NATIONAL INSTITUTE OF FASHION TECHNOLOGY, HYDERABAD

ERP
ASSIGNMENT NO. 1
SUBMITTED TO : MR TVSN MURTHY

SUBMITTED BY :

RAJIV RANJAN (21)

DFT: 6TH SEM

QUESTIONS

How did ERP evolve??

MRP I Nature Of Functioning
Application
MRP II Key elements, Transition Form
MRP To ERP
Advantages And Disadvantages Of
ERP?
What are the next generation
enterprise resource planning
strategies and applications?

ENTERPRISE RESOURCE PLANNING (ERP):

An enterprise is defined as an organization of people, using technology to

make products according to certain predefined processes. This means the
people, technology, products and processes are productive resources of the
manufacturing enterprise. The following figure depicts an enterprise resource
model.

Figure 1: The
enterprise
Figure
1: The enterprise model
model

The basic logic in which these resources are seamlessly integrated is based
on; together how these resources support the strategic view (business plan)
of the enterprise. Often, the Enterprise Resource Planning is a natural
extension or evolution of MRP or MRP II sub systems. Not necessarily all
current ERP systems could have taken the same developmental path, but
this is true in majority of the cases.

In easier words, ERP is a planning philosophy enabled with software that

attempts to integrate all the business processes of different departments and
functions across the company onto a single computer system that can serve
particular needs of the different departments.

(1)
EVOLUTION OF ERP:
ERP is an outcome of 40 years of trial and error. It has evolved as a strategic
tool because of continuous improvement in the available techniques to
manage business and the fast growth of information technology. The Figure 1
shows the various phases of the development in relation to time,
development in resource planning systems and the evolution of the concept
of the ERP.

Figure
2: Figure
ERP- 2: Historical
ERP- Historical overview
overview

MATERIAL REQUIREMENT PLANNING (MRP I):

In 1970s, a new technique of Material Requirement Planning was evolved.
This was a proactive manner of inventory management. This technique
fundamentally explodes the end product demand obtained from the Master
Production Schedule (MPS) for a specified product structure into a detailed
schedule of purchase orders or production orders, taking into account the
inventory in hand. MRP is a simple logic but the magnitude of data involved
in a realistic situation makes it computationally cumbersome. If undertaken
manually, the entire process is highly consuming. It therefore becomes
essential to use computer to carry out the exercise.

In other words it can be said that MRP is a production planning, scheduling,

and inventory control system used to manage manufacturing processes.
Most MRP systems are software-based, while it is possible to conduct MRP by
hand as well.
(2)
Nature of functioning:
Based on a master production schedule, a material requirements planning
system

Creates schedules identifying the specific parts and materials required

to produce end items.
Determines exact unit numbers needed.
Determines the dates when orders for those materials should be
released, based on lead times.

FIRM ORDERS
FROM KNOWN
CUSTOMERS

ENGINEER DESIGN
CHANGES

BILL OF
MATERIA
L FILE

AGGREGATE PRODUCT
PLAN

MASTER PRODUCTION
SCHEDULE (MPS)

MATERIALS
REQUIREMENTS
PLANNING
(MRP)

Figure 3: Nature of Functioning of

MRP-1

FORECAST OF
DEMAND FROM
ESTIMATES

INVENTORY
TRANSACTIO
NS

INVENTORY RECORD
FILE
REPORT
S

(3)

Using information culled from the bill of materials, master schedule,

and inventory records file, an MRP system determines the net
requirements for raw materials, component parts, and subassemblies
for each period on the planning horizon. MRP processing first
determines gross material requirements, then subtracts out the
inventory on hand and adds back in the safety stock in order to
compute the net requirements.

The main outputs from MRP include three primary reports and three
secondary reports. The primary reports consist of: planned order
schedules, which outline the quantity and timing of future material
orders; order releases, which authorize orders to be made; and
changes to planned orders, which might include cancellations or
revisions of the quantity or time frame. The secondary reports
generated by MRP include: performance control reports, which are
used to track problems like missed delivery dates and stock outs in
order to evaluate system performance; planning reports, which can be
used in forecasting future inventory requirements; and exception
reports, which call managers' attention to major problems like late
orders or excessive scrap rates.

Although working backward from the production plan for a finished

product to determine the requirements for components may seem like
a simple process, it can actually be extremely complicated, especially
when some raw materials or parts are used in a number of different
products. Frequent changes in product design, order quantities, or
production schedule also complicate matters. The importance of
computer power is evident when one considers the number of
materials schedules that must be tracked.

(4)
Applications of MRP-1:

MRP systems have various applications in the manufacturing firms.

Some of the main applications include helping production managers to
minimize inventory levels and the associated carrying costs, track
material requirements, determine the most economical lot sizes for
orders, compute quantities needed as safety stock, allocate production

time among various products, and plan for future capacity needs.
MRP begins by compiling a Bill of Materials (BOM) for each end product
or component of interest. This is a listing of the components and
quantities that are needed to manufacture the end product or

component.
Process Schedules element. This is a scrollable list, containing a
"sew" entry and a "finish" entry for every factory location. Clicking on
any entry produces a Gantt chart of all the sewing or finishing (broken
down by order) that is scheduled to be done at the chosen factory.

Capacity Utilization element. This scrollable list contains the same

roster of factory locations and sew/finish described above. Clicking on
any combination produces a graph of Capacity and Utilized Capacity
versus Time. Capacity is depicted by a black line, while Utilized
Capacity is filled with color.
(5)

Material Requirements element lists every component used in any

of the five garments and their respective packaging. Selecting any
component generates a graph of the amount of that item required by
the manufacturing processes over the planning horizon

Inventory element contains one entry for each of the five clothing
items. Selecting an item produces a graph of its inventory level versus
time, over the life of the production schedule.
(6)

The information generated by MRP systems is useful in other areas as

well. There is a large range of people in a manufacturing company that
may find the use of information provided by an MRP system very
helpful. Production planners are obvious users of MRP, as are
production managers, who must balance workloads across
departments and make decisions about scheduling work. Plant

foremen, responsible for issuing work orders and

production schedules, also rely heavily on MRP output.

maintaining

Other users include customer service representatives, who need to be

able to provide projected delivery dates, purchasing managers, and
inventory managers.
MANUFACTURING RESOURCE PLANNING:
In 1980s, the need was felt to integrate the financial resources with
the manufacturing activities. From this evolved an integrated
manufacturing management system called Manufacturing Resource
Planning (MRP II). MRP II was thus included in MRP along with
necessary financial information.
In fact the APICS (American Production and Inventory Control Society)
states that manufacturing resource planning (MRP II) is defined as a
method
for
the
effective planning of
all resources of
a manufacturing company. Ideally, it addresses operational planning in
units, financial planning, and has a simulation capability to answer
"what-if" questions and extension of closed-loop MRP.
(7)

Figure 4: Structure of
MRP II

Key elements of MRP II:

MRP II is not a proprietary software system and can thus take many
forms. It is almost impossible to visualize an MRP II system that does
not use a computer, but an MRP II system can be based on either
purchasedlicensed or in-house software.
(8)
Almost every MRP II system is modular in construction. The key
elements in

An MRP II system is:

Master production schedule (MPS)
Item master data (technical data)
Bill of materials (BOM) (technical data)
Production resources data (manufacturing technical data)
Inventories and orders (inventory control)
Purchasing management
Material requirements planning (MRP)
Shop floor control (SFC)
Capacity planning or capacity requirements planning (CRP)
Standard costing (cost control)
Cost reporting / management (cost control) together with auxiliary
systems such as:
o Business planning
o Lot traceability
o Contract management
o Tool management
o Engineering change control
o Configuration management
o Shop floor data collection
o Sales analysis and forecasting
Finite capacity scheduling (FCS) and related systems such as:
o General ledger
o Accounts payable (purchase ledger)
o Accounts receivable (sales ledger)
o Sales order management
o Distribution requirements planning (DRP)
o Automated warehouse management
o Project management
o Technical records
o Estimating
o Computer-aided
design/computer-aided
manufacturing
(CAD/CAM)
o CAPP

(9)
Transition from MRP to ERP:

The transition from MRP II to ERP happened during 1980 to 1990. 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.
Over the years, new business philosophies evolved such as customer
oriented manufacturing (lean production systems); activities based
costing, third party logistics, warehousing, quality systems like ISO9000, zero inspection, supplier partnership etc.
The shortcomings of MRP II and the need to integrate new techniques,
led to the development of the total integrated solution called ERP,
which attempts to integrate the transactions of suppliers and
customers with the manufacturing and service environment of the
organization to produce the best possible plan. Today we see further
development in the ERP concept and evolution of E-ERP (extended
ERP), which is in turn evolving into SCM (Supply Chain Management)
solutions like APS (Advanced Planning and Scheduling).
It is generally a misleading perception that implementing an ERP
system will improve organizations functionalities overnight. The high
expectationof

achieving

all-round

cost

savings

and

service

improvements is very muchdependent on how good the chosen ERP

system fits to the organizationalfunctionalities and how well the
tailoring and configuration process of thesystem matched with the
business culture, strategy and structure of theorganization. Overall an
ERP system is expected to improve both backboneand front-end
functions simultaneously. Organizations choose and deploy
ERP systems for many tangible and intangible benefits and strategic
reasons.
(10)

Figure 5: ERP
system
ERP (Enterprise Resource Planning) systems typically include the following characteristics:

An integrated system that operates in (or near) real time without relying on periodic updates

A common database that supports all applications

A consistent look and feel across modules

Installation of the system with elaborate application/data integration by the Information

Technology (IT) department provided the implementation is not done in small steps.
An ERP system covers the following common functional areas. In many ERP systems these are
called and grouped together as ERP modules:

Financial accounting: General ledger, fixed asset, payables including vouchering, matching
and

payment, receivables cash

consolidation.

application

and

collections, cash

management, financial

(11)

Management accounting: Budgeting, costing, cost management, activity based costing.

Humanresource: Recruiting, training, rostering, payroll, benefits, 401K, diversity

management, retirement, separation.

Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow

management, quality control, manufacturing process, manufacturing projects, manufacturing
flow, product life cycle management.

Order Processing: Order to cash, order entry, credit checking, pricing, available to promise,
inventory, shipping, sales analysis and reporting, sales commissioning.

Supply

chain

management:

Supply

chain

planning,

supplier

scheduling, product

configurator, order to cash, purchasing, inventory, claim processing, warehousing (receiving,

putaway, picking and packing).

Project management: Project planning, resource planning, project costing, work breakdown
structure, billing, time and expense, performance units, activity management

Customer relationship management: Sales and marketing, commissions, service, customer

contact, call center support - CRM systems are not always considered part of ERP systems but
rather Business Support systems (BSS).

Data services : Various "selfservice" interfaces for customers, suppliers and/or employees

Most ERP systems incorporate best practices. This means the software reflects the vendor's
interpretation of the most effective way to perform each business process. Systems vary in how
conveniently the customer can modify these practices. Companies that implemented industry best
practices reduced timeconsuming project tasks such as configuration, documentation, testing, and
training. In addition, best practices reduced risk by 71% compared to other software
implementations.

They can also help comply with de facto industry standards, such as electronic funds transfer. This is
because the procedure can be readily codified within the ERP software, and replicated with
confidence across multiple businesses who share that business requirement.

(12)

Figure 6: MRP to ERP in

nutshell
(13)
ADVANTAGES ASND DISADVANTAGES OF ERP:

Advantages:

The fundamental advantage of ERP is that integrated myriad businesses

processes saves time and expense. Management can make decisions faster
and with fewer errors. Data becomes visible across the organization. Tasks
that benefit from this integration include:

Sales forecasting; which allows inventory optimization.

Chronological history of every transaction through relevant data

compilation in every area of operation.

Order tracking, from acceptance through fulfillment

Revenue tracking, from invoice through cash receipt

Matching purchase orders (what was ordered), inventory receipts (what

arrived), and costing (what the vendor invoiced)

ERP systems centralize business data, which:

Eliminates the need to synchronize changes between multiple systems

consolidation of finance, marketing, sales, human resource, and
manufacturing applications

Brings legitimacy and transparency to each bit of statistical data

Facilitates standard product naming/coding

Provides a comprehensive enterprise view (no "islands of information"),

making realtime information available to management anywhere, any
time to make proper decisions

Protects sensitive data by consolidating multiple security systems into

a single structure.
Other benefits include:

ERP can improve quality and efficiency of the business. By keeping a

company's internal business processes running smoothly, ERP can lead to

better outputs that may benefit the company, such as in customer service
and manufacturing.

ERP creates a more agile company that adapts better to change. ERP
makes a company more flexible and less rigidly structured so organization
components operate more cohesively, enhancing the business-internally
and externally.

(14)
ERP can improve data security. A common control system, such as the
kind offered by ERP systems, allows organizations the ability to more
easily ensure key company data is not compromised.

ERP provides increased opportunities for collaboration. Data takes

many forms in the modern enterprise. Documents, files, forms, audio and
video, emails. Often, each data medium has its own mechanism for
allowing collaboration. ERP provides a collaborative platform that lets
employees spend more time collaborating on content rather than
mastering the learning curve of communicating in various formats across
distributed systems.

Disadvantages:

Customization can be problematic. Compared to the best-of-breed

approach, ERP can be seen as meeting an organizations lowest common
denominator needs, forcing the organization to find workarounds to meet
unique demands.

Re-engineering business processes to fit the ERP system may damage

competitiveness or divert focus from other critical activities.

ERP can cost more than less integrated or less comprehensive

solutions.

High ERP switching costs can increase the ERP vendor's negotiating
power, which can increase support, maintenance, and upgrade expenses.

Overcoming resistance to sharing sensitive information between

departments can divert management attention.

Integration of truly independent businesses can create unnecessary

dependencies.

Extensive training requirements take resources from daily operations.

Due to ERP's architecture (OLTP, On-Line Transaction Processing) ERP

systems are not well suited for production planning and supply chain
management (SCM).

Harmonization of ERP systems can be a mammoth task (especially for

big companies) and requires a lot of time, planning, and money.

(15)
NEXT GENERATION ERP STRATEGIES AND APPLICATIONS:

Enterprise Resource Planning (ERP) technology has long been a staple for
manufacturing organizations that wish to streamline operations and hasten
inventory and warehouse management while improving customer
service. However, with the advent of new technologies, ERP implementations
are about to get dramatically better. These new technologies including
cloud
computing,
mobile
solutions
and
real-time
business
intelligence/analytics along with new advances in warehouse automation -will empower manufacturing organizations like never before.
In fact, these new ERP innovations will allow manufacturers to completely
jump-start their operations. For example, in the very near future,
manufacturers will rely on mobile networked devices and on-demand
software to increasingly enable the seamless integration, tracking and
optimization of key tasks from inventory, shop floor and management all the
way to capacity and materials planning and product quality control.

Manufacturers focused on growing their businesses

implementing these ERP advances in particular:

must

consider

Mobile:
o Mobile is emerging as a critical technology for manufacturers
that wish to empower their remote workers while improving
customer service and satisfaction.
o One leading manufacturer of insulated industrial outerwear relies
on VAIs S2K Sales Force application so that the outside sales staff
can use smart phones and tablets to directly view sales patterns,
notes, previous sales, inventory levels and past appointments
prior to visiting clients.
o They can also enter more notes or place orders in real-time
which are all immediately visible to the back office. This resulted
in a major productivity boost for the manufacturer.

Business Intelligence and Analytics:

o Most manufacturers are not leveraging their own internal data to
their best competitive advantage. In fact, these organizations
often have valuable data scattered throughout their enterprises
without a proven mechanism to find, track and recover exact
components of data in real-time necessary for making more
intelligent decisions on-the-fly as well as keeping abreast of
competitors, sales forecasts, inventory changes and market
trends.
o Next-generation ERP technology will get a boost from new
advances in analytics and business intelligence solutions that will
give manufacturers the ability to rapidly uncover the right data
sets while providing intelligence on how to act on that data
based on the situation at hand.
Warehouse Automation:
o New advances in ERP will give manufacturers the ability to
analyze large data sets to more effectively drive innovation,
productivity and efficiencies. According to a recent study by the
McKinsey Global Institute, a major retailer leveraged the power
of Big Data to improve operating margins by more than 60%.
And, McKinsey believes that the manufacturing industry can
benefit in a similar fashion by leveraging data-driven strategies
to innovate, compete and capture value from both deep and upto-the-minute real-time information.

o There are new technologies that can dramatically improve

operations and inventory management for manufacturers of all
sizes. These advances will transform the role of inventory

management from a record keeping tactic to a more strategic

business asset by driving major improvements in overall
productivity while eliminating costly mistakes in the warehouse.
o On the shop floor and in the warehouse, many manufacturers are
already using RF scanning to improve performance and overall
productivity. By implementing RF scanning alone, manufacturers
can automate the entire warehouse and shop floor, improving
performance across all key areas including: receiving; directed
put away product movement; picking; packing order verification;
returns refused shipment; raw materials issue production; bin
replenishment; warehouse transfers; file set-up; and, cycle
counting.
o For optimal warehouse automation, there are traditional
approaches that companies can utilize most notably fixed
stations and check out stations for validation. And, as an
alternative to RF scanning, some manufacturers are also using
new voice-enabled, label-based and paper-based approaches
that have proven to be effective.
o With so much innovation across core ERP functions critical to
manufacturers, now is the right time for organizations to explore
how these advances can further modernize and streamline
operations, inventory and warehouse management, sales and
accounting, among others. Forward-thinking manufacturers
should consider adopting new mobile cloud, business intelligence
and analytics capabilities in order to stay ahead of the curve and
the competition.

(17)

BIBLIOGRAPHY

Enterprise Resource Planning Theory and Practice; Rahul V.

Altekar

 Enterprise Resource Planning Project; Ganesh L. and Arpita

Mehta
Images from www.inc.com/encyclopedia/enterprise-resource-planning-erp.html
Waldner, Jean-Baptiste (1992). "CIM: Principles of Computer
Integrated Manufacturing [1]": p47. John Wiley & Sons Ltd
Monk, E. and Wagner, B., Concepts in Enterprise Resource
Planning, 2nd Edition, 2006, Editor, Mac Mendelsohn, Canada:
Thomson Course Technology.

(18)