1A. Enterprise Resource Planning (ERP) : Homework Problems: 1,3,4,5,6,9,10
1A. Enterprise Resource Planning (ERP) : Homework Problems: 1,3,4,5,6,9,10
1A. Enterprise Resource Planning (ERP) : Homework Problems: 1,3,4,5,6,9,10
Reading:
Chen, I.J., “Planning for ERP Systems: Analysis and Future Trend," Business
Process Management Journal, Vol. 7, No. 5, 2001, pp. 374-386.
JD Edwards
1. Introduction
2. ERP Evolution
3. The Planning Issues
4. Future Trend and Challenges
5. Conclusion
3
1. Introduction
ERP represents a comprehensive information
technology approach that brings all of an organization’s
information, including all data related to sales and
order management, manufacturing operations,
financial systems, human resources, and marketing
and distributions into a central repository. See Figure 2.
4
ERP Attributes
Essential attributes of ERP systems include:
(1) multifunctional in scope,
(2) integrated in that when a transaction or piece of
data representing an activity of the business is
entered by one of the functions, data regarding the
other related functions are changed as well,
(3) the software is modular in structure and all
modules of the system use a common database
that is updated in real time, and
(4) the software facilitates manufacturing planning
and control (MPC) activities including forecasting,
sales and operations planning, inventory
management, etc.
5
Benefits and Markets
ERP markets: $15 billion in 1997; $20 billion in
2001; $29 billion in 2006; $44 billion in 2010.
Potential benefits:
Drastic decline in inventory ($146 billion/year).
Breakthrough reduction in working capital.
Abundant information about customer wants and
needs.
Ability to view and manage extended enterprise.
Reduced capacity-related costs ($240 billion/year).
6
Implementation Success/Failure
ERP success/failure:
40% achieved partial implementation
60-90% do not achieve return on investment
20% total failure/abandoned
50+% failure rate
90% late or over-budget
7
2. ERP Evolution
Pre-MRP: techniques designed for independent-
demand items were used to handle subassembly and
components (dependent demand) which resulted in
excessive inventory and/or stock-out.
MRP (Orlicky, 1975)
Limitation: unlimited capacity assumption
Resolution: MRP + CRP = closed-loop MRP
Variation: DRP (when similar principles applied to
distribution and warehouse operations)
8
9
Market
demand
Figure 1
Marketing Production
Finance
Production
Resource Plan (SOP)
Planning
Rough-cut Master
Capacity Production
Planning Schedule
Capacity Materials
Requirements Requirements
Planning Plan (MRP)
Shop-floor Vendor
Systems Systems
2. ERP Evolution (Continued)
10
Figure 2
Financials
Receivable and payable
Cash management
General ledger
Product-cost accounting
Profitability analysis
Executive information
system
Human Resources
Payroll
Personal planning
H/R time accounting
Travel expenses
Training
11
2. ERP Evolution (Continued)
12
3. ERP Planning Issues
Assessing needs & choosing a “right”
ERP system
Matching business process with ERP
Organizational requirements
Economic/strategic justification
13
Planning--Needs Assessment
Needs include specific ERP modules,
subsystems, hardware, personnel, etc.
Convincing reasons:
Use of multiple points of input with duplicated effort
Extensive resources for maintenance and support
Incompatibility of several information systems
Legacy incapable to support organizational needs
Unable to respond easily to questions and
information requested by key customers/suppliers.
Consideration to reengineer its business process
14
Planning--Choosing the right ERP
Top management must first examine firm’s
current competitive position in relation to its
desired position in competitive priority, market
segments, customer requirements,
characteristics of manufacturing process,
supply chain strategy, etc.
Define “should-be-state” and envision life after
to allow for the identifications of all benefits,
which become the yardstick of performance
15
Matching Business Process with ERP
16
Organizational Requirements
17
Supply Chain Performance Metrics
The Supply Chain Operations Reference model
(SCOR) is a process reference model that has been
developed and endorsed by the Supply-Chain
Council as the cross-industry standard diagnostic tool
for supply-chain management. SCOR enables users
to address, improve, and communicate supply-chain
management practices within and between all
interested parties.
The SCOR metrics include performance measures
such as on-time delivery, order fill rate, order lead
time, days of supply, quality/warranty cost, cash-to-
cash cycle time, etc. (see Figure 1A.3)
18
Supply Chain Metrics
Measure Description Best-in- Average
Class
Delivery Percentage of orders shipped according to schedule 93% 69%
performance
Fill rate by line Percentage of actual line items filled 97% 88%
item
Source: Supply Chain Council
ERP database
Accounts payable
Purchasing
Inventory
Cash-to-cash cycle
Manufacturing time
Cost of sales
Sales
Sales and distribution
Accounts receivable
Calculating Cash-to-Cash Time
S
Average daily sales (Sd) Sd
d
AR
Accounts receivable days (ARd) ARd
d
I
Average days of inventory (Id) Id
Cd
AP
Accounts payable cycle time (APd) APd
Cd
I 400,000
Inventory value = $400,000 Id 19.6 days
Cd 20,400
Cash to cash cycle time ARd I d APd 5.88 19.6 7.84 17.64 days
Economic/Strategic Justification
24
4. Future Trend and Challenges
Advanced Planning and Scheduling (APS) in SCM
Employ advanced math model and algorithms to
develop optimal or nearly optimal plans.
Draw upon the massive transactional data from an ERP
(e.g., Wal-Mart’s store-by-store sales data are available
to suppliers/vendors by 4 a.m. the following day)
Benefits:
Improved fill rate and on-time delivery (30%)
Reduced order cycle time (50%)
Reduced inventory (50%)
Payback in one year and as much as 300%
25
4. Future Trend and Challenges
Customer Relationship Management (CRM) in SCM
Keeping a customer is more profitable than acquiring a new
one
Those improve customer loyalty are 60% more profitable
CRM (one-to-one marketing) is a customer-centric business
model that utilizes data mining capabilities of ERP to
uncover customer profiles, profitability, purchasing patterns.
(e.g. Amazon.com)
Customer-centric approach: finding products to fit customer
needs, instead of findings customers to fit the products.
Estimated market of $9 billion in 2008.
26
Figure. 3
Supply Customer
Chain Relationship
Management Management
SCM CRM
Enterprise Customers
Suppliers (ERP)
27
4. Future Trend and Challenges
28
Additional Company Experience with ERP
29