10.2 Enterprise Resource Planning and Outsourcing

Question 1

A company uses material requirements planning (MRP) and manufactures a product with the following product
structure tree.
x
A (2) - ———B(5)
C (1) D(3) — E(2)

The company has just received an order for 100 units of X, the finished product. The company has 20 units of X, 100 units of B, and 50 units of E in inventory. How many units of E must the company purchase in order to fill the order?

A. 550
B. 800
C. 1,000
D. 950

Answer 1

A. 550

The company already has 20 units of the finished product in inventory so 80 will need to be manufactured to fill this order. The amount of Subunit B that must be purchased is [(80 × 5) – 100 on hand] = 300. The amount of Subunit E that must be purchased is therefore [(300 × 2) – 50 on hand] = 550.

Question 2

A company’s CFO is concerned about the coordination of the company’s information systems and the quality of its data. Separate systems exist for accounting, human resources, customer relations, purchasing, and inventory management. As a result, communication breakdowns occur between departments, supply chain management is inefficient, data redundancy is common, and the percentage of dissatisfied customers is too high. Which system is the best solution to these problems?

A. Enterprise performance management (EPM).
B. Enterprise resource planning (ERP).
C. Materials requirements planning (MRP).
D. Just-in-time (JIT).

Answer 2

B. Enterprise resource planning (ERP).

An ERP system is software that connects financial and nonfinancial systems (accounting, human resources, production, marketing, distribution, purchasing, receiving, etc.). It also connects the company with suppliers and customers. Benefits of an ERP system include (1) lower inventory costs, (2) higher productivity, (3) enhanced decision making, (4) elimination of data redundancy, (5) integration of global operations, (6) more effective supply chain management, and (7) increased customer satisfaction.

EPM is a performance management system used for monitoring and improving the performance of a company but would not address the IT problems.