1. Enterprise Resource Planning MPC 6th Edition Chapter 1a

2. Enterprise Resource Planning A comprehensive software approach to support decisions concurrent with planning and controlling the business. ERP systems are, first and foremost, integrated.

3. Agenda

4. What is ERP? • ERP software is • Multifunctional • Integrated • Modular • Able to facilitate MPC activities

5. Multifunctional • The ability to track financial performance in monetary terms ($, €) • Can track purchasing activity in material units (pounds, kilos, tons) • Follows sales in terms of products or services • Reports manufacturing activity in terms of products, resources, or people

6. ERP Scope • Enterprise resource planning Manufacturing and logistics Human resource management Enterprise planning models Manufacturing planning and control Sales and operations planning (front end) Material and capacity planning (engine) Material and vendor management (back end) Enterprise performance measures Finance Data warehousing Report generation Sales and marketing Transaction processing

7. Integrated

8. Modular • Functional units (finance, sales, manufacturing, etc.) are narrowly focused • Functional units can be combined to create a single system • Software from other sources can be connected as well

10. 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?

11. Decision Support • Helping users make decisions about running the business • People make the decisions, software provides them with better tools and information

12. 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

13. Performance Metrics

14. 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

15. Supply Chain Metrics Source: Supply Chain Council

16. Cash-to-Cash Cycle Time • Integrates the finance function with purchasing, manufacturing, and sales/distribution Cash-to-cash cycle time = Inventory days of supply + Days of sales outstanding – Average payment period for material Procurement cycle Sales and distribution cycle Manufacturing cycle • Purchase cost of material • Accounts payable • Raw materials inventory • Work-in-process • Finished goods inventory • Distribution inventory • Accounts receivable

17. ERP View of Cash-to-Cash Time • ERP database Accounts payable Purchasing Inventory Cash-to-cash cycle time Manufacturing Cost of sales Sales Sales and distribution Accounts receivable

18. Calculating Cash-to-Cash Time 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

19. 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

20. The ERP Experience • Eli Lilly and Company • Integration of a global company • Process improvement • Simplified training • Strategic direction • Organizational flexibility • Set of global policies

21. 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.

22. 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.

23. Quiz – Chapter 1a • To free the ERP system for basic applications, a _______ _______ is often used to capture, manage, and analyze data. • For a firm with average daily sales (Sd) of $200,000, current inventory (I) of $1,000,000, and cost of sales (CS) of 50%, what is the average days of inventory (Id)? • Which of the following actions would be likely to increase the cash-to-cycle time for a firm? • Increasing the cost, but not the price, of the product • Taking advantage of “early pay” discounts with suppliers • Revaluing inventory to reflect reductions in purchasing prices