Chapter 9: Enterprise Resource Planning1 Chapter 9: Enterprise Resource Planning.

Chapter 9: Enterprise Resource Planning 1

Chapter 9:

Enterprise Resource Planning


Introduction


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.


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.



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.



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.


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.


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.


MRP for Dependent Demand


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


Constant and Lumpy Demands


Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (ROP)


Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (MRP)


The Boardsports Company

Component Lead TimeSidewalk Special 1 weekFiberglass board 3 weeksWheel assembly 1 weekWheel mount stand 4 weeksWheel 1 weekLocknut 1 weekSpindle 2 weeks


Skateboard Product Tree


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


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


Delivery 50 Sidewalk Specials in Week 10

1 2 3 4 5 6 7 8 9 10Sidewalk Specials 50

Date needed 50Boards Order date 50

Date needed 100Wheel assembly Order date 100

Date needed 200Wheels Order date 200

Date needed 100Spindles Order date 100

Date needed 100Mounting stands Order date 100

Date needed 200Locknuts Order date 200

Week

3 week lead time


Time-Scaled Assembly Chart for Skateboard


The Mechanics of MRP


Primary Inputs to MRP System

Master Production Schedule Bill of Materials File Inventory Master File


Schematic of MRP System


Master Production Schedule

Based on actual customer orders and predicted demand

Indicates when each ordered item will be produced


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


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


Product Structure Tree


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


Low-Level Coding

Original product tree structure

Low-level-coded product tree structure


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


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


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


MRP Computations continued

Zero-LevelWeek 1 2 3 4 5 6 7 8 9 10 11 12

Gross requirements 50 150 50 100 100On hand 400 400 400 350 350 350 200 200 200 150 50 50 50Net requirements -- -- -- -- -- -- -- -- -- -- -- 50Planned order receipts 50Planned order releases 50Lead time = 3 weeks

Level 1Week 1 2 3 4 5 6 7 8 9 10 11 12

Gross requirements 50 200On hand 50 50 50 100 100 100 100 100 100 100 50 100Net requirements 150Planned order receipts 50Planned order releases 250Lead time = 4 weeks


MRP Extensions


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


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


Typical ERP System


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.

Chapter 9: Enterprise Resource Planning

38

Figure 9.12 Market share (based on 2004 revenues) of five top ERP vendors.

SAP, 44.0%

Oracle, 24.6%

Sage Group, 6.1%

Microsoft, 3.4%

SSA Global, 3.3%

Other, 18.7%


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.


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.


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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Chapter 9: Enterprise Resource Planning1 Chapter 9: Enterprise Resource Planning.

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