CHAPTER 2
MRP (Material Requirements Planning) is a production planning and inventory control system, based on computers (although it is possible to conduct MRP by hand) [2]. It's used in manufacturing processes to transform demand for end products into a time-phased schedule in order to create work and purchase orders for the needed components [1]. So an MRP system tries to achieve four major objectives:
Maintain a low inventory level
Plan all manufacturing processes, create delivery and purchasing orders
Create reschedule notices (if needed) when orders are cancelled, decreased or increased
Ensure that materials are available for production and products are ready to be delivered to customers
While MRP conducts basic material requirements calculations, MRP II (Manufacturing Resource Planning) is a boarder concept. It embeds additional functions such as [3,5]:
Forecasting
Demand Management
Rough-cut Capacity Planning (RCCP)
Capacity Requirements Planning (CRP)
Sales and Operations Planning (SOP)
Plant and Supplier Scheduling
We can define MRP II as "a method for the effective planning of all resources of a manufacturing company" [6]. It's not a clear software function. It combines people skills, data base information and computer resources [4]. Basically MRP II extends material and capacity planning into an integrated and comprehensive manufacturing resources and control system.
As for ERP (Enterprise Resource Planning) it is "an accounting-oriented information system for identifying and planning the enterprise wide resources needed to take, make, ship, and account for customer orders" [6]. So an ERP system contains software packages, which are used to manage and integrate all the business functions within an organisation. These software packages include functions for [7]:
Financial and Cost accounting
Sales and Distribution
Materials Resources Management
Human Resources Management
Production planning and computer integrated manufacturing
Supply Chain
Customer Details
ERP's true power is that transforms the traditional business model to an enterprise business model by trying to combine all functions and departments of a company onto a computer data base system which can then provide information to all different departments [8].
2.2
Production scheduling is a complicated procedure that demands a lot of thought, good knowledge of the factors that affect production and a well organized effort in order to be successful. While trying to find ways to improve the systems of production scheduling we use today it is essential to understand how production scheduling has began and take a look at its historical evolution.
Starting from the first industrial revolution it was then when many manufacturing plants started to structure themselves in order to organize their production. That means it was necessary for drawings to be created, stock to be well manipulated and operations to be monitored. These needs gave birth to a "master production schedule" which was based on incoming orders and stock capacity. Plants were divided into areas, depending on the phases of their production and so different teams of foremen were formed each controlling a specific area [9]. These teams were responsible for ordering raw materials, scheduling the production and shipping the products, each team for its area. This simple structure allowed plants to operate quite successfully.
Trying to improve production scheduling was a continuous effort and soon manufacturing units moved from the plant foremen system to the reorder points (ROP). "Reorder point systems have been described as being positional in nature" [10]. Reorder point systems try to predict future stock demand, based on information gathered from past demand data. That means if stock level fall bellow a predefined level then its time to order new quantities to rise up at that level. At the beginning ROP systems were manual. When computers invaded into manufacturing in the late 1950s these systems became automated [11].
But soon in the mid 1960s ROP systems were gradually replaced by MRP systems.
Figure 1: Manufacturing Planning and Control Stage Model [10]
In the 1970s competition pushed market to adopt a more integrated production and better planning. MRP system was the right tool for this target [13]. We have mentioned before what are the objectives that an MRP system tries to achieve. To do that MRP system needs three basic inputs: the bill of materials (BOM), the master production schedule (MPS) and the inventory records file. So MRP relies upon these three information categories. If any of these information is incorrect then the output data from MRP system will also be incorrect [4]. MRP is not a perfect system. Its major problem is that it cat not tell in advance if a production schedule is feasible. Another thing is that changes in order quantities or in production schedule are frequent and can complicate things. "Differences in timing of demands and quantities needed, revisions caused by late deliveries, high scrap rates, and canceled orders all have an impact on processing" [12].
In the 1980s manufacturing market focused in quality improvement. It needed greater process control and reduced overhead costs [13]. These factors allowed MRP II systems to get into the game. MRP II added a financial accounting and cost management system to the already existing production planning and material management system. We must understand that MRP II "has not replaced MRP, nor is it an improved version of it" [12]. Its purpose was to add more functional areas (such as finance, marketing, human resources) by expanding the scope of production resource planning.
Late 1980s was the period that manufacturing world with the help of computers information technology moved from quality improvement to time-based competition. Changes in production could happen very fast and to face that possibility a new Manufacturing Execution System was born. This new system tried to act as an link between the MRP system of a company and its shop floor. Soon by the mid 1990s the global competition started to increase rapidly. This fact combine with the evolution of computers technology fired the creation of ERP systems. Based on MRP and MRP II, the new ERP tried to integrate business by adding even more functional areas than MRP II, such as: project management, distribution and transportation, service and maintenance [13]. ERP offered an improved coordination across all departments of a company and increased efficiency of doing business.
CHAPTER 3
3.1 CASE - A: ERP at CAMELIN DÉCOLLETAGE INDUSTRIES
Camelin Décolletage Industries is an international supplier of complex parts to the car industry (http://www.decolletage-gay.fr/index_en.htm). Its basic operation is the production of metal parts for the cars (such as brakes, door hinges) and construction of assemblies. It products parts not only for automotive industry but also for aeronautics and space, refrigeration and air-condition, electrical equipment and others. So Camelin has a wide range of customers but its primary customers are companies from the automotive sector [14],[15].
Camelin is located in France. Company size counts about 100 employees and uses a JIT (Just-in-Time) process production. Camelin was a subsidiary of a US company name Textron until 2003 but now its independent. Revenue of the company was 11 million € for the 2004 (this case study refers to 2005). About 65% of its production is exported to Spain, Germany and Czech Republic. Trying to face the competition the company wanted to maintain its quality policy but at lower costs. So Camelin decided to implement an ERP (2004). That was a critical decision for the company to establish logistic services and continue the local production [14]. Main objectives of the ERP implementation were:
Improve information flow and accuracy in:
Decrease inventory management cost
Finally after choosing the suitable ERP started a 10 month implementation which at the end improved all the above. In details:
Production: First of all there was a significant improvement of the monitoring operation of production and of the quality process. It part of the production was marked with a unique part number and carried details about the worker and the machine that made it. Moreover as a result the time to detect faulty products was shortened.
Logistics: Inventory level and cost were reduced due to better and easier access of information via ERP database.
Accounting: Reduced costs of exchanges. ERP offered the ability to invoice car makers via web saving time and money.
In conclusion despite the long period of implementation with the ERP use all main objectives were achieved.
3.2 CASE - B: ERP at TAXIARCHOY AEVE
CHAPTER 4
4.1 SELECTION OF ERP
In order record the criteria for an ERP choice we are going to look back to those two company cases. For the case of Camelin Décolletage Industries there were three main reasons for the ERP selection:
Simple and user friendly interface
Compliance of ERP function with other standards that the company may use (px exchange standards in France)
And of course the price of software licensing
If real life the evaluation-selection method that a company is based on to choose the right ERP system is not a standard operation but depends on many factors such as the size of the company, the field that the company acts, the workflow of the company operations and so on. Some common steps that can guide a company to a successful selection are [16]:
Creation of a team (within the company) for ERP selection that:
Knows how each company sector working parameters
Understands the reasons that made the company to move to an ERP system
Understands the value of sharing information
Have a clear image of the solution that company wants to move to
Will identify the key areas that are critical for the company operation and evolution
Understand how company uses its human resources
Usually the previous step is not mentioned in the selection procedure but we think it's critical for a right choice. After this stage the team should:
Identify which software vendors that
offer a stable and easy to use solution
offer scalable solution that can be adjusted to meet company needs
can offer good after sales service and support
Create a list (based on previous step criteria) of a ten or five vendors that best fit company's requirements for a final review and eliminate the rest
Take information from other same companies that adopted one of the above 10 or 5 solutions
Arrange demonstrations for the above vendors to compare their solutions
Compare prices of these ERPs. This step includes compare of prices of basic modules, extra modules and of course customization and after sales support.
Make the choice
Based on statistics the order of criteria a company is based for an ERP choice is sequence A [17].
A B
Price 1. Company
Products 2. Services-support
Services-support 3. Product
Company 4. Price
The above sequence A can lead to wrong choice because price is not the factor that can make the software to improve a company's workflow. The right orders is B, because it's based on then stability and efficiency of the product which are key factors in order to improve company's operations.
4.2 PHASES OF IMPLEMENTATION [18]
The implementation of an ERP is not an easy and quick procedure. It takes time and must follow the right steps in order to be correct and achieve a smooth and accurate operation of the software. We will start to quote the implementation phases starting after the evaluation-selection of the software package.
Phase 1: Project Planning
It is the phase where all the strategic decisions are made. That means that a team responsible for the implementation decides when to start the procedure, defines a time schedule from the beginning until the end, defines "how to" guidelines for all implementation phases and assigns responsibilities.
Phase 2: GAP analysis
GAP analysis is the phase were all the gaps between the ERP capabilities and the company requirements must be tracked and recorded. That means that the implantation team has a clear view of the software can and cannot do. And that's a critical step for a successful implantation. It has been recorded through statistics that even best software packages can fulfill about 80% of a company's requirements. The rest 20% of requirements goes to the next phase which is ... [18],[19]
Phase 3: Reengineering
An ERP tries to integrate data information and processes of a company into a single system. While the first might be easy the second it's not. That's why a lot of companies change their business process in order to cooperate better with the ERP system. This phase is usually called BPR (Business Process Reengineering).
Phase 4: Training
One of the most critical phases of implantation is training. ERP system doesn't run and give information by itself. It need the right persons, trained to insert data and export the needed information. From this point of view it is very important for the company to choose and train employees that are not afraid to learn and handle something new.
Phase 5: Testing
During testing phase all possible scenarios of ERP system failure must be tested and solved. These cases involve wrong entry data, large number of employees that log on the system at the same time even attack from hackers who want to access protected files. All this functional gaps must be identified and solved at this phase.
Phase 6: Post implementation
Post implementation phase starts after implementation is over. That means that the vendor will no long offer its services and the responsibility for the ERP system to run properly lies on the company staff. So it's critical the above phases such as training and testing to be done correctly or else the company will phase serious problems which usually appear at the post implantation phase.
CHAPTER 5
5.1 SIZE AND TYPE OF COMPANIES SUITABLE FOR ERPs
5.1 ERP FOR MANUFACTURING AND OTHER SECTIONS [22]
It is true that ERP started it's "life" trying to service the manufacturing industry. And helped a lot to achieve high quality and better efficiency on all the processes. That was done by improving information flow through the company, organizing with a more efficient way the company's sectors, improving the supply chain and giving the right information needed to track down a part or final product. It is commonly accepted that judging from the amount of benefits from an ERP system, manufacturing industry comes first. But there are other sectors/markets that ERP is used.
A major sector is the food and beverage industry. Food and beverage manufacturers want to find ways to satisfy customers and at the same time operate with profit despite consumer demands, government regulations, raw material variability and capacity limitations. These ERP systems for food and beverage incorporate all the industry features. This means they have flexibility and their main target is to improve profitability at even the largest companies. Food distributors can manage the supply chain and deal with their customers more effectively than in the past with only one system which includes customer service, inventory, manufacturing, finance and warehouse logistics management [21].
Another large section is pharmaceutical industry. These companies need ERP system to support a smooth flow of raw materials, delivery time schedules, tracking of receivables and payments to suppliers. They also need a decision tool for management analysis and for supply chain management. Dealing with all the above requirements with an efficient way has as a result a higher efficiency and better performance. ERP helps pharmaceutical companies to use their resources and man power to the most productive way by connecting all the departments of the company. [24]
Insurance market is another sector that gained benefits by using ERP. It helped to make easy all the transactions by giving insurers and agents a common platform. Monitoring the performance of an agent was another benefit from the ERP usage. Finally all the delays that insurance market is famous for were reduced by the flow of information through the use of ERP.
Health market (hospitals) also takes advantage the fact that databases can be shared with ERP. These databases include data for patients, what we call medical record. So if a patient goes into a hospital in an emergency case, the doctor(s) in charge can deal with him with no delays since they have access to all his medical record (provided that the hospital has an ERP). This fact can save a patient's life.
Hotels don't miss the chance to take advantage of ERP information flow and reduce their operational costs concerning the departments. Hotels can handle and coordinate all their actions with an ERP system which is controlled from the reception desk.
At last another section is the software market. We must not forget that ERP is a child of this market so one can assume that it's easy for software market to use it. But why should this market use ERP? The IT industry projects need accurate coordination all the way through managers and programmers and all within the shortest span of time. ERP helped dramatically to change this situation by offering the opportunity for better execution of the projects in a shorter time. And by saving time a company saves money.
