Ch 17 - Enterprise Resource Planning Systems Flashcards
What is Enterprise Resource Planning (EPR)?
A computer system (software?) that integrates application programs in accounting, sales, manufacturing, and other functions in a firm. This integration is accomplished through a database shared by all the application programs.
The term enterprise resource planning (ERP) can mean different things, depending on one’s viewpoint. From the view of managers in a company, the emphasis is on the word planning; ERP represents a comprehensive software approach to support decisions concurrent with planning and controlling the business. On the other hand, for the information technology community, ERP is a term describing a software system that integrates application programs in finance, manufacturing, logistics, sales and marketing, human resources, and other functions in a firm. This integration is accomplished through a database shared by all the functions and data-processing applications.
Consistent Numbers
ERP requires a company to have consistent definitions across functional areas. Consistent reporting of such measures as demand, stockouts, raw materials inventory, and finished goods inventory, for example, can then be accomplished. This is a basic building block for ERP systems.
There are four aspects of ERP software that determine the quality (usability?) of an ERP system:
- The software should be multifunctional in scope with the ability to track financial results in monetary terms, procurement activity in units of material, sales in terms of product units and services, and manufacturing or conversion processes in units of resources or people. That is, excellent ERP software produces results closely related to the needs of people for their day-to-day work.
- The software should be integrated. When a transaction or piece of data representing an activity of the business is entered by one of the functions, data regarding the other related functions are updated as well. This eliminates the need for reposting data to the system. Integration also ensures a common vision—we all sing from the same sheet of music.
- The software needs to be modular in structure so it can be combined into a single expansive system, narrowly focused on a single function, or connected with software from another source/application.
- The software must facilitate basic planning and control activities, including forecasting, production planning, and inventory management.
What are the benefits of using ERP?
Benefit is gained from the elimination of redundant processes, increased accuracy in information, superior processes, and improved speed in responding to customer requirements. (it assumes that the companies’ business activities are at least partly digitalized?)
An ERP software system can be built with software modules from different vendors, or it can be purchased from a single vendor.
It is important to make a distinction between the transaction processing capability and the decision support capability of an ERP system, what are the objectives of ERP systems?
Transaction processing relates to the posting and tracking of the activities that document the business. When an item is purchased from a vendor, for example, a specific sequence of activities occurs.
The system supports better decision making. In the case of purchasing an item, for example, the amount to purchase, the selection of the vendor, and how it should be delivered will need to be decided. These decisions are made by professionals, while ERP systems are oriented toward transaction processing.
HOW ERP CONNECTS THE FUNCTIONAL UNITS
A typical ERP system is made up of functionally oriented and tightly integrated modules. All the modules of the system use a common database that is updated in real time. Each module has the same user interface, similar to that of the familiar Microsoft Office products, thus making the use of the different modules much easier for users trained on the system. ERP systems from various vendors are organized in different ways, but typically modules are focused on at least the following four major areas: finance, manufacturing and logistics, sales and marketing, and human resources.
Many other software-based functions may be integrated with the ERP system but are not necessarily included in the ERP system.
Even though the scope of applications included in standard ERP packages is very large, additional software will usually be required because of the unique characteristics of each company. A company generates its own unique mix of products and services that are designed to provide a significant competitive advantage to the firm. Eg. customized software
ERP related to finance:
An ERP system provides a common platform for financial data capture, a common set of numbers, and processes, facilitating rapid reconciliation of the general ledger. The real value of an ERP system is in the automatic capture of basic accounting transactions from the source of the transactions.
ERP related to Manufacturing and Logistics
This set of applications is the largest and most complex of the module categories. Typical components included:
- Sales and operations planning
- Materials management
- Plant maintenance
- Quality management
- Production planning and control
- Project management
ERP related to Sales and Marketing
This group of system components supports activities such as customer management; sales order management; forecasting, order management, credit checking configuration management; distribution, export controls, shipping, transportation management; and billing, invoices, and rebate processing.
ERP related to Human Resources
This set of applications supports the capabilities needed to manage, schedule, pay, hire, and train the people who make an organization run. Typical functions include payroll, benefits administration, hiring procedures, personnel development planning, workforce planning, schedule and shift planning, time management, and travel expense accounting.
EPR related to Customized Software
In addition to the standard application modules, many companies utilize special add-on modules that link to the standard modules, thus tailoring applications to specific needs. These modules may be tailored to specific industries such as chemical/petrochemical, oil and gas, hospital, or banking. They may also provide special decision support functions such as optimal scheduling of critical resources.
ERP related to Data Integration
The software modules, as described earlier, form the core of an ERP system. This core is designed to process the business transactions to support the essential activities of an enterprise in an efficient manner. Working from a single database, transactions document each of the activities that compose the processes used by the enterprise to conduct business. A major value of the integrated database is that information is not reentered at each step of a process, thus reducing errors and work.
Transactions are processed in real time, meaning that as soon as the transaction is entered into the system, the effect on items such as inventory status, order status, and accounts receivable is known to all users of the system. (Real data)
To facilitate queries not built into the standard ERP system software, a separate data
warehouse is commonly employed. A data warehouse is a special program (often running on a totally separate computer) that is designed to automatically archive and process data for uses that are outside the basic ERP system applications. For example, the data warehouse could, on an ongoing basis, perform the calculations needed for the average lead time question. The data warehouse software and database is set up so that users may access and analyze data without placing a burden on the operational ERP system.
HOW SUPPLY CHAIN PLANNING AND CONTROL FITS WITHIN ERP
ERP is concerned with all aspects of a supply chain, including managing materials, scheduling machines and people, and coordinating suppliers and key customers. The coordination required for success runs across all functional units in the firm.
“needs to make 300 PBJ sandwiches to be delivered to the sales sites this Friday. Ajax will actually assemble the sandwiches on Thursday. According to the usage data given earlier, this requires 30 loaves of bread, 6 packages of butter, and 15 containers of peanut butter and jelly. Freshness is largely dictated by the age of the bread, so it is important that Ajax works closely with the local baker because the baker delivers bread each morning on the basis of the day’s assembly schedule. Similarly, the delivery schedules for the butter, peanut butter, and jelly need to be coordinated with the vendors of these items. “
- An ERP system is designed to provide the information and decision support needed to coordinate this type of activity.
PERFORMANCE METRICS TO EVALUATE INTEGRATED SYSTEM EFFECTIVENESS
The balance sheet and the income and expense statements contain financial measures, such as net profit, that traditionally have been used to evaluate the success of the firm. A limitation of traditional financial metrics is that they primarily tell the story of past events. They are less helpful as a guide to decision makers in creating future value through investments in customer infrastructure, suppliers, employees, manufacturing processes, and other innovations.
Which are the three areas that make up the internal supply chain?
purchasing, manufacturing, and sales and distribution
Tight cooperation is required between these three functions for effective manufacturing planning and control. Considered independently, purchasing is mainly concerned with minimizing materials cost, manufacturing with minimum production costs, sales with selling the greatest amount, and distribution with minimum distribution and warehousing costs.
