Chapter 10: Enterprise Resource Planning (ERP)


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Chapter 10: Enterprise Resource Planning (ERP)

  1. 2. <ul><li>What does a company’s strategy consist of ? </li></ul><ul><li>Company strategies concern, </li></ul><ul><li>How to grow the business </li></ul><ul><li>How to satisfy customers </li></ul><ul><li>How to out compete rivals </li></ul><ul><li>How to respond to changing in market conditions </li></ul><ul><li>How to manage each functional piece of the business and develop needed organizational capabilities </li></ul><ul><li>How to achieve strategic and financial objectives </li></ul>
  2. 3. Introduction <ul><li>Manufacturing Organizations are complex `Systems ' where the interactions between the various functions Sales, Distribution, Manufacturing, Materials, Finance, Human Resources, Maintenance have to be managed towards a common purpose of delivering the customers maximum value at the optimum price . </li></ul><ul><li>However, since most of these organizations have a ` Functional Structure ', each function/department works towards their own goals and objectives, rather than the organizational goals. </li></ul><ul><li>These are the issues addressed by `Enterprise Resource Planning' software solutions providing a common, consistent system to capture data organization wide, with minimum redundancy . </li></ul>
  3. 4. What is ERP? <ul><li>ERP integrates the information across functions, and provides a set of tools for planning and monitoring the various functions and processes and ensuring progress towards a common purpose </li></ul><ul><li>A business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing. </li></ul><ul><li>ERP helps business managers to implement ERP in business activities such as inventory control, order tracking, customer service, finance and human resources </li></ul>
  4. 7. MRP – the predecessor to and backbone of MRP II And ERP a joint effort between J.I. Case, a manufacturer of tractors and other construction machinery, in partnership with IBM. Initial MRP solutions were big, clumsy and expensive.(1960-1970)
  5. 9. Strategic management & Business plan Master production scheduling <ul><li>MRP : </li></ul><ul><li>BOM </li></ul><ul><li>Lead Time </li></ul><ul><li>Lot sizing </li></ul><ul><li>Planned purchase </li></ul><ul><li>Performance reports </li></ul>Resource requirement planning Demand management (Sales forecasting) Buy Capacity req. Planning(CRP) Realistic Realistic Supplier Factory coordination Inventory Transaction Inventory level Trends plan Reports objective Resource req. report MRPII Elements
  6. 10. In 1972 five engineers in Mannheim, Germany, started up SAP (Systemanalyse und Programmentwicklung). The purpose of the company was to produce and market standard software for integrated business solutions.
  7. 11. The term Enterprise resource planning (ERP) was coined in the early 1990s by the Gartner Group (Wylie, 1990). Their definition of ERP included criteria for evaluating the extent that software was actually integrated both across and within the various functional
  8. 12. A typical Example
  9. 13. Data Flow Diagram to support Part product approval process
  10. 14. How WIP could be improved by implementation of ERP (Work in Process ) Without using of any integrated system using of integrated system
  11. 15. <ul><li>Some Questions </li></ul><ul><li>What are the major types of systems in a business? What role do they play? </li></ul><ul><li>How do information systems support the major business functions? </li></ul><ul><li>Why should managers pay attention to business processes? </li></ul>
  12. 16. Major Types of Systems <ul><li>Executive Support Systems ( ESS ) </li></ul><ul><li>Decision Support Systems ( DSS ) </li></ul><ul><li>Management Information Systems ( MIS ) </li></ul><ul><li>Knowledge Work Systems ( KWS ) </li></ul><ul><li>Office Systems </li></ul><ul><li>Transaction Processing Systems ( TPS ) </li></ul>
  13. 18. <ul><li>Transaction Processing Systems (TPS): </li></ul><ul><li>Basic business systems that serve the operational level </li></ul><ul><li>A computerized system that performs and records the daily routine transactions necessary to the conduct of the business </li></ul>
  14. 19. Types of TPS Systems
  15. 20. Payroll TPS
  16. 21. <ul><li>Executive Support System (ESS): </li></ul><ul><li>Strategic level </li></ul><ul><li>Inputs: Aggregate data </li></ul><ul><li>Processing: Interactive </li></ul><ul><li>Outputs: Projections </li></ul><ul><li>Users: Senior managers </li></ul><ul><li>Example: 5-year operating plan </li></ul>
  17. 22. <ul><li>Management Information System (MIS): </li></ul><ul><li>Management level </li></ul><ul><li>Inputs: High volume data </li></ul><ul><li>Processing : Simple models </li></ul><ul><li>Outputs: Summary reports </li></ul><ul><li>Users: Middle managers </li></ul><ul><li>Example: Annual budgeting </li></ul>
  18. 23. <ul><li>Decision Support System (DSS): </li></ul><ul><li>Management level </li></ul><ul><li>Inputs: Low volume data </li></ul><ul><li>Processing: Interactive </li></ul><ul><li>Outputs: Decision analysis </li></ul><ul><li>Users: Professionals, staff </li></ul><ul><li>Example: Contract cost analysis </li></ul>
  19. 24. <ul><li>Knowledge Work Systems (KWS): </li></ul><ul><li>Knowledge level </li></ul><ul><li>Inputs: Design specs </li></ul><ul><li>Processing: Modeling </li></ul><ul><li>Outputs: Designs, graphics </li></ul><ul><li>Users: Technical staff and professionals </li></ul><ul><li>Example: Engineering work station </li></ul>
  20. 25. Decision Support System (DSS)
  21. 26. Decision Support System (DSS)
  22. 27. Relation Between 5 systems
  23. 28. (ESS) (MIS) (TPS) (KWS) With out any Integrated system
  24. 29. Using Integrated system
  25. 30. Supply Chain management 6 level of sys.(ESS,MIS,TPS,…) +MRPII Best Practice : Comparing your process with similar processes In higher companies E nterprise r esources p lanning software ERP elements
  26. 31. ERP Software Companies & Marketshares Software Market Shar e SAP 15.6 Peoplesoft 4.9 Oracle 4.8 Baan 3.0 CA 3.0 JDE 2.2 SSA 2.1 GEAC 2.0 IBM 1.8 JBA 1.7 Others 59.0
  27. 32. TABLE 1.2 Business Functions Potentially Supported by ERP source :T.H . Davenport,” Putting the Enterprise into the Enterprise System. ” Harvard Business Review, July-August 1998 . Financial Human Resources Operations and Logistics Sales and Marketing Accounts receivable and payable Time accounting Inventory management Order management Asset accounting Payroll Materials Requirement Planning (MRP) Pricing Cash forecasting Personnel planning Plant maintenance Sales management Cost accounting Travel expenses Production planning Sales planning Executive information systems Project management Financial consolidation Purchasing General ledger Quality management Profitability analysis Shipping Standard costing Vendor evaluation
  28. 33. Modules Offered by Leading Vendors Functional Description SAP Oracle People Soft JD Eswards Records sales orders and scheduled deliveries ,customer information SD( Sales and Distribution) Marketing Sales Supply Chain Supply chain management Order management Purchasing and raw materials inventory, work- in-process. customer information MM (Materials Management Procurement Supplier Relationship Management Inventory Management Procurement Production Planning and scheduling actual production PP (production planning ) Manufacturing Manufacturing Management Product inspections ,material certifications ,quality control QM (quality Management) Enterprise Performance Management Technical Foundation Preventive maintenance, resource management PM (plant Maintenance) Service Enterprise Service Automation Recruiting, hiring training ,payroll ,benefits HR (Human Resources Human Resources Human Capital Management Workforce Management
  29. 34. Reasons for Implementing ERP-Rating 1(Not Important) to 5(very Important) Reason United States Sweden Replace legacy systems 4.06 4.11 Simplify and standardize systems 3.85 3.67 Improve interactions with suppliers & customers 3.55 3.16 Gain strategic advantage 3.46 3.18 Link to global activities 3.17 2.85 Pressure to keep up with competitors 2.99 2.48 Ease of upgrading systems 2.91 2.96 Restructure organization 2.58 2.70
  30. 35. Modules Offered by Leading Vendors Functional Description SAP Oracle People Soft JD Eswards Internal management, cost analysis by cost center CO (Controlling) Time and Expense Management Fixed-asset purchase and depreciation AM (Asset Management) Asset Management Enterprise Asset Management R&D ,construction, marketing projects PS (Asset Management) Projects Project Management Contracts Subcontract Management Real Estate Management Automate system, task – flow analysis, Prompt actions WF (Workflow) Best practices IS (Industry Solutions)
  31. 36. Relative ERP Module Use Module Midwestern ERP Users Swedish ERP Users Financial and Accounting 91.5% 87.3% Materials management 89.2 91.8 Production planning 88.5 90.5 Order entry 87.7 92.4 Purchasing 86.9 93.0 Financial control 81.5 82.3 Distribution/logistics 75.4 84.8 Asset management 57.7 63.3 Quality management 44.6 47.5 Personnel/human resources 44.6 57.6 Maintenance 40.8 44.3 R&D management 30.8 34.2
  32. 37. Advantages and Disadvantages of Alternative ERP Development Methods Method Advantages Disadvantages Develop in-house Best fit with organizational needs Most difficult to develop Most expensive Slowest In-house system With vendor supplements Gain commercial advantages Combined with organizational fit Difficult to develop Expensive slow Best-of-breed Customized vendor system Theoretically while keeping Retain flexibility while keeping Vendor expertise Difficult to link modules Slow Slower Usually more expensive Selected vendor modules Less risk Relatively fast Least expensive If expand, long run time and cost higher Full vendor system Fast Less expensive Efficient Inflexible Application device provider Least risk Least cost Fastest Least subject to vendor change At the mercy of ASP provider No control Subject to price increases
  33. 38. Expected ERP Project Installation Time Requirements Installation Time United States Sweden 12 months or less 34% 38% 13 to 24 months 45 49 25 to 36 months 11 8 35 to 48 months 6 4 Over 48 months 2 1
  34. 39. ERP Estimated Installation Project Cost Installation Cost United States Sweden Less than $5 million 42% 48% $ 5 million to $25 million 33 35 $ 26 million to $50 million 10 18 $ 51 million to $100 million 7 7 Over $100 million 7 (in prior category)
  35. 40. ERP Installation Project Cost Proportions Installation Cost Proportion Project Installation Cost Proportion in United States Cost Proportion in Sweden Software 30% 24% Consulting 24 30 Hardware 18 19 Implementation team 14 12 Training 11 14 Other 3 1
  36. 42. A supply chain is characterized by the flow of materials and information both within and between business entities including suppliers, manufacturers and customers. The ultimate goal of supply chain management is to meet customer’s demand more efficiently. For a manufacturing company, it is to make the right product, for the right customer, in the right amount, at the right time.
  37. 45. ERP System Options and Selection Methods <ul><li>Enterprise resource planning systems are very large IS/IT projects .The cost range is enormous, depending upon the size of the firm implementing the system ,as well as on how many modules are used. </li></ul>
  38. 49. ERP Implementation And Maintenance ERP Systems Are Adopted In The Hopes That They Will Improve The Performance Of An Organization On A Number Of Key Performance Indicators , Such As Profitability , Efficiency , And Accuracy In Information System Data And Reports . ERP Vendors Typically Promise Gains Of 10 To 15 Percent In Revenue , Customer Satisfaction , And Other Measures Of Value . The Effort Required To Build These Systems Is Significant . Meta Group found that the average ERP implementation takes 23 months with total Ownership cost of $15 million .
  39. 50. Business Intelligence Systems And ERP Enterprise Resource Planning Systems Offer Powerful Tools To Better Measure And Control Organizational Operations . Many Organizations Have Found That This Valuable Tool Can Be Enhanced To Provide Even Greater Value Though The Addition Of Powerful Business Intelligence Systems . Business Intelligence In This Context Is Supported By Sorting Data (Data Warehouse And Related Systems) And Conducting Studies Using This Data To Solve Business Problems ( One Means To Do This Though Data Mining ) . One Of The Most Popular Forms Of Data Mining In ERP Systems Is Support Of Customer Relationship Management (CRM). Data Warehouses Are One Of The Most Popular Extensions To ERP Systems , With Over Two-Thirds Of U.S. Manufacturers Adopting Or Planning Such Systems ( And Slightly Less Than Two – Thirds of Swedish Manufacturers doing the same ). There Has Been Tremendous Progress In Computer Storage Of Data . Many Applications Are Being Found For This new capacity . one major user of massive storage capacity is ERP systems, witch have large storage requirements due to their comprehensive nature .
  40. 51. Data Mining Overview Data Mining Overview Refers To The Analysis Of The Large Quantities Of Data Stored In Computers . For Example , Grocery Stores Have Large Amounts Of Data Generated By Purchases . Bar Coding Has Made Grocery Checkout Very Convenient . Grocery Stores And Other Retail Stores Are Able To Quickly Process Purchases , And Use Computers To Accurately Determine Product Prices . These Same Computers Help The Stores With Inventory Management By Instantaneously Determining The Quantity Of Items Of Each Product On Hand . Stores Can Also Apply Computer Technology To Contact Their Vendors So That They Do Not Run Out Of Items . Computers Allow The Store’s Accounting System To More Accurately Measure Costs And Determine The Profit That Store Stockholders Are Concerned About . All Of This Information Is Available Based Upon The Bar Coding Information Attached To Each Product . The Benefits Of Bar Coding Encompass For More Than Faster Checkout Service . The Entire Business Management Process Can Use The Information Generated .
  41. 52. ERP And Supply Chains Supply Chain Are Collections Of Organizations That Work Together To Provide Raw Materials That Are Converted Into Products And Delivered To Retail Outlets Where Customers Can Obtain Them . In The Past , Monopolies Would Sometimes Seek Vertical Integration So That They Could Control The Entire Supply Chain ( Standard Oil Went A Long Way Toward Total Vertical Integration ; Steel Companies Also Attained At Lest Something Approaching It ) . The Dutch East India Companies Are An Early Example Of A Global Supply Chain . Military Logistics Systems Are The Epitome Of Supply Chain Is Control And Efficiency . Today‘S Companies Gain Efficiency Through A Higher Degree Of Specialization . This Appears In Various Forms , Including Outsourcing . The Idea Behind Outsourcing Is That There Are Specialists Throughout The Supply Chain Who Can Do A Better Job Of The Specific Function They Perform .
  43. 54. <ul><li>The growing information needs of an enterprise make it imperative to improve or replace old systems. </li></ul><ul><li>Especially under the present business environment, where the globalization has been initiated, full convertibility is coined. </li></ul><ul><li>Infrastructure Projects are nearing completion, and it is expected that the whole business system will undergo a major shift. </li></ul>Conclusion <ul><li>Implementation of ERP solutions is one of the largest drivers of growth in the consultancy business. </li></ul><ul><li>The introduction of such a large and complex software like ERP, enables an organization to integrate their manufacturing, finance and marketing operations at all levels, is in itself a challenge, since it calls for technical and functional skills and a change in user mindsets. </li></ul>