1. Enterprise Resource Planning
Chapter 9:
Enterprise Resource Planning
Chapter 9: Enterprise Resource Planning

2. Chapter 9: Enterprise Resource Planning
Introduction
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3. 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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4. 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 SAP’s R/3 ERP system.
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5. 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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6. 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.
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7. National Semiconductor
National Semiconductor’s 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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8. 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 SAP’s R/3 system.
In the end National chose IFS as its ERP vendor.
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9. MRP for Dependent Demand
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10. 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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11. Constant and Lumpy Demands
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12. Chapter 9: Enterprise Resource Planning
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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14. The Boardsports Company
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15. Skateboard Product Tree
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16. Material Requirements of Sidewalk Special
Fiberglass boards: 1  number of specials
Wheel assemblies: 2  number of specials
Wheels: 2  number of wheel assemblies
Spindles: 1  number of wheel assemblies
Locknut: 2  number of wheel assemblies
Wheel mount stand: 1  number of wheel assemblies
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17. Material Required to Produce 50 Sidewalk Specials
Fiberglass boards: 1  number of specials = 1  50 = 50
Wheel assemblies: 2  number of specials = 2  50 = 100
Wheels: 2  number of wheel assemblies = 2  100 = 200
Spindles: 1  number of wheel assemblies =1  100 = 100
Locknut: 2  number of wheel assemblies = 2  100 = 200
Wheel mount stand:
1  number of wheel assemblies = 1  100 = 100
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18. Delivery 50 Sidewalk Specials in Week 10
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19. Time-Scaled Assembly Chart for Skateboard
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20. Chapter 9: Enterprise Resource Planning
The Mechanics of MRP
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21. Primary Inputs to MRP System
Master Production Schedule
Bill of Materials File
Inventory Master File
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22. Schematic of MRP System
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23. Master Production Schedule
Based on actual customer orders and predicted demand
Indicates when each ordered item will be produced
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24. 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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25. 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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26. 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 time-phased planned order releases
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31. 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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32. MRP Computations continued
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33. Chapter 9: Enterprise Resource Planning
MRP Extensions
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34. 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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35. 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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37. Chapter 9: Enterprise Resource Planning
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 Market share (based on 2004 revenues) of five top ERP vendors.
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39. 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 organization’s existing information systems.
The need for better and more timely information.
The need to comply with Sarbanes-Oxley.
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40. 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 organization’s processes must be modified to conform with the ERP system.
The amount of consulting and training required
The extent to which the organization’s existing data must be converted to conform to the data requirements of the new ERP system.
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41. 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 2006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.
Chapter 9: Enterprise Resource Planning