Enterprise Resource Planning module-3

ERP- A curtain Raiser The business has changed more in past five years than it did over the previous five decades The ability to respond to new customer needs and seize market opportunities as they arise is crucial. Enterprises are continuously striving to improve in the areas of quality, time to market, customer satisfaction, performance and profitability.

What is an Enterprise? An Enterprise is a group of people with a common goal, which has certain recourses at its disposal to achieve the goal. In traditional approach, the enterprise is divided into different units based on the functions they perform. Each of these depts. have their own goals and objectives. For any organization to succeed, all business units or depts. should work towards this common goal Each departments will have its own goals and objective and some time be conflicting. (Finance Vs Marketing on the basis of Advertisement)

The result is that instead of taking the organization towards the common goal, the various department end up pulling it in different directions. This is because one dept does not know what the other does. To manage this problem, the only solution is to get to know about what happens in the other departments

To make this possible for the companies to execute this vision, there is a need for an infrastructure that provide information across all functions and locations within the organization. ERP software fulfils this need In ERP, the functional departments are integrated by providing the information that is stored centrally in it. DB

What is ERP? An Enterprise is a group of people with a common goal, which has a certain resources at its disposal to achieve that goal Resources include are money, man power, materials and all other things that required to run the enterprise. Planning is done to ensure that nothing goes wrong Thus ERP covers the techniques and concepts employed for integrated management of businesses as a whole, for the effective use of management resources, to improve the efficiency of an enterprise

ERP software is designed to model and automate many of the basic processes of a company, with a goal of integrating information across the company In other words ERP is complete solution for all the operational problems of the company Introduction of the ERP system to the company dramatically changes the overall efficiency of organization in its levels of activities.

Integration of different ISs in ERP

Before ERP Multiple systems, different interfaces, difficult to extract info about customers, sales,... Hard to maintain, many languages, databases, inconsistencies Can take weeks or months to obtain info about customers, or where systems changes are needed

After ERP Integrated systems Consistent interface One database Access to current data Improved planning capabilities Multinational capabilities

Consider a practical example…. Consider a Customer order A data entry operator enters the data to the system… With the implementation of good ERP system, the order entry clerk becomes an action initiator. As soon as he enters the order into the system, the information is passed on toe the sales, distribution and finance module…. And so on… All these actions take place automatically and fulfils the customer order at the earliest.

Reasons for the growth of ERP market To enable improved business performance Cycle time reduction Increased business agility (the ability to think and draw conclusions quickly & intellectually) Inventory reduction Order fulfillment To provide flexible, integrated, real-time decision support Improve responsiveness across the organization. To support business growth requirements New products, new customers To have competitive advantage Increased functionality at a reasonable cost Client-server, open technology

Advantages of ERP ERP has many advantages- direct and indirect Direct……… Business Integration Flexibility Better analysis and planning capabilities Use of latest technology Indirect……… Better corporate image Improved customer goodwill Improved customer satisfaction

Why are ERP packages being used now? Main Reasons are ERP handles the entire range of business functions necessary for the company’s operations Highly flexible for a long term prosperity of the company Global adaptation by ERP packages’ multi-lingual, multi- currency capability. Helps the organization to grow globally Helps in reduction of organization’s operating costs Integrates all parts of an organization Increases the efficiency of operations as a result of this integration Integration of information systems which enables seamless flow of information across the organization. Enables consolidation of different software in the organization Helps in better customer service

Top 5 ERP vendors and their products VendorsProduct SAP AGR/3 Oracle CorporationOracle Applns J D Edwards World Solns Co. One World People Soft inc.People soft Baan co.BaanIV

ERP Evolution

ERP evolution contd….. In the 1960’s inventory control assumed prime importance and most of the software at that time were designed to help in inventory management. Typically, these were handled by tools called BOM processors (Bill of materials) The focus shifted in the 1970’s to Material Requirement planning (MRP) as the complexity of manufacturing operations increased. The MRP system integrates the inventory control with finance and HR departments

Then in the 1980's the concept of Manufacturing Resources planning (MRP-II), which was nothing but extension of MRP which integrates all the functional units of the manufacturing industry. In the early 1990’s, increased complexity of businesses and the need to integrate all the functions within an enterprise to sustain in the dynamic environment lead to development of ERP (Enterprise Resource planning) tool. ERP was extension of MRP II to cover the range of activities within any enterprise

Bill Of Materials (BOM) BOM defines the relationship of components to end items. BOM identifies all components used in the production of an end item. BOM also called the Product Structure Diagram Eg--- consider a chair. A chair is composed of many components like seat, leg assembly, back assembly etc.. As in the figure below The key to MRP is time-phasing of requirements for components in the BOM structure If we know the time required to manufacture or purchase components, we can determine when orders should be released to the shop floor or to the external suppliers

BOM of a Chair Chair Seat Legs (2) Cross bar Side Rails (2) Cross bar Back Supports(3) Leg Assembly Back Assembly Level

Materials Requirement Planning

What is MRP? * Computerized Inventory Control * Production Planning System * Manufacturing Control System Deals with …… what material needed? when & how purchased? how managed? maximize efficiency of physical, financial assets.

MRP is a….. Computerized Inventory Control Production Planning System that….. Schedules Component Items as Needed which will….. Track Inventory and….. Help you in many other aspects of business

Overview of the MRP System Product Structure File Master Production Schedule Inventory Master File Material Requirements Planning Manufacturing Orders Purchase Orders Various Reports

MRP Inputs Product Structure File (e.g.– BOM) Master Production Schedule Inventory Master File

Master Production Schedule Schedule of Finished Products Represents Production, not Demand Combination of Customer Orders and Demand Forecasts What Needs to be Produced

Inventory Master File On-Hand Quantities On-Order Quantities Lot Sizes Safety Stock Lead Time Past-Usage Figures

MRP Outputs Manufacturing Orders Purchasing Orders Various Reports

Advantages of MRP Reduce Inventory Levels Reduce Component Shortages Improve Shipping Performance Improve Customer Service Improve Productivity Simplified and Accurate Scheduling Improve Communication Improve Plant Efficiency Reduce Freight Cost Reduction in Excess Inventory Reduce Purchasing Cost Improve Production Schedules Reduce Manufacturing Cost Reduce Lead Times Less Scrap and Rework Higher Production Quality Reduce Overtime Improve Supply Schedules Improve Calculation of Material Requirements Improve Competitive Position

Summary of MRP MRP is a….. Computerized Inventory Control Production Planning System that….. Schedules Component Items as Needed which will….. Track Inventory and….. Help you in many other aspects of business

Closed Loop MRP For an MRP system to be useful, the production system must be able to complete component orders in time Closed Loop MRP uses capacity planning and feed back to improve the ability of the production system to complete the work as planned. Timely Feedback to MRP planners allows them to develop alternatives, or at least minimize the effect of the problem. For e.g.--- if production of a set of component may not finish on time, then decision based on this feed back can be applied to the entire production of the company

Rough-cut Capacity Plans (RCCP)

Manufacturing Resource Planning (MRP II) MRP II is an extension of closed loop MRP for managing the entire manufacturing company. MRP II systems provide information that is useful to all functional areas and encourage cross- functional interaction. MRP II support to link marketing, sales department with production, manufacturing departments to get to know about the product variety, availability. Thus they get the ability to give customers accurate delivery dates.

MRP II support financial planning by converting materials schedule into capital requirements Thus, proper information is required to successfully plan and schedule production in the company MRP II systems increase a company’s efficiency by providing a central source of management information