NIFT HYDERABAD

Enterprise Resource Planning

EVOLUTION OF ERP
Abhitosh kumar(1) Neeraj kumar(17)

13

EVOLUTION OF MANUFACTURING SYSTEM

In the earlier days of Manufacturing there was no concept of planning in advance. After receiving a job order in the shop floor, a Foreman was typically the end responsible person for planning and executing how to make the item, what tools to use, and whom to assign for executing the work. Foreman used to be the troubleshooter when the workers face problems, either with machines, or about how to execute certain activity etc. For any major changes such as changing the layout, proposing a new machine, changing the design of the product Engineer came in to picture. This practice continued as long as it was possible, because those were the times when whatever was produced was sold and supplier was at the dictating position. So the long time taken for planning and making the item was not at all an issue. However with time, the situation was gradually changing and very soon the industry realized that the process of making items for fulfilling an order was taking long time and in that way they cannot meet the demand. It was also experienced that there was repetitive effort while planning for materials, other resources and for ways to make the items. Then onwards the Manufacturing Planning systems went through progressive refinement in the last 5 decades. Prior to 1960s, business had to rely on the traditional ways of inventory management to ensure smooth functioning of the organization. These theories are called classical inventory management of scientific inventory control methods. The most popularly known amongst them is EOQ (Economic Order Quantity). The evolution of manufacturing systems closely followed the spectacular developments in the field of computer hardware and software systems. During the 1960s most organizations designed, developed and implemented centralized computing systems, mostly automating their inventory control systems using inventory control packages.

1960s

Inventory control package

Material Requirements Planning (MRP) 1970s Manufacturing Resources 1980s Planning (MRP II)

Enterprise Resource 1990s Planning (ERP) 2000s Extended ERP

Evolution of manufacturing system

MATERIAL REQUIREMENT PLANNING (MRP)

In 1960s, a new technique of Material Requirements Planning, popularly known as MRP, was evolved. This was a proactive manner of inventory management. This technique fundamentally explodes the end product demand obtained from the Master Production Schedule for a specified product structure (which is taken from Bill of Material) into a detailed schedule of purchase orders or production orders, taking into account the inventory on hand.

MRP at its core is a time phased order release system that schedules and releases manufacturing work orders and purchase orders, so that sub-assemblies and components arrive at the assembly station just as they are required. Some of the benets of MRP are reduction of inventories, improved customer service, enhanced efficiency and effectiveness.

Typical Functions
Bills of Material Inventory Management Work Order Management Shop Floor Scheduling Production Activity Control Material Shortage Management

Based on the demand and other supporting information MRP

Calculates the requirements for each component item that is required to make the order quantity of end item Calculates the time taken to make the order quantity of the end item. Calculates the needed hours of Man, tools and Machines for making the Order quantity of end item Any exceptions Any reschedule recommendations to the existing shop floor schedule ( by comparing the demand quantities and dates with the current scheduled dates and quantities of the item) Net requirements of each component item, (by comparing the gross requirements with the existing inventory.

Fundamental Process Questions:

1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get?

Manufacturing Resource Planning (MRP II)

In 1980s, the need was felt to integrate the financial resource with the manufacturing activities. From this evolved an integrated manufacturing management system called Manufacturing Resource Planning (MRP II). A major purpose of MRPII is to integrate primary functions (i.e. production, marketing and nance) and other functions such as personnel, engineering and purchasing into the planning process to improve the efficiency of the manufacturing enterprise. MRPII has certain extensions like rough cut capacity planning and capacity requirements planning for production scheduling on the shop oor as well as feedback from manufacturing shops on the progress of fabrication.

Typical Functions:
Financial Modules Business Plan Resource Planning Production Plan Sales and Operations Plan Master Production Schedule Rough-Cut Capacity Planning Detailed Capacity Planning Product Costing Modules Engineering Change Management MRP: Material Requirements Planning

Fundamental Process Questions:

1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get? 5. What constraints must be met now or in the future?

ERP (Enterprise Resource Planning)

Enterprise resource planning systems or enterprise systems are software systems for business management, encompassing modules supporting functional areas such as planning, manufacturing, sales, marketing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, transportation and e-business. American Production and Inventory Control Society (2001) has defined ERP systems as a method for the effective planning and controlling of all the resources needed to take, make, ship and account for customer orders in a manufacturing, distribution or service company.

EVOLUTION OF ERP
Increased complexity of businesses and the need to integrate all the functions within an enterprise to sustain in the dynamic environment lead to development of what is called Enterprise Resource planning. ERP was extension of MRP II to cover the range of activities within any enterprise. A key difference between MRPII and ERP is that while MRPII has traditionally focused on the planning and scheduling of internal resources, ERP strives to plan and schedule supplier resources as well, based on the dynamic customer demands and schedules.

TRANSITION FROM MRP II TO ERP

Transition from MRPII to ERP happened during 1980-90. 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. The shortcomings of MRP II and the need to integrate new techniques led to the development of a total integrated solution called ERP, which attempts to integrate the transactions of the organization to produce the best possible plan. Today we see further development in the ERP concept and evolution web-based ERP.

PURPOSE OF ERP
The fundamental purpose of ERP is to establish a process that links projected demand plans to supply plans, so that the resources of manufacturers, their suppliers, and especially their customers are utilized in the most efficient and cost effective way. To do so requires a process for anticipating demand and planning and scheduling resources in a manner that supports a company's strategic and financial goals. There are five major elements in this:

1. An integrated business operating process that links strategic plans and business plans to sales plans and operations plans. 2. A people-driven process that is supported by a computer system. 3. A formal resource planning process that involves all functions within a company. 4. Defined responsibilities and performance measurements for all functions in a company. 5. Communications among all functions in a company as well as communications among all divisions and sister companies. ERP is a people process supported by the computer, rather than the other way around. People -- and their behavior and discipline in utilizing the ERP process -- is vital. When people understand how to utilize the ERP process, tools, and techniques, the data and information will be highly accurate, and they will make sound decisions.

An ERP system is required to have the following characteristics:

Modular design comprising many distinct business modules such as financial, manufacturing, accounting, distribution, etc. Use centralized common database management system (DBMS) The modules are integrated and provide seamless data flow among the modules, increasing operational transparency through standard interfaces They are generally complex systems involving high cost They are flexible and offer best business practices They require time-consuming tailoring and configuration setups for integrating with the companys business functions The modules work in real time with online and batch processing capabilities They are or soon they will be Internet-enabled

Typical Functions:
Financial Planning Simulations Business Planning Simulations Sales/Marketing Planning Simulations Distribution Requirements Planning Resource Management Simulations Production Management Simulations Supply Chain Management Simulations

Continual Improvement Strategies R&D Management Simulations MRPII: Manufacturing Resource Planning

Fundamental Process Questions:

1. What do you want to make? 2. What materials does it take? 3. What materials do you have? 4. What materials do you need to get? 5. What constraints must be met now or in the future? 6. How will performance be planned, simulated, measured, and improved?

Some of the core ERP modules found in the successful ERP systems are the following:
Accounting management Financial management Manufacturing management Production management Transportation management Sales & distribution management Human resources management Supply chain management Customer relationship management E-Business

BENEFITS OF ERP

1. Reliable information access: Common DBMS, consistent and accurate data, improved reports. 2. Avoid data and operation redundancy: Modules access same data from the central database, avoids multiple data input and update operations. 3. Delivery and cycle time reaction: Minimizes retrieving and reporting delays 4. Cost reduction: Time savings, improved control by enterprise-wide analysis of organizational decisions. 5. Easy adaptability: Changes in business processes easy to adapt and restructure 6. Improved maintenance: Vendor-supported long-term contract as part of the system procurement. 7. Improved scalability: Structured and modular design with addons. 8. Global outreach: Extended modules such as CRM and SCM 9. E-commerce, e-business: Internet commerce, collaborative culture.

DRAWBACKS OF ERP
1. Implementation of an ERP project is painful, and customization is costly and timeconsuming. 2. Expensive: its high cost prevents small businesses from setting up an ERP system. 3. Conformity of the modules: The architecture and components of the selected system should conform to the business processes, culture and strategic goals of the organization 4. Vendor dependence 5. Features and complexity: ERP system may have too many features and modules so the user needs to consider carefully and implement the needful only 6. Scalability and global outreach: Look for vendor investment in R&D, longterm commitment to product and services, consider Internet-enabled systems. 7. Extended ERP capability: Consider middle-ware add-on facilities and extended modules such as CRM and SCM 8. The privacy concern within an ERP system and lack of trained people may affect ERPs efficiency.