Week 8

Q1. Many people argue that MRP is a precursor to ERP, and ERP systems were designed to integrate MRP systems with financial and accounting systems.

Materials Requirement Planning (MRP) was developed around the 1960’s by Joseph Orlicky and was enhanced to become known as Manufacturing Resource Planning (MRP 11) by Oliver Wight around 1975 and from there emerged the Enterprise Resource Planning (ERP) and (ERP 11), a computer technology method used to link various business functions such as accounting, human resources and inventory control across the entire organisation. The Y2K problem and internet interfaces motivated various companies to adopt an ERP system and are still continuing to learn and strive to achieve full system capabilities to harvest benefits of integrating their systems and processes.

a) Given the interrelationship between MRP and ERP, does it make sense for a non-manufacturing company to adopt an ERP system?

Considering that all businesses have common core functions (i.e. financial, cost and managerial accounting, human resources, sales, quality management and customer services), it would make little difference whether or not the organisation is a manufacturing type, therefore it would make sense for a non-manufacturing company to consider adopting an ERP system. Any company may benefit from implementing a successful ERP system through having centralised integration capability (instead of data entered at multiple stages), re-engineering their activities, improving accounting and management practices and in turn, lower their operating costs and the ability to provide efficient and effective customer relationships and services.

b) Have manufacturing systems been the basis for all ERP systems?

Manufacturing systems have not been the primary focus of Enterprise Resource Planning (ERP) systems. The ERP initial focus was to implement and integrate internal applications that support finance, accounting, manufacturing, procurement and human resources and the internet has now revolutionised supply chain way of thinking. Manufacturing systems lacked flexibility for changing customer needs and integration capabilities such as production planning, sales, procurement and accounting whereas ERP manages supply chain processes and provides operational efficiency through data integration to meet customer needs and expectations.

Q3. The Production Planning and Materials Management modules within ERP have interfaces to other modules, including Human Resources, Sales and Distribution, and Financial Accounting. Describe these interfaces and what information is shared with Production Planning and Materials Management.

According to Sumner (2005), The Production Planning and Manufacturing modules support Materials Requirement Planning (MRP), inventory management, capacity planning and shop floor control. The Materials Management module supports functions for procurement and inventory such as purchasing, inventory management and reorder point processing. The finance, marketing, human resources management and other functions are integrated to access the data requirements with the concept eliminating paperwork and bottlenecks associated with non-integrated data.

Human Resources

The Human Resources module supports the planning and control of personnel activities and stores secured and unsecured data relating to current and terminated individual employees. The module additionally provides capacity planning estimates of human resources required to meet master production plans and needs. Manufacturing Execution Systems (MES) support many functions including labour management to provide feedback on a real time basis from the factory floor.

The Human Resources module interfaces with the accounting module components (i.e. Management Accounting) sharing information with Production Planning and Materials Management. For example, the Human Resources payroll component interfaces employee costs to the Accounting module component, mapping individual cost centres relating to labour costs (i.e. time, attendance, hours). Other internal and external interfaces/ mappings include leave provisions, taxation, compensation, reimbursements, pay deductions, superannuation, fringe benefits and payroll bank transfers.

Sales and Distribution

Sales and Distribution is a subsystem that assists with sales tasks and activities, delivery and billing and is a subsystem that integrates with the ERP Materials Management module. The subsystem interfaces to the Financial Accounting module, accounts receivable – cost of goods sold, when a purchase requisition is created and assigned to a sales order, provided that the sales and operations subsystem that supports Production Planning produces the right information to determine if production supply can meet consumer demand.

The Sales and Operations Plan determines manufacturing resources required to support the forecast input into the Demand Management module for Production Planning that links the forecast to the Master Production Schedule (MPS), Material Requirement Planning (MRP) that uses inputs from the MPS, Manufacturing Execution that creates production from planned orders and Order Settlement confirmation. Each production planning module has important inputs for next module to produce sales orders.

Financial Accounting

Financial Accounting is a component of the ERP Accounting module that is typically designed for automated management and reporting. Financial Accounting manages labour, purchase orders to acquire raw materials and direct manufacturing costs from production planning and materials management, sharing common vendor data with purchasing. Invoices are integrated from Sales and Distribution events to Accounts Receivable costs of goods sold. Data entry relating to the sales production and payments journal entries reflect a real live journal posting of the situation to produce external reporting of the following:

• General Ledger
• Cash Management
• Accounts Receivable
• Accounts Payable
• Fixed Assets
• Other sub-ledger accounts

References:

Lozinsky, S 1998, Enterprise-wide software solutions: integration strategies and practices, 1st edn, Addison Wesley, Reading.

Davenport, TH & Brooks, JD 2004, Enterprise Systems and the Supply Chain, Journal of Enterprise Information Management, vol.17, no.1, pp.8-19, viewed 27 December 2009,
http://www.emeraldinsight.com.ezproxy.cqu.edu.au/Insight/viewPDF.jsp?contentType=Article&Filename=html/Output/Published/EmeraldFullTextArticle/Pdf/0880170101.pdf

Sumner, M 2005, Enterprise resource planning, 1st edn, Pearson Prentice Hall, Saddle River.

Spathis, C &Constantinides, S 2003, The usefulness of ERP Systems for effective management, Industrial Management & Data Systems Journal, vol.103, no.9, pp.677-685, viewed 27 December 2009,
http://www.emeraldinsight.com.ezproxy.cqu.edu.au/Insight/viewPDF.jsp?contentType=Article&Filename=html/Output/Published/EmeraldFullTextArticle/Pdf/0291030904.pdf