Supply Chains
Chapter 5
5.1 Introduction
ERP software doesn’t live up to its name. It has nothing to do with planning and forget about resource, a throwaway term. But remember the enterprise part as ERP’s true ambition. It attempts to integrate all computer systems and departments across a company into a single computer system that can serve all those different departments’ particular needs [ERPR].
5.2 Defining ERP
Enterprise Resource Planning (ERP) is an industry term for integrated, multi-module application software packages that are designed to serve and support multiple business functions. An ERP system can include software for manufacturing, ordering, accounts, general ledger, warehousing, transportation and human resources.
ERP generally implies the use of packaged software rather than proprietary software written for one customer. With a bit of effort, ERP software may be able to interface with the organisations’ existing software. The modules may be alterable with the vendor’s proprietary tools as well as proprietary or standard programming languages.
5.3 History of ERP
ERP is the outcome of 40 years of experimentation and trial and error [AKHI]. The focus of manufacturing systems in the 1960’s was on inventory control. Heavily customised software was designed to handle inventory based on traditional inventory concepts [ERPO]. The 1970’s saw the evolution of Material Requirements Planning (MRP) as a proactive manner of inventory management [AKHI]. By examining the Master Production Schedule for product structure and quantity, the MRP system determined procurement schedules for sub-assemblies, components and raw materials.
MRP successfully demonstrated its effectiveness in:
• Reduction of inventory
• Reduction in delays, leading to faster production and lead times
• Making commitments more realistic
• Increased efficiency
MRP proved to be highly effective at inventory management, but did not take other organisational resources into account [AKHI]. Also the magnitude of data involved in a realistic implementation makes for long and complex calculations. These factors together with the rise of IT led to the development of MRP II otherwise known as Manufacturing Resources Planning.
The APICS dictionary [APIC] defines MRP II as:
A method for effective planning of all the resources of a manufacturing company. Ideally it addresses operational planning in units, financial planning in dollars and has a simulation capability to answer ‘what if’ questions. It is made up of a variety of functions linked together: Business Planning, Production Planning, Master Production Scheduling, Material Requirements Planning, Capacity Requirements Planning and the execution system for capacity and priority. Outputs from these systems would be integrated with financial reports, such as the business plan, the purchase commitment report, shipping, budget, inventory production, etc.
In the early 1990’s, MRP II was expanded to cover areas like human resources, finance and project management. However MRP II was not without shortcomings and the introduction of other automated processes, like Computer Aided Design (CAD) led to the development of a total integrated solution called Enterprise-wide Resource Planning (ERP) [ERPO].
5.4 ERP Software Systems
ERP works on the premise that the whole is greater than the sum of its parts [AKHI]. A typical information system does little besides store data and present it in the required form when requested to do so by the user. A company may have many different information systems with no link between them. ERP systems attempt to perform the functions of each of the separate systems
Existing ERP systems such as SAP R/3, BAAN, Peoplesoft and Oracle automate manufacturing processes, organise accountant’s books and streamline corporate departments like human resources [AALS]. This is quite a tall order. Each department typically has its own computer system, optimised to meet that department’s specific needs. ERP combines them into a single integrated software program that works of a single database so that the various departments can more easily share information and communicate with each other [ERPR].
Often companies purchase an ERP package off the shelf and attempt to implement the philosophies on their own. This is fraught with difficulties, not least of which is the inability of a company to step outside itself and take a completely impartial look at what works and where problems lie. Although more expensive, various cases show that use of a consulting firm and customised software results in far greater gains [WILL].
5.5 The Future of ERP
Given the potential advantages of using ERP systems, it is expected that every major manufacturer will eventually make use of this technology. Major vendors are also expected to give more attention to electronic commerce and SCM applications [ERPO]. It is believed that some vendors are spending as
Although not yet in widespread use, ERP II has been put forward. The major change is that ERP II provides for inter-business collaboration [ERPO] effectively enabling ERP II systems to handle SCM functions.
5.6 Conclusion
The rapid improvement of information technology and continuously improving business management techniques have brought ERP to the forefront as a strategic resource. The integrated approach offered by ERP systems can have a tremendous payback if companies make proper use of it. A marked reduction in lost orders, errors and delays can be expected and with proper interfacing with SCM operations those benefits will become even more pronounced due to similar improvements up and down the SC.