Enterprise Resource Planning - Essay Example

Enterprise Resource Planning Table of Contents Table of Contents 2 Enterprise Resource Planning 3 Introduction 3 Enterprise Resource Planning 3 Master Production Schedule (MPS) 4 Material Resource Planning (MRP) 5 Porter’s Forces of Competition 6 Shaping the Strategy 7 Benefits of Master Production Scheduling (MPS) 8 Benefits of Material Resource Planning (MRP) 9 Business Intelligence 9 Conclusion 10 Bibliography 11 Enterprise Resource Planning Introduction The business world today has become very competitive because of many entrepreneurs venturing in business. If an enterprise has to survive the competition, there is need to position itself in order to have the ability to meet the needs of the clients. There is need to be proactive other than being reactive. When one is proactive, you are able to forecast the needs of the consumers. When one is reactive, one probably loses an opportunity that existed and may never get the opportunity again. Being proactive means putting in place systems that will help the business to have the checks and balances of what is needed at any predetermined time (Sheilds 2001). If one has to excel, it means that one has to be ahead of the competitors because the moment your competitors are ahead of you, one simply reacts to the demands of the consumers. In order to be proactive, one has to manage all organization’s resources very effectively and efficiently. Management means being able to be in control. The aim of this paper is to outline the benefits that come with master production scheduling (MPS) and material resource planning (RPF) as a function of Enterprise resource planning (ERS). This will be done by describing the function of Enterprise resource planning and the role of master production scheduling and material resource planning (Sheilds 2001). Enterprise Resource Planning The Enterprise resource planning is a system that brings together both the internal and external management information in an organization. It coordinates all the business functions in the organization with the intention of facilitating swift flow of information both within and out of the organization. (Bidgoli 2004) The ERP system was first used by Gartner group in 1990 (Wylie 2004). The system was used as an extension of other systems namely; the material requirement planning, manufacturing resource planning and computer integrated manufacturing. Later on ERP became an integrated system that addressed all the core functions of an enterprise, with the governments and non- profit organizations employing the system (Chang, Symythe and Timbrell 2000). When ERP systems were introduced, their main focus was to automate the functions of the back office. The functions of the back office are activities that did not involve the customers directly. They are referred to as back office activities because those activities took place in the building where other people cannot see those activities going on. Such activities include manufacturing, developing products and administration. The front office functions were integrated later in the ERP system. As opposed to the back office functions, front office functions are directly related to the customer for instance customer relationship management. Master Production Schedule (MPS) A master production schedule (MPS) is a plan that a company develops so a as to plan for production, inventory and staffing. A master production schedules gives the time the product will be demanded and also gives the quantity that will be demanded. It is therefore a plan for future production. An MPS therefore contains a statement of what the firm anticipates to manufacture. For instance, it states the amount to be produced and possibly how much labor is required. It is therefore concerned with elements such as forecast demand, production cost, inventory costs, lead-time and working hours (Sheilds 2001). The MPS translates the business plan into a production plan. Its addresses the concern of demand, hence forecast demand. It helps to avoid shortages, last minute and inefficient allocation in resources. MPS ensures that the materials required for production are availed on time and as soon as the production is over, the products are delivered to the customer. This enhances customers’ royalty since they are assured that the products that they want will be available when needed. MPS therefore plan for manufacturing activities, delivery schedule and purchasing activities. Material Resource Planning (MRP) Material resource planning (MRP) is a formal computerized method to inventory control, production scheduling, supplier scheduling, and entire corporate planning (McGraw-Hill Concise Encyclopedia Engineering 2002). MRP system offers the client with data about timing (when to order) and quantity (how much to order), it also generates new orders. When the requirements of the customers changes, MRP has to reschedule the orders so as to fit the needs of the customers. It is significant to take care of the requirements of the customers, as they are the target market. Customers are buyers who are the first source of money. Making money is the very reason why enterprises get into business. MRP system is driven by change. This means that it has to constantly check on changes made and recalculate the required material with a focus on forecast order. The system makes adjustments if there are foreseen possible problems and therefore being proactive. It does not wait for the problems to occur and then react. The system uses the computer to operate massive amounts of data. This use of the computer enables the system to up date schedules and priorities in order. The role of MPS and MRP in relation to ERP MPS and MRP play a complementary role in the ERP system. MPS is concerned with forecast of production and MRP is concerned with giving the information, when to order and how much to order. MRP links the customers with the business by providing necessary information. It therefore enables the enterprise to have constant supply. While MPS ensures that production takes place promptly, MRP ensures that the customers are informed when the products will be ready. MPS and MRP play an important role because of the rivalry that is present in the industry (Sheilds 2001). Porter’s Forces of Competition Porter presents five forces that govern the industry competition. The five forces of competition that any industry faces include; Rivalry that exist within the industry itself, the threat of new entrants, the threat of substitute goods, bargaining power of suppliers and the bargaining power of buyers (Porter 1980). The new entrants threaten the level of profits since it reduces the market share. If there are new firms entering in the industry, it means that they are going to share the existing market with those who are already in the industry. Sharing the market means sharing the potential buyers who will have a variety of firms to choose from. The existence of a cheaper substitute is a threat because they lower the return rates. With the presence of a cheaper substitute, the customers may opt to go for them regardless of the quality. This will eventually affect the turnover of the players in the industry. Powerful buyers push down prices and therefore lower the profit margins. Powerful suppliers raise costs hence cutting down the profit margin. The rivalry within the industry threatens the firm’s position and profitability of its operations. Owing to these competitive forces, a firm has to come up with a strategy of how to survive these forces (Kotler and Kevin 2006). Shaping the Strategy A strategy is a set of activities that the organization intends to use in order to achieve its goals. A strategy gives direction to diverse activities. Strategy formulation involves choosing an appropriate action that will help the organization achieve its objective. (Management study guide 2008 – 2012). The best course of action can only be considered after viewing the organizational goals, assessing its strengths and potentials, as well as the limitations and external opportunities. Although the social and political factors play an important role in shaping the strategy of the company, the industrial environment in which the firm is operating is the key factor. The competitive forces in the industrial environment therefore become the determining factor of the company’s marketing position and profitability in the industry. Given that the main aim of an enterprise is to maximize profit, then the collective strength or weaknesses of the five competitive forces determine the extent of opportunities or threats in the industry. Hence, if the collective force is weak, there will be a greater opportunity for good performance. The objective of the strategy is therefore to find a position in an industry where the company can either avoid these factors or influence them in its favor (Kotler and Kevin 2006). In order to decide what strategy to take, the first thing the enterprise should do is to try to understand the basic structure of the industry. Additionally to that, it is also important to understand the sources of strengths of the competitive forces. In assessing their own and that of the competitors’ position in the market, the firm should not only think about the market share but also look at the profit that they get. Satisfying the needs of the buyers may be important but the most important thing is for the firm to find out if it can capture the value, they create for their customers or this value is competed away to others (Porter 1980). More often than not, customers consider the value in the goods that they are ordering. They look at the satisfaction that they derive from the product and they are willing to pay any price if their needs are satisfied. Hence, the organization has to create value and ensure that they maintain the same. In Economics, creating value in a product so as to distinguish it from other products is referred to as differentiation. Product differentiation makes a product more attract to a specific target market. This can be a cause of competitive benefit. Differentiation is done to create a unique aspect of a product from a given firm and this creates a sense of value for the buyers (Kotler and Kevin 2006). Benefits of Master Production Scheduling (MPS) Since MPS plans for production, it considers all significant demands and plans for supply. This translates demands into a supply demand schedule for manufacturing. MPS is used in conjunction with material requirements planning to schedule finished goods production and raw materials when and where they are needed. It provides the business plan with the forecasted demand. Forecasted demand estimates the quantity of a product that the consumers will purchase that is the sales order. With the forecasted sales, it becomes easy to work out a production plan that is, the supply order. The MPS therefore helps to avoid scheduling in the last minute, which can lead into shortage of production hence inconvenience supply (Sheilds 2001). It takes care of the customers’ needs and therefore enables the enterprise to satisfy the need of the customer hence positioning itself well in the industry. Benefits of Material Resource Planning (MRP) The management gains insight into real time production. The sales and marketing management are able to create sales targets, which fit the resources, and ability constrains. Vender relationship will be developed and this fosters the just in time (JIT). This means that products are produced on time. When products are available on time, the customers develop trust and hence develop customer loyalty. The accounting and finance get accurate account and these enable them to predict cash flow; quality control advantage from a precise audit trail (Sheilds 2001). All these enable manufacturers to realize substantial savings and improved efficiencies, more efficient use of production equipment and floor personnel. Business Intelligence Business intelligence refers to computer-based techniques that are used to identify, extract and analyze business data. The business intelligence provides three aspects of the business operations, historical operations, current operations and predictive views. The common functions of business intelligence include; reporting, business performance management, predictive analytics and bench marking among others. The aim of business intelligence is to support better decision making. It is therefore also regarded as a decision support system (Wylie 2000). The information that is gained from business intelligence is used in decision making especially by the management. Such decisions affect the operations of the entire organization. The information that is gained from the functions of business intelligence can be used by the management to create strategies that can enable the organization to position itself well in the industry. The application of business intelligence in an organization introduces the element of technology. With the use of technology, it becomes easy to retrieve information and even share information very fast given the functions of business intelligence. Conclusion MPS and MRP as a function of ERP play a significant role in determining where the organization wants to place itself in the industry. Such systems have to be evaluated regularly for the organization to be sure that it is on the right track in bid to compete in the industry (Wylie 2000). Other support systems for instance business intelligence should be incorporated with other systems to ensure to enhance sound decision making by the management. Organizations will only be well placed if they have effective sound MPS and MRP systems. Bibliography Bidgoli, H. 2004, The Internet Encyclopedia, Volume 1, New York: John Wiley & Sons, Inc. Chang, S.I., Smythe & Timbrell, E., 2000. "A Delphi examination of public sector ERP implementation issues". International Conference on Information Systems. Atlanta: Association for Information Systems. pp. 494–500. Kotler, P. and Kevin K. 2006, Marketing Management (12 ed.). New Jersey: Prentice Hall. McGraw-Hill Concise Encyclopedia Engineering. 2002, Engineering terms, New York: The McGraw-Hill Companies, Inc. Porter, M.E 1980. Competitive strategy –Techniques for Analyzing Industries and Competitors, London: The Free Press. Sheilds G., 2001. E-Business and ERP: Rapid Implementation and Project Planning. New York: John Wiley and Sons, Inc. p. 9-10. Wylie, L. 2000 "A Vision of Next Generation MRP II", Scenario S-300-339, Gartner Group, April 12, ..  Read More