17–1. 17–2 chapter seventeen copyright © 2014 by the mcgraw-hill companies, inc. all rights...
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17–1
Operations andSupply Chain Management
CHASE | SHANKAR | JACOBS
14e
17–2
ENTERPRISE RESOURCE PLANNING SYSTEMS
Chapter SeventeenCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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Learning Objectives• LO17–1: Understand what an enterprise
resource planning (ERP) system is.
• LO17–2: Explain how ERP integrates business units through information sharing.
• LO17–3: Illustrate how supply chain planning and control fits within ERP.
• LO17–4: Evaluate supply chain performance using data from the ERP system.
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.Enterprise Resource Planning
• A comprehensive software approach to support decisions concurrent with planning and controlling the business.
• ERP systems are, first and foremost, integrated.
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AgendaWhat is ERP?
Connecting functional units with ERP
The need for standardization
Support of MPC decisions
Transaction processing
Performance metrics
The ERP experience
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What is ERP?
• ERP may mean different things.– A comprehensive decision support
software that plans and controls
– A software system that integrates all applications from different functional areas Integration through a common database
– Able to facilitate MPC activities
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ERP Vendors
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.What is Required for ERP?
• ERP requires – Consistent numbers across all
applications– Software should be:
Multifunctional (manufacturing, service, etc.) Integrated (handled only once across all
applications) Modular Able to facilitate MPC activities
– Routine decision making– Capacity for all transaction processing
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.ERP and Decision Support
• ERP software – Supports analysis of data for decision
support– Helps make intelligent decisions– Note: People make decisions not software
• Bolt-on software modifies and enables new approaches to decision making
• Modifies existing procedures to make it more efficient
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Decision Support
• Helping users make decisions about running the business–People make the decisions;
software provides them with better tools and information.
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.Transaction Processing
• An ERP system is designed to process business transactions in real time, working from a single database.
• Data warehouse software may be added to facilitate queries not built into the ERP system.
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ERP Scope
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.What is Data Integration?
Data entered by one functional area updates all other functional areas and the data are processed in real time.
Eliminates reposting of data (errors)
Ensures a common vision
instantly displayed
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MPC Activity SupportForecasting
Production planning
Material planning
Inventory management
MPC Activity Support
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.Process Standardization
• Without standard terminology, integration is impossible.–What is demand?–What is inventory?– How are exchange rates determined?–What transfer costs apply (for internal
transactions)?–What labor rates are applied?
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.Integrated Supply Chain Metrics
• Developed by the Supply Chain Council.
• Designed to measure the impact of decisions on the entire supply chain.
• Avoids development of functional silos by developing metrics that reflect the entire supply chain.
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.Cash-to-Cash Cycle Time
• Integrates the finance function with purchasing, manufacturing, and sales/distribution
Procurement cycle
Manufacturing cycle
Sales and distribution cycle
• Purchase cost of material
• Accounts payable
• Raw materials inventory
• Work-in-process• Finished goods
inventory
• Distribution inventory
• Accounts receivable
Cash-to-cash cycle time = Inventory days of supply + Days of sales outstanding – Average payment period
for material
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Performance Metrics
Functional silos – Each area is responsible for optimizing its own operation, with no consideration for how the overall firm is affected.
Purchasing pursues cost rather than
quality.
Manufacturing builds long runs rather than
responding to customers.
Distribution focuses on cost of delivery stages instead of total system
costs.
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Supply Chain Metrics
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.ERP View of Cash-to-Cash Time
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.Calculating Cash-to-Cash Time
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Average daily sales (Sd)
Accounts receivable days (ARd)
Average daily cost of sales (Cd)
Average days of inventory (Id)
Accounts payable cycle time (APd)
Cash-to-cash cycle time
d
SSd
d
ARARd
CSSC dd
dd C
II
dd C
APAP
ddd APIARtimecyclecashtoCash
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Cash-to-Cash Example• Sales over last 30 days = $1,020,000
• Accounts receivable = $200,000
• Inventory value = $400,000
• Cost of sales = 60% of total sales
• Accounts payable = $160,000
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000,3430
000,020,1
d
SSd
daysd
ARARd 88.5
000,34
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400,20)6.0(000,34 CSSC dd
daysC
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dd 6.19
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daysC
APAP
dd 84.7
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daysAPIARtimecyclecashtoCash ddd 64.1784.76.1988.5
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The ERP Experience
• Eli Lilly and Company
– Integration of a global company
– Process improvement
– Simplified training
– Strategic direction
– Organizational flexibility
– Set of global policies
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Concluding Principles
• Redundant transactions must be reduced or eliminated.
• To maintain data accuracy and realize efficiencies, information must be captured at the initial entry, using documented processes.
• Processes need to be changed to support the data needs of the ERP system – hardware and software alone isn’t sufficient.
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Concluding Principles
• The company must define a comprehensive set of performance measures, with policies and goals that correspond to these measures.
• IT economies of scale can be obtained from supporting fewer hardware and software platforms.