ERP

Enterprise
Supply Chain Management

Education & Training
Resource
Planning
©Copyright 2000, Honeywell Inc.
All Rights Reserved
SCM E&T Programs
Course Objectives
• Understand what ERP is and its scope

• Identify the value-added benefits of
going to ERP
• Explain how ERP unifies business
processes
• Explain ERP’s relation to E-Commerce
• Explain ERP’s relation to Supply
Chain Management
©Copyright 2000, Honeywell Inc. SCM E&T Programs
All Rights Reserved
Pre-
Assessment
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You Are Here!
Module Topic
1 Introduction to ERP
Strategic Planning (Executive
Support)
2 ERP and the Customer
ERP and Product Design Engineering
3 ERP and Manufacturing
ERP and Logistics
4 ERP and Supporting Functions
ERP and Technology
SCMConclusion
E&T Programs
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Introductio
n
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What is ERP?
A method for the effective planning

and control of all resources needed
to take, make, ship, and account
for customer orders in a
manufacturing, distribution, or
service company.
APICS Dictionary, 9th Ed.
Next...
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What is ERP?
• ERP can be thought of as a company

wide information system that
integrates all aspects of a business.
• Integration of all company functions
means everything from sales, human
resources, accounting, distribution,
manufacturing, and supply chain
management are tightly integrated.
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ERP’s Coordination of
Company Functions
• ERP provides the means for
monitoring company performance
– Sales and operations performance
– Customer service performance
– Financial performance
• ERP provides the means for directing
company operations
• ERP provides the interface for Supply
Chain execution requirements
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ERP Objectives
• Provide timely information

• Reduce delivery lead times
• Improve on-time deliveries
• Improve response time to changes
• Reduce cost to customers
• Improve inventory turns
• Improve company profits
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Benefits of an Integrated
ERP System
• Every department has access to the

same data bases
• All information is current and “live”
• All system users know immediately
when any transaction occurs
• Delays in communicating data or
information are significantly reduced

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Advantages of ERP
• Supports collaborative planning,

forecasting, and replenishment
• Provides information to synchronize
supply and demand activities
• Provides information on transactions
so parties can determine the impact on
their activities or departments .
• Helps one to grasp interrelationships
and tradeoffs in business decisions
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Information Relationships
Company Planned
Sales & Operations Direction Strategic
Plan Plan Enterprise
Enterprise Resource Relationship
Research & Management
Development Manufacturing Planning (ERP) Supply Chain
Plan Engineering Execution
Order Marketing
Maintenance Generation Plan
Management Manufacturing Resources
Financial Forecasting
Plan Human Planning (MRP II) Order Entry
Accounting: Sales
Resources Master Inventory Demand
Customer Support Manage-
Electronic Standard Cost Scheduling Management
Service Logistics & ment
Personnel Commerce Production Distribution
Plan Purchasing Capacity Activity
Supplier Requirements Control Field Supply
Integration Planning Service Chain
JIT
Quality Plan
Management Engineering Advanced Support
Measurements Manufacturing Planning &
Integration
Execution Scheduling
PDM System

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Popular ERP System
(SAP R/3)
• Sales and Distribution
The SAP R/3 ERP system • Materials Management
includes many of the • Production Planning
functions within an • Quality Management
organization such as • Plant Management
• Human Resources
material and production
• Financial Accounting
management as well as • Controlling
functions related to • Fixed Asset Management
recording sales and • Project Systems
distribution of the • Workflow
company’s products. • Industry Solutions

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Q&A on ERP

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What is the Difference
Between ERP and MRP?
• ERP combines information from
many functional systems including
MRP, and makes it available to any
user upon request.
• With an ERP system, MRP continues
to perform its standard functions.
• The ERP system shares information
where and when needed.
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Why Should Companies
Go to ERP?
• Companies must provide fast
responses to customer requests.
• Fast responses are based on having
correct information available.
• Information traditionally resides in
multiple, independent systems.
• ERP provides rapid access to the
information from related systems.
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What Is the Scope of
Processes Covered by ERP?
• The SAP R/3 slide shows processes

covered by one popular system.
• Other ERP software systems include
a variety of modules.
• Companies usually install ERP
systems with desired modules and
add additional ones as needed.

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How Will ERP Tie
Departments Together?
• ERP provides rapid access to different
department’s data files.
• All departments must provide timely
data updates and assure data
accuracy for ERP to be effective.
• Departments will have to operate as
elements of a total system rather than
as independent functional areas.
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What Disciplines are
Required for ERP?
• The key to improved performance is
accurate data on a real time basis.
• Departments must:
– Understand what their ERP system is
designed to accomplish
– Change and enforce procedures to support
new operational requirements
– Prepare key supply chain processes for
implementation using the supply chain
readiness measures
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What Are Readiness
Measures?
• A set of metrics used to track the
readiness of supply chain processes
to perform satisfactorily in an ERP
environment (single source of data,
etc.)
• Requires SBEs to maintain target
performance levels in key supply
chain processes

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Performance Measures
• Customer order entry accuracy
• BOM accuracy
• Customer delivery to first promise date
• Customer invoice accuracy
• Inventory record accuracy
• Production plan performance stability
• Production order released with full lead time
• Master production schedule performance
• Routing accuracy
• Supplier delivery to agreed schedule
• Purchase order released with full lead time
• Customer master data file completeness and accuracy
• Supplier master data file completeness and accuracy
• Product master data file completeness and accurate

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How Do You Transfer to an
ERP Environment?
• Involve process owners in identifying
process readiness and desired data
requirements
• Develop a culture of change.
• Provide education and training.
• Assign responsibilities for system
operation and maintenance.
• Develop data accuracy metrics.
• Measure progress and performance.
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Should Reengineering be
Used?
• One major benefit of installing ERP
systems comes from improving the
existing way of doing business.
• All the processes in a company
should conform to the ERP model.
• No ERP solution solves all problems.
• Reengineering may be required to
satisfy all requirements.
Next -
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Should Reengineering be
Used?
• Departments must review their
operations to determine their ability
to support ERP requirements.
• Ability to support management’s
requirements for accurate and timely
data in real time must be evaluated.
• Deficiencies should be corrected,
using reengineering if necessary.

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What Are Organizational
Implications of ERP?
• ERP provides for accurate and timely

information that management needs
to manage their business.
• This provides a strategic advantage
in being able to respond rapidly and
accurately to customer requirements
to their satisfaction.

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How Do Company
Functions Use ERP?
• Each functional department will use ERP
to access the data they need to perform
their tasks and to provide data needed by
other departments.
• As both a “user” and a “supplier” of data,
their commitment to providing real time
updates and maintaining data accuracy
will be a success factor.

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What is Leadership’s Role
in Assuring ERP Success?
• Implementing ERP is a matter of
repositioning the company and
transforming business processes.
• ERP can have a strategic implication
for improving competitiveness.
• Management must ask questions:
– Will ERP strengthen the company’s
competitive position?
Next -
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– How will ERP affect the organization?
– What should the scope of the ERP
implementation be?
– Are their alternatives that meet the
company’s requirements better?
– How can an overall company
commitment be obtained?
• After answering the questions,
actively lead the change.
Next -
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• Present company vision
• Obtain agreement on objectives
• Openly exchange information
• Provide education and training
• Provide resources
• Stress team performance
• Require results
• Give credit
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Decisions, Decisions!

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How Does E-Commerce Fit
With ERP?
• E-Commerce results in:
– Increased demand for products
– Many orders and for smaller quantities
– Requests for faster deliveries
• Order and shipment information is
needed in real-time.
• ERP assures information will be
readily available to those needing it.
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How Does ERP Relate to
Supply Chain Management?
• A supply chain consists of internal
and external supply chain elements.
• ERP provides access to information
used in managing internal activities.
• ERP systems are also expanding their
coverage to include external supply
chain data so that all users will have
status visibility of the entire process.
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Internal Versus External
Supply Chain
A Supply Chain
Suppliers Inbound Manufacturing Trans- Ware- Delivery Retailer
Logistics portation housing Customer
Internal
External Supply Supply External Supply Chain
Chain Chain
(Source/Buy) (Order/Make/ (Replenishment)
Supply Chain Delivery) Supply Chain
Supply Chain

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How Does a Company
Manage ERP?
• Train the users of the system.
• Assign responsibilities for system
operation and maintenance.
• Set operational and performance
goals and track progress.
• Identify process teams to review and
correct deficiencies.
• Periodically review enhancements.
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What ERP Education and
Training Will be Required?
• Understanding ERP’s functions,
operation, benefits and strategic
value
• Operational training on company’s
specific ERP system
• Understanding customer and
marketing trends
• Change management
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Areas for Education and
Training Consideration
Key
Key Demand Sales
Sales &
& Master
Master Material
Material
Demand Operation Production
Production Production Requirements
Customer
Customer Management Operation Planning Production Requirements
Management Planning
Planning Planning Scheduling
Scheduling Planing
Planing
Partners
Partners
ERP Environment Agile

Agile Mfg.
Mfg.
Electronic Supplier Global Domestic Advanced

Advanced
Electronic Supplier Global Domestic Planning
Commerce
Commerce Management Procurement Procurement
Management Procurement Procurement Planning && Lean
Lean Mfg.
Mfg.
Scheduling
Scheduling
Data
Data
Management
Management
and
and EDI
EDI
ERP Environment
Inbound/
Inbound/ Shared
Shared Demand/
Demand/
Outbound Distribution Trans-
Trans-
Outbound Distribution Warehousing
Warehousing portation
portation
Readiness
Readiness Supply
Supply
Logistics
Logistics Measures
Measures Synch
Synch

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What are the Steps in
Installing an ERP System?
• Organize the ERP project
• Select performance measures
• Develop project plan
• Hold a kick-off meeting
• Educate project team/key individuals
• Determine integrity of existing data
bases and correct problems
• Install any needed hardware
Next -
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What are the Steps in
Installing an ERP System?
• Install software - conduct Conference
Room Pilot (CRP)
• Educate all system users
• Develop new procedures during CRP
• Insure data is accurate/transferable
• Bring first module on line and adjust
• Repeat for all modules
• Maintain system performance
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What are Data
Warehouses?
Data warehouses are storage areas that

store data extracted from production
databases and conventional files.
Fourth generation programming
languages, query tools, and decision
support tools are then used to generate
reports and analysis of these data.
Systems Analysis and Design Methods, 4th Ed.

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Data Warehouses?
• Company data that already exists is
important in managing a business.
• Management wants the ability to
“mine” the data for information to
help in making decisions.
• A data warehouse module of an ERP
system maintains information from
other modules in real-time.
Next -
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Data Warehouses?
• The data warehouse module allows
users to evaluate actual data and
forecast future data utilizing a
technique known as Online
Transaction Processing (OLAP).
• Data warehouses can also be used to
customize and design information
systems to suite individual users.
Next -
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Data Warehouses?
• ERP can provide the following
reformatted data from a warehouse:
– Sales and Marketing Data
– Purchasing Data
– Inventory Control Data
– Production Planning and Control Data
– Plant Maintenance Data
– Quality Management Data
– Project Data
See SAP R/3 slide
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ERP Can Be Information
Intensive
Example: Between Buyers & Sellers
Information Complexity
Full Benefits
Partial Benefits
Adversarial Normal Buyer/Seller Multi-Level Complete

Relations Cooperation Synch. Synch. Collaboration

Source unknown
SCM E&T Programs Next -
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Exercise:
Accuracy Check
For years, training of farm hands has been a top priority

in the operations of first class farms. Important too, to
family farming is the care and fatherly attention given to
live stock. The forefathers of our family owned farms
invested not only their financial resources into the farms
but took infinite care to provide first rate training for all
farm help. It has become a family tradition in
fundamental farm management. For those of us who
have found farm life the fulfillment of life’s goal, certainly
can speak for all of us by declaring our firm belief in the
continuation of first rate family farming.

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What are the Returns on
ERP System Investments?
• ERP is essentially an information
technology (IT) system.
• ERP provides a tremendous amount
of information about business and
processes.
• Information can be put to use to
improve performance, revenue
generation, and company growth.
Next -
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What are the Returns on
ERP System Investments?
• Direct benefits from an ERP system
include:
– Elimination of costs to maintain legacy
systems
– Improved productivity resulting from
availability of real-time, accurate data.
• ERP provides one database, one
application, and a unified interface
across an entire enterprise.
Next -
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What are Other
Justifications?
• ERP justification can also be based

on reductions in inventory and lead
time, and elimination of wasted
efforts and materials.
• Other benefits such as improved
customer satisfaction also apply.

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What are Human Relations
Commitments for ERP?
• Involve users in system selection and
implementation decisions
• Use process owners to resolve issues
• Provide education and training
• Provide incentives
• Provide resources
• Set standards of performance
• Set performance goals
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Module Topic
Support)
ERP and Logistics
ERP and Technology
SCMConclusion
E&T Programs
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Strategic
Planning

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Strategic Planning
• Strategic planning is survival

planning
• Strategic planning determines what
must be done today to assure
success (survival) in the future
• Strategic planning requires timely
availability of information and ability
to rapidly communicate direction
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Strategic Planning
Strategic Planning
Supports
“Touching the
Customer”
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Customer Touch Points
• Presale marketing and sales support
• Direct order management
– Quoting/estimating
– Product configuration
– Order entry
– Fulfillment
• After-the-sale activities
– Warranty tracking
– Service contracts
– Field service management
– Help desk
– Parts and supplies
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Strategic Focus
• A strategic focus results in the creation

of a hierarchy of strategic and tactical
objectives that are followed by all
departments.
• It also communicates financial impact of
decisions to participating parties
• Provides a means for two-way, rapid
response communications

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Typical Business Plan
The Vision
What company wishes to become Company Strategic
Strategic Focus Business Plan
Defines dimensions of the vision
Considers core competencies Driven by...
- Values
Mission Statement - Guiding principles
What company will do to achieve vision
Functional Strategies
How the mission will be accomplished
Change Strategic Goals
General statements of what the organization
must accomplish to support its business mission
Strategic Objectives
- Statements of specifics that quantify goals.
- Specific things that must be accomplished
in a certain time to achieve business goals.

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Market Planning and ERP
• Market planning is necessary to

determine customer preferences
• Market planning creates customer
purchasing environments
• Marketing:
– Conducts Voice-of-the-Customer audits
– Utilizes Quality Function Deployment
– Performs Market Research
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Voice of the Customer
Audits
• One-on-one contact with customers
helps identify their preferences
• Used to collect information such as:
– Customer’s desires and expectations
– Customer’s views on service
– Company performance trends
– Supply chain process effectiveness
– Suggestions for improvements
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Quality Function
Deployment (QFD)
• Used to translate customer inputs

into specific action items.
• Compares customer’s desires and
expectations with current product
capability and with competitive
products to determine improvement
opportunities and courses of action.

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Quality Function
Deployment (QFD) Model
HOW
Counterpart
Technical
Requirements
Marketing
WHAT Information
Customer and
Relationship
Requirements Customer
Matrix
and Rating Perception
Importance of Competing
Products
Technical Assessment
and Target Values
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Market Research
• Process of monitoring the

marketplace on customer desires,
competitive products and need for
new products.
• Used to improve decisions on
product, price, promotion, and place.
• Identifies opportunities for improving
the enterprise’s resource planning
and supply chain activities.
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ERP and Electronic
Commerce
• E-commerce is the use of a Web site
to organize an online business.
• Potential benefits include:
– Increased sales and market share
– Improved customer service
– Faster product deliveries
– Improved organization performance
– Increased company profitability
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Electronic Commerce
Growth Forecast
Billions Business-to-Business Sales
$1,600
$1,400 
$1,200
$1,000
$800 
$600
 1997
Estimate
$400
 
$200 

0
1998 1999 2000 2001 2002 2003
©Copyright 2000, Honeywell Inc. SCM E&T Programs Forrestor Research

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E-Commerce Affect on
ERP
• E-commerce will result in a significant

increase in business.
• It will require faster handling of order
information within a company.
• ERP provides the means to rapidly
monitor and control order and
information work flows.

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EDI - Electronic Data
Interchange
• EDI is the electronic exchange of
standard, repetitive, and routine
business documents between firms.
• Advantages of EDI include:
– Reduced paper handling
– Data exchanged real time
– Fewer errors - data keyed only once
– Payments received sooner
• The internet is replacing EDI.
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EDI Disadvantages
• EDI can be costly due to the expense

of the EDI service provider
• Problems occur such as incomplete
transmission, data corruption, data
missing or in the wrong field, etc.
• Still mostly batch oriented, meaning
immediate verification of shipments
or receipts is not possible.
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Sales & Operations
Planning (S&OP)
• S&OP interfaces a company’s
business plan to its operations plan.
• Normally conducted monthly, and on
a product family basis.
• Becomes the company game plan for
the short to intermediate term.
• Main objective is to balance supply
and demand.
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The S&OP Process
• For monthly S&OP updates:

– Determine estimated demand for
existing products
– Obtain new product release schedules
and forecasted sales
– Develop supply schedules for the old
and new products
– Determine if additional resources
required
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ERP and the S&OP
Process
New New
Product Product
New Marketing Plans Releases
Marketing
Marketing Marketing
Products
Revised
Marketing
Marketing S&OP
S&OP
Supply
Forecasts Forecasts Rates Manufac-
Manufac-
&& Planning&&
Planning
Orders Sales Execution turing
turing
Sales Execution
Capacities
Manufac-
Manufac- Run Rates Purchasing
Purchasing
turing
turing
Supplier Planned
Capacities Cash
Run Rates Flow Finance
Purchasing
Purchasing Finance
ERP
ERP
Gary A. Langenwalter
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S&OP Output Data
• Production plans
• Master production schedules
• Revised supplier delivery schedule
requirements
• Adjusted inventory levels
• New product introduction schedules
• Funds flow schedules

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S&OP Relation to Supply
Chain Management
• An integrated supply chain means
customer and supplier collaboration
and an updated S&OP to assure:
– Maximum responsiveness and flexibility
to customer requirements
– Elimination of excess inventories and
non value-added activities
– Reduced costs throughout the chain
– Effective communications
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Collaborative Planning,
Forecasting & Replenishment
• Agree on the process/role of partners

• Create a joint business plan
• Develop a single demand forecast
• Resolve forecast exceptions
• Develop a single order forecast
• Resolve exceptions
• Place orders based on order forecast

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ERP and Financial Planing
• The S&OP provides the base line for

the financial plan.
• All activities within a company are
tied to the financial system.
• Financial and accounting systems
provide the means to communicate
financial impact of performance,
good or bad, through ERP.
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Financial Projections
Forecast &
Sales
Sales Orders Projected
Projected
Projections
Projections Cash
CashFlow
Flow
Financial
Financial
Planning
Planning
Material,
Labor,
Overhead Projected
Projected
Operations
Operations PP&&LL
ERP
ERP
©Copyright 2000, Honeywell Inc. SCM E&T Programs Gary A. Langenwalter

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Strategic Supply Chain
Management
• Requires close collaboration with
customers and suppliers
– Suppliers should ideally be single
source to assure dedicated response
• This assures close working relationship and
sharing of proprietary information
– Companies must be willing to invest
resources in the partnership
• Results in improved performance
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The Purpose of Supply
Chain Management
• Purpose is to develop a strategic
competitive advantage
– By open sharing of information based
on trust and mutual benefits
– By synchronizing demand and supply
among the chain’s participants
– By reducing redundant activities and
duplicated efforts along the supply
chain
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Supply Chain Information
Flow
Purchase-order Information Product Order Information
Appointment
Information
Order/ Delivery
Complaint Information
Supplier
Inbound Ware-
Supplier Ware- Manufacturer Carrier Customer
Carrier house
house
Order
Info.
Pickup Delivery
Schedule Schedule
Supplier communications Pickup/shipment
Information
Manufacturer communications
Warehouse communications
Delivery Information
Carrier communications
Customer communications
IW, Digital-Age Warehousing,
©Copyright 2000, Honeywell Inc. SCM E&T Programs Lisa Harrington
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Non-Synchronized
Inventory Levels
Impact of Lead Time on Supply Chain Inventory
Supplier Conversion Delivery/Distr Customer
4 Weeks 2 Weeks 1 Week 1 Day

2,000 1,000 500 100
Units Units Units Units

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Supply Chain Strategy
• Requires understanding and managing of:

– Sourcing strategy
– Internal and external information flows
– New product coordination
– Concurrent procurement
– Customer/supplier teaming arrangements
– Component and commodity strategies
– Planning of long-term requirements
– Industry collaboration
– Staff development
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Supply Chain Management
Benefits
Inventory as a Percent of Gross Sales
Industry 1996 1997
2000
Automotive 19.6% 15.9% 14.2%
Consumer Electronics 24.1 19.3 15.3
Consumer Products 14.2 13.5 11.8
Industrial products 17.6 16.9 13.3
Chemicals 16.8 17.2 13.4
Pharmaceuticals 18.0 17.2
14.9
Food &J.L.Agriculture
Kellogg Graduate School 11.8
of Business, Northwestern
11.2 University, 1997
10.1
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Key SCM Performance
Indicators
Best in Class vs. Median Performers

Measurement Median Best-in % Diff.
Class
Total SCM Cost (% of Revenue) 11.6 6.3 46
Inventory (Days of Supply) 66 34 48
Cash-to-Cash Cycle Time 87 31 64
% On-Time Delivery to Customer Date 81 94 16
Upside Production Flexibility (Days to
Implement an unplanned 20% increase in
End-Product Supply.) 26 4 85
PRTM, 1997 BM Study

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Key SCM Success Factors
• Alignment of supply chain strategies

with company’s business goals
• Optimizing the infrastructure within
which the supply chain must operate
• Utilizing ERP to support data needs
• Cross-functional integration
• Operating the business at a higher
level of technical performance
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ERP & Electronic
Commerce
• E-commerce will rapidly become the

technology which enables supply
chain partnerships.
• ERP assures purchasing, order, and
shipment information are instantly
available to all users along the
supply chain.

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ERP and New Product
Development Planning
• Product design needs to integrate
with the rest of the company for
support and scheduling purposes.
• Process design should occur
concurrently with product design.
• Product Data Management (PDM)
files must be set up and maintained.
• Customers may also utilize the files.
Next-
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ERP and New Product
Development Planning
• Integrating with suppliers on designs
is very appropriate.
• Interfacing with marketing will occur.
• Project management for new
products must be managed along
with the rest of a company’s
planning and analysis systems.
• ERP provides the information link.
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Module Topic
Support)
ERP and Logistics
ERP and Technology
SCMConclusion
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ERP and the
Customer
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Key Customer Functions
• Full sales support

• Order generation
• Order entry
• Preparation of quotations
• Using ATP in promising deliveries
• Demand management
• Logistics and distribution
• Field service
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Sales Approaches
• Direct Selling
– In the field
– From the company using telesales or
customer sales representatives
• Electronic selling
– Selling by providing catalogs on Web
sites
– Using kiosks at customer sites

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Salespeople Need the
Following:
• Sales information - sales leads,

product information, competitor
actions
• Access to customer buying history
– Current orders and shipped
– Correspondence sent to customers
– Field service and repair incidents
– Warranty remaining on sold products
Next -
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Salespeople Need the
Following:
• Better and faster ways to enter and

manage orders, agreements, and
contracts.
• Fast, easy communications with
customers, marketing, customer
service, manufacturing, field service,
shipping, and accounting.
• ERP provides the data gateway.
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Typical ERP Sales Support
System
Suppliers
Suppliers
E-mail
Quote Promises
Materials&& Quotes
Materials
Manufacturing
Manufacturing Quote P&L Sales
Sales Customer
Customer
Purchase
Accounting Orders
Accounting
CustomerData
Customer Data
Shipment Data ProspectData
Prospect Data Scanned
Shipping
Shipping CompetitorData
Data
Repairs Competitor
Marketing
Marketing
ERP
Literature
Field
Field
Literature Interfaced
Service
Service
Filtered Web
Word
Word Search
Processing
Processing Internet
Internet
Correspondence
Correspondence
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Sales Force Automation
System Capabilities
• Customer and prospect data mining
• Access to competitor data
• Preparation and modification of
quotes with accurate delivery dates
• Product configurators
• Financial impact of quotations
• Contract management system
• Automated expense reports
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Integrating Forecasts
• Forecasts are a function of field

inputs and history.
• Forecasts impact equipment and
plant capital decisions, staffing and
financial plans.
• Immediate impact of adjustments to
forecasts on affected areas can be
provided through the ERP system.
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Demand Management
• Not all demands are equal.

• Demand sources are stratified to
determine and set service levels.
• ERP tracks & reports demands from:
– Customers
– Forecasts
– Distribution
– Interplant
– New product orders
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Demand Management
Information Requirements
OrderEntry
Order Entry
EDI
EDI
E-commerce
E-commerce
Customer
Customer
Forecasts
Forecasts Sales&&
Sales
OperationsPlan
Operations Plan
Salesand
Sales and Demand
Demand
Marketing
Marketing Manager
Manager
Warehouse
Warehouse MasterProduction
Production
Master
Distribution
Distribution Schedule
Schedule
Warehouse
Warehouse
Interplant
Interplant
MRPIIII--Available
MRP Available
toPromise
to Promise
NewProduct
New Product
Development
Development
ERP
ERP
All Rights Reserved
Order Generation
• Order generation is key to customer-

driven supply chain management.
• Methods of order generation include:
– Vendor Managed Inventory (VMI) -
Continuous replenishment
– EDI and Electronic Commerce
– Traditional order entry processes
– Pull system approaches using Kanbans
– Distribution Requirements Planning
All Rights Reserved
Order Entry Issues
• Different order types and volumes

• Pricing and promotions
• Multiple units of measure
• Product substitutions allowed
• Allocation and/or reservation rules
• Multiple sourcing options
• Integrated customer credit checking
• Allocating to forecasts
All Rights Reserved
Order Entry System
• Should be able to accommodate large

numbers of domestic/global orders.
• Should provide means for rapid order
review and approval.
• Should be automated as much as
possible.
• Should provide order details through
ERP to all appropriate departments.
All Rights Reserved
Customizing Products and
Rapid Customer Response
• Customization and rapid delivery are

today’s key customer requirements.
• Products must be designed to be
customizable and processes must be
designed for rapid changeover to
accommodate customized options.
• ERP links operations planning and
engineering in these efforts.
All Rights Reserved
Field Service
• Capital equipment producers must

integrate field service information
with the entire company in order to:
– Provide timely responses on problems
– Insure satisfactory customer support
– Tie sales, field service, and customer
service together
– Insure adequate supply of spares
– Provide accurate as-built information
Next -
All Rights Reserved
Field Service
– Provide timely feedback on service calls

– Track warranty repairs
– Support customer maintenance
– Interface with accounting for cost
tracking
– Interface with HR on staffing and
training requirements
• Field Service systems provides data
to other groups through ERP links.
All Rights Reserved
You Are Here!
Module Topic

Support)
ERP and Logistics
ERP and Technology
Conclusion
All Rights Reserved
ERP & Product
Design
Engineering
All Rights Reserved
ERP and Product Design
Engineering
An integrated product design system
includes:
– The product design process
– A Product Data Management (PDM)
system
– Collaboration with customers/suppliers
– Communications with other company
functions
– Project management of the design effort
All Rights Reserved
Benefits of a PDM System
• PDM (Product Data Management)

systems perform library functions:
– Maintain BOMs and product structure
information for all products
– Keeps track of versions and all ancillary
files
– Assure users use the same records
– Forwards tasks (workflow) for sign-off
when required
All Rights Reserved
The Product Design
Process
• Product design steps include:
– Developing the initial concept
• Customers
• Marketing research
• Competitors
– Optimizing the design
• Voice of the customer
• Latest technology
• Sales volume and manufacturing process
• Cost targeting
Next -
All Rights Reserved
The Product Design
Process
– Marketing efforts
• Helps define the product
• Helps position the product
– Pilot Production
• Verifies product manufacturability
• Provides units for customer evaluation
• Rationalizes product’s capabilities
– Product initial production
• Small-scale release
• Full-scale release
Next -
All Rights Reserved
The Product Design
Process
– Follow up
• Process analysis
• Market’s response analysis
• Warranty returns and complaints
• Customer complaints and comments
– Engineering changes and revisions
• Changes must be controlled to assure
proper implementation (ECOs/ECNs)
• Changes must be clearly communicated

All Rights Reserved
Tying Design Engineering
to Users
PDM provides the technology for

interfacing with:
– Customers: Links with their system for
exchange of drawings, specs, etc.
– Suppliers: (Same as for customers)
– Field Service: Allows them to access
any drawings and specifications they
need to service equipment.

All Rights Reserved
Typical Data Requirements
For Changes
Customers
Customers
ERP
Quality
Quality Mktg.
Mktg.
Environment
Engineering
Engineering
ChangeControl
Change Control
Change
Change
Engineering
Engineering Request
Request
BOMs
BOMs
Engineering
Engineering
Cost
Cost Changes
Manufacturing
Manufacturing ofChange
Change Changes
of Production
Production
Routings
Routings
Cost
Cost Inventory
Inventory Quality
Quality
Accounting
Accounting Specs.
Specs.

All Rights Reserved
You Are Here!
Module Topic
Support)
ERP and Logistics
ERP and Technology
SCMConclusion
E&T Programs
All Rights Reserved
ERP &
Manufacturing

All Rights Reserved
Elements of MRP II
Systems
• Master Production Scheduling (MPS)
• Rough-Cut Capacity Planning (RCCP)
• Material Requirements Planning (MRP,
and MRP II)
• Capacity Requirements Planning (CRP)
• Inventory Management (IM)
• Production Activity Control (PAC)

All Rights Reserved
Manufacturing Integration
• Integration includes the following:

– Planning and execution of the
manufacturing and material functions
– Planning and execution of the supply
functions that feed these activities
– Satisfying quality and maintenance
requirements
• ERP completes integration of the
MRP II area across the organization
Next -
All Rights Reserved
Manufacturing Integration
• Manufacturing integration covers the

following systems:
– Material and Capacity Planning
– Manufacturing Execution
– Just-in-Time
– Advanced Planning and Scheduling
– Quality Management
– Maintenance
– Supplier Integration
All Rights Reserved
The Master Production
Schedule (MPS)
• The MPS balances demand and

production (supply) by monitoring
demand variation against production
and supply, and adjusting schedules
accordingly.
• The MPS integrates with a number of
systems through ERP in order to
receive accurate and timely data.
All Rights Reserved
ERP Integrated Systems
Customer
Customer Sales and
Sales and
Customers
Customers
Shipments
Shipments Marketing
Marketing
Master Production Schedule
Transportation
Transportation Trucking
Trucking
Transportation
Transportation
Schedules
Schedules Firms
Firms
Staffing
Staffing Human
Human Employees
Employees
Levels
Levels Relations
Relations
Manufacturing
Manufacturing Work Order
Work Order
Planners
Planners
Schedules
Schedules Priorities
Priorities
Material
Material Planners
Planners
Requirements
Requirements
Supplier
Supplier
Schedules Purchasing
Purchasing Suppliers
Suppliers
Schedules
Cash
Cash
Requirements CFO
CFO Bank
Bank
Requirements
Inventory
Inventory
Levels
Levels

All Rights Reserved
Manufacturing Execution
System (MES)
• An MES is an on-line, integrated,

computerized system that is the
accumulation of methods and tools
used to accomplish production.
(Michael McClellan)
• MESs help Manufacturing
Management make decisions which
coordinate production.
Next -
All Rights Reserved
Manufacturing Execution
Systems (MES)
• MES’s extend MRP II system capabilities in
the area of execution, such as:
– Producing products
– Activating and deactivating equipment
– Collecting measurements
– Changing order priorities
– Setting and monitoring control levels
– Scheduling and rescheduling equipment
– Assigning and adjusting inventory levels
– Managing the production process
– Setting alarms for out-of-tolerance situations
All Rights Reserved
MES Interfaces
• Material and Capacity Requirements

Planning (M&CRP)
• ERP
• Cost Accounting
• Inventory Control
• Product Data Management
• Work Order Management
• Advanced Planning and Scheduling
(APS) systems
All Rights Reserved
Advanced Planning and
Scheduling (APS)
• APS uses methods such as linear
programming, to optimize schedules.
• At a plant level, APS can maximizes a
choice of one or more metrics, such
as on-time delivery, profits, and labor
force stability.
• MES is the key to customer support
and material planning. Replaces MRP.
All Rights Reserved
Advanced Planning and
Scheduling (APS)
• APS integrates with Forecasting, Order
Promising, Costing, Purchasing,
Shipping, and the Shop Floor.
• Supply Chain Execution (SCE) is a more
advanced APS system. It integrates
several plants and warehouses and
calculates which plant should produce
which products to maximize profitability.
• SCE integrates fully with logistics.
All Rights Reserved
ERP and Purchasing
• Purchasing is a factor in achieving

profitable on-time shipments.
• For many manufacturers, material
represents 50-60% of the cost of
goods sold.
• A small reduction in the cost of
material results in a larger increase
in profits, before taxes.
Next -
All Rights Reserved
Changing Manufacturing
Cost Structure
Direct Material, Direct Labor,
Cost % and Overhead
90
80
70
60
DM
50
DL
40
OH
30
20
10
0
194 5 1 960 1 980 1990 20 00
U.S. Department of Labor

All Rights Reserved
Material Cost Reduction
Exercise
% Current 10% Sales 10% Material
Year Increase Reduction
Sales 100 100M 110M 100M
Materials 40 40M
Labor 30 30M
G&A 20 20M
Total 90 90M
Gross Profit 10 6M
Added Profit
All Rights Reserved
ERP and Purchasing
Integration
Material
Material Capacity
Capacity
Inventory
Inventory Requirements
Requirements Requirements
Requirements
Planning
Planning Planning
Planning
Product
Product
Engineering
Engineering
Quality
Quality
StandardCosting
Standard Costing
Purchasing
Purchasing AdvancedCosting
Advanced Costing
Maintenance
Maintenance
Transportation
Transportation Customers
Customers A/P F/A
A/P F/A
ERP
ERP
All Rights Reserved
Purchasing
Responsibilities
• Provide information suppliers need
• Collaborate with suppliers on
deliveries and latest technologies
• Pay suppliers on schedule
• Assist in reduction of lead times
• Attain and maintain trust
• Pass signals, rewards, and changes
through the supply chain.
All Rights Reserved
Keys to Partnering
With Suppliers
• Maintain corporate to corporate
relationships.
• Have information flowing both ways
in a timely manner.
• Set time as the key metric, and
quality second.
• Accept that products have life cycles
and search for replacements.
All Rights Reserved
JIT, MRP, and ERP
• JIT is a pull system while MRP is a

push system.
• MRP plans material requirements
and JIT executes production.
• Both systems require, and provide,
data to various departments.
• ERP allows sharing of ERP/MRP data
between using parties.
All Rights Reserved
Quality Management
System (QMS)
• A QMS includes quality planning,

quality control, quality assurance,
and continuous quality improvement.
• QMSs have taken on an international
flavor with the introduction of the
ISO 9000 Series of standards.
• The ISO Series also provides a basis
for achieving customer satisfaction.
All Rights Reserved
Quality Data
• Sources of quality data include:

– Incoming inspection
– Inspection of manufactured products
– Inspection of field failures
• Data is reviewed by manufacturing,
purchasing, and design engineering
• Quality data is an important element
for attaining customer satisfaction.
All Rights Reserved
Quality System Integration
Quality
Quality
Product
Product Information
Information
Engineering
Engineering Management
Management
Quality
Field
Field
Service
Service
Manufacturing
Manufacturing Purchasing
Purchasing
Engineering
Engineering
Maintenance
Maintenance
ERP
ERP
All Rights Reserved
Managing Maintenance
• Maintenance includes predictive or

preventive, and reactive capabilities.
• Advanced maintenance systems are
event-based and integrated with a
knowledge base which includes
failure analysis, maintenance
procedures, and feedback from
previous maintenance activities.
All Rights Reserved
Maintenance Integration
• Maintenance integrates with:

– Material planning for parts procurement
– Inventory for spare parts
– Equipment and facility scheduling
– Purchasing for goods and services
– Engineering for drawings and specs.
– Equipment history
– Quality for out of tolerance situations
– Human resources for training
All Rights Reserved
You Are Here!
Module Topic

Support)
ERP and Logistics
ERP and Technology
Conclusion
All Rights Reserved
ERP &
Logistics
All Rights Reserved
Logistics
“Logistics is that part of a supply

chain process that plans, implements,
and controls the efficient, effective
flow and storage of goods, services,
and related information from the point
of origin to the point of consumption in
order to meet customers’
requirements.”
Council of Logistics Management
All Rights Reserved
Logistics Interfaces
• Logistics interfaces with many

functional departments in an
organization such as marketing,
purchasing, manufacturing, shipping
and receiving, physical distribution,
accounting, and information
systems.
• ERP provides a data interface.
All Rights Reserved
Logistics Performance
Measurement
• A significant logistics measurement is

its cost impact to a supply chain.
• This includes all direct, indirect, and
hidden costs resulting from the
movement and storage of materials.
• Supply chains provides the basis for
understanding and improving logistic
costs.

All Rights Reserved
The Value of
Transportation Time
“Generally, if a time-based competitor

can establish a response three to four
times faster than its competitors, it
will grow at least three times faster
than the market and be at least twice
as profitable as the typical industry
competitor.
George Stalk & Thomas Hout, Competing Against Time

All Rights Reserved
Merchandise Delivery
Time Measurement
• The total delivery time through a supply

chain is the second most important
measurement for logistics.
• Delivery time may be more important
than cost if products are not delivered
when they are needed, snow skies for
example.

All Rights Reserved
Typical Logistic System
A Supply Chain
Outbound Logistics
Suppliers Inbound Manufacturing Trans- Ware- Delivery Retailer
Logistics portation housing Customer
Internal
External Supply Supply External Supply Chain
Chain Chain
(Source/Buy) (Order/Make/ (Replenishment)
Supply Chain Delivery) Supply Chain
Supply Chain

All Rights Reserved
Manufacturing
Postponement
• Manufacturing postponement, or
value added logistics, is the process
of conducting secondary levels of
assembly and/or customization at
distribution centers.
• Benefits include reduced time to
respond to customer orders and
reductions of on-hand inventories.
All Rights Reserved
Products Fitting
Postponement
• Postponement applies to products

having the following characteristics:
– High inventory carrying costs due to:
• Short product life cycle
• High value per volume
• A variety of configurations
– Customers desire short delivery times
– Assembly is not complicated

All Rights Reserved
The Role of Transportation
• Effective transportation management

can improve profit margins.
• An APS system can compare costs
and time requirements for different
shipping alternatives with capacity
and material availability at all
locations and optimize the
transportation of the products.
All Rights Reserved
Warehouse Management
Systems (WMS)
• A WMS keeps track of inventories by
location and by lot numbers.
• Warehouse techniques include:
– Directing pickers to item locations to
minimize travel time
– Using lights to identify locations to pick
– Using ASRS systems
– Using electronic scales for counting
– Track items by using bar code labels
All Rights Reserved
Warehouse Management
System
Transportation
Transportation
Customer
Customer Orders
Orders
Orders
Orders toPick
to Pick
Warehouse
Warehouse
Forklift
Forklift Picked
Picked
Management
Management
Trucks
Trucks Orders
Orders
System
System
Electronic
Electronic Inventory
Inventory
Scales
Scales Mgt.System
Mgt. System
Inventoryby
Inventory by
SKU
SKU
Lot
Lot
B/M
B/M
Pallet
Pallet
Gary A. Langenwalter
All Rights Reserved
You Are Here!
Module Topic
Support)
ERP and Logistics
ERP and Technology
SCMConclusion
E&T Programs
All Rights Reserved
ERP &
Supporting
Functions
All Rights Reserved
Field Service
• Field service data must be integrated

with the entire company in order to:
– Insure timely communications from
sales and customers to field service
– Respond to customer problems in a
timely manner
– Insure availability of repair materials
– Insure complete customer support
• ERP provides data access.
All Rights Reserved
Field Service
Relationships
Costs, Repair
Customer
Customer
Data
Field
Field
Parts
Forecasts MRP
MRP
MaterialPlanning
Planning
Salesand
Sales and
Customer
Complaints Service
Service Material
CustomerService
Customer Service
Reliability
& Costs Design
Design
Engineering
Engineering
Manufacturing
Manufacturing Equipment
Equipment
Costs:
Supplier &
“As-Built”
Execution
Execution History
History Warranty
Accounting
Accounting
System
System Repairs
Repairs Staffing
Levels &
Costs
Costs Training
HR
HR
ERP
ERP

All Rights Reserved
Accounting
• Accounting systems communicate

the company’s financial situation.
– What is happening
– Why is it happening
– What can be done to improve it
• Three key modules are accounts
receivable (AR), accounts payable
(AP), and general ledger (GL).
All Rights Reserved
Accounts Receivable
The goals of AR are to:

– Maintain satisfactory relationships with
customers
– Insure timely and accurate receipts of
moneys from customers
– Insure complete and accurate financial
reporting inside the company
– Provide credit decisions that maximize
profits and minimize risks
All Rights Reserved
Accounts Payable
The goals of AP are to:

– Maintain excellent relationships with
suppliers
– Insure timely and accurate payment of
moneys owned to external companies
– Insure accurate, complete, and timely
financial statements and data inside the
company

All Rights Reserved
General Ledger
The goals of a General Ledger

system are:
– Insure accurate, complete, and timely
financial statements and data for
analysis inside the company
– Report company’s financial status
through the profit and loss statement
and balance sheet to outside agencies
– Provide budgeting capabilities
All Rights Reserved
General Ledger data
Integration
AcctsReceivable
Receivable Owners,
Owners,
Accts
Banks,
Banks,
SEC
SEC
AcctsPayable
Accts Payable
Payroll
General
General Executive
Executive
Payroll Decision
Decision
Ledger
Ledger Support
Support
Inventory
Inventory
FixedAssets
Fixed Assets DepartmentHeads
Department Heads
Sales
Sales Budgets
Budgets
ERP
ERP
All Rights Reserved
Product Costing
• A product’s cost is a function of:

– Direct materials and labor
– Indirect materials and labor
– Design (engineering)
– Quality
– Other administrative and general
expenses
– Technical support costs
– Training costs
All Rights Reserved
Product Costing Data
Integration
Purchased
Material &
Purchasing Services
Purchasing
Labor
Manufacturing
Manufacturing Hours Decision
Decision
Engineering
Engineering Support
Support
Labor
Payroll/ /HR
HR Rates
Payroll
Design
Design
Design
Costs
Costing
Costing GeneralLedger/
General Ledger/
Engineering Budgets
Engineering
Salesand
and
Selling &
Manufacturing System
System
Budgets
Sales Costs
Marketing
Marketing
Quality
Costs Design
Design
Quality
Quality Engineering
Engineering
Logistic
Logistics Costs
Logistics
ERP
ERP
All Rights Reserved
Human Resources
Planning
• Human resource systems can

include:
– On-line filing of state/federal reports
– On-line safety instructions
– Employee certification and history
– Employee communication systems
– Environmental and safety data
– Other data, as performance reviews
All Rights Reserved
Human Resources Data
Integration
• Payroll
• Job tracking system
• Security system
• Environmental system
• APS which checks availability of
qualified personnel first
• Quality systems which tracks quality
performance of individuals
All Rights Reserved
Environmental Data
Systems
• Environmental issues continue to be

important.
• Environmental, Health, Safety, and
Transportation (EHS&T) systems
helps management track, manage,
and comply with hazardous materials
regulations.

All Rights Reserved
Environmental Data
Integration
• Environmental systems can integrate
through ERP with the following:
– Inventory of hazardous materials (HM)
– Human resources for training on handling
HM
– PDM systems for monitoring of BOMs for
HM
– Manufacturing for printing of documents
for HM and for warning labels
All Rights Reserved
Environmental Data
Integration
• Purchasing for purchases of
unauthorized hazardous materials.
• Air and water quality monitors.
• Lab Information Mgt. Systems (LIMS)
for hazardous materials alarms.
• Government Agencies for submittals
of required reports.
• Industry hazard material data bases
All Rights Reserved
You Are Here!
Module Topic
Support)
ERP and Logistics
ERP and Technology

SCM Conclusion
E&T Programs
All Rights Reserved
ERP and
Technology
All Rights Reserved
Work Flow
• Work Flow performs the same

function for information that routings
do for manufactured products.
• It identifies what has to be done next.
• When completed, it routes the work
to the next person in the process.
• Policies and procedures can be
defined in work flow.
All Rights Reserved
Work Flow
• Advantages
– Helps eliminate paper-based documents
– Helps save time in moving work along
– Provides a speed-of-response advantage
• Disadvantages
– Requires change in company procedures
and control policies
– Difficult to bolt on to newer ERP systems

All Rights Reserved
Work Flow
Technician Can
Submits Technician Yes
Requisition authorize?
Send to: No
Can
Supervisor Yes
Supervisor
Approves authorize?
Send to: No
Can
Manager Yes
Manager
Approves authorize?
Send to: No Issue

Issue
Yes Purchase
Purchase
CEO Order
Order
Approves

All Rights Reserved
Data Warehouses, OLAP,
and OLTP
• On-line transaction processing (OLTP)
data base systems work with routine
business transactions.
• On-line analytical processing (OLAP)
systems analyzes data and produces
special reports.
• OLTP has many users creating,
updating or retrieving individual data.
Next -
All Rights Reserved
and OLTP
• OLAP applications are used by
analysts/managers desiring analysis
of all the individual data records.
• OLAP and OLTP fall into the area of
Data Warehousing. They provide
data mining capabilities.
• Results are made available to users
through the ERP system.
All Rights Reserved
and OLTP
Customer Legacy External
Data Systems Market Data
Data
Collection
Data OLAP
Warehouse Server
Data
Distribution RDMS Data Mart
(OLTP)
Data
Usage
Company Performance Business Analysis
All Rights Reserved
Using the Internet
• ERP systems are expanding from

client-server to include internet
connected.
• Company strategies include use of
web application servers.
– Mailing bills over the internet
– E-commerce applications
– Tracking orders
– Customer self-service activities
All Rights Reserved
Using the Internet
• Web application servers extends the

company’s business.
• They help supply chain suppliers and
customers to interface the company.
• Results in a variety of self-service
applications that reduce support
requirements and increases customer
satisfaction.
All Rights Reserved
You Are Here!
Module Topic

Support)
ERP and Logistics
ERP and Technology
Conclusion
All Rights Reserved
Conclusion
• Today’s ERP system capabilities are

expanding so rapidly that constant
improvement has to be a part of any
ERP installation.
• ERP now integrates internal
functions, external supply chain
functions, and moving into the world
of the Internet.
All Rights Reserved
Post-
Assessment

All Rights Reserved
References
The following references were used in the

preparation of this course:
• Enterprise Resources Planning and
Beyond: Integrating Your Entire
organization, Gary A. Langenwalter, St.
Lucia Press, 1999.
• ERP: Tools, Techniques, and Applications
for Integrating the Supply Chain, Carol A.
Ptak & Eli Schragenheim, St. Lucia Press,
1999
All Rights Reserved

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Enterprise

Supply Chain Management

• Understand what ERP is and its scope

A method for the effective planning

• ERP can be thought of as a company

• Provide timely information

• Every department has access to the

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• Supports collaborative planning,

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©Copyright 2000, Honeywell Inc. SCM E&T Programs

• The SAP R/3 slide shows processes

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©Copyright 2000, Honeywell Inc. SCM E&T Programs

©Copyright 2000, Honeywell Inc. SCM E&T Programs

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• ERP provides for accurate and timely

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ERP Environment Agile

Electronic Supplier Global Domestic Advanced

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Data warehouses are storage areas that

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Adversarial Normal Buyer/Seller Multi-Level Complete

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For years, training of farm hands has been a top priority

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• ERP justification can also be based

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• Strategic planning is survival

• A strategic focus results in the creation

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• Market planning is necessary to

• Used to translate customer inputs

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• Process of monitoring the

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• E-commerce will result in a significant

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• EDI can be costly due to the expense

• For monthly S&OP updates:

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• Agree on the process/role of partners

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• The S&OP provides the base line for

©Copyright 2000, Honeywell Inc. SCM E&T Programs Gary A. Langenwalter

Impact of Lead Time on Supply Chain Inventory

Supplier Conversion Delivery/Distr Customer

4 Weeks 2 Weeks 1 Week 1 Day

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• Requires understanding and managing of:

Best in Class vs. Median Performers

PRTM, 1997 BM Study

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• Alignment of supply chain strategies

• E-commerce will rapidly become the

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• Full sales support