Enterprise Resource Planning (ERP) Evolution of ERP MRP-ERP

Prof. Pratima D. / Prof. D.G. Jha

Email: pratimadabholkar@simsr.somaiya.edu

What is ERP?
Enterprise Resource Planning A collection of software systems that help to manage business processes for an entire organization Designed to integrate all information processing support for an entire organization ERP is a process of managing all resources and their use in the entire enterprise in a coordinated manner

What makes ERP different

Integrated modules Common definitions Common database Update one module, automatically updates others ERP systems reflect a specific way of doing business Must look at your value chains, rather than functions

Benefits of ERP
Common set of data Help in integrating applications for decision making and planning Allow departments to talk to each other Easy to integrate by using processed built into ERP software A way to force BPR (reengineering)

Evolution of ERP
In the earlier days of Manufacturing there was no concept of planning in advance.
Independent Inventory Model (1950-1960)

Master Production Schedule (MPS) Bill of Material (BoM) Inventory Record (IR)
This approach was evolved based on the observation that the demand for items can be calculated from the demand of the assemblies/ Products where the items are used.

Master Production Schedule (MPS)

A Master Production Schedule (MPS) is a plan for production, staffing, inventory, etc. It is usually linked to manufacturing where the plan indicates when and how much of each product will be demanded. This plan quantifies significant processes, parts, and other resources in order to optimize production, to identify bottlenecks, and to anticipate needs and completed goods.

Master Production Plan (MPS)

An example of a master production schedule for "product A". Independent Demand
Demand Management
Monthly Demand for Product A Working Days in Month MPS Daily Demand for Product A

12/7
4000 23 174

12/8
4000 23 174

12/9
4000 23 174

12/10
4000 23 174

12/11
4000 23 174

Bill of Material
The Refined BOM used to have the following major information:
Material requirements for unit of Main item. Name of the component item Quantity of component item Any scrap factor that must be taken in to account while calculating the material requirement. Expiry information: The date up to which the design is valid or used by the manufacturer
In 1960s the BOM approach soon became the main input for Inventory Control. For many years, Inventory control was thought as sufficient in manufacturing planning and execution.

Bill-of-Material Product Structure Tree

Bicycle(1) P/N 1000

Handle Bars (1) P/N 1001

Frame Assembly (1) P/N 1002 Frame (1) P/N 1004

Wheels (2) P/N 1003

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Bill of Material Dependent Demand

Material Requirement Planning (MRP)

So the long time taken for planning and making the item was not at all an issue. However with time, the situation was gradually changing and very soon the industry realized that the process of making items for fulfilling an order was taking long time and in that way they cannot meet the demand.

Material Requirement Planning

It was also experienced that there was repetitive effort while planning for materials, other resources and for ways to make the items. Then onwards the Manufacturing Planning systems went through progressive refinement in the last 5 decades.

Material Requirement Planning (MRP)

In 1970s the concept arrived to a complete shape and was known as Material requirement planning. This Planning is popularly known as MRP. A refined MRP briefly takes the demand, important item related information ( such as Ordering rules, safety stock , Inventory information ), Bill of Material ,routing and existing Shop floor schedule as inputs. Based on the demand and other supporting information MRP MRP = Independent Inventory Model + Capacity Planning

MRP
Calculates the requirements for each component item that is required to make the order quantity of end item Calculates the time taken to make the order quantity of the end item. Calculates the needed hours of Man, tools and Machines for making the Order

MRP Benefits
Increased customer satisfaction due to meeting delivery schedules Faster response to market changes Improved labor & equipment utilization Better inventory planning & scheduling Reduced inventory levels without reduced customer service
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MRP and The Production Planning Process

Forecast & Firm Orders Aggregate Production Planning Resource Availability

Material Requirements Planning

Capacity Requirements Planning

Master Production Scheduling

No, modify CRP, MRP, or MPS Realistic? Yes

Shop Floor Schedules

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MRP: Material Requirements Planning MRP: (From the 60's& 70s) includes only Material Planning Projections Based on Bill of Material Explosions

Typical Functions: Bills of Material Inventory Management Work Order Management Shop Floor Scheduling Production Activity Control Material Shortage Management

Fundamental Process Questions: 1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get?

Problems in MRP
The major problem with MRP systems is the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as 'BOM') data, or the master production schedule, then the outputted data will also be incorrect (colloquially, "GIGO": Garbage In, Garbage Out).

Extensions of MRP
Closed loop MRP
Gives feedback from execution function to planning function. Closed loop MRP to provide the ability to translate the operating plan expressed in manufacturing terms such as units and kilograms into financial terms rupees. MRP II - Material Resource Planning Enterprise Resource Planning (ERP) Extended ERP
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Manufacturing Resource Planning (MRPII)

Major identification of MRP II is through the integrated planning involving all possible functions in an Industry, which need not always be a Manufacturing Industry.

MRP II
In addition to exploiting all the features of earlier planning versions such as traditional Inventory control and, MRP , MRP II focused on ensuring the integration between various functions such as Planning, Engineering design, Production , Purchase, Sales, Marketing, Finance, and Human resources. The seamless integration that was the main feature of MRPII ensured that the planning was more meaningful with more transparency to all the stakeholders of the business.

MRPII: Manufacturing Resource Planning MRPII (From the 80's& 90s) includes ALL Manufacturing Resources for "What If" Pro-Active Process Simulations

Typical Functions: Financial Modules Business Plan Resource Planning Production Plan Sales and Operations Plan EDI and Customer Orders Master Production Schedule Rough-Cut Capacity Planning Detailed Capacity Planning Product Costing Modules Engineering Change Management MRP: Material Requirements Planning

Fundamental Process Questions: 1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get?

5. What constraints must be met now or in the future?

Enterprise Resource Planning (ERP)

APICS (American Production & Inventory Control Society) defined ERP as an accountingoriented information system for identifying and planning the enterprise wide resources needed to take, make, ship, and account for customer orders.

ERP
An ERP system differs from the typical MRP II system in technical requirements such as graphical user interface, relational database, use of fourthgeneration language, and computeraided software engineering tools in development, client/server architecture, and opensystem portability.

ERP: Enterprise Resource Planning ERP (From the 80's& 90s) includes ALL Business Management Systems, Philosophies and Performance Evaluation at All Levels

Typical Functions: Financial Planning Simulations Business Planning Simulations Sales/Marketing Planning Simulations Distribution Requirements Planning Resource Management Simulations Production Management Simulations Supply Chain Management Simulations Continual Improvement Strategies R&D Management Simulations MRPII: Manufacturing Resource Planning

Fundamental Process Questions: 1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get?

5. What constraints must be met now or in the future? 6.How will performance be planned, simulated, measured, and improved?

Extended ERP
Major factors that contributed the evolution of Extended ERP are : 1. Requirement to focus on the core strength and grow family of partners that work together to deliver the end product and share directly or indirectly the revenue and competitive advantage.

Extended ERP
2. A trend that forced to adopt what is called Mass customizations. Customers expect a unique combination of features from a product and at the same time do not want to wait for the long production and delivery cycles. This situation led to Mass customization and soon became mandatory for the vendors.

Extended ERP
The Mass customization principles were even applied to financial services on certain areas such as Instant approval of loan, instant opening of account etc. Similarly industries such as Automotives devised mechanisms to deliver the vehicles in days to the customer

Extended ERP
3. Trend to avoid interaction with systems for long and expect the system to have enough intelligence to perform most of the work. If there are certain rules followed while scheduling the machine and man resources, why cant you expect the System to follow the same and generate the best schedule?

Extended ERP
4. Urge for Work flow based applications. Even while refining
the processes in a company through techniques such as Business Process reengineering, the main focus for improvement was on logistic activities and the indirect functions such as administrative functions were not focused heavily for improvement in the earlier times. Once the logistic processes were matured enough the focus shifted to
improving the administrative processes.

Extended ERP
5. Use of the Internet rapidly increased in the mid 1990s. People quickly became Internet literate and Internet became part of life for them. Users liked the Web Browser. Using web browser was simple, and over time, only two versions of the browser (only one version that is, Microsoft Internet Explorer) had the majority of market share.

Extended ERP
The demand for the business systems to utilize these browsers started to grow and continues to this day. Manufacturing Industry, ever under competitive pressure recognized the cost reduction possibilities of using the Internet.

Extended ERP
The possibility of cost effective Electronic Data Interchange (EDI) seemed possible. Visionaries saw the possibility of speeding up the businessto business (aka B2B) buying and selling processes and reducing the cost of each business transaction.

Extended ERP
The Internet made SupplyChain Management to be simpler. Those who wanted to grab the market early started making applications compatible to Internet and instrumental in making extended ERPs.

Enterprise Resource Planning (ERP)

ERP modules include
Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management (CRM)

ERP and MRP

ERP and MRP

Customer Relationship Management
Sales Order (order entry, product configuration, sales management) Shipping Distributors, retailers, and end users

Invoicing

ERP and MRP

Master Production Schedule

Inventory Management

Bills of Material

MRP
Work Orders

Purchasing and Lead Times Table 13.6

Routings and Lead Times

ERP and MRP

Supply Chain Management

Vendor Communication (schedules, EDI, advanced shipping notice, e-commerce, etc.)
Figure 14.11

ERP and MRP

Finance/ Accounting
Accounts Receivable

General Ledger

Accounts Payable

Payroll

Table Figure 14.11 13.6

Enterprise Resource Planning (ERP)

ERP can be highly customized to meet specific business requirements
Enterprise application integration software (EAI) allows ERP systems to be integrated with
Warehouse management

Logistics
Electronic catalogs Quality management

Enterprise Resource Planning (ERP)

ERP systems have the potential to
Reduce transaction costs Increase the speed and accuracy of information

Facilitates a strategic emphasis on JIT systems and integration

Advantages of ERP Systems

1. Provides integration of the supply chain, production, and administration 2. Creates commonality of databases 3. Can incorporate improved best processes

4. Increases communication and collaboration between business units and sites

5. Has an off-the-shelf software database

6. May provide a strategic advantage

Disadvantages of ERP Systems

1. Is very expensive to purchase and even more so to customize 2. Implementation may require major changes in the company and its processes 3. Is so complex that many companies cannot adjust to it 4. Involves an ongoing, possibly never completed, process for implementation 5. Expertise is limited with ongoing staffing problems

Assignment
Assignment -1 The Hunicut and Hallock Corporation makes two versions of the same basic file cabinet, the TOL (Top-of-the-line) five drawer file cabinet and the HQ (High-quality) five drawer filing cabinet. The TOL and HQ use the same cabinet frame and locking mechanism. The drawer assemblies are different although both use the same drawer frame assembly. The drawer assemblies for the TOL cabinet use a sliding assembly that requires four bearings per side whereas the HQ sliding assembly requires only two bearings per side. (These bearings are identical for both cabinet types.) 100 TOL and 300 HQ file cabinets need to be assembled in week #10. No current stock exists. Develop a material structure tree for the TOL and the HQ file cabinets. Assignment-2 Develop a gross material requirements plan and Master Production Schedule for the TOL and HQ cabinets in the previous example.