1. 17–1

2. 17–2 Chapter Seventeen Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

3. 17–3 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. LO17–1: Understand what an enterprise resource planning (ERP) system is. LO17–2: Explain how ERP integrates business units through information sharing. LO17–3: Illustrate how supply chain planning and control fits within ERP. LO17–4: Evaluate supply chain performance using data from the ERP system.

4. 17–4 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. A comprehensive software approach to support decisions concurrent with planning and controlling the business. ERP systems are, first and foremost, integrated.

5. 17–5 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. What is ERP?Connecting functional units with ERPThe need for standardizationSupport of MPC decisionsTransaction processingPerformance metricsThe ERP experience

6. 17–6 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. ERP may mean different things. – A comprehensive decision support software that plans and controls – A software system that integrates all applications from different functional areas  Integration through a common database – Able to facilitate MPC activities

7. 17–7 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.

8. 17–8 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. ERP requires – Consistent numbers across all applications – Software should be:  Multifunctional (manufacturing, service, etc.)  Integrated (handled only once across all applications)  Modular  Able to facilitate MPC activities – Routine decision making – Capacity for all transaction processing

9. 17–9 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. ERP software – Supports analysis of data for decision support – Helps make intelligent decisions – Note: People make decisions not software Bolt-on software modifies and enables new approaches to decision making Modifies existing procedures to make it more efficient

10. 17–10 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Helping users make decisions about running the business – People make the decisions; software provides them with better tools and information.

11. 17–11 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. An ERP system is designed to process business transactions in real time, working from a single database. Data warehouse software may be added to facilitate queries not built into the ERP system.

12. 17–12 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.

13. 17–13 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Data entered by one functional area updates all other functional areas and the data are processed in real time. Eliminates reposting of data (errors) Ensures a common vision instantly displayed

14. 17–14 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. ForecastingProduction planning Material planning Inventory management MPC Activity Support

15. 17–15 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Without standard terminology, integration is impossible. – What is demand? – What is inventory? – How are exchange rates determined? – What transfer costs apply (for internal transactions)? – What labor rates are applied?

16. 17–16 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Developed by the Supply Chain Council. Designed to measure the impact of decisions on the entire supply chain. Avoids development of functional silos by developing metrics that reflect the entire supply chain.

17. 17–17 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Integrates the finance function with purchasing, manufacturing, and sales/distribution Procurement cycle Manufacturing cycle Sales and distribution cycle Purchase cost of material Accounts payable Raw materials inventory Work-in-process Finished goods inventory Distribution inventory Accounts receivable Cash-to-cash cycle time = Inventory days of supply + Days of sales outstanding – Average payment period for material

18. 17–18 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Functional silos – Each area is responsible for optimizing its own operation, with no consideration for how the overall firm is affected. Purchasing pursues cost rather than quality. Manufacturing builds long runs rather than responding to customers. Distribution focuses on cost of delivery stages instead of total system costs.

19. 17–19 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.

20. 17–20 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved.

21. 17–21 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. 17-21 Average daily sales (S d ) Accounts receivable days (AR d ) Average daily cost of sales (C d ) Average days of inventory (I d ) Accounts payable cycle time (AP d ) Cash-to-cash cycle time

22. 17–22 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Sales over last 30 days = $1,020,000 Accounts receivable = $200,000 Inventory value = $400,000 Cost of sales = 60% of total sales Accounts payable = $160,000 17-22

23. 17–23 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Eli Lilly and Company – Integration of a global company – Process improvement – Simplified training – Strategic direction – Organizational flexibility – Set of global policies

24. 17–24 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. Redundant transactions must be reduced or eliminated. To maintain data accuracy and realize efficiencies, information must be captured at the initial entry, using documented processes. Processes need to be changed to support the data needs of the ERP system – hardware and software alone isn’t sufficient.

25. 17–25 Copyright © 2014 by McGraw Hill Education (India) Private Limited. All rights reserved. The company must define a comprehensive set of performance measures, with policies and goals that correspond to these measures. IT economies of scale can be obtained from supporting fewer hardware and software platforms.