14.

Chapter 14
Enterprise resource planning
(ERP)
Pearson Education Ltd. Devon Obugenga Shaw

14.1

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.2

Enterprise resource planning (ERP)

Operations
strategy

Design
Enterprise resource
planning (ERP)

Improvement
Planning and
control

The market requires

specified time, quantity
and quality of products
and services
The operation supplies
the informational ability to
deliver products and
services

14.2

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.3

Key operations questions

In Chapter 14 Enterprise resource planning
(ERP) Slack et al. identify the following key
questions:
What is ERP?
How did ERP develop?
How should ERP systems be implemented?

14.3

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

The development of ERP

Increasing impact on the whole supply
network

14.4

Web-integrated enterprise resource

planning (collaborative commerce,
c-commerce)
Enterprise resource
planning (ERP)
Manufacturing resource
planning (MRPII)
Material
requirements
planning (MRP)
Increasing integration of information systems

14.4

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.5

The process of MRP1

Explode the master production schedule.
Identify what parts and assemblies are required.
Check whether the required parts and assemblies are available.
For every part or assembly that is required, but not available, identify
when work needs to be started for it to be made available by its due
date.
Generate the appropriate works and purchase orders.
Repeat the process for the next level of the bill of materials.

14.5

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.6

Component structure for a product

Product
Part A (2)
LT=1
Part E (2)
LT= 2
Part I (2)
LT= 2

14.6

Part B (2)
LT= 2
Part F (1)
LT= 2
Part J (1)
LT=1

Part C (1)
LT=1

Part D (1)
LT=1

Part G (1)
LT=2

Part H (4)
LT=1

(X) = quantity

Part

On hand
inventory

A
B
C
D
E
F
G
H
I
J

0
30
60
0
100
20
0
50
100
60

Order
quantities

600
600
500
600
600
500
500
500
600
600

LT = lead time

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.7

Product structure for a simple board game

Board
game
00289

Level 0
Level 1

Box lid
10077
Level 2

Box
base
20427

14.7

Box base
assembly
10089

Inner
tray
23988

Quest
cards
10023

Character
set
10045

Dice
10045

TV label
10062

Game
board
10033

Rules
10056

TV label
10062

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.8

Product structures

A-shape
product
structure

14.8

T-shape
product
structure

V-shape
product
structure

X-shape
product
structure

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.9

Materials requirements planning (MRP) schematic

Customer
orders

Master
production
schedule

Forecast
demand

Bill of materials

Material
requirements
planning

Inventory
records

Materials plans

Works orders

Purchase
orders

14.9

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.10

Master production schedule (MPS)

Known
orders

Forecast
demand
Sister plant
demand
R&D
demand

Master
production
schedule

Promotion
requirements
etc.

14.10

Key
capacity
constraints
Inventory
levels
Spares
demand
Safety stock
requirements

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.11

Example of a master production schedule

Week number
1

Demand

10

10

10

10

15

15

15

20

20

Available

20

10

10

10

15

15

15

20

20

MPS
On hand

14.11

30

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.12

Example of a level master production schedule

Week number
1

Demand

10

10

10

10

15

15

15

20

20

Available

31

32

33

34

30

26

22

13

MPS

11

11

11

11

11

11

11

11

11

On hand

14.12

30

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.13

Example of a level master production schedule including

available to promise

Week number
1

Demand

10

10

10

10

15

15

15

20

20

Sales
orders
Available

10

10

10

31

32

33

34

30

26

22

13

ATP

31

11

11

11

11

MPS

11

11

11

11

11

11

11

11

11

On hand

14.13

30

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.14

The MRP netting calculations for the simple board game

Master production schedule
10 Board games (00289) required

Level 0

Works order for level 0 parts

Assemble 20 Board games (00289)

Bill of materials
Require 20 box base
assemblies (10089)
Level 1

Bill of materials
Require 50 box bases (20467),
50 inner trays (23988) and 50
TV labels (10062)
Level 2

14.14

Works and purchase

orders for level 1 parts
Assemble 50 box base
assemblies (10089)

Works and purchase orders

for level 2 parts
Purchase 40 box bases
(20467) and 60 inner trays
(23988)

Inventory file
3 Board games (00289) in
stock

Inventory file
10 box base assemblies
(10089) in stock

Inventory file
15 box bases, 4 inner
trays and 65 TV labels in
stock
= re-order quantity

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.15

Closed-loop MRP
Materials plans

We wish to make
300 units per
month

Production
plan

We wish to make
7 units for day 35

Master
production
schedule

Therefore we will
need to make 5
box assemblies
for week 35

Materials
plan

14.15

Capacity plans
realistic?

Resource
requirement
plan

realistic?

Rough-cut
capacity
plan

Can we make 7
units for day 35?

realistic?

Capacity
requirements
plan

Can we make 5
box assemblies
for week 35?

Can we make
300 units per
month?

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.16

The concept of MRP II

Marketing

Finance

Central
database
Design

14.16

Operations

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.17

The benefits of ERP

Because software communicates across all functions,

there is absolute visibility of what is happening in all parts of

the
business.

The discipline of forcing business-process-based

changes is an effective mechanism for making all parts of

the business more efficient.

There is a better sense of control of operations that will

form the basis for continuous improvement.

It enables far more sophisticated communication with

customers, suppliers and other business partners.

It is capable of integrating whole supply chains including

suppliers suppliers and customers customers.

14.17

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010

14.18

ERP integrates several systems

Senior management and stakeholders

Integrated
database

Operations
applications

Purchasing and
supply
applications

Sales and
marketing
applications

Delivery and
logistics
applications

Customers
Customers

Back-office staff

Suppliers

Financial
applications

Front-office staff

Strategic
reporting
applications

Service
applications
HRM applications

Employees

14.18

Employees

Slack, Chambers and Johnston, Operations Management, 6th Edition,

Nigel Slack, Stuart Chambers, and Robert Johnston 2010