The formation of ERP Theory

The formation of ERP Theory

Enterprise Resources Planning (ERP) was first proposed by garter Group Inc. Consulting. ERP aims to comprehensively balance and optimize the resources (such as people, finance, things, and Information) owned by enterprises based on the market, in this way, enterprises can fully exert their potential in the fierce market competition to achieve maximum economic benefits. The formation of ERP theory generally goes through the basic MRP stage, closed loop MRP stage, MRP-ⅱ stage and ERP formation stage. The basic MRP is formed based on the inventory order point method. I. Order Point Method In the early 1940s S, western economists put forward the ordering method and theory by studying the rules of using and consuming stock materials over time, and apply it to the inventory plan management of the enterprise. As early as the beginning of 1930s, enterprises usually use the method of controlling the quantity of inventory items to set the maximum inventory and safe inventory for each type of required materials. The maximum inventory is set for the limitation of inventory capacity and capital usage. The safety inventory is also called the minimum inventory, that is, the consumption of materials cannot be less than the safety inventory. In order to avoid material shortage and affect production, you should increase the fixed quantity inventory on the basis of the safety inventory, instead, you cannot supplement the inventory only when the stock of materials is consumed to the safety stock, because the supply of materials takes a certain period of time (that is, the supply cycle, such as the procurement cycle and processing cycle of materials ), therefore, there must be a period of time to advance. The amount of inventory added on the basis of the safety stock should be used as the supply during the Material Ordering period to meet the following conditions: when the supply of materials arrives, the consumption of materials is just to the safety stock. This control model must determine two parameters: Order point and order batch, as shown in Figure 1.1: This model also played a certain role in the production environment at that time. However, as the market changes and product complexity increases, its application is limited. The following are the conditions for ordering point application: ● Material consumption is relatively stable; ● The supply of materials is relatively stable; ● The material requirements are independent; ● The price of materials is not very high. It should be said that the order point method is restricted by many conditions and does not reflect the actual requirements of materials. It is often used to continuously increase the number of order points to meet the production requirements, as a result, the inventory quantity and the amount of capital occupied by the stock materials increase, the cost of the products increases, and the enterprise lacks the market competitiveness. To this end, in the middle of 1960s, American management expert Joseph. orlicky) Dr. orlicky proposed the theory of "independent material requirements and related needs". On this basis, people have formed an understanding of "providing the required quantity when needed, developed and formed the material demand plan (MRP) theory, that is, basic MRP. Ii. basic MRP (Material Requirement Planning, material demand Planning) Based on the theory of "independent material requirements and related requirements", the basic MRP proposes that the order quantity of materials should be determined according to the requirements, the product structure (that is, the demand for materials in the product structure is related) should be taken into account to realize the idea of "Reducing inventory and avoiding material shortage. The basic MRP mainly solves the problem of production planning and control during intermittent production. In the case of intermittent production, how to ensure the efficient operation of production plans and timely supply of materials to meet production needs is an important issue in production management. This problem cannot be solved, this will cause inventory backlog and material shortage. MRP is mainly used in the manufacturing industry. It needs to buy raw materials from the supply side, process or assemble the materials, manufacture the products, and sell them to the demand side. This is also the main characteristic that the manufacturing industry is different from the finance, commerce, mining (petroleum, minerals), and service industries. Any manufacturing business and production activities are carried out around its products, and the manufacturing information system also reflects this characteristic. MRP is the combination of material information from the product structure or material list (for the food, medicine, and chemical industries as "recipes. The business and production activities of the manufacturing industry are shown in a constructor with upper, lower, and width: The top layer is a factory product, which belongs to the business of the marketing department of the enterprise; the bottom layer is the purchased raw materials or accessories, which is the business of the enterprise's Material Supply Department. It is the manufacturing component and the business of the production department. The basic function of MRP is to integrate material information, ensure timely supply of materials, reduce inventory, and improve production efficiency. Material Requirement information consists of the following four elements: ● What is needed; ● When required; ● Required; ● When to order. The requirement information, product structure, collection and supply lead time, and inventory information of materials are the four main data for running MRP. The accuracy of the data determines the effectiveness of MRP. The American Association for production and inventory control (apics) developed the first MRP Software System for Material demand planning around 1960, which represents the initial formation of the modern enterprise resource management system. MRP generally includes the following modules: ● Master Production Plan (MPS) module; ● Material demand planning (MRP) module; ● Bill of Material (BOM) module; ● Inventory control module; ● Purchase order module; ● Manufacturing order module. Iii. Closed-Loop MRP The basic MRP is based on the following two assumptions: first, the production plan is feasible, that is, there is sufficient equipment, manpower and money to ensure the implementation of the production plan; second, assuming that the procurement plan is feasible, there is sufficient supply capacity and transportation capacity to ensure the completion of material supply. However, in actual production, Capacity resources and material resources are always limited, so there is often a situation where the production plan cannot be completed. Therefore, in order to ensure that the production plan conforms to the actual situation, the plan must be adapted to resources to ensure the feasibility of the plan. This is the closed-loop MRP concept. In 1970s, based on the basic MRP, closed-loop MRP combined needs and possibilities to achieve a complete planning and control system through repeated balance between capability and load. To put it simply, the formation of closed-loop MRP is to add a Capability Requirement Plan on the basis of MRP, forming a closed-loop system of "plan-execution-feedback-Plan, balance the system with production plans and production capabilities. In layman's terms, MRP is a planning method to ensure that there is no shortage and no inventory backlog. It solves the contradiction between the shortage of parts and the excess storage that the manufacturing industry cares about. All ERP software uses MRP as its function module for production planning and control. MRP is an indispensable core function of ERP. 4. mrp ii (manufacture resource planning, Manufacturing Resource Planning) Mrp ii is an information integration system developed on the basis of MRP to reflect the production plan and economic benefits of enterprises. It is a famous American management expert Oliver White (Oliver W. wight) a new concept proposed by Wight, because it is short for MRP, in order to facilitate distinction, it is called mrp ii. In the late 1960s s, after the world's major developed countries successively entered the buyer's market, the competition among manufacturing enterprises became increasingly fierce. More and more enterprises realized that advanced enterprise management methods were the basic factors for survival in the competition. They constantly try various management methods, management technologies and management means. More and more enterprises have adopted feasible and mature management technologies or management methods and gradually become a basic specification. After more than 30 years of tests, it has been proved that the successful core system is mrpⅱ, which represents the recognized management principles of modern manufacturing enterprises. It is suitable for small batches or enterprises with complex single-piece production structures. Due to the personalization trend in modern society, product development and production are gradually becoming more personalized, small batches, and multi-variety models, making the application of mrp ii more popular. The main difference between MRPII and MRP is that MRPII uses the concept of management accounting to integrate material information with capital information, and illustrates the economic benefits brought about by the implementation of the Enterprise "material plan" in monetary form. To measure the business efficiency, you must first calculate the product cost. It is necessary to describe the actual occurrence process of the product cost, based on the product structure of MRP, starting from the material fee of the lowest-level purchased parts, the material, labor, and manufacturing costs (Indirect Costs) of each piece of material are accumulated layer by layer, and the cost of each layer of parts until the final product is obtained. Then, it further analyzes the profit of various products in combination with marketing. Mrpⅱ combines traditional accounting with accounting transactions, which not only describes the current status of Accounting funds, but also traces back the ins and outs of funds. For example, you can integrate the payable and payable items that reflect the debt-creditor relationship with the procurement and sales services. Define "transaction" based on material location, quantity, or value changes, so that financial information related to production is generated directly during the production activity. Between the related accounting subjects defining "transaction processing", the account is automatically transferred and logged on based on the set lending relationship, ensuring that the "capital flow (Financial Account)" is the same as the "Logistics (physical account) "synchronization and consistency, changes the capital information lags behind the material information, so as to facilitate real-time decision-making. The product software of MRPII consists of various functional modules. The number of modules may vary, and the functions of each module may vary, but their logical structure is basically the same. It generally includes the following modules: ● Product Data Management module; ● Main production planning module; ● Material demand planning module; ● Inventory management module; ● Capability Requirement module; ● Sales management module; ● Procurement module; ● Workshop operation management module; ● Financial Management module; ● Quality management module. These modules are structured and mutually independent, but functionally independent. For example, the Product Data Management (PDM) module stores all part numbers, process rules, product structures, and other related data in a database, and uses parts as feature fields, it is used to establish the bill of materials, processing process and assembly process, and provides management of raw data for other modules. To sum up, the basic idea of mrp ii is to take the Enterprise as an organic whole, starting from the overall optimum angle, by using scientific methods, enterprises can effectively plan, organize and control various manufacturing resources, production, supply, marketing, and financial links, so that they can coordinate development and give full play to their roles. V. ERP Mrp ii can only change the information flow of internal resources of an enterprise. However, with the acceleration of global economic integration, the relationship between an enterprise and its external environment is getting closer and closer. As a result, it can not only process internal resource information flows, but also process information flows related to the external environment of the enterprise, that is, the ERP software system, which embodies the idea of manufacturing and supply chain management according to market demand, came into being. ERP also broke the old concept and pattern that mrpⅱ was confined to the traditional manufacturing industry, extending its tentacles to various industries, especially the financial industry, communication industry, high-tech industry, and retail industry, this greatly expands the application scope. ERP has made the following improvements based on mrp ii: ● Integrate other modern management ideas and technologies to improve the system, so as to improve the adaptability of the system and optimize the production process. ● A network system built on the Internet/Intranet integrates people, finances, things, and information to give full play to the overall system efficiency. ● A complete supply chain is formed by integrating customer needs, internal enterprise manufacturing activities, and supplier resources. Through effective control and management of all links in the supply chain, we emphasize prior control and system integration to provide enterprises with analysis of strategic problems such as quality, benefits, customer satisfaction, and environmental changes. It should be said that ERP is developed on the basis of mrp ii. It is based on information technology and fully integrates all the resource information of the enterprise using the advanced management ideas of modern enterprises, it also provides an all-round and systematic management platform for enterprises to make decisions, plan, control and evaluate their business performance.