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Lecture

in

Elective 3
(ERP)
Enterprise Resource
Planning

Prepared by:

EDILBERTO F. MOLAS, PIE


Course Description :
The course covers the study of how a business works
and how information systems fit into business
operations. The course will focus on integrating
functional area’s role and effort
in increasing the efficiency of operations through
proper use of ERP activities and the linkage of un-
integrated information system.

Course content

Topics:
Prelims 18 hours:
 Introduction to ERP
 Functional Areas and business processes
in ERP
 Continuing Evolution of ERP
 Significance and benefits of ERP software
and systems
 Sales and distribution in ERP
 Customer relationship management

III – Supplemental Topics:


 The ERP Softwares
- Camstar
- Promise
- SAF/R3
- Cloud
- Others

Midterm: 18 hours

 Production and Materials Management


Information System
 Production planning process problems
 Demand management
 MRP and Purchasing/materials
Management
 Accounting Module

V Supplemental Topics:

Final : 18 hours
 ERP in supply chain Management
 Product Profitability Analysis
 Aggregate planning in supply chain
 Coordination in supply chain

VII – Supplemental Topics:

X – Text Books / References:

Monk Ellen F., Wagner, Bret J. Enterprise


Resource Planning, Singapore :
Cengage,Learning Asia, Pasig
City:Cengage Learning Asia c 2012

/
Topic 1. Introduction/Definition of Terms

1. Enterprise Resource Planning (ERP)


programs are core software used by companies to
coordinate information in every area of the business.
ERP programs help to manage company-wide
business processes using a common database and
shared management reporting tools.

A Business Process is a collection of activities that


takes one or more kind of input and creates an output,
such as a report or forecast, that is of value to the
customer. ERP software supports the efficient
operation of business processes by integrating
throughout a business task related to sales, marketing,
manufacturing, logistics, accounting and staffing.
Activities:
1. Students :: To illustrate a report, design
the format report of a one week production summary
report showing daily output per station with running
total per day per station . Basis are 300k product with
product mix stated in forecast. Loading schedule per
day simulated in the following work processes 1.
Visual Inspection, 2. Wafer Saw, 3. Die Attached
(Pick & Place), 4. Epoxy Bake,
5. Wire Bonding 6. 3rd Optical Inspection at 99.5%
yield , 6. Encapsulation Mold

2. PROF. : Illustrate a production forecast


which can be available in the computer system Wide
Area Network (WAN) accessible to selected
Functional areas of the Company.
GMDT PRODUCTION FORECAST SUMMARY
PDIPS ASSEMBLY (K-Units/Week)

Description WW1 WW2 WW3 WW4 WW5 Feb. Mar

16 PIN CMOS 200 200 200 200 200 250 250


16PIN CMOSA 200 200 200 200 200 250 250

20 PIN DRAM 300 300 300 300 300 350 350


20 PIN SRAM 300 300 300 300 300 350 350

22PIN SRAM 40 40 40 40 45 45 45

24PIN VLSI 60 60 60 60 55 55 55

28 PIN VLSI 100 100 100 100 100 150 150

40 PIN CMOS 200 200 200 200 200 200 200

48PIN PRCSR 200 200 200 200 200 250 250


____ ____ _____ _____ _____ ____ ____
TOTAL 1600 1600 1600 1600 1600 1900 1900

Topic 2: Functional Areas and Business Process

The areas called functional Areas are:

1. Marketing and Sales


2. Supply Chain Management
3. Accounting and Finance
4. Human Resource

Each area comprises a narrower Business Functions which are


activities specific to that functional area of operation
______________________________________________________
Marketing & Supply Chain Accounting Human
Sales Management & Finance Resources
______________________________________________________

Marketing of Purchasing Financial Recruiting


a product goods and acctg of and hiring
raw materialspayments
from custom-
mers and to
suppliers
________________________________________________

Taking sales Receiving Cost allocation Training


orders goods and raw and control
materials
________________________________________________

Customer Transportation Planning and Payroll


Support & logistics budgeting
________________________________________________

Customer Scheduling Cash-flow Benefits


relationship production management
management runs
________________________________________________

Sales Manufacturing Gov’t.


forecasting products/goods compliance
_________________________________________________

Advertising Plant
maintenance
_________________________________________________
Examples of functional areas of operation and their business
functions

Business Processes:

Input Functional Area Process Output


Responsible for
Input
____________________________________________________
Request to Marketing & Sales Sales order Order is
purchase generated
____________________________________________________
Financial Acttg & Finance Arranging Customer fin-
help for in-house ances through
purchase through the
computer co.

Technical Marketing and 24-hour help Customer’s


support sales available technical
query resolved
Fulfillment Supply chain Shipping and Customer rec-
of order Management delivery eives computer

Sample business process related to the sale of a personal computer

 Continuing Evolution of ERP


ERP system have been in common use only since
mid-1990. As young technology continues to mature,
ERP vendors are working to solve the adaptability
problems that plague customers. The demand for a
new ERP installations is still going strong. AMR
research has calculated that in 2005, companies spent
$14.5 billion on licenses and maintenance.

ERP Software Emerges : SAP and R/3

IN 1972, five former IBM systems analyst in


Mannheim, Germany – Dietmar Hopp, Claus
Wellenreuther, Hasso Plattner, Klaus Tschira and
Hans-Werner Hector – formed Systemanalyseund
Programmentwicklung (Systems Analysis and
Program Development , or SAP.

Features of SAP ERP – The first software that could


deliver real time ERP integration, has features worthy
of note. Its most significant characteristics are
usability by large companies, high cost, automation
of data updates, and applicability of best practices.
The original SAP R/3 system targeted large
companies. Acquiring SAP ERP software is very
expensive. In addition to cost of software, companies
find it hard to buy new hardware that can
accommodate such powerful program.
Significance and benefits of ERP software and
systems
ERP lies in its many benefits. Integrated information
systems can lead to more efficient business processes
than that of clustered un-integrated systems. ERP
offer the following benefits:
 ERP allows easier global integration:
barriers of currency rates, language, and
culture can be bridged automatically, so
data can be integrated across international
borders
 ERP integrates people and data while
eliminating the need to update and repair
many separate computer systems. Ex.
Boeing had 450 data systems that fed data
into its production process. The company
now has a single way to record production
data.
 ERP allows management to manage
operations, not just monitor them. For
example , without ERP, getting an answer
to “How are we doing?” requires getting
data from each business units and then
analyzing that data for comprehensive,
integrated picture The ERP system already
has all the data allowing managers to
focus on improving processes.
Questions about ERP

How much an ERP System cost?

Cost of an ERP system includes several


Factors
- Size of ERP software
- Need for new hardware compatible
of running complex ERP software
- Consultants’ and analysts’ fee
- Time for implementation
- Training – cost time and money
Should every business buy an ERP package?

ERP package imply by their design, a certain


way of doing business. Some of a business
operations, and some segments of its operations,
might not be a good match with the constraints
inherent in ERP.. Therefore, it is imperative for a
business to analyze its own strategy, organization ,
culture, and operation before choosing an ERP
approach.
What return can a company expect from its
ERP Investment?
- Because ERP can eliminate redundant effort
and duplicated data it can generate savings in
operations expense
- In some instances a company that doesn’t
implement ERP might be forced out of
business by competitors that have an ERP
system. How do you calculate the monetary
advantage of remaining in business?
- A smooth running ERP system can save a
company’s personnel, suppliers, distributors
and customers much frustration, a benefit that
is real but difficult to quantify
- ERP system provide real data, allowing
companies to improve external customer
communications. Better communication can
improve customer relationship and increase
sales

Sales and distribution in ERP


An ERP system can improve sales order in several
ways. Because ERP systems has a common database,
they can minimize data entry errors and provide
accurate information and real time to all users. An
ERP system can track all transactions such as
invoices, packing lists, RMA numbers and payments)
involved in the sales order
The SAP ERP sales and distribution modules treats
the sales order process as a cycle of events. SAP ERP
Defines up to six events for any sale.
- Pre-sales activities
- Sales order processing
- Inventory sourcing
- Delivery
- Billing
- Payment
Assignment: Make a report on how or what is the
Mechanics of the six events for any
sale of product on an ERP system

Customer relationship management


Customer Relationship Management (CRM)
software can help companies streamline their
interactions with customers. Companies with an ERP
Have an added benefit beyond system integration;
vast and complete quantities of data available for
analysis. By adding other software tools to its ERP
system , a company can extend the capabilities to the
system thus increasing its value.

Core CRM Activities


 One –to-one marketing – Once the
customer is categorized, the company can
tailor products, promotions and pricing
accordingly. Customers can be offered
products related to what they are now
buying (cross-selling) or higher margin
products in the same lines (Up-selling)
 Sales force automation (SFA):
Occurrences of customer contacts are
logged in the company’s database. SFA
software can automatically route
customers who contact the company to a
sales representative. Companies can use
SFA software to forecast customer needs,
based on customer’s history and
transactions, and to alert sales
representatives accordingly.
 Sales Campaign Management: This
software lets a company organize a
marketing campaign and compile its result
automatically.
 Marketing Encyclopedias: This software
serves as a database of promotional
literature about products. The material can
be routed to sales representatives or
customers as needed.
 Call Center Automation: When
customers call a company to get
assistance with a company’s products,
representatives can query a knowledge
management database containing
information about the product.

Midterm: 18 hours

 Production and Materials Management


Information System

Introduction :
ERP has its roots in materials requirement planning
(MRP). In fact MRP is still large part of today’s ERP
systems. Well look at Supply Chain Management
(SCM) in an ERP system.

Production Overview:
To meet customer demand efficiently, a forecast
must be developed of customer demand., then
develop a production schedule to meet the estimated
demand. Developing a production plan is a
complicated task, but the end result answers two
simple questions:
 How many of each type of product should
we produced, and when?
 What quantities of raw materials should
we order so we can meet that level of
production, and when should be ordered?
Developing a good production plan is just the first
part of serving customers. The company must be able
to execute the plan and make adjustments when
demand does not meet the forecast. An ERP system is
a good tool for developing and executing production
plans because it integrates the SCM functions of
production planning, purchasing, materials
management/warehousing, quality management, and
sales and accounting..

The goal of Production Planning is to schedule


production economically so that the company can
shipped goods to the customers by promised delivery
dates in the most cost efficient manner .

There are three general approaches to production:


 Make-to-stock – Items are made for
inventory (the stock) in anticipation of
sales orders Most consumer products (i.e.,
cameras, canned corn, and books) are
made this way
 Make-to-order – items are produced to fill
specific orders., Companies usually take
this approach when producing items that
are too expensive to keep in stock or items
that are made r configured to customer
specification. Examples are airplanes and
large industrial equipments.
 Assemble-to-order – items are produced
using a combination of make-to-stock and
make-to-order processes. The final
product is assembled for a specific order
from a selection of make –to-stock
components. Personal computers are
typical assemble-to-order product.

Manufacturing Process – This can be clearly defined


in the Flow Process Chart (either standard or non-
standard) – Reference to the methods and time study
subjects (MTS), also in production system or
Operations planning and control subjects – works
standards established by I. E.’s are used to define
man/machine requirements and determining
Production Capacity.

Production Problems – the manufacturing process


has a lot of problems from communication
breakdowns and inventory issues to accounting
inconsistencies mainly steaming from un-integrated
nature of its information system

Communication Problems

Inventory Problems

Accounting and Purchasing Problems


THE PRODUCTION PLANNING PROCESS

1. Forecasting:
Example:

GMDT PRODUCTION FORECAST SUMMARY


PDIPS ASSEMBLY (K-Units/Week)

Description WW1 WW2 WW3 WW4 WW5 Feb. Mar

16 PIN CMOS 200 200 200 200 200 250 250


16PIN CMOSA 200 200 200 200 200 250 250

20 PIN DRAM 300 300 300 300 300 350 350


20 PIN SRAM 300 300 300 300 300 350 350

22PIN SRAM 40 40 40 40 45 45 45

24PIN VLSI 60 60 60 60 55 55 55

28 PIN VLSI 100 100 100 100 100 150 150

40 PIN CMOS 200 200 200 200 200 200 200

48PIN PRCSR 200 200 200 200 200 250 250


____ ____ _____ _____ _____ ____ ____
TOTAL 1600 1600 1600 1600 1600 1900 1900

2. Determining Machine Requirements :


If Planning Computer Model is available, then
Limiting production capacity is available and could
be used in defining production capacity which is
normally the basis for production plan.

*** Simulation of Production Planning Process

 Development of Labor Standards


1. Paid Hours – based on attendance time
which includes the complete 8 hrs of work
plus overtime hours, plus paid leave, less
absences and tardiness.
Computed as :
Paid hrs per period = 8 hrs/day x no. of
Hrs Per period plus
OT hrs plus paid
Leaves Less absen-
cess less tardiness
2. Available Hours (AVH – Labor)
Computed as:
AVH/Period = 8hrs/day x no. of days
Per period plus OT hrs
Less all leaves(paid &
Non-paid) less official
Operators break time
Less tardiness
For purpose of capacity and manpower
planning , operator available hrs/wk is 8
hrs less 50 minutes breaktime/shift which
is equal to :
= 7.17 hrs/shft x 6 days
= 43.0 hrs/week

3. Available Hours (AVH – Machine)


The total time during which a machine
could work based on the working days
Computed as:
AVH/period = 8 hrs/day x no. of days
Per period less official
Operators break time
For purposes of capacity and equipment
planning, IE set the following standards

For operator controlled machine, wherein


machine cannot run during operator’s
break time:
AVH = 7.17 hrs/shift x 18 shifts/week
= 129.1 hrs/week
For independent machine, where it can
continuously run even during operator’s
break time, or when staggered break time
of operator is executable,
AVH = 8 hrs/shift x 18 shifts/week
= 144 hrs/wk
4. Applied Hours (APH)
The total productive hours from the
available hours. It is the total available
hrs less all types of downtime and less
all time during which the operator and
the machines are idle for varied reasons:

Computed as:
Applied Hours = Available Hours
less material downtime
less machine downtime
- Setup time
- Conversion time
- Repair time
less Facilities DTime
- Power failure
- A/C Failure
- Utilities failure
- Other Fac. Failures
Less Administrative DT
- Training, meetings,
Counseling, Audit,
Test, eng’g. eval’n.
Calibration
Less other dt, ie doing
Errands, etc.
Expressed in: Hours/period i.e hrs/wk

5. Standard Earned Hours


The total time in which a given volume
should be completed based on the
standard Units Per Hour(UPH) or
standard hours per thousands(K)
Computed as :
Std Earned Hours = Volume(units)/UPH

Or SEH = Volume (K) x Hours/k

6. Efficiency(EFF)
The measure and rating of the operator or
machine pace to achieve the standard
output from productive hours or applied
hours.
Computed as:
%Efficiency= Std Earned hours/ Applied
Hours

Expressed as : % EFF

For capacity computation, IE set


Efficiency factors to serve as rating of
pace of the machine and the operator
relative to the standard UPH as follows:

Fully Auto operator independent = 98%


Semi Auto = 95%
Fully Manual = 92%
7. Utilization(UTI)
The ratio of the used hours to the
available hours

Computed as :
% Utilization = Applied Hours/Available
Hours x 100
Expressed as : % Utilization

8. Effective Utilization or (Effectiveness)


The measure and rating of the operator
and the machine achieving the standard
output from available hours
Computed as:
% EU(EFFECT) = Std Earned Hours/
AVH x 100
OR:

% EU(EFFECT) = Utilization x
Efficiency

9. Machine / Manpower Requirement


Computation (Production)
Machine Required = Production Forecast
Vol. (K-units/wk)
Divided By:
MC UPH x %EFF x
% UTI x AVH/wk

Manpower Required = Prod Fcst Vol./wk


Divided by:
Labor UPH x %EFF
x % UTI x % Abs. x
AVH/wk
Exercise : Given forecast, compute the man/machine
Requirement
 Production planning process problems
- Man/machine Factory Model
- Measurement of production performance
- Production Capacity computation
 Demand management
Materials Requirements Planning (MRP),
Aggregate Production Plan, Master
Production Schedule,
 MRP and Purchasing/materials
Management

 Accounting in ERP Systems


 Financial Accounting – of documenting
all transaction of a company that have
an impact on the financial state of the
firm, and then using those documented
transaction to create reports for
external parties and agencies. i.e. FASB,
SEC, and IRS (BIR)

Basic accounting terminology


The Financial Statements:

1. /revenue and expenses and taxable income or


loss and gross income subject to tax and net
profit after tax.
Example of Income Statement XYZ
Enterprises for the year ended 2013.

1. Gross revenue/sales Php.1,500,000.00


Less: cost of goods sold 500,000.00
2. Gross Income from sales 1,000,000.00
Less Operating Expenses:
2.1 Salaries & wages Php. 200,000
2.2 Interest from loan 100,000
2.3 Amortization 100,000
2.4 Depreciation 150,000
2.5 Rent 50,000
2.6 Admin. Expense 150,000
2.7 Energy, fuel,& water 50,000
2.8 Maintenance exp. 30,000
2.9 Insurance 20,000
2.10 Others 20,000 (870,000.0)
3.0 Taxable Income +/(-) -------- Php.130,000.0
Less: 30% tax -------- 39,000.0

4.0 Net Income Php. 91,000.00

2. Balance Sheet (XYZ Enterprises) – Shows


the assets and liabilities of an enterprise, or the
value / worth of the enterprise

1. Assets:
Current Assets
Cash on bank Php. 1,000,000.0
Accounts receivable 200,000.0
Inventories 300,000.0
Total Php. 1,500,000.00

Fixed Assets:
Land 1,500,000.00
Buildings 4,000,000.00
Machineries & Equipt. 2,500,000.00
Total 8,000,000.00

Total Assets Php.9,500,000.00

2.0 Liabilities & Owners Equity


Accounts Payable 150,000.00
Bank Notes 250,000.00
Mr. XYZ Equity 9,100,000.00
Total Liabilities Php. 9,500,000.00

3. Cash Flow – Shows the operating revenue on


a given particular time and cash ending balance
on the same period after allocation of required
cash for operations

Operating Revenue Php. 1,500,000.00


Less : Labor 200,000.0
RM/CGS 500,000.0
Amort. Exp. 100,000.0
Rent 50,000.0
Adm. Exp. 150,000.0
Energy/etc. 50,000.0
Maint. 30,000.0
Insurance 20,000.0
Others 20,000.0 1,120,000.00
Cash Flow Ending Balance Php. 380,000.00

The payroll System in ERP :


- Biometrics system
- Exceptions on overtime
- ERP generated payroll downloaded to bank for
ATM activation

The product costing module


- Operational unit cost model
- Planning unit cost model

Final : 18 hours
 ERP in supply chain Management
 Product Profitability Analysis
 Aggregate planning in supply chain
 Coordination in supply chain
ERP IN SUPPLY CHAIN MANAGEMENT

Enterprise Resource Planning (ERP) and Supply Chain


Management (SCM) have been gaining popularity within
organizations over the last few years, across a number of vertical
industries.
An ERP system focuses on the management of business information,
offering a macro view into a company by integrating disparate systems
across functional groups such as procurement, finance, distribution, and
inventory control. A Supply Chain Management system ties in supply
chain partners who help a company find the raw materials it needs to
deliver products and services to its customers. The integration of both
systems usually poses some challenge to CIOs, as there is no set
formula as to which system should be implemented first.

In cases where the company has already deployed an ERP


system to collect information across the board, the supply
chain system that follows pulls data from ERP systems; thus
making the deployment process easier. In other cases, multiple
offices may have stand-alone SCM systems in place that are
then integrated into a ERP system. With this type of
implementation, there may be the need to add in other
dashboard components such as; inventory checks, financials
and manufacturing.

Key Elements to Supply Chain Management


Supply Chain Management involves the design, planning,
execution, control and monitoring of supply activities with the
objective of creating net value to build a competitive infrastructure
that leverages worldwide logistics, while synchronizing supply with
demand, and measuring performance globally. A Supply Chain
Management system provides real-time visibility into operations,
and integrates activities through improved supply chain
relationships, to achieve a sustainable competitive advantage. Below
are the four key elements to Supply Chain Management.
• Supply Chain Planning: The determination of a set of policies
and procedures that govern the operation of supply chain. Planning
includes the determination of marketing channels, promotions,
respective quantities and timing, stock and replenishment policies
and production policies. Planning establishes the parameters within
which the supply chain will operate.
• Supply Chain Execution: Execution-oriented software
applications for effective procurement and supply of goods and
services across a supply chain. It includes manufacturing warehouse
and transportation execution systems, and systems providing
visibility across the supply chain.
• Supply Chain Monitoring: The ability to review supply chain
activities in real-time, whether to identify the current status of
individual activities or review overall performance.
• Supply Chain Measurement: Measurement is comparison of
the actual activity against targets. This is often used with scorecards
of benchmarks so that unusual or undesirable variances can be
identified and investigated.

Parameters for Successful Supply Chain


Implementations
The primary goal of any supply chain is to satisfy customer
needs and generate profits. Supply chain activities begin with a
customer order and end when a satisfied customer has paid for
the purchase (sales order fulfillment, order-to-cash, etc.) SCM,
as with any other enterprise-wide software systems, can be
successfully implemented when the following are in place:
• A clearly defined process-flow chart of the organization
specifying key chain of commands for each functional area.
• Commitment to the project from management and end users
through training.
• An understanding of expected return on investment both in
the short and long term.
• Aligning all resources needed to ensure smooth deployment such
as existing infrastructures etc.

Advantages of Implementing an ERP System before


Supply Chain
ERP can be executed for corporate functions like human resources,
finance and accounting, basic industry-specific procedures,
reporting and planning. There are a number of advantages to
building a Supply Chain system on top of an existing ERP platform.
• An ERP system outlines a smart process for the company to use
technology to automate manual or mundane work processes
therefore, making it easier to streamline supply chain management
practices.
• ERP systems help to define roles and responsibilities of different
users and ensure that ownership is assigned at various levels. This is
critical to managing the various aspects of a supply chain
management system.
• ERP implementations also help users to gain familiarity with
technology systems, terms and sets expectations making transitions
to supply chain management applications smoother.

Integrating Supply Chain and ERP systems


Most ERP vendors today, offer Supply Chain Management
components so companies can implement both as part of the same
rollout.
The integration of ERP and SCM systems is easier with the following
considerations:
• Business priorities: Is it ERP first or Supply Chain? In most
cases, ERP starts with financials and corporate workflow, and
companies build on from here.
• Technology issues: If the ERP and SCM systems are on similar
technology platforms, integration is simpler to execute, decreasing
time to ROI.
• Cost of implementation: Companies must consider and
evaluate the cost impact of both systems being integrated, or if the
software only allows data transfer.
• Total cost of ownership: There may be cost savings and
improved user experience if both systems processes are merged to
reduce the points of data capture.

Benefits of Integrating ERP and Supply Chain Systems


There are many success stories and unfortunately much-hyped
failures as well. However, if most projects follow some simple
guidelines, companies can increase the chance of success, deliver on
time, and proudly involve the relevant group of users who utilize the
system to maximum gain. Some benefits to look forward to include:
• Improved efficiencies, lower costs and improve productivity
• Ability to provide better services to customers, and therefore
increase customer retention
• Increased ability to manage resources through a streamlined
process, and in some cases, an automated workflow
• Leveraging IT to enhance the speed of tasks and increase
production
• Ability to cope with business changes in the future and to adapt to
changing rules and regulations, therefore enabling the organization
to compete more effectively

ERP and Supply Chain Management systems offer different benefits


to an organization in terms of capabilities and functionalities. Given
the intra-organizational and inter-organizational advantages offered
by ERP and Supply Chain respectively, integration of both systems
will provide a company with substantial leverage over competitors.
However, it is pertinent that companies first identify and work on
reducing and eliminating non-value added activities, processes and
components in the business. It is only when they start to adopt a
holistic view to efficiently address enterprise needs that they will be
able to deliver their products and services with speed, ease and
quality.

 Product Profitability Analysis


 Aggregate planning in supply chain

- See File on this topic

 Coordination In Supply Chain