A history of enterprise wide integration From acronym to acronym EOQ / BOMP / MRP / MRP II / ERP / ERM / ERPII

Time frame and key milestones EOQ Safety Stock BOMP Work Orders 1950s MRP 1965 Theoretical / conceptual Improvements in management techniques MRPII 1975 ERP 1990 ERM / ERPII 2000

Time frame and key milestones EOQ Safety Stock BOMP Work Orders 1950s MRP 1965 Computing power enables completely integrated manufacturing solution MRPII 1975 ERP 1990 ERM / ERPII 2000

Time frame and key milestones EOQ Safety Stock BOMP Work Orders 1950s MRP 1965 More functions become Integrated in the process MRPII 1975 ERP 1990 ERM / ERPII 2000

Time frame and key milestones EOQ Safety Stock BOMP Work Orders 1950s MRP 1965 MRPII 1975 More functions become Integrated in the process + technology improvements ERP 1990 ERM / ERPII 2000

Time frame and key milestones EOQ Safety Stock BOMP Work Orders 1950s MRP 1965 MRPII 1975 More functions become Integrated in the process to add up to complete business solution ERP 1990 ERM / ERPII 2000

Material Requirement Planning Emerged from BOMP in 60s Conversion of production plan for parent items (finished products) into a production plan of production or purchasing for component items Explosion of the requirements for a top level item through the BOM to generate component demand Executed at each level of Assembly / sub-assembly Discrete Manufacturing: Manufacturing items based on a definitive bill of material or recipe as opposed to batch formulas. The bill of material or recipe is typically expressed in quantities per each as opposed to percentage per batch.

Principles of MRP System to plan and control production and material flows core principle: demand for material, parts and components depends upon the demand for finished product Chain of causality from finished goods back to inventories: possible to reduce inventory to the minimum plan for procurement based on actual needs able to cater for “lumpy” (i.e. dependent) demand

BOM = Recipe or formula How to produce our products List of components including possible substitutes How much of each Special conditions of operation Expected yields and labour productivity (i.e. standards) Extrapolate a cost per unit Stored in a Bill of Material (BOM)

Example: Bill of Material for desk 1 – List out the components 2 – describe the steps required for assembly 3 – arrange them in a possible manufacturing sequence

Solution Desk Top (1) Adjustable legs (4) Screw Kit (1) Frame (1) 3 way junctions (4) Painted tubing (4) Painted metal legs (4) Leg Tubes (4) Paint (0.6 dl) Long Tubes (2) Short Tubes (2) Paint (1 dl)

How MRP works Master production schedule: drives the system based on customer orders Bill of material (dependent demand) Inventory status file MRP package - contains the logic See diagram next page

Is this a good plan??? MRP logic Module Master Production Schedule Open Purchase Orders Open Shop Orders MRP logic Module Inventory master part file BOM Reports: + planned order releases + Purchasing plan + work orders Is this a good plan???

Is this a good plan??? MRP logic Module Master Production Schedule Open Purchase Orders Open Shop Orders MRP logic Module Inventory master part file BOM Reports: + planned order releases + Purchasing plan + work orders Is this a good plan???

Benefits of MRP Understanding the implications of changes in production schedule (by de-expediting parts) Keeping inventory low (25% decreases reported) while removing risk of stock-outs Better planning leading to: reduction in lead times better use of capacity lowered risk of obsolete production (e.g. engineering firms) Early warning system: earliest delivery dates are known before promises are made

Without MRP Safety Stock Demand variations

With MRP Safety Stock Demand variations

Integration of design and manufacturing integration of operations with upstream design activities and downstream sales activity downstream: e.g. by integrating CAD with Bill of Material new designs go on-line immediately no production of obsolete products / assemblies shorter time to market for new pdts

The Rise of MRP Snowball effect as companies moving to MRP imposed business changes to their partners MRP logic was always around, but switching costs in manufacturing made it worthwhile: data processing costs decreasing inventory costs rising Sophisticated CIM systems easier to justify Other external pressures mean that tighter control is required

MRP II logic Module Move to MRP II Master Production Schedule Planned production Sales orders Open Purchase Orders Open Shop Orders Bill of resources MRP II logic Module Inventory master part file BOM Product routings CRP / RCCP Reports: + planned order releases + Purchasing plan + work orders + dispatch plan Move to MRP II OK Y/N?

Extension to ERP functionalities Natural extension of MRPII Mix of two competences: Engineering Finance Mix of targets Efficiency Control / consolidation End to end business processes

ERP Capabilities Accounting / finance: Fixed Assets cash management product cost accounting A/R & A/P & G/L… Production planning and materials planning Purchasing / purchase order management p/o receiving inventory management Bill of materials Engineering changes Product routings MRP, production planning, CRP Work orders Warehouse management maintenance

ERP capabilities (2) HR management sales and distribution travel expenses Payroll personnel planning sales and distribution sales planning Sales order management quality control Forecasting Configuration management / sales quotes Address book function: Customer file, supplier file, employee file etc… e.g. Microsoft spent 10 months and $25 ms replacing 33 different systems in 26 sites with SAP

ERP stories Whirlpool: hundreds of distributors receive no deliveries after the update of the SAP software. Hershey: Despite $112 million spent on SAP R/3 all shops empty on Halloween week. Allied Waste Industries: ERP project stopped after $130 million investment Waste Management Inc.: same after $45 million investment Unisource Worldwide and Dell also cancelled their projects Foxmeyer: after three years of unsuccessful implementation, company sues SAP and AA before going bankrupt……………

Buying software Untypical IS projects Balancing analysis of requirement with search for right supplier Trading off conflicting requirements Preparing for the project Project management Handling business disruption Measuring progress and success

AcceleratedSAP - The Tool for Successful Implementations Provide initial planning, scoping, and preparation for SAP transformation projects. Conceptualise and document the final SAP and non-SAP operational environment based on new information and business process designed requirements. Implement the information, business process and technical requirements based on the Business Blueprint developed during the previous phase. Complete testing, end-user training, system management and cutover activities. Take client from a pre-production environment to a live production operation and to design and implement a long-term end users support organisation. Business Blueprint Project Preparation Realisation Final Preparation Go-Live Support

Decision making process Intelligence Design Choice Review (Herbert Simon) ERP Software Implementation ERP Software Selection Vendor Independent Process Vendor guided Process Organisational Analysis Business Process Selection Implementation Review Preparation of needs Design of Software of benefits

Issues/Obstacles Until Now 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Issues/Obstacles Until Now Top Issues Organisations Face During Enterprise Resource Planning 1% KNOWLEDGE ASSETS 3% Data Reporting 3% 5% Program Management Process Reengineering Stage/Transition Benefit Realisation PROCESS 20% TECHNOLOGY 7% Software Functionality Application Portfolio Management Enhancements/Upgrades 7% 15% PEOPLE 57% Change Management Internal Staff Adequacy Training Project Team Prioritisation/Resource Allocation Consultants Ownership (of benefits to others) Top Management Support Percentage of Total Mentions (Multiple answers per respondent)

Intelligence phase / requirements analysis Understand Identify stakeholders Develop common vision Make up a business case Design Draw up business maps Design the ITT Identify vendors Solicit tender documents Choice Analyse / find best fit Negotiate chose

Analysing Fit Functionality grid Break down per functional area Down to process stage level Ask vendors to rate fit Not supported Supported with mod / workaround Supported with minor alteration Fully supported Score and recommend (see diagram)

Package Enabled Approach Develop Workaround No Yes Business Impact? Implement ERP Base Package Does ERP Fit? ERP Enabled Reengineering Best Practice? Review As-Is Process

Team creation Multi-disciplinary Full time Decision making power Budget Representative – team leads Balance between allegiance to team and to area of competence Team spirit Team awareness Must have support from organisation