Total Erp Organisational Functions

© Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition by Mary Sumner

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Enterprise Resource Planning, 1st Edition by Mary Sumner

Chapter 6:

ERP Systems: Production and Materials Management


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Objectives

• Examine the production management system in ERP

• Understand the materials management system

• Acknowledge the interrelationships among business processes supporting production and materials management


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Case: Atlantic Manufacturing

• Materials and manufacturing are dealing with inconsistent levels of raw materials and finished products

• Change specifications are not made timely• Sequential design produces long lead times• Inadequate information from other divisions• Lost purchasing requisitions


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Manufacturing Systems Background

• Designed to re-order inventory using re-order point– Adapts production to customer orders– Increased flexibility, responsiveness, integration

• 60s, 70s, 80s: High-volume production of few products

– Mainframe-based databases• Late 80s: Production of new products to meet

customers’ needs– Changeable and flexible– Manufacturing Execution Systems provided continuous

feedback and control• 90s: Integration of processes and data produce

operational efficiency– ERP systems gave total integration, including supply chain


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Problems with Traditional Production Systems

• Lack of integration between divisions in organization

– Production must be linked to sales to maintain proper inventory levels

• Inaccurate production forecast will create incorrect purchasing decisions

– Producing either a shortage of or extra raw materials

– Creating an excess of finished products or shortage

• Excess inventories– Impact cash flow and profitability in accounting


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Production Systems

• Objectives– Create production plan– Acquire raw materials– Schedule equipment, facilities, human

resources– Design products– Produce appropriate quantities and

expected quality level


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Production Planning and Manufacturing Processes

• Operational-level processes– Daily activities

• Purchasing– Acquire correct quantity of raw materials and supplies

• Receiving – Inspection of delivered products and processing

• Quality control– Monitoring of receivables and identification of

unacceptable deliveries

– Monitoring quality of production goods

• Inventory management– Maintains appropriate levels


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Information Systems Support

• Production planning and manufacturing processes

– Supported by information systems• Data collection systems• Material management systems• BOM systems• Inventory management systems• Cost accounting systems


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Material Resource Planning

• Processes:– Identify stock needed– Calculate lead time for stock– Determine safety stock levels– Assign most cost-effective order quantities– Produce accurate purchase orders

• MRP takes inputs from the MPS• MPS employs sales forecasts to identify

products needed


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Just-in-Time Systems

• Ideal production and manufacturing situation– Only maintain necessary inventory levels; no

excess– Requires supplies to be delivered only as needed

to meet production schedule• EDI or Internet used to place orders• Continuous replenishments of raw materials

– Reduces storage cost and space both pre- and post- production

– Improved supply chain and value chain management


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Capacity Planning

• Evaluation of production capacity against production goals

– Requires specific information– Creates time-phased plans for product and

production area• Production scheduling

– Allocation of specific facilities

– Estimates human resource needed

• Product design and development is integrated with cost information

– Allows comparison of alternatives to decrease expenses


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Production Planning and Materials Management Modules

• ERP extends information distribution– Supports materials requirement planning, inventory management,

capacity planning• Allows for merging of multiple databases

– Eliminates paperwork and bottlenecks– Decreases design costs, lead time, personnel costs– Increases productivity

• Sales forecasts employed to develop production plans• MPS created through demand management

– Determines quantities and dates for finished products• MRP creates efficient, detailed material plan

– Determines what needs to be ordered and when– Creates work orders sent to production

• ERP systems provides integration


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Materials Management Modules

• MES– Factory floor information and communication systems– Provide feedback on real-time basis– Can be front-end combined with back-end applications

• APS systems– Business analysis and support – Leverage data for decision support

• Data collection– Real-time data gathered with mobile phone or Internet-

enabled devices– Automated data collection


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eBusiness Strategies

• Facilitates communication along supply chain

• B2B– Many suppliers available– Internet enables quick and easy exchange of

information• Planning forecasts

– eMarketplaces allow for aggregation of buyers to improve purchasing power

• Reduces costs• Communities

– Eliminate traditional supply chains and problems– RFPs handled more efficiently


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Featured Article: What ERP Can Offer ABC

• What manufacturing data is used by the managerial accounting module within ERP?

• How is this information used to control costs, to maximize productivity, and to streamline operations?

• How does this data integration support managerial decision making?


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Featured Article: What ERP Can Offer ABC, continued

• Activity-based costing systems – Need correct activity cost driver

• Nonfinancial measures difficult to find in accounting systems

• Usually not controlled by accounting system– Lack process controls

• Often derived from “back-of-an-envelope” information systems

– ERP systems and activity cost-driver information• Increase availability • Increased reliability• Allows for integration of multiple systems


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• SAP’s R/3 system– Links production planning with materials

management• Allows establishment of standards• Materials handling as process

– Activity cost driver – “number of pallet moves”– Materials handling process attributed to specific

product– Direct costs can be calculated instead of being

considered overhead– Bill of services created


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– Activity-based budgeting• Anticipates demand on process• Estimates practical capacity• Estimates quantity of direct materials and direct costs• Can be used to improve processes, determine

adjustments

– Collects nonfinancial measures for use as drivers• Formal process• Built-in controls for reliability• High degree of integrity


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ERP Systems: Sales and Marketing


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Objectives

• Examine the sales and marketing modules

• Understand the interrelationships among business processes


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• Manufacturer of small motors• Problems with current order acquisition,

operations, distribution, and accounting systems

– Information supplied to sales force inaccurate– Customers requesting reduced lead times– Credit system inconsistent, producing collection

problems– Service calls lack warranty information– Quality control system not integrated

• Competition has eliminated these problems


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Sales and Marketing Processes

• Operational-level processes– Daily activities

• Prospecting, telemarketing, direct mail

– Contact management• Databases, lists

• Support– Sales order processing system– POS systems


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Sales Management Control Processes

• Designed to allocate resources to achieve maximum revenues

• Decisions made on analysis of sales– Comparison of sales – Analysis of revenues against benchmarks– Listing of most profitable products, sorted by territory and

salesperson– Software often used

• Allows for quicker analysis• Able to identify trends • Analyze salesperson performance• Identifies both strong and weak products• Can signal potential shortfalls or excesses in stock levels


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Additional Sales Management Applications

• Sales forecasting– Predicts trends– Determine customers’ needs in different market

segments– Based on sales history, customer demands,

demographic trend, competitor information• Advertising

– Identifies channels that will be most effective• Product pricing

– Decision supported by pricing models– Examines CPI, expected consumer disposable

income, production volumes, labor costs, costs of raw materials


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Sales and Marketing Modules

• ERP systems differ from traditional systems– Allow for integrated marketing support systems– Provide integrated CRM software

• Purpose– Identify sales prospects– Process orders– Manage inventory– Arrange deliveries– Handle billing– Process payments

• Benefits– Standard codes and documents– Common database– Provides audit trail – Allows for data Integration


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CRM

• Front-end interface with customer to sales and marketing

• Comprehensive approach• Developed from sales force automation software• Provides sales force with management tools

– Sales activity– Sales and territory management– Contact databases– Leads generation and monitoring – Product-specific configuration support– Knowledge and information resource management

• Needs an underlying Sales and Marketing ERP module for operational-level data

• CRM data accessible through data warehouse


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Integration with Modules

– Human Resources– Quality Management– Controlling

– CRM– Financial Accounting– Materials Management

• Sales model may be integrated with:


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Featured Article: Staples and Integrated ERP

• How is technology helping Staples achieve a competitive advantage?

– Customers want full range of services• Consistent• Seamless

– Online kiosk• Connected to e-commerce web site

– POS system, order management system, supply chain• Access information about products and services• View inventory• Build PCs to order

– Multiple channel shoppers have greatly increased lifetime value

– Acquired Quill• Implemented an integration level to connect two disparate

systems


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Featured Article: Staples and Integrated ERP, continued

• Reduced number of direct linkages

– Standardized systems• Web services

– Team review of systems, users, needs


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Chapter 5:

ERP Systems: Accounting and Finance


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Objectives

• Examine accounting systems within ERP

• Understand ERP financial systems

• Review the interrelationships among business processes supporting finance and accounting


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• Inaccurate and/or incomplete paperwork produces problems

• Exchange of information between departments made manually

• Unable to supply quantity discount information to sales force

• Lack of coordination between departments


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Accounting Processes

• Operational management level

– Production of transactions

• Paychecks, invoices, checks, purchase orders


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Management Control Processes

• Budgeting– Analysis of allocations, expenditures, revenues

• Cash management– Cash flow analysis– What-if analysis

• Capital budgeting– Evaluation tools: NPV, IRR, pay-back period

• Investment management


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Accounting Systems

• Traditional– Provide operational-level software

• Produce invoices, checks, statements

• Financial accounting– Financial statements for external reporting

purposes

• Management accounting– Information on profitability


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Accounting Systems v. ERP Modules

• ERP– Information shares integrated database– Provides up-to-date information– Seamless– Creates document flow of transactions

• Accounting systems– Manual or separate transfer of information– Multiple platforms


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ERP Financial Accounting Module

• External reporting– Set by general accounting standards– Legal requirements

• Includes accounts receivable subsystem– Interfaces with cash management– Monitors accounts and updates, handles

payments, creates due date lists, produces statements

• Accounts payable– Handles payments, applies available discounts to

maximize profits


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Management Accounting Modules

• Internal accounting perspectives for directing and controlling operations

• Information on variances between planned and actual data• Key activities

– Cost center accounting– Internal orders as a basis for collecting and controlling costs– Activity-based costing of business processes– Product cost controlling for profitability analysis– Profitability analysis by market segment– Profit center accounting of individual areas of organization– Consolidation of financial data for accounting perspectives

• Enable management to better allocate resources, maximizing profitability and performance

• Central clearinghouse for accounting information


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ERP Systems

• Provide on-line, real-time data– Operational data

• Feedback on quality and efficiency of processes• Information must be timely and specific• Used for real-time operational control

– ABC data• Information on profitability and products• Real-time data• Estimates are sufficient• Strategic information• Basis for continuing improvement to operations


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Featured Article: The Changing Landscape of Computerized Accounting

Systems

• Define each of the “in-technologies and systems”.

• What is their relationship to the success of ERP?


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Featured Article: The Changing Landscape of Computerized Accounting Systems, continued

• New types of accounting software– Fair pricing– Database management standardized

• Ease of mobility– PC-based

• New markets– ERPs dominate highest end– Mid-levels are SQL-based and non-SQL-based– Low-end systems range from very low end to

more robust– E-commerce and e-business drive most mid- and

high-level systems, as well as a few low-level


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• Internet-based commerce– Hottest technology– E-business

• Quicken allows remote entries through Web• EDI and EFT

– E-commerce• Amazon.com and on-line securities trading• Dell Computer

• ERP– Internet additions– Prices decreasing


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• Best practices– Improve bottom line– Create air of control

• Structured Query Language– Database of choice


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7-50


Chapter 7:

ERP Systems: Human Resources


7-51

Objectives

• Examine the HR processes supported by ERP

• Understand the interrelationships among business processes supporting human resource management


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• Recruitment, training, and retention of sales force is difficult

• HR records inadequate• HR paperwork and compliance requirements

increase steadily• Management of compensation packages

difficult• Needs to create a strategy for controlling the

cost of various employee benefits


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Human Resources Problems

• Maintaining accurate employee information

• Job analysis and design

• Applicant selection

• Compensation

• Benefit administration

• Training

• Governmental reporting


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Evolution of HR Systems

• Traditionally relied upon stand-alone systems

– Specialized applications for applicant tracking, compensation, benefits, attendance• Redundant data

– No link to financial systems

• ERP– Linked to financial systems– “Best practices”


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ERP HR Modules

• Components– HR Management

• Personnel records• Resumes

– Benefits administration• Links employee data to actual benefits• Allows selection from group of benefits

– Payroll• Paychecks, tax reports, accounting data

– Time and labor management– Employee/Manager self service

• Travel reimbursement• Personnel data and benefits changes• Training class


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HR Modules

• Attributes– Integration– Common database

• Provide audit trails

– Scalable and flexible– Drill-down capability– Workflow management for electronic routing of

documents and other document management– Process standardization– Security– User friendly and web-accessible


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Management Control Modules

• HR information enables management of diverse workforce• Supports managerial decision making through query and

reporting tools• Operational level controls

– Maintain and update employee files– Job analysis files– Design files– Regulatory files– Skills inventory files

• Strategic level controls– Human capital inventory for tracking employees– Position control linked to budgeting– Labor/management relationships– Business intelligence tools for predicting trends

• Module integration is significant benefit


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Featured Article: Keep Track of Your Employees

• What are the benefits of automated time and attendance records?

• What advantages might accrue to employees using these systems?


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Featured Article: Keep Track of Your Employees, continued

• Employees’ attendance, time at work, and skill levels

– Most companies uncertain– If tracked, usually manual– Records usually neglected– Often piece-meal, no end-to-end solution

• Benefits of automating– Eliminates manual process

• Time-consuming• Error-prone• Better analysis• More control


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Featured Article: Keep Track of Your Employees, continued

• Banner Health– Selected Kronos Inc. software

• Time- and labor-management • Accessible from web, phone, badge terminals• Information available in real-time

– Allows for quick staffing adjustments• Financial benefits to employees, company

• Smurfit-Stone Container Corp– Uses Workbrain Inc.’s ERM3, SAP financial

applications, and PeopleSoft payroll processing• Web-based employee-relationship management

software– Optimized scheduling and tracking of employees– Interfaces with PeopleSoft applications


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Summary

• The sales and marketing modules for ERP systems are designed to support the sales order processing systems, control daily activities like prospecting, and manage contacts.

• This system produces sales forecasting, identifies advertising channels, and helps to maintain competitive pricing scales.

• The CRM module serves as a front-end interface between the customer and the sales and marketing departments.

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Total Erp Organisational Functions

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