Definition of ERP

Definition of ERP

Enterprises Resource Planning (ERP) is a software based production planning and inventory control system used to manage manufacturing processes. Although it is not common nowadays, it is possible to conduct ERP by hand as well.
An ERP system is intended to simultaneously meet three objectives:
• Ensure materials and products are available for production and delivery to customers.
• Maintain the lowest possible level of inventory.
• Plan manufacturing activities, delivery schedules and purchasing activities.

The scope of ERP in manufacturing

Manufacturing organizations, whatever their products, face the same daily practical problem – that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required.
Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below:
¾ If a company purchases insufficient quantities of an item used in manufacturing, or the wrong item, they may be unable to meet contracts to supply products by the agreed date.
¾ If a company purchases excessive quantities of an item, money is being wasted – the excess quantity ties up cash while it remains as stock and may never even be used at all. However, some purchased items will have a minimum quantity that must be met, therefore, purchasing excess is necessary.
¾ Beginning production of an order at the wrong time can cause customer deadlines to be missed.
ERP is a tool to deal with these problems. It provides answers for several questions:
¾ What items are required?
¾ How many are required?
¾ When are they required?
ERP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items.
The data that must be considered include:
¾ The end item (or items) being created. This is sometimes called Independent Demand, or Level “0” on BOM (Bill Of Material ).
¾ How much is required at a time.
¾ When the quantities are required to meet demand.
¾ Shelf life of stored materials.
¾ Inventory status records. Records of net materials available for use already in stock (on hand) and materials on order from suppliers.
¾ Bills of materials. Details of the materials, components and subassemblies required to make each product.
¾ Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routings, Labor and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs.