ERP

National Institute Of fashion technology, hyderabad

ERPASSIGNMENT NO. 1

SUBMITTED TO : MR TVSN MURTHY

SUBMITTED BY :

RAJIV RANJAN (21) DFT: 6TH SEM

QUESTIONS

How did ERP evolve?? MRP I Nature Of Functioning Application MRP II Key elements, Transition Form MRP To ERP Advantages And Disadvantages Of ERP? What are the next generation enterprise resource planning strategies and applications?

ENTERPRISE RESOURCE PLANNING (ERP):An enterprise is defined as an organization of people, using technology to make products according to certain predefined processes. This means the people, technology, products and processes are productive resources of the manufacturing enterprise. The following figure depicts an enterprise resource model.

Figure 1: The enterprise model Figure 1: The enterprise model

The basic logic in which these resources are seamlessly integrated is based on; together how these resources support the strategic view (business plan) of the enterprise. Often, the Enterprise Resource Planning is a natural extension or evolution of MRP or MRP II sub systems. Not necessarily all current ERP systems could have taken the same developmental path, but this is true in majority of the cases.

In easier words, ERP is a planning philosophy enabled with software that attempts to integrate all the business processes of different departments and functions across the company onto a single computer system that can serve particular needs of the different departments.

(1)EVOLUTION OF ERP:ERP is an outcome of 40 years of trial and error. It has evolved as a strategic tool because of continuous improvement in the available techniques to manage business and the fast growth of information technology. The Figure 1 shows the various phases of the development in relation to time, development in resource planning systems and the evolution of the concept of the ERP.

Figure 2: ERP- Historical overview Figure 2: ERP- Historical overview

MATERIAL REQUIREMENT PLANNING (MRP I):In 1970s, a new technique of Material Requirement Planning was evolved. This was a proactive manner of inventory management. This technique fundamentally explodes the end product demand obtained from the Master Production Schedule (MPS) for a specified product structure into a detailed schedule of purchase orders or production orders, taking into account the inventory in hand. MRP is a simple logic but the magnitude of data involved in a realistic situation makes it computationally cumbersome. If undertaken manually, the entire process is highly consuming. It therefore becomes essential to use computer to carry out the exercise.In other words it can be said that MRP is a productionplanning, scheduling, and inventory control system used to manage manufacturing processes. MostMRPsystems are software-based, while it is possible to conductMRPby hand as well. (2)Nature of functioning:

Based on a master production schedule, a material requirements planning system

Creates schedules identifying the specific parts and materials required to produce end items. Determines exact unit numbers needed. Determines the dates when orders for those materials should be released, based on lead times.

FIRM ORDERS FROM KNOWN CUSTOMERS

FORECAST OF DEMAND FROM ESTIMATESAGGREGATE PRODUCT PLAN

INVENTORY TRANSACTIONSENGINEER DESIGN CHANGESMASTER PRODUCTION SCHEDULE (MPS) ((

INVENTORY RECORD FILE

MATERIALS REQUIREMENTS PLANNING (MRP)Figure 3: Nature of Functioning of MRP-1REPORTSBILL OF MATERIAL FILE

(3) Using information culled from the bill of materials, master schedule, and inventory records file, an MRP system determines the net requirements for raw materials, component parts, and subassemblies for each period on the planning horizon. MRP processing first determines gross material requirements, then subtracts out the inventory on hand and adds back in the safety stock in order to compute the net requirements. The main outputs from MRP include three primary reports and three secondary reports. The primary reports consist of: planned order schedules, which outline the quantity and timing of future material orders; order releases, which authorize orders to be made; and changes to planned orders, which might include cancellations or revisions of the quantity or time frame. The secondary reports generated by MRP include: performance control reports, which are used to track problems like missed delivery dates and stock outs in order to evaluate system performance; planning reports, which can be used in forecasting future inventory requirements; and exception reports, which call managers' attention to major problems like late orders or excessive scrap rates.

Although working backward from the production plan for a finished product to determine the requirements for components may seem like a simple process, it can actually be extremely complicated, especially when some raw materials or parts are used in a number of different products. Frequent changes in product design, order quantities, or production schedule also complicate matters. The importance of computer power is evident when one considers the number of materials schedules that must be tracked.

(4)Applications of MRP-1: MRP systems have various applications in the manufacturing firms. Some of the main applications include helping production managers to minimize inventory levels and the associated carrying costs, track material requirements, determine the most economical lot sizes for orders, compute quantities needed as safety stock, allocate production time among various products, and plan for future capacity needs. MRP begins by compiling a Bill of Materials (BOM) for each end product or component of interest. This is a listing of the components and quantities that are needed to manufacture the end product or component. Process Scheduleselement. This is a scrollable list, containing a "sew" entry and a "finish" entry for every factory location. Clicking on any entry produces a Gantt chart of all the sewing or finishing (broken down by order) that is scheduled to be done at the chosen factory.

Capacity Utilizationelement. This scrollable list contains the same roster of factory locations and sew/finish described above. Clicking on any combination produces a graph of Capacity and Utilized Capacity versus Time. Capacity is depicted by a black line, while Utilized Capacity is filled with color. (5)

Material Requirementselement lists every component used in any of the five garments and their respective packaging. Selecting any component generates a graph of the amount of that item required by the manufacturing processes over the planning horizon

Inventoryelement contains one entry for each of the five clothing items. Selecting an item produces a graph of its inventory level versus time, over the life of the production schedule.

(6)

The information generated by MRP systems is useful in other areas as well. There is a large range of people in a manufacturing company that may find the use of information provided by an MRP system very helpful. Production planners are obvious users of MRP, as are production managers, who must balance workloads across departments and make decisions about scheduling work. Plant foremen, responsible for issuing work orders and maintaining production schedules, also rely heavily on MRP output.

Other users include customer service representatives, who need to be able to provide projected delivery dates, purchasing managers, and inventory managers.

MANUFACTURING RESOURCE PLANNING:

In 1980s, the need was felt to integrate the financial resources with the manufacturing activities. From this evolved an integrated manufacturing management system called Manufacturing Resource Planning (MRP II). MRP II was thus included in MRP along with necessary financial information.

In fact the APICS (American Production and Inventory Control Society) states that manufacturing resource planning(MRP II) is defined as a method for the effectiveplanningof allresourcesof amanufacturingcompany. Ideally, it addresses operationalplanningin units, financialplanning, and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP.

(7)

Figure 4: Structure of MRP II

Key elements of MRP II:

MRP II is not a proprietary software system and can thus take many forms. It is almost impossible to visualize an MRP II system that does not use a computer, but an MRP II system can be based on either purchasedlicensed or in-house software.

(8) Almost every MRP II system is modular in construction. The key elements inAn MRP II system is: Master production schedule (MPS) Item master data (technical data) Bill of materials (BOM) (technical data) Production resources data (manufacturing technical data) Inventories and orders (inventory control) Purchasing management Material requirements planning (MRP) Shop floor control (SFC) Capacity planning or capacity requirements planning (CRP) Standard costing (cost control) Cost reporting / management (cost control) together with auxiliary systems such as: Business planning Lot traceability Contract management Tool management Engineering change control Configuration management Shop floor data collection Sales analysis and forecasting Finite capacity scheduling (FCS) and related systems such as: General ledger Accounts payable (purchase ledger) Accounts receivable (sales ledger) Sales order management Distribution requirements planning (DRP) Automated warehouse management Project management Technical records Estimating Computer-aided design/computer-aided manufacturing (CAD/CAM) CAPP

(9) Transition from MRP to ERP:

The transition from MRP II to ERP happened during 1980 to 1990. The basic MRP II system design was suffering from a few inherent drawbacks such as limited focus to manufacturing activities, assumption of the mass or repetitive production set ups and poor budgetary and costing controls.

Over the years, new business philosophies evolved such as customer oriented manufacturing (lean production systems); activities based costing, third party logistics, warehousing, quality systems like ISO-9000, zero inspection, supplier partnership etc.

The shortcomings of MRP II and the need to integrate new techniques, led to the development of the total integrated solution called ERP, which attempts to integrate the transactions of suppliers and customers with the manufacturing and service environment of the organization to produce the best possible plan. Today we see further development in the ERP concept and evolution of E-ERP (extended ERP), which is in turn evolving into SCM (Supply Chain Management) solutions like APS (Advanced Planning and Scheduling).

It is generally a misleading perception that implementing an ERP system will improve organizations functionalities overnight. The high expectationof achieving all-round cost savings and service improvements is very muchdependent on how good the chosen ERP system fits to the organizationalfunctionalities and how well the tailoring and configuration process of thesystem matched with the business culture, strategy and structure of theorganization. Overall an ERP system is expected to improve both backboneand front-end functions simultaneously. Organizations choose and deployERP systems for many tangible and intangible benefits and strategic reasons.

(10)

Figure 5: ERP system ERP (Enterprise Resource Planning) systems typically include the following characteristics: An integrated system that operates in (or near) real time without relying on periodic updates A common database that supports all applications A consistent look and feel across modules Installation of the system with elaborate application/data integration by the Information Technology (IT) department provided the implementation is not done in small steps.An ERP system covers the following common functional areas. In many ERP systems these are called and grouped together asERP modules: Financial accounting:General ledger,fixed asset,payablesincluding vouchering, matching and payment,receivablescash application and collections,cash management,financial consolidation. (11) Management accounting:Budgeting, costing,cost management,activity based costing. Humanresource:Recruiting,training,rostering,payroll,benefits,401K,diversity management,retirement,separation. Manufacturing:Engineering,bill of materials, work orders, scheduling, capacity,workflow management,quality control, manufacturing process, manufacturing projects, manufacturing flow,product life cycle management. Order Processing:Order to cash, order entry, credit checking, pricing, available to promise, inventory, shipping, sales analysis and reporting, sales commissioning. Supply chain management: Supply chain planning, supplier scheduling,product configurator,order to cash,purchasing,inventory, claim processing, warehousing (receiving, putaway, picking and packing). Project management: Project planning, resource planning, project costing, work breakdown structure,billing, time and expense, performance units, activity management Customer relationship management: Sales and marketing, commissions, service, customer contact,call centersupport - CRM systems are not always considered part of ERP systems but rather Business Support systems (BSS). Data services: Various "selfservice" interfaces for customers, suppliers and/or employees

Most ERP systems incorporatebest practices. This means the software reflects the vendor's interpretation of the most effective way to perform each business process. Systems vary in how conveniently the customer can modify these practices. Companies that implemented industry best practices reduced timeconsuming project tasks such as configuration, documentation, testing, and training. In addition, best practices reduced risk by 71% compared to other software implementations.They can also help comply with de facto industry standards, such aselectronic funds transfer. This is because the procedure can be readily codified within the ERP software, and replicated with confidence across multiple businesses who share that business requirement.

(12)

Figure 6: MRP to ERP in nutshell

(13)

ADVANTAGES ASND DISADVANTAGES OF ERP:

Advantages:The fundamental advantage of ERP is that integrated myriad businesses processes saves time and expense. Management can make decisions faster and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include: Sales forecasting; which allowsinventory optimization. Chronological history of every transaction through relevant data compilation in every area of operation. Order tracking, from acceptance through fulfillment Revenue tracking, frominvoicethrough cash receipt Matchingpurchase orders(what was ordered), inventory receipts (what arrived), andcosting(what the vendor invoiced)ERP systems centralize business data, which: Eliminates the need to synchronize changes between multiple systemsconsolidation of finance, marketing, sales, human resource, and manufacturing applications Brings legitimacy and transparency to each bit of statistical data Facilitates standardproduct naming/coding Provides a comprehensive enterprise view (no "islands of information"), making realtime information available to management anywhere, any time to make proper decisions Protects sensitive data by consolidating multiple security systems into a single structure. Other benefits include: ERP can improve quality and efficiency of the business. By keeping a company's internal business processes running smoothly, ERP can lead to better outputs that may benefit the company, such as in customer service and manufacturing. ERP creates a more agile company that adapts better to change. ERP makes a company more flexible and less rigidly structured so organization components operate more cohesively, enhancing the business-internally and externally. (14) ERP can improve data security. A common control system, such as the kind offered by ERP systems, allows organizations the ability to more easily ensure key company data is not compromised. ERP provides increased opportunities forcollaboration. Data takes many forms in the modern enterprise. Documents, files, forms, audio and video, emails. Often, each data medium has its own mechanism for allowing collaboration. ERP provides a collaborative platform that lets employees spend more time collaborating on content rather than mastering the learning curve of communicating in various formats across distributed systems.

Disadvantages: Customization can be problematic. Compared to the best-of-breed approach, ERP can be seen as meeting an organizations lowest common denominator needs, forcing the organization to find workarounds to meet unique demands. Re-engineering business processes to fit the ERP system may damage competitiveness or divert focus from other critical activities. ERP can cost more than less integrated or less comprehensive solutions. High ERP switching costs can increase the ERP vendor's negotiating power, which can increase support, maintenance, and upgrade expenses. Overcoming resistance to sharing sensitive information between departments can divert management attention. Integration of truly independent businesses can create unnecessary dependencies. Extensive training requirements take resources from daily operations. Due to ERP's architecture (OLTP, On-Line Transaction Processing) ERP systems are not well suited forproduction planningand supply chain management (SCM). Harmonization of ERP systems can be a mammoth task (especially for big companies) and requires a lot of time, planning, and money.

(15)NEXT GENERATION ERP STRATEGIES AND APPLICATIONS:

Enterprise Resource Planning (ERP) technology has long been a staple for manufacturing organizations that wish to streamline operations and hasten inventory and warehouse management while improving customer service.However, withthe advent of new technologies, ERP implementations are about to get dramatically better. These new technologies including cloud computing, mobile solutions and real-time business intelligence/analytics along with new advances in warehouse automation -- will empower manufacturing organizations like never before.

In fact, these new ERP innovations will allow manufacturers to completely jump-start their operations. For example, in the very near future, manufacturers will rely on mobile networked devices and on-demand software to increasingly enable the seamless integration, tracking and optimization of key tasks from inventory, shop floor and management all the way to capacity and materials planning and product quality control.

Manufacturers focused on growing their businesses must consider implementing these ERP advances in particular:

Mobile: Mobile is emerging as a critical technology for manufacturers that wish to empower their remote workers while improving customer service and satisfaction. One leading manufacturer of insulated industrial outerwear relies on VAIs S2K Sales Force application so that the outside sales staff can use smart phones and tablets to directly view sales patterns, notes, previous sales, inventory levels and past appointments prior to visiting clients. They can also enter more notes or place orders in real-time which are all immediately visible to the back office. This resulted in a major productivity boost for the manufacturer.

Business Intelligence and Analytics: Most manufacturers are not leveraging their own internal data to their best competitive advantage. In fact, these organizations often have valuable data scattered throughout their enterprises without a proven mechanism to find, track and recover exact components of data in real-time necessary for making more intelligent decisions on-the-fly as well as keeping abreast of competitors, sales forecasts, inventory changes and market trends. Next-generation ERP technology will get a boost from new advances in analytics and business intelligence solutions that will give manufacturers the ability to rapidly uncover the right data sets while providing intelligence on how to act on that data based on the situation at hand. Warehouse Automation: New advances in ERP will give manufacturers the ability to analyze large data sets to more effectively drive innovation, productivity and efficiencies. According to a recent study by the McKinsey Global Institute, a major retailer leveraged the power of Big Data to improve operating margins by more than 60%. And, McKinsey believes that the manufacturing industry can benefit in a similar fashion by leveraging data-driven strategies to innovate, compete and capture value from both deep and up-to-the-minute real-time information.

There are new technologies that can dramatically improve operations and inventory management for manufacturers of all sizes. These advances will transform the role of inventory management from a record keeping tactic to a more strategic business asset by driving major improvements in overall productivity while eliminating costly mistakes in the warehouse.

On the shop floor and in the warehouse, many manufacturers are already using RF scanning to improve performance and overall productivity. By implementing RF scanning alone, manufacturers can automate the entire warehouse and shop floor, improving performance across all key areas including: receiving; directed put away product movement; picking; packing order verification; returns refused shipment; raw materials issue production; bin replenishment; warehouse transfers; file set-up; and, cycle counting.

For optimal warehouse automation, there are traditional approaches that companies can utilize most notably fixed stations and check out stations for validation. And, as an alternative to RF scanning, some manufacturers are also using new voice-enabled, label-based and paper-based approaches that have proven to be effective.

With so much innovation across core ERP functions critical to manufacturers, now is the right time for organizations to explore how these advances can further modernize and streamline operations, inventory and warehouse management, sales and accounting, among others. Forward-thinking manufacturers should consider adopting new mobile cloud, business intelligence and analytics capabilities in order to stay ahead of the curve and the competition.

(17)

BIBLIOGRAPHY

Enterprise Resource Planning Theory and Practice; Rahul V. Altekar

Enterprise Resource Planning Project; Ganesh L. and Arpita Mehta

Images from www.inc.com/encyclopedia/enterprise-resource-planning-erp.html

Waldner, Jean-Baptiste (1992). "CIM: Principles of Computer Integrated Manufacturing [1]": p47. John Wiley & Sons Ltd Monk, E. and Wagner, B., Concepts in Enterprise Resource Planning, 2nd Edition, 2006, Editor, Mac Mendelsohn, Canada: Thomson Course Technology.

(18)