One of the most important issues in planning and controlling operations is managing the sometimes vast amounts of information generated by the activity. It is not just the operations function that is the author and recipient of this information, almost every other function of a business will be involved. So, it is important that all relevant information that is spread throughout the organisation is brought together. Then it can inform planning and control decisions such as when activities should take place, where they should happen, who should be doing them, how much capacity will be needed and so on. This is what Enterprise Resource Planning (ERP) does. It grew out of a set of calculations known as Material Requirements Planning (MRP), which is also described in this lesson.
An easy way of thinking about enterprise resource planning is to imagine that you have decided to hold a party in two weeks’ time and expect about 40 people to attend. As well as drinks, you decide to provide sandwiches and snacks. You will probably do some simple calculations, estimating guests’ preferences and how much people are likely to drink and eat. You may already have some food and drink in the house which you will use, so you will take this into account when making your shopping list. If any of the food is to be cooked from a recipe, you may have to multiply up the ingredients to cater for 40 people. Also, you may wish to take into account the fact that you will prepare some of the food the week before and freeze it, while you will leave the rest to either the day before or the day of the party. So, you will need to decide when each item is required so that you can shop in time.
In fact, planning a party requires a series of interrelated decisions about the volume (quantity) and timing of the materials needed. This is the basis of materials requirement planning. It is a process that helps companies make volume and timing calculations (similar to the party, but on a much larger scale, and with a greater degree of complexity). But your planning may extend beyond ‘materials’. You may want to rig up a sound system borrowing a friend’s speakers – you will have to plan for this. The party also has financial implications. You may have to agree a temporary increase to your credit card limit. Again, this requires some forward planning and calculations of how much it is going to cost and how much extra credit you require. Both the equipment and financial implications may vary if you increase the number of guests. But if you postpone the party for a month, these arrangements will change. There are also other implications of organising the party. You will need to give friends, who are helping with the organisation, an idea of when they should come and for how long. This will depend on the timing of the various tasks to be done (making sandwiches, etc.).
So, even for this relatively simple activity, the key to successful planning is how we generate, integrate and organise all the information on which planning and control depends. Of course, in business operations it is more complex than this. Companies usually sell many different products to many hundreds of customers who are likely to vary their demand for the products. This is a bit like throwing 200 parties one week, 250 the next and 225 the following week, all for different groups of guests with different requirements who keep changing their minds about what they want to eat and drink. This is what ERP does – it helps companies ‘forward plan’ these types of decisions and understand all the implications of any changes to the plan.
Definition of ERP
Enterprise resource planning has been defined as ‘a complete enterprise-wide business solution’. The ERP system consists of software support modules such as marketing and sales, field service, product design and development, production and inventory control, procurement, distribution, industrial facilities management, process design and development, manufacturing, quality, human resources, finance and accounting, and information services. Integration between the modules is stressed without the duplication of information’. ERP is very much a development out of MRP II, which itself was a development out of MRP. Its aim is to integrate the management of different functions within the business as a whole in order to improve the performance of all the interrelated processes in a business. As usual, the improvement of processes can be measured using the operations performance objectives (quality, speed, dependability, flexibility and cost).