l2-intro to erp
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Introduction to ERP
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ERP Overview
Enterprise Resource Planning (ERP) programsare software used by companies to manageinformation in every area of the business.
ERP programs help manage company-widebusiness processes using a common databaseand shared management reporting tools.
ERP software supports the efficient operation ofbusiness processes by integrating activitiesthroughout a business.
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Data Flow between FunctionalAreas
Marketingand Sales
HumanResources
Accountingand Finance
Production and
MaterialsManagement
CentralData
Figure 2-4 Data flow within an integrated information system
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What is ERP? ERP is an abbreviation for Enterprise Resource Planning and
means, the techniques and concepts for integrated management ofbusinesses as a whole from the viewpoint of the effective use ofmanagement resources to improve the efficiency of enterprisemanagement.
ERP packages are integrated (covering all business functions)software packages that support the ERP concepts.
ERP software is a mirror image of the major business processes ofan organization, such as customer order fulfillment andmanufacturing.
ERP integrates all business functions into a single, integratedsoftware program that runs on a single database so that the variousdepartments can more easily share information and communicatewith each other.
The integrated approach of ERP has tremendous power andpotential in improving the efficiency, productivity, andcompetitiveness of the organization.
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Common Myths about ERP
1. ERP means more work and procedures2. ERP will make manyemployees redundant and jobless
3. ERP is the sole responsibility of the management
4. ERP is just for the managers/ decision-makers
5. ERP is just for manufacturing organizations
6. ERP is just for the ERP implementation team
7. ERP slows down the organization
8. ERP is just to impress customers
9. ERP package will take care of everything
10. One ERP package will suit everybody11. ERP is veryexpensive
12. Organizations can succeed without ERP
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History of ERP
Origins in the manufacturing industry
1960s Inventory management and controlsystems
1970s Materials Requirement Planning(MRP) and Closed-loop MRP
1980s Manufacturing Requirements
Planning (MRP II) 1990s Enterprise Resource Planning (ERP)
21st century ERP II
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In the beginning Around 1960 was Joe Orlicky at IBM
Recognized difference between dependent and
independent demand Independent demand should use statistical reorderpoints (ROP), reorder quantities (EOQ), and safetystocks (SS)
Dependent demand is deterministic and should not
be controlled statistically as in classical inventory.Developed MRP(Material requirement planning)as a computer-based information systemdesigned to handle ordering and scheduling ofdependent-demand jobs/parts.
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Independent demand (Inventory).Dependent demand (MRP)
Independent Demand (forecasted, uncertain)
X
B(2) C(1)
D(3) E(1) E(2) F(2)
Dependent Demand (MRP canback-figure release times givendue dates for independent demands)
Independent
AA
d e
f1 f2 g1 g2
Dependent
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What is MRP?KEY IDEA: If the finished product is due at time T,
when to begin assembly?
when to begin subassembly?when to begin fabrication?
when to procure raw materials?
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Rough Example of MRP Planning Horizon
1 2 3 4 5 6 7 8 9 10
Procurement
Fabrication
Subassembly
Assembly
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Materials Requirement Planning(MRP)
Outgrowth of bill of material (BOM) processing
Uses the master production schedule (MPS) to find outwhat products are going to manufactured.
Gets the details of the materials required to make theproducts from the bill of materials (BOM).
Searches the inventory records to find out what items arein stock.
Calculates the items that need to be purchased forproducing the goods.
MRP solves manufacturing and production planningproblems and made manufacturing of goods easier.
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Material Requirements Planning (MRP) Logic Starting with independent demand and working
down the bill of material, do following1. Net demand against existing orders and
inventory
2. Lot-size (determine batch size, possibly by EOQ)the netted demand for efficiency in presence of
setups and inventory carrying costs3. Time-phase lot-sized, netted demand to
determine planned order release times
4. Planned order release times become demand fornext level in Bill-of-Material (BOM)
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MRP Inputs MRP Processing MRP Outputs
Master Prod.schedule
Bill ofmaterials
file
Inventoryrecords
file
MRP computerprograms
Changes
Order releases
Planned-orderschedules
Exception reports
Planning reports
Performance-controlreports
Inventorytransaction
Primary
reports
Secondaryreports
MRP
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But there were problems An MRP system is capacity-insensitive, and
properly so, as its function is to determine what
materials and components will be needed andwhen, in order to execute a given masterproduction schedule. There can be only onecorrect answer to that, and it cannot thereforevary depending on what capacity does or does
not exist.
Joseph Orlicky
The problems were by design. They assumed
INFINITE Capacity plants! And a lack of abetter way, which we still struggle with today.
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MRP II MRP II (Manufacturing Resource Planning)
expanded MRP with and emphasis placedon integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
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Manufacturing Resource Planning(MRP II)
Evolved from closed-loop MRP
Contains additional capabilities like sales and operationalplanning, financial interface and simulation capabilitiesfor better decision-making
MRP II is a method for the effective planning of all theresources of a manufacturing company
Utilizes software applications for coordinatingmanufacturing processes, from product planning, partspurchasing, inventory control to product distribution.
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Manufacturing Resources PlanningMRP II Several modules added to MRP to check
capacity
Rough-cut Capacity Planning (RCCP)- before MRP run
Capacity Requirements Planning (CRP) -after MRP run
Note that RCCP and CRP both assume fixed
lead times! Input/Output Control
Procedure was to iterate by changing theMaster Production Schedule
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MRP II
MarketDemand
Productionplan
Rough-cutcapacity planning
Yes No YesNo
Finance
Marketing
Adjust
production plan
Master ProductionSchedule (MPS)
Problems?Requirements
SchedulesWere Done!
AdjustM
PS
Problems?
Manufacturing
MRP Run
Capacity RequirementsPlanning (CRP)
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Possible reasons for failureInaccurate data
Lack of top management commitment
Unrealistic master production schedules
Lack of education of those who use the system
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Then Came ERP
ERP is a Planning philosophy enabled with the
software that attempts to integrate all thebusiness processes of different departments andfunctions across a company onto a singlecomputer system.
Management by Collaboration (MBC)
Manage the enterprise by collaboration with vendors, enterprise
departments, productions and customers
Vendors CustomersEnterprise
Dept1
dept2
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Enterprise Resource Planning (ERP)
Fundamentals of ERP are the same as that of MRP II.
ERP is broader in scope and is capable of dealing with more businessfunctions and has a better and tighter integration with the finance andaccounting functions.
ERP is an enterprise-wide set of forecasting, planning and scheduling
tools, which links customers and suppliers into a complete supplychain.
The goals of ERP include high levels of customer service, improvedproductivity, cost reduction, better inventory turnover (just-in-timeinventory), etc.
ERP is more powerful because it applies a single set of resource
planning tools across the entire enterprise, provides real-timeintegration of sales, operating and financial data and connectsresource planning approaches, to the extended supply chain ofcustomers and suppliers.
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ERP (Enterprise Resource Planning)
Mfg
Sales
Financial
AccountingCapplanning
Demand
planning
Controlling
HRMM
Vendors
Customers
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ERPs PUSH planning
MRPOrlicky
1980s
1960s
1990s
Client-server based,Transaction-orientedDatabase systems
= ERP
1970s CRPRCCP+MRP II
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3-Tier Client-Server Architecture of SAP R/3
Presentation Server
(SAP GUI, Web interface)
Application Server
(Application Programs/Processes)
Database Server
(RDBMS like Oracle)
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3-Tier Client-Server Architecture
Presentation Layer: Collects user input and creates process requests
and presents the results back to the user. Systems capable of providingGUI are used.
Application Layer: Uses the application logic of SAP programs to
collect and process the process requests. Servers providing an optimal
processing env are used.
Database Layer: Stores and manages the retrieval of the data. Serverswith very large and fast storage space are used.
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Reasons for the Growth of the ERP Market The Market for ERP is in great demand. According to AMR
study market revenue grew to more than $25B in 2005.
The answer is
1. To enable improved business performance through
Cylcle Time Reduction: Is the time available at eachstation for the performance of the work allocated orthe time elapsing between completed units coming ofan assembly line.
Increased Business Agility Inventory Reduction
Order Fulfillment Improvement.
2.To Support Business Growth requirement through: New Product,New Customer
Global requirement including multiple language andcurrencies
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3.To provide flexible,integrated,real time decision support in: Improving responsiveness across the organization
4.To eliminate the following limitations of the legacy systems: By fragmentation of data and processing
Inflexibility to change
Insupportable technology
5.To take advantage of the untapped mid market through: Increased functionality at a reasonable cost
Client server/Open system technology
Vertical market solutions
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Advantages of ERP
Business integration - ERP packages integrates the informationprocessing and automates data updating (automatic data exchangeamong applications) between related business components.
Flexibility - Diverse multinational environments such as language,currency, accounting standards, etc. are covered in one system,
which makes the ERP systems very flexible. Better analysis and planning capabilities ERP systems enables the
comprehensive and unified management of related businesses andits data. This unification makes it possible to fully utilize many typesof decision support systems and simulation functions.
Use of latest technology - ERP vendors uses the latest developmentsin the field of information technology. This technology adoptionbenefits the organizations using the packages as they get betterproducts and with better capabilities.
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Why ERP?
Why ERP? ERP offers solutions for all business functions
Packages available for organizations of all sizes and types
Global nature (multi-lingual and multi-currency support)
Over Expectations abut ERP (One of the main reasons for failed implementations)
Insufficient pre-implementation preparation
Lack of awareness among employees Lack of awareness among management about costs
Wrong concepts about ROI and payback period
Successful ERP Implementations
Conduct Gap analysis to find out company requirements and the functions a packagepossesses.
Select experienced and professional consultants
Select the right package
Select employees with the right attitude for implementation team
Ensure that knowledge transfer happens between consultants and employees as well asbetween vendors and employees
Ensure that there is enough in-house consultants and integrators during the operation andmaintenance phase
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