additional areas of the enterprise, primarily
manufacturing-related.

Following are the basic key elements of manufacturing resources planning.

Master production schedule (MPS)

A master production schedule is a plan that includes everything necessary for

production, including materials, staffing and inventory. The plan includes how much
time it will take to complete essential processes, parts that will be required and any
other resources that will be needed to optimize production. An MPS is a critical
module within an MRPII system.

Capacity requirements planning (CRP)

Capacity requirements planning refers to the process of determining the factory
production capacity necessary to make products and meet demand.

Material requirements planning (MRPI)

Material requirements planning is another module you will find within an MRPII
system. It ensures that materials and products are available for production, while
also managing inventory and planning purchasing activities.

Distribution resource planning (DRP)

Distribution resource planning is a method for planning orders within a supply chain.
It enables the users to set parameters for inventory control and also to calculate
time-phased inventory requirements. DRP is a key module included with MRPII
software.

Document management system (DMS)

A document management system is another feature you will find in MRPII. DMS
tracks and stores electronic images of paper documents that are needed in a
manufacturing environment.

Bill of materials (BOM)

The bill of materials is a list of everything needed in a factory to create a final

product. A BOM is broken down by assemblies, sub-assemblies, components, sub-
components, parts and the necessary quantities of each.

Q4) Advantages and disadvantages of ERP.

A4) ERP has a wide number of advantages, and that is the reason why it is so
widely accepted and imbibed in so many manufacturing companies around the
globe, some of which have not only survived but flourished and become industry
pioneers due to the inclusion of ERP systems. Benefits of ERP are stated below:

Reduced Data Redundancy:

ERP system streamlines flow of data and ensures no data is being fed twice into the
system. They are built in such a way that only useful information is stored and it is
not duplicated in any form.

Easy access to information

ERP systems come equipped with very efficient data mining and report generating
tools and hence there is easy access to reliable information to all the decision
makers and other stakeholders who might need that information.

Delivery time reduction

As of now, allocation of material to specific customer order is not possible with the
current system. Such allocations are useful for making deliveries as planned, as
there is no possibility of the material, which is required by one order, getting
consumed for different order. In such cases earlier order would get delayed if
material were not available in the stock while production time is spent on other
order, which could have waited without causing any problem.

Cost savings:

Company losses 2% of its sales value in discounts, which are the result of surplus
production, implementing quality management system can help to bring down
excess production, as management will be assured of the quality right from the raw
material itself. Supplier developer module would be useful in proper selection of
suppliers, which can focus on quality, cost and delivery aspects of supplier.

Reduction in machinery downtime:

5 % machinery downtime is attributed to non-availability of raw material in the

stores. This is due to absence of proper planning system and due to communication
delays at every place because of information recompiling. Prompt communication
coupled with effective supplier selection module and planning system would be
useful in bringing down the machinery downtime.

Help reduce operating costs:

ERP software attempts to amalgamate commerce processes across departments

onto a single enterprise-wide information system. The major benefits of ERP are
enhanced harmonization across functional departments and increased efficiencies
of doing business. The instant benefit from implementing ERP systems we can
imagine is abridged operating costs, such as inferior inventory control price, inferior
production costs, inferior marketing costs and inferior help desk support costs.

Facilitate Day-to-Day Management:

The other benefit from implementing ERP systems is facilitation of day-to-day

management. The implementations of ERP systems care for the organization of
backbone data warehouses. ERP systems offer better convenience to data so that
management can have up-to-the-minute access to information for decision making
and managerial control. ERP software helps track actual costs of activities and
perform activity based costing.
Support Strategic Planning

Strategic Planning is "a deliberate set of steps that assess needs and resources;
define a target audience and a set of goals and objectives; plan and design
coordinated strategies with evidence of success; logically connect these strategies
to needs, assets, and desired outcomes; and measure and evaluate the process and
outcomes." Part of ERP software systems is intended to support resource planning
section of strategic planning. In reality, resource planning has been the weakest link
in ERP practice due to the difficulty of strategic planning and lack of sufficient
integration with Decision Support Systems (DSS).

Improvement in sales:

75 % customers place repeat orders. Three factors-price, order and delivery affect
orders. Integrated system will definitely be useful on this account. Price is one of the
causes of losing customers; there is ample scope for cost reduction and therefore
company can offer lower prices and incentives to attract customers through
integrated information management solution.

Customer satisfaction:

Current system is ineffective in tracking problems related to customers. The

response regarding effectiveness falls in unsatisfactory category. Capacity planning
for received order also falls in average category. Efficient capacity management
system can bring down the delivery time for execution of the order and improve
customer satisfaction. This management scheme can be very useful in maintaining
better customer relations with prompt response and by knowing their past history.
Well formulated procedures for customer dialog will be useful in having better
customer relations. It takes approximately 3 days to answer any of customers
queries. This period can be brought down to a day, which will have very good
impact on customers perception of the organization.

Disadvantages:

Time consuming

The whole process of selection of an ERP solution and its implementation and the
training of personnel for the same is a very tedious and time consuming operation
and one which requires a whole lot of motivation and sensitization to implement
effectively in a timely manner.
Solution: The process of implementation should be time bound and all the people
involved should be sensitized about the importance of the project.

Expensive

ERP software solutions are very costly and require a huge one time investment,
which might seem too big an amount for a software solution to just streamline the
business.

Solution: ERP solutions are not very costly and in fact are profit generating
investment, which is clear when the cost benefit analysis of a successfully
implemented ERP solution is looked at, so the company should thoroughly research
its needs and accordingly choose a suitable ERP solution.

Complex

ERP solutions are complex and require advanced workforce and training to be of any
use and even then its not easy to understand its functioning and methodology.

Solution: Proper training done module by module will be enough to train the
workforce and it in fact makes their work simpler and makes the operators more
efficient.

Commitment

ERP solutions are a big commitment and must be well thought about before
adopting. This is true in many ways but then so is every business tools and strategy
and just like employing these strategies ERP adoption should be well thought about
and be implemented based on the need.