erp evolution
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Enterprise Resource Planning
(ERP)
Evolution of ERPMRP-ERP
Prof. Pratima D. / Prof. D.G. Jha
Email: [email protected]
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What is ERP?
Enterprise Resource Planning
A collection of software systems that help to
manage business processes for an entire
organization Designed to integrate all information
processing support for an entire organization
ERP is a process of managing all resourcesand their use in the entire enterprise in a
coordinated manner
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What makes ERP different
Integrated modules
Common definitions
Common database
Update one module, automatically updatesothers
ERP systems reflect a specific way of doing
business Must look at your value chains, rather than
functions
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Benefits of ERP
Common set of data
Help in integrating applications for decision
making and planning
Allow departments to talk to each other
Easy to integrate by using processed built into
ERP software A way to force BPR (reengineering)
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Evolution of ERP
In the earlier days of Manufacturing there was
no concept of planning in advance.
Independent Inventory Model (1950-1960)
Master Production Schedule (MPS)
Bill of Material (BoM)
Inventory Record (IR) This approach was evolved based on the observation that the demand for itemscan be calculated from the demand of the assemblies/ Products where the items
are used.
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Master Production Schedule (MPS)
A Master Production Schedule (MPS) is a planfor production, staffing, inventory, etc.
It is usually linked to manufacturing where
the plan indicates when and how much ofeach product will be demanded.
This plan quantifies significant processes,
parts, and other resources in order tooptimize production, to identify bottlenecks,
and to anticipate needs and completed goods.
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Master Production Plan (MPS)
An example of a master production schedule
for "product A".
Independent Demand
Demand Management 12/7 12/8 12/9 12/10 12/11
Monthly Demand for Product A 4000 4000 4000 4000 4000
Working Days in Month 23 23 23 23 23
MPS Daily Demand for Product A 174 174 174 174 174
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Bill of Material
The Refined BOM used to have the followingmajor information: Material requirements for unit of Main item.
Name of the component item
Quantity of component item Any scrap factor that must be taken in to account while
calculating the material requirement.
Expiry information: The date up to which the design is validor used by the manufacturer
In 1960s the BOM approach soon became the main input forInventory Control.
For many years, Inventory control was thought as sufficient inmanufacturing planning and execution.
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Bicycle(1)
P/N 1000
Handle Bars (1)
P/N 1001
Frame Assembly (1)
P/N 1002
Wheels (2)
P/N 1003Frame (1)P/N 1004
Bill-of-MaterialProduct Structure Tree
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Bill of Material
Dependent Demand
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Material Requirement Planning
(MRP)
So the long time taken for planning and
making the item was not at all an issue.
However with time, the situation was
gradually changing and very soon the industry
realized that the process of making items for
fulfilling an order was taking long time and in
that way they cannot meet the demand.
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Material Requirement Planning
It was also experienced that there was
repetitive effort while planning for materials,
other resources and for ways to make the
items.
Then onwards the Manufacturing Planning
systems went through progressive refinement
in the last 5 decades.
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Material Requirement Planning (MRP)
In 1970s the concept arrived to a complete shape and was
known as Material requirement planning. This Planning is
popularly known as MRP.
A refined MRP briefly takes the demand, important item
related information ( such as Ordering rules, safety stock ,
Inventory information ), Bill of Material ,routing and existing
Shop floor schedule as inputs. Based on the demand and
other supporting information MRP
MRP = Independent Inventory Model + Capacity Planning
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MRP
Calculates the requirements for each
component item that is required to make the
order quantity of end item
Calculates the time taken to make the order
quantity of the end item.
Calculates the needed hours of Man, tools and
Machines for making the Order
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Increased customer satisfaction due to
meeting delivery schedules
Faster response to market changes Improved labor & equipment utilization
Better inventory planning & scheduling
Reduced inventory levels without reducedcustomer service
MRP Benefits
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Forecast &Firm Orders
MaterialRequirements
Planning
AggregateProductionPlanning
ResourceAvailability
MasterProductionScheduling
ShopFloor
Schedules
CapacityRequirements
PlanningRealistic?
No, modify CRP, MRP, or MPS
Yes
MRP and The Production PlanningProcess
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MRP: Material Requirements PlanningMRP: (From the 60's& 70s) includes only
Material Planning ProjectionsBased on Bill of Material Explosions
Typical Functions:Bills of Material
Inventory Management
Work Order Management
Shop Floor SchedulingProduction Activity Control
Material Shortage Management
Fundamental Process Questions:
1. What do you want to make?
2. What materials does it take?
3. What materials do you have?
4. What materials do you need toget?
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Problems in MRP
The major problem with MRP systems is the
integrity of the data. If there are any errors in
the inventory data, the bill of materials
(commonly referred to as 'BOM') data, or themaster production schedule, then the
outputted data will also be incorrect
(colloquially, "GIGO": Garbage In, GarbageOut).
http://www.enotes.com/topic/Bill_of_materialshttp://www.enotes.com/topic/Bill_of_materials -
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Extensions of MRP
Closed loop MRP Gives feedback from execution function to
planning function.
Closed loop MRP to provide the ability to translatethe operating planexpressed in manufacturing
terms such as units and kilograms into financial
termsrupees.
MRP II - Material Resource Planning Enterprise Resource Planning (ERP)
Extended ERP
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Manufacturing Resource Planning
(MRPII)
Major identification of MRP II is through the
integrated planning involving all possible
functions in an Industry, which need not
always be a Manufacturing Industry.
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MRP II
In addition to exploiting all the features of earlier
planning versions such as traditional Inventory
control and, MRP , MRP II focused on ensuring the
integration between various functions such asPlanning, Engineering design, Production , Purchase,
Sales, Marketing, Finance, and Human resources.
The seamless integration that was the main feature
of MRPII ensured that the planning was moremeaningful with more transparency to all the
stakeholders of the business.
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MRPII: Manufacturing Resource Planning
MRPII (From the 80's& 90s) includes ALL Manufacturing Resources
for "What If" Pro-Active Process Simulations
Typical Functions:Financial Modules
Business Plan
Resource Planning
Production Plan
Sales and Operations PlanEDI and Customer Orders
Master Production Schedule
Rough-Cut Capacity Planning
Detailed Capacity Planning
Product Costing Modules
Engineering Change Management
MRP: Material Requirements Planning
Fundamental Process Questions:
1. What do you want to make?
2. What materials does it take?
3. What materials do you have?
4. What materials do you need to get?
5. What constraints must be met now or
in the future?
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Enterprise Resource Planning (ERP)
APICS (American Production & Inventory
Control Society) defined ERP as an
accountingoriented information system for
identifying and planning the enterprise wideresources needed to take, make, ship, and
account for customer orders.
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ERP
An ERP system differs from the typical MRP II
system in technical requirements such as
graphical user interface, relational database,
use of fourthgeneration language, andcomputeraided software engineering tools in
development, client/server architecture, and
opensystem portability.
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ERP: Enterprise Resource Planning
ERP (From the 80's& 90s) includes ALL Business Management Systems, Philosophies
and Performance Evaluation at All Levels
Typical Functions:
Financial Planning Simulations
Business Planning Simulations
Sales/Marketing Planning Simulations
Distribution Requirements PlanningResource Management Simulations
Production Management Simulations
Supply Chain Management Simulations
Continual Improvement Strategies
R&D Management Simulations
MRPII: Manufacturing Resource Planning
Fundamental Process Questions:
1. What do you want to make?
2. What materials does it take?
3. What materials do you have?
4. What materials do you need to get?
5. What constraints must be met now orin the future?
6.How will performance be planned,
simulated, measured, and improved?
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Extended ERP
Major factors that contributed the evolution
of Extended ERP are :
1. Requirement to focus on the core strength
and grow family of partners that work
together to deliver the end product and share
directly or indirectly the revenue and
competitive advantage.
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Extended ERP
2. A trend that forced to adopt what is called
Mass customizations. Customers expect a
unique combination of features from a
product and at the same time do not want towait for the long production and delivery
cycles. This situation led to Mass
customization and soon became mandatoryfor the vendors.
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Extended ERP
The Mass customization principles were even
applied to financial services on certain areas
such as Instant approval of loan, instant
opening of account etc. Similarly industriessuch as Automotives devised mechanisms to
deliver the vehicles in days to the customer
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Extended ERP
3. Trend to avoid interaction with systems for
long and expect the system to have enough
intelligence to perform most of the work. If
there are certain rules followed whilescheduling the machine and man resources,
why cant you expect the System to follow
the same and generate the best schedule?
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Extended ERP
4. Urge for Work flow based applications. Even while refiningthe processes in a company through techniques such as
Business Process reengineering, the main focus for
improvement was on logistic activities and the indirect
functions such as administrative functions were not focused
heavily for improvement in the earlier times. Once the logistic
processes were matured enough the focus shifted to
improving the administrative processes.
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Extended ERP
5. Use of the Internet rapidly increased in the
mid 1990s. People quickly became Internet
literate and Internet became part of life for
them. Users liked the Web Browser. Using webbrowser was simple, and over time, only two
versions of the browser (only one version that
is, Microsoft Internet Explorer) had themajority of market share.
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Extended ERP
The demand for the business systems to utilize
these browsers started to grow and continues
to this day. Manufacturing Industry, ever
under competitive pressure recognized thecost reduction possibilities of using the
Internet.
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Extended ERP
The possibility of cost effective Electronic Data
Interchange (EDI) seemed possible. Visionaries
saw the possibility of speeding up the
businessto business (aka B2B) buying andselling processes and reducing the cost of
each business transaction.
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Extended ERP
The Internet made SupplyChain Management
to be simpler. Those who wanted to grab the
market early started making applications
compatible to Internet and instrumental inmaking extended ERPs.
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Enterprise Resource Planning (ERP)
ERP modules include
Basic MRP
Finance
Human resources
Supply chain management (SCM)
Customer relationship management (CRM)
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ERP and MRP
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ERP and MRP
Customer Relationship Management
Invoicing
ShippingDistributors,
retailers,and end users
Sales Order(order entry,
product configuration,sales management)
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Table 13.6
Bills ofMaterial
WorkOrders
Purchasingand
Lead Times
Routingsand
Lead Times
MasterProductionSchedule
InventoryManagement
ERP and MRP
MRP
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ERP and MRP
Figure 14.11
Supply Chain Management
Vendor Communication(schedules, EDI, advanced shipping notice,
e-commerce, etc.)
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ERP and MRP
Figure 14.11Table 13.6
Finance/
Accounting
GeneralLedger
AccountsReceivable
Payroll
Accounts
Payable
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Enterprise Resource Planning (ERP)
ERP can be highly customized to meetspecific business requirements
Enterprise application integration software(EAI) allows ERP systems to be integratedwith
Warehouse management
Logistics
Electronic catalogs
Quality management
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Enterprise Resource Planning (ERP)
ERP systems have the potential to
Reduce transaction costs
Increase the speed and accuracy ofinformation
Facilitates a strategic emphasis on JITsystems and integration
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Advantages of ERP Systems
1. Provides integration of the supply chain,production, and administration
2. Creates commonality of databases
3. Can incorporate improved best processes
4. Increases communication and collaborationbetween business units and sites
5. Has an off-the-shelf software database
6. May provide a strategic advantage
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Disadvantages of ERP Systems
1. Is very expensive to purchase and even more so tocustomize
2. Implementation may require major changes in the
company and its processes
3. Is so complex that many companies cannot adjustto it
4. Involves an ongoing, possibly never completed,process for implementation
5. Expertise is limited with ongoing staffing problems
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AssignmentAssignment -1
The Hunicut and Hallock Corporation makes two versions of the same
basic file cabinet, the TOL (Top-of-the-line) five drawer file cabinet and the
HQ (High-quality) five drawer filing cabinet.
The TOL and HQ use the same cabinet frame and locking mechanism. The
drawer assemblies are different although both use the same drawer frame
assembly. The drawer assemblies for the TOL cabinet use a slidingassembly that requiresfourbearings per side whereas the HQ sliding
assembly requires only two bearings per side. (These bearings are
identical for both cabinet types.) 100 TOL and 300 HQ file cabinets need to
be assembled in week #10. No current stock exists.
Develop a material structure tree for the TOL and the HQ file cabinets.
Assignment-2
Develop a gross material requirements plan and Master Production
Schedule for the TOL and HQ cabinets in the previous example.