Enterprise Resource Planning Systems in the Manufacturing Industry

By James Donegan


Table of Contents


Introduction

For an organisation to have efficient manufacturing activities there must be integration and coordination between the flow of materials, flow of information and the flow of costs.  Flow of materials relates to the utilisation of resources these could be materials, machinery, manpower, money, or information. Flow of information relates to the planning and controlling of resources.  Without -planning we have no basis for action and no basis for evaluating the results achieved, therefore we have no control over the standards of the products.  In an effective manufacturing organisation each stage of the production process “adds value” to the product, however at each stage of production costs are also accumulated.  These costs could relate to the cost of the raw materials, cost of labour or the cost of machine time.  The driving force behind keeping control of these costs is the flow of information.  Organisation needs to know what products, at what specification are needed for a particular customer.  In order to achieve all of the above the introduction of Enterprise Resource Planning (ERP) system is needed.

The focus of my report is going to centre on Enterprise Resource Planning systems within a manufacturing industry.  My first experience of an enterprise resource planning system was from my industrial placement at Perkins Shibaura Engines Limited (part of Caterpillar Inc); here I was able to see some of the clear benefits and uses of an Enterprise Resource planning (ERP) system.  Below is a diagram illustrating some of the uses of an ERP system that I experienced during my industrial placement.  


History of an ERP

An ERP system is the latest stage of evolution for business planning system that started over forty years ago.  The life of the ERP began with Material Requirements Planning (MRP).  MRP systems where developed to help manufacturing companies create better techniques for ordering materials.  MRP systems used master schedules, the bill of materials and stock records to ascertain the future requirements.  The developments to the system led to a Closed-Loop MRP which allowed users to easily compare the date of when a product was due to be completed, compared to the date the customer required the item.  This was done by taking into account the date the raw material where due to arrive and also factoring the time it took to make or assemble the product.  If any dates where out of alignment then the system would alert the user and step could be taken to resolve the issues.


The next stage of evolution came about from the creation of Manufacturing Resource Planning or MRP II.  This was simply a growth on the closed-loop MRP with additional functionality that could combine other business process such as business planning, production planning & sales and operations planning. These additional functions where also integrated into financial functions allowing results to be expressed in monetary terms.  The ERP systems available today allow for greater financial integration, and incorporation of wider scopes of process within an organisation.  One of the most well known and widely used ERP systems available of the market is SAP which is serving more than 43,400 customer’s world wide.

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Impacts of an ERP System within the Manufacturing Industry

Effect on Inventory

Inventory is more of a liability than an asset, having real value only when it is flowing through operation or used to support them. (Sheikh 2003) Many organisations have problems relating to inventory.  In accounting terms inventory is seen as an asset on the balance sheet, by having lager amounts of inventory and therefore large amounts of capital organisations are loosing out.  The money “tied-up” within inventory could have been used elsewhere in the business to improve processes and drive cost reduction processes.  Large ...

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