CHAPTER 7- ENTERPRISE RESOURCE

PLANNING SYSTEMS

Principles of Supply Chain Management:

A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD

Learning Objectives
You should be able to:
Describe an ERP system
Understand the limitations of legacy MRP systems
Understand why firms are migrating from legacy MRP systems
to integrated ERP systems
Understand the advantages & disadvantages of ERP systems
Describe the various modules of an ERP system,
Compare best-of-breed vs. single integrator ERP
implementation
Understand why many ERP implementations fail
Understand how an integrated ERP system works

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Chapter Seven Outline

Development of Legacy MRP Systems
Materials Requirement Planning
Manufacturing Resource Planning
Development of Enterprise Resource Planning (ERP) Systems
Rapid Growth of ERP Systems
Implementing ERP Systems
Advantages & Disadvantages of ERP
ERP Software Applications
ERP Software Providers

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Introduction
Materials Requirement Planning (MRP) systems- first choice in the
U.S. for planning & managing purchasing, production, & inventories.
By end of the 20th century, U.S. business was changing.
Firms were building multiplant international sites,
Executives spent more time dealing with international
subcontractors, currencies, & languages.
Existing MRP systems could not handle added tasks.
Enterprise resource planning (ERP) systems were made to replace
legacy MRP systems & coordinate information requirements for
purchasing, planning, scheduling & distribution in a complex global
environment.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Development of Legacy MRP Systems

Legacy MRP systems which were
implemented in the 1960s, 1970s & 1980s,
describe an older information system at a
production scheduling operational level within
an organization.
MRP systems lasted beyond their
intended life span.
Communication between legacy
systems is limited.
Visibility across functional areas is
restricted.
Lack analytical capabilities.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Development of Legacy MRP SystemsCont.

Materials Requirement Planning (MRP) Process
Uses information from bills of material, master production
schedules, & inventories to compute planned order releases of
dependent demand items.
Links the internal operations of an organization, such as
purchasing, production, inventory control & material planning.
Does not, however, provide production or capabilities analysis,
nor does it probe the impact of changes in production levels on
financial results.
Closed-Loop MRP- An attempt to further develop MRP into a
more formal planning & control system, & was a natural extension
of the MRP system.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Development of Legacy MRP SystemsCont.

Manufacturing Resource Planning MRP IIWas the next development of the closed-loop MRP system in which:
Business & sales plans were incorporated.
A financial function was added to link financial management to
operations, marketing, & other functional areas.
MRP II now includes other functions of the organization.
Problems with MRP II:
Primarily focuses on one units internal operations.
Lacks capability to link the operations of firms foreign branches.
Lacks capability to deal directly w/supply chain members.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Development of Legacy MRP SystemsCont.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

Development of Enterprise Resource

Planning
What is ERP and how did it come about?
ERP system is an umbrella system tying a variety of specialized
systems, (i.e., production & inventory, purchasing, logistics, HR,
finance, accounting, customer relationship, & supplier
relationship management).
ERP utilizes a centralized & shared database system to tie the
entire organization together in which information is entered once
at the source & made available to all users.
The emergence & growth of supply chain management, ecommerce, & global operations have created the need to
exchange information directly with suppliers, customers, &
foreign branches of organizations.
Principles of Supply Chain Management: A Balanced Approach by
Wisner, Leong, and Tan.

Development of Enterprise Resource

Planning- Cont.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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The Rapid Growth of ERP

The use of ERP has gradually spread from manufacturing
to the service sector & has become commonly used in
many university classrooms.
Contributing factors of rapid ERP growth:
Firms replaced legacy MRP systems with efficient ERP systems
to reduce costs & deal w/Y2K problem.
Information systems that were previously off limits are now
accessible to smaller organizations.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Implementing ERP Systems

Research analysts & industrial practitioners are still
debating the usefulness of ERP, as well as the
advantages & disadvantages of using best-ofbreed solution and single integrator solution.
Best-of-breed- use best application for each
supply chain function
Problem: multiple databases may have to
be used to link the multiple applications from
different vendors.
Single integrator- applications from one vendor.
Problem: A users processes must conform
to the approaches used in the software logic.
Conforming a companys process to a
software program is a radical departure from
conventional practice.
Principles of Supply Chain Management: A Balanced Approach by
Wisner, Leong, and Tan.

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Implementing ERP Systems- Cont.

Some observations on ERP Implementation
Some firms only implement modules deemed absolutely
critical- Additional modules are added in a second phase.
Many implementations have failed due to:

Lack of top management commitment

Inaccurate & unrealistic inputs
Lack of adequate resources
Lack of proper training
Lack of communication
Incompatible system environment

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Advantages & Disadvantages of ERP

Advantages
Uses single database & common software infrastructure
Communicates with supply chain members
Helps reduce supply chain inventories. Supply chain visibility
leads to reductions of the bullwhip effect (buildup of supply
chain safety stock inventories)
Standardizes processes & eliminates redundant resources while
increasing productivity
Tracks employees time & performance
Integrates financial, production, supply,
& customer information.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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Advantages & Disadvantages of ERPCont.

Disadvantages

Substantial capital investment is needed to implement the system.

The average total cost of ERP ownership was $15 million.
Software is designed around a specific business model based on
specific business processes. The adopting firm must change its
business model & associated processes to fit the built-in business
model designed into the ERP system.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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ERP Software Applications

ERP consists of many modules that are linked together to access &
share the same database.
Most ERP software providers design their products to be compatible
with their competitors products. The most common ERP modules are:
Accounting & finance
Customer relationship management
Human resource management
Manufacturing
Supplier relationship management
Supply chain management

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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ERP Software Providers

SAP AG, a German firm, is the worlds leading ERP software provider &
the worlds third-largest software provider.
Flagship product is known as R/3
Used in more than 17,500 firms in 120 countries and employs about
28,000 people in more than fifty countries.
In 1973 SAP launched R/1 software, R/2 in 1979, and R/3 in 1992. R/3
has been dominant ERP product for almost a decade.
In early 2003, SAP introduced my SAP ERP which includes support for
corporate services, such as real estate & travel management.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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ERP Software Providers- Cont.

Oracle is the worlds leading supplier of information management

software, worlds 2nd largest software company, & serves over 13,000
customers.
Oracles strategy focuses on five principles: globalization, simplification,
standardization, automation, innovation.
Five comprehensive product lines: Oracle9i Database, Oracle9i eBusiness Suite, Oracle9i Application Server, Oracle9i Collaboration Suite,
& Oracle9i Developer Suite.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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ERP Software Providers- Cont.

People Soft-. Primary focus of the company has been to build client/server
business applications. First product made in 1988 was an HR application.
Leader in the human resources application market serves customer around
the globe.
J.D. Edwards- worlds leading developer of agile software. Has over 6,500
customer worldwide. Designs all of its software solutions to be open,
scalable, & flexible.
In August 2003, J.D. Edwards was acquired by PeopleSoft.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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ERP Software Providers- Cont.

Baan (of SSA)- possesses a workforce of approximately 2,800

employees. It is part of the Production Management division of Invensys
PLC, Its ERP product consists of a framework of open, flexible, & easyto-configure components that allow individual applications to be
configured to different industry processes.
Baan provides application solutions to more than 15,000 customer sites
worldwide.
iBaan solutions, includes Enterprise, Customer Relationship
Management, Product Life Cycle Management, Supply chain
Management, Business Intelligence, OpenWorldX, & Dynamic Enterprise
Modeling.

Principles of Supply Chain Management: A Balanced Approach by

Wisner, Leong, and Tan.

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