Chapter 9:

Enterprise Resource Planning

Chapter 9: Enterprise Resource Planning

Introduction

Chapter 9: Enterprise Resource Planning

Elf Aquitaine
 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

 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 SAPs R/3 ERP system.

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Elf Aquitaine continued

 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

 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 real-time information needed to link sales and production planning.

Chapter 9: Enterprise Resource Planning

National Semiconductor
 National Semiconductors 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

 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 SAPs R/3 system.  In the end National chose IFS as its ERP vendor.

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MRP for Dependent Demand

Chapter 9: Enterprise Resource Planning

MRP for Dependent Demand: Background

 Independent Demand
 automobiles, televisions, cartons of ice cream  demand often occurs at constant rate

 Dependent Demand
 most raw materials, components, and subassemblies  demand often occurs in lumps

 Materials Requirements Planning (MRP)

 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 v
number of specials

Wheel assemblies: 2 v number of specials Wheels: 2 v number of wheel assemblies Spindles: 1 v number of wheel assemblies Locknut: 2 v number of wheel assemblies Chapter Wheel mount stand: 1 v 9: Enterprise Resource Planning number of wheel

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Material Required to Produce 50 Sidewalk Specials

Fiberglass boards: 1 v number of specials = 1 v 50 = 50 Wheel assemblies: 2 v number of specials = 2 v 50 = 100 Wheels: 2 v number of wheel assemblies = 2 v 100 = 200 Spindles: 1 v number of wheel assemblies =1 v 100 = 100 Locknut: 2 v number of wheel assemblies = 2 v 100 = 200 Wheel mount stand: 1 v number of wheel assemblies = 1 v 100 = 100

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Delivery 50 Sidewalk Specials in Week 10

1 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 50 2 3 4 Week 5 6 7 8 9 10 50

50 3 week lead time 100 100 200 200 100

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

 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

 Based on actual customer orders and predicted demand  Indicates when each ordered item will be produced

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Bill of Materials (BOM)

 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

 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

 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

 Order Action Report
 which orders are to be released and canceled during the current time period

 Open Orders Report

 which orders to expedite or deexpedite

 Planned Order Release Report

 time-phased plan for orders to be released in future time periods
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MRP Computations
 Process all items in BOM level-by-level
 For each item at a level
 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 timephased 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 50 -11 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 50 2 50 50 250 9 10 11 50 200 100 100 100 100 100 100 100 50 100 150 3 4 5 6 7 8 12

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MRP Extensions

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Capacity Requirements Planning

 Capacity Using Overall Factors
 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
 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)  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

 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% Microsoft, 3.4% Sage Group, 6.1% Oracle, 24.6% SAP, 44.0%

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Implementing ERP Systems

 Key drivers for the strong interest in ERP include:
 The desire to standardize and improve business processes.  The desire to integrate the organizations 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

  One to three years to implement an ERP system. Actual costs of implementing an ERP are driven by a number of factors including:
      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 organizations processes must be modified to conform with the ERP system. The amount of consulting and training required The extent to which the organizations existing data must be converted to conform to the data requirements of the new ERP system.
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Implementation Approaches
 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
Copyright John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. Adopters of the textbook are granted permission to make back-up copies for their own use only, to make copies for distribution to students of the course the textbook is used in, and to modify this material to best suit their instructional needs. Under no circumstances can copies be made for resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.

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