Enterprise Resource Planning

Systems

DISC 333: SUPPLY CHAIN MANAGEMENT

Evolution of Enterprise Resource Planning Systems

1960s, 1970s – Material Requirements Planning

(MRP) Systems & Closed Loop MRP Systems

1980s – Manufacturing Resource Planning (MRPII)

Systems

1990s – Enterprise Resource Planning (ERP)

Systems
Material Requirements Planning (MRP) Systems

Materials Time-Phased Planned

BoM, MPS,
Order Releases of
On-Hand Requirements Dependent Demand
Inventories Planning Items

Early manufacturing information systems;

Links functions such as purchasing, production, inventory
control, and materials planning.

Improves purchasing, production and delivery performance.

No feedback of changes in production on financial results.

 Closed Loop MRP Systems

Further developed MRP into a formal manufacturing

planning and control system;

Added capacity planning and feedback to describe

the progress of orders
Manufacturing Resource Planning (MRPII) Systems

Capacity Plan Materials Plan

Resource Aggregate Demand

Requirement Production Management
Planning (RRP) Planning (APP)
Distribution
Requirements
Planning (DRP)
Rough Cut
Master Production
Capacity Planning
Schedule (MPS) Customer Orders
(RCCP)

Capacity Materials Bill of Material

Requirements Requirement +
Planning (CRP) Planning (MRP) Inventory Status

Production Purchase Activity

Plant Maintenance
Activity Control Control
 MRPII (continued) Systems

An outgrowth of closed-loop MRP;

Aimed at linking internal operations to the financial
function to provide management with up-to-date data on
sales, purchasing, production, inventory and cash flow.

Incorporated business and sales plans, financial and
marketing functions to link with other functions;

Allows ‘what-if’ analyses if internal or external
conditions change;

Lacks the capability to link with operations of foreign

branches of a organization;

Lacks the capability to directly interface with external
supply chain members i.e. suppliers and customers.
 Legacy MRP Systems

Broad label used to refer to the early information systems

that supported functional operations in an organization
especially production.

Over time, continuous modifications in these systems have

rendered them complex and cumbersome.

Were designed to meet specific needs of the function
without regard of other functions.

Communication and coordination was limited to activities
within the function.

Gathered data for transactional purposes without having
any analytical capability.
Enterprise Resource Planning (ERP) Systems

Operations

Sales &
Engineering
Marketing

Supplier
Central Customer
Relationship
Management
Database & Relationship
Management
Server
Human Finance &
Resources Accounting

Headqrts &
Branches
 ERP Systems (continued)

The development of supply chain management, e-

commerce, and global operations required exchange of
information directly with suppliers, customers and
foreign branches of organization;

Present ERP systems enable an organization to deal with

their suppliers as if they are an external process of the
organization;

Present ERP systems allow customers to access a firm’s

inventory information, and manufacturing & delivery
schedule directly;
 ERP vs Legacy MRP Systems

ERP Systems

Single, central & shared
database system

No inconsistency and
incompatibility of
information

Single software
infrastructure ties various
software applications

Legacy MRP Systems

Multiple databases and
interfaces

Duplicate and inconsistent
information

Multiple software
packages and databases
for different applications
 Implementing ERP (Software Selection)

Best-of-Breed Solutions
Single Integrator Solutions

PROs
PROs
 Picks best module for  Picks all the desired
individual functions from applications from single
different vendors and vendor for ERP system.
integrates them to work as  Single database is used to
a single coordinated integrate all applications.
system.

CONs
 Multiple databases may
have to be used to link  Applications may not be best
multiple applications. of the breed.

CONs
 Integration may be a
problem.
Implementing ERP (Off-the-Shelf or Customized)

Off-the-Shelf Software
Customized Software

PROs
PROs
 Bring best practices  Organization’s own
 Proven processes character is not lost;
 May improve system  Automates already
productivity working processes;
 Less training needed;
 Retains firm’s competitive
edge;
 Implementing ERP (Incremental vs Full Scale
Implementation)

Incremental
Full Scale

PROs
PROs
 Allows to understand  Faster implementation;
implementation process  Possible where processes
(employee behaviors, are already establishes;
applicability of  ???
applications etc);
 Lessons learned can be
applied on full-scale
implementation;
 Less risky
implementation;
 Possible where processes
are not established;
 ???
Factors for Successful ERP Implementation

Top Management Commitment;

Adequate Resources;

Proper Employee Training;

Communication;

Incompatible system environment.
 Advantages & Disadvantages of ERP

Advantages

Allows management to take better decisions because of
consistent & reliable data and real-time information;

Users can share information across organizations;

Allows to reduce inventories due to added visibility throughout

the entire supply chain;

Enables supply, manufacturing and logistics processes to flow
smoothly;

Reduction of bull-whip effect;

Better supply chain plans;

Allows to standardize manufacturing processes;

Advantages & Disadvantages of ERP (contd)

Advantages

Allows to track employee time and performance;

Companies can keep track of materials, orders, financial

status;

Disadvantages

Requires substantial capital investment;

Considerable time is needed to implement this;

Firms must be ready to bear the loss of low production during

implementation;

Employee training is a time consuming process;

Employee turnover may increase.