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3Chapter 9: Enterprise Resource
Planning
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.
4Chapter 9: Enterprise Resource
Planning
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.
5Chapter 9: Enterprise Resource
Planning
Elf Aquitaine continued
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.
6Chapter 9: Enterprise Resource
Planning
Elf Aquitaine continued
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.
7Chapter 9: Enterprise Resource
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.
8Chapter 9: Enterprise Resource
Planning
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.
10Chapter 9: Enterprise Resource
Planning
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
12Chapter 9: Enterprise Resource
Planning
Relationship Between Finished Item Inventory and Raw
Material/Subassembly Item Inventory (ROP)
13Chapter 9: Enterprise Resource
Planning
Relationship Between Finished Item Inventory and Raw
Material/Subassembly Item Inventory (MRP)
14Chapter 9: Enterprise Resource
Planning
The Boardsports Company
Component Lead Time
Sidewalk Special 1 week
Fiberglass board 3 weeks
W heel assembly 1 week
W heel mount stand 4 weeks
W heel 1 week
Locknut 1 week
Spindle 2 weeks
16Chapter 9: Enterprise Resource
Planning
Material Requirements of Sidewalk
Special
Fiberglass boards: 1number 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
17Chapter 9: Enterprise Resource
Planning
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
18Chapter 9: Enterprise Resource
Planning
Delivery 50 Sidewalk Specials in Week 10
1 2 3 4 5 6 7 8 9 10
Sidewalk Specials 50
Date needed 50
Boards Order date 50
Date needed 100
Wheel assembly Order date 100
Date needed 200
Wheels Order date 200
Date needed 100
Spindles Order date 100
Date needed 100
Mounting stands Order date 100
Date needed 200
Locknuts Order date 200
Week
3 week lead time
21Chapter 9: Enterprise Resource
Planning
Primary Inputs to MRP System
Master Production Schedule
Bill of Materials File
Inventory Master File
23Chapter 9: Enterprise Resource
Planning
Master Production Schedule
Based on actual customer orders and
predicted demand
Indicates when each ordered item will be
produced
24Chapter 9: Enterprise Resource
Planning
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
25Chapter 9: Enterprise Resource
Planning
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
27Chapter 9: Enterprise Resource
Planning
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
28Chapter 9: Enterprise Resource
Planning
Low-Level Coding
Original product tree
structureLow-level-coded product tree
structure
29Chapter 9: Enterprise Resource
Planning
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
30Chapter 9: Enterprise Resource
Planning
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
31Chapter 9: Enterprise Resource
Planning
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
32Chapter 9: Enterprise Resource
Planning
MRP Computations continued
Zero-LevelWeek 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 50 150 50 100 100
On hand 400 400 400 350 350 350 200 200 200 150 50 50 50
Net requirements -- -- -- -- -- -- -- -- -- -- -- 50
Planned order receipts 50
Planned order releases 50
Lead time = 3 weeks
Level 1Week 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 50 200
On hand 50 50 50 100 100 100 100 100 100 100 50 100
Net requirements 150
Planned order receipts 50
Planned order releases 250
Lead time = 4 weeks
34Chapter 9: Enterprise Resource
Planning
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
35Chapter 9: Enterprise Resource
Planning
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
37Chapter 9: Enterprise Resource
Planning
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.
38Chapter 9: Enterprise Resource
Planning
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%
39Chapter 9: Enterprise Resource
Planning
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.
40Chapter 9: Enterprise Resource
Planning
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.
41Chapter 9: Enterprise Resource
Planning
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.
42Chapter 9: Enterprise Resource
Planning
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