Addis Ababa University

School of Graduate Studies

Faculty of Technology
Mechanical Engineering Department
Graduate Program in Industrial Engineering

Design of Enterprise Resource Planning (ERP)

Frame work and its implementation

(With special reference to Gafat Engineering Factory)

Submitted by: Tewodros G.rufael

Advisor: Dr. Subhash Chandra

A thesis submitted to school of Graduate Studies of Addis Ababa University in

partial fulfillment of the requirement for the Degree of Masters of Science in

Industrial Engineering

Addis Ababa
Nov. 2007
 Acknowledgements

First of all, I am indebted to my advisor, DR. Chandra Subhash, who shaped my

research skeleton and provided the kind instruction and comments. I would like
to thank Dr. Chandra Subhash, for his earnest guidance and valuable
experience sharing. I also appreciate Professor E. V. Rammana who not only
helped me establish clear framework of ERP but also especially take care of me
during my undergraduate study.

Constructive comments by questionnaire respondents are gratefully

acknowledged. In particular, I want to thank production planning head of Gafat
Engineering Factory engineer Million Erko. Receiving his kind replies and useful
information really made me feel warm and incentive. I also appreciate
Engineer Tafesse hunduma, sharing his abundant practical experiences and kind
suggestions during software development. Moreover, I am grateful to my sister
Rahel Kassahun and Yetnayet Alemu for their kindly help in writing and editing
the paper throughout my work. Special thanks go to my best friend Estifanos
Gidey, who added various colors on my school life this, two-year time period.

Parental consideration and support is the last but not least factor that I have to
note. My parents always treated me with encouragement instead of pressure
during my school life. Thus I can devote myself to this work without the fear of
disturbance in the rear. I dedicate this thesis to them deservedly.

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 Table of Content

1.1 Introduction ....................................................................................... 1

1.2 Statement of the Problem..................................................................... 2
1.3 OBJECTIVE OF THE STUDY ..................................................................... 3
1.4 Significance of the Study ........................................................................ 4
1.5 Thesis Organization .............................................................................. 5
2.1 Background of Gafat Engineering Factory..................................................... 8
2.2 Productivity in Gafat Engineering Factory ..................................................... 9
2.3 Mission and Vision of Gafat Engineering Factory........................................... 9
2.3.1 Vision of GEF................................................................................... 9
2.3.2 Mission of GEF .................................................................................. 9
2.4 Organizational Structure of Gafat Engineering Factory .....................................10
3.1 What Is Enterprise Resource Planning? ......................................................11
3.2 The Evolution of Enterprise Resource Planning..............................................12
3.2.1 Material Requirements planning (MRP).....................................................12
3.2.2 Closed-Loop MRP........................................................................15
3.2.3 Manufacturing Resource Planning (MRP II)...............................................16
3.2.4 Enterprise Resources Planning (ERP) ......................................................19
3.3 Fundamentals of ERP Implementation .....................................................21
3.4 THE APPLICABILITY OF ERP...................................................................26
3.5 How Can ERP Improve A Company's Business Performance? .............................27
3.6 Issues of ERP Implementation.................................................................28
3.6.1 The need for ERP implementation ..........................................................29
3.6.2 How long will an ERP implementation take?...............................................30
3.6.3 The Implantation Challenge .................................................................31
3.6.4 ERP Methodology..............................................................................33
3.7 Benefits of ERP systems ........................................................................35
3.8 Causes for ERP system failures ................................................................36
3.9 ERP as A Foundation............................................................................39
3.10 Previous Studies Used in Survey Development............................................43
4.1 Methods of Data Collection ....................................................................46
4.2 Data Collection (Survey Questionnaires) ...................................................46
4.2.1 Nature of the Circulated Questionnaires ...................................................47
4.2.2 Categories of respondents ...................................................................47
4.2.3 Respondents position ........................................................................48
4.2.4 Summarized Responses ................................................................49
5.1 Problem Analysis in the Production of Et-97/1 ..............................................50
5.2 Cause and Effect Diagram and Pareto Analysis ...........................................53
5.2.1 Interpretation of the Pareto curve ..........................................................58
6.1 Selection of Implementation Models........................................................59
6.2 Evaluation of the Problems Identified ........................................................62
6.2.1 Evaluation of the production planning and control.......................................63
6.2.2 Evaluation of the Maintenance Management System.....................................67
6.3 Cost and benefit of implementing ERP .....................................................70
7.1 Conceptual Components of ERP ...............................................................74
7.1.1 The software component ....................................................................75

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 7.1.2 Process flow ...................................................................................75
7.1.3 Customer mindset ............................................................................79
7.1.4 Change management.........................................................................80
8.1 Software Packages ............................................................................82
8.2 Basic components of the software............................................................82
8.2.1 Production planning ..........................................................................82
8.2.2 Human resource management .............................................................83
8.3 The software.....................................................................................84
8.3.1 Consumable items ............................................................................84
8.3.2 The Fixed Asset...............................................................................96
8.3.3 The EOQ .......................................................................................96
8.3.4 Human resource management .............................................................99
9.1 Conclusion...................................................................................... 101
9.2 Recommendation .............................................................................. 102
9.3 Limitation of the Study and Future Work................................................... 104
9.4 Post ERP Implementation .................................................................. 104
BILIOGRAPHY ...................................................................................... 107

List of Tables
Table 3.1: Comparisons between MRP, MRPII and ERP……………………………..27
Table 3.2: Benefits of ERP on different Departments……………………………….36
Table 3.3: Reasons for ERP Implement Failure………………………………………….38
Table3.4: Comparison for the characteristics of Supply chain and ERP……42
Table 4.1: Categories of Respondents…………………………………………………………48
Table 4.2: Respondents position…………………………………………………………………49
Table 5.1: process flow of assembled receiver…………………………………………..52
Table 5.2: Percentage of Respondents for the Causes of Production delay and
manufacturing cost ……………………………………………………………………..55
Table 5.3: Percentage of the causes for production delay…………………………….57
Table 6.1: Costs incurred for computer system……………………………………………..71
Table 6.2: Costs incurred for data…………………………………………………………………..72
Table 6.3: Costs incurred for people……………………………………………………………….72
Table 6.4: Benefits gained from ERP Implementation…………………………………….73
Table 7.1: The 4ps and ERP conceptual Model………………………………………………. 74

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List of Figures
Fig 1.1: Thesis organization …………………………………………………………………………….7
Fig 2.1: Organizational structure of GAFAT Engineering Factory…………………10
Fig 3.1: Evolution of ERP………………………………………………………………………………….14
Fig 3.2: Closed Loop MRP ………………………………………………………………………………..16
Fig. 3.3: Enterprise Resource Planning…………………………………………………………….20
Fig. 3.4: Link between suppliers and customers …………………………………………….30
Fig. 3.5: ERP methodology ………………………………………………………………………………33
Fig.5.1: Cause & Defect Diagram…………………………………………………………………….54
Fig.5.2: Pareto Analysis for the Production Delay and High manufacturing cost…….57
Fig. 6.1: Work Time and Resource Knob………………………………………………………….60
Fig.6.4: ERP planning and control…………………………………………………………………..65
Fig. 6.6: Overview of Factory Shop Floor Monitoring and Controlling System (SFMCS)66
Fig.6.4: Control Chart for Number of defects in the production of ET97/1……67
Fig.6.5: Maintenance Management System……………………………………………………..69
Fig 7.1: Conceptual components of ERP…………………………………………………………..74
Fig 7.2: Master Process Flow…………………………………………………………………………….76

List of Acronyms

GEF: Gafat engineering Factory

ERP: Enterprise Resource Planning
MRP: Material Requirement Planning
MRP II: Manufacturing Resource Planning
HR: Human Resource
SCM: Supply chain Management
SRM: Supplier relation ship Management
CRM: Customer relation ship Management

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 Abstract
The Purpose of this thesis seeks to provide a conceptual model that explains
the Enterprise Resource Planning (ERP) system to general and project managers
in a non-technical manner that is easily understood.

The methodologies used in the thesis are evaluating the current system of the
factory particularly the resources. This is very important step to determine the
way of implementing ERP system. In the thesis two types of implementation
schemes are suggested i.e. the company wide and Quick slice.

Company-wide implementation: total company project; all ERP functions

implemented; time frame one to two years.

Quick-Slice ERP implantation: confined to one or several Pareto high-impact

product lines; most, but not all, ERP functions implemented; time frame three
to five months.

Thus based on the questionnaire survey, the main problem in the factory is the
production delay and its immediate consequence of high manufacturing cost.
The same result is obtained when a discussion is held with the heads, experts
and team leaders. The past data records of the factory also depicts the same
reason with that of the questionnaire survey.

Based on the given problems the reasons which cause it are identified, rated
and evaluated based on ERP systems.

Business models are used as a starting point to show how the ERP systems are
integrated and finally software is developed for inventory management system
and human resource management.

Findings from the thesis work are that ERP is more than just software. Unless a
clear understanding exists of the different components and their integration
ERP projects will continue to be plagued by failure. This model is applicable to
any ERP system as it is generic and vendor independent and helps determining
the scope of an ERP project.

The value of the thesis is that it enables general and project managers to
understand ERP systems better without becoming overwhelmed by product or
technical detail. This facilitate the successful implementation of ERP systems,
thus ensuring project success and, ultimately, organizational success.

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 CHAPTER 1

1.1 Introduction
In today's dynamic and turbulent business environment, there is a strong need for
the organizations to become globally competitive. The survival guide to
competitiveness is to be closer to the customer and deliver value added product
and services in the shortest possible time. There has to be much greater
interaction between the customers and manufacturers. Organizations today
confront new markets, new competition and increasing customer expectations.
This has put a tremendous demand on manufacturers to:

Lower total costs in the complete supply chain;

Shorten throughput times;

Reduce stock to a minimum;

Enlarge product assortment;

Improve Product quality;

Provide more reliable delivery dates and higher service to the customer;

Efficiently coordinate global demand, supply and production.

This, in turn, demands integration of business processes of an enterprise.

Enterprise Resource Planning (ERP) is such a strategic tool, which helps the
company to gain competitive edge by integrating all business processes and
optimizing the resources available. Enterprise resource planning (ERP) systems are
large, integrated enterprise-wide standard information systems that automate all
aspects of an organization’s business process. The ERP concept is that business
functions incorporating manufacturing, marketing (sales and distribution), human
resource, finance, and information can be supported by a single integrated system
with all of the company’s data captured in a central database. ERP systems
improve the flow of information among the different functions within an enterprise
and also facilitate information sharing across organizational units and geographical
locations. They enable managers to plan precisely, to make decisions promptly,
and to control appropriately gaining the flexibility in such a dramatically changing

1
environment through the real-time information. Implementing ERP has become an
inevitable trend for the enterprise [10].

1.2 Statement of the Problem

Global competition and rapidly changing customer requirements are forcing major
changes in the production styles and configuration of manufacturing organizations.
Increasingly, traditional centralized and sequential manufacturing planning,
scheduling, and control mechanisms are being found insufficiently flexible to
respond to changing production styles and highly dynamic variations in product
requirements. The traditional approaches limit the expandability and
reconfiguration capabilities of the manufacturing systems. The traditional
centralized hierarchical organization may also result in much of the system being
shut down by a single point of failure, as well as plan fragility and increased
response overheads. Thus many business houses face increasing pressure to lower
production cost, improve production quality and increase responsiveness to
customers [7].

GEF is one of the huge defense industries established to fulfill the large demand of
artilleries and any weapons of the defense forces of the country. Currently the
factory has produced modern artilleries, which were earlier imported from foreign
countries. The factory has also engaged in producing some manufacturing products
to meet the demand of other civilian organizations i.e. the factory has a lot of
orders to manufacture various products in any quantity.

However; due to lack of integration of its business activities, like the design,
manufacturing, process planning, logistics, supply chain management and others
like accounting, human resources, marketing and strategic management; the
factory has faced a problem in that it can’t be competent in the market. Poor
production planning, problems in resource management, Poor production layout,
high production cost, Poor maintenance management, problems in raw materials
and tool cost and outdated machines aggravates the delay time in production and
leads to increase in manufacturing cost. Nowadays various foreign companies
adopting modern manufacturing environments can supply the same products having
better qualities with lower price. Thus the factory has to change its current

2
manufacturing structure to be competent and stay in the market. Actually the
factory has started adopting some techniques to avoid managerial as well as
production obstacles. Besides this it is very important to avoid departmental and
enterprise wide barriers by implementing the enterprise resource planning (ERP).

Specifically the factory has the following problems:

There is no strong production as well as performance measurement;

evaluation and progress follow-up mechanism. The skill, capacity and training
need of each individual operator is not determined.

Since most of the machineries in the factory are old and not equipped with
maintenance equipments there exists repetitive machineries breakdown. To
justify its effect on the production process, there are no mechanisms to
register machineries breakdown time. In addition to this there is no annual
preventive maintenance plan.

There is no clear information exchange between varies departments of the
factory about the progress of job. For example the quality control test results
is not prepared in such a manner that it could explain test request receiving
time, result delivering date and time, causes of reject, amount of re-
workable materials and possible remedial solution that have to be made by
the concerning section.

There is no effective utilization of resources (manpower, machineries, raw
materials, time)

1.3 OBJECTIVE OF THE STUDY

General objective:
In the conventional organizational set-up it is very difficult to cut across various
departments and meet the supply chain from one end to the other. The gaps
between delivery and expectations are very critical and hence can be bridged only
with an integrated process data business modeling which considers the various
layers of the business and cuts across departmental barriers by meeting the supply
chain effectively.

3
Enterprise resource planning is a term derived from manufacturing resource
planning (MRP II) that followed material requirements planning (MRP).The system
typically handle the manufacturing, logistics, distribution, inventory, shipping,
invoicing, and accounting for a company. Enterprise Resource Planning or ERP
software can aid in the control of many business activities, like sales, delivery,
billing, production, inventory management, quality management, and human
resources management.

The purpose of this thesis is to provide a high level conceptual frame work that
will assist in understanding what ERP is and how to go about implementing it. It is
important for general and project managers to understand what ERP is and what
the impact is on the organization when implementing an ERP system. Since it is a
high level conceptual model, it will be used by middle to top management as well
as project managers that need to implement an ERP system. In addition to this it
helps the top management to decide the way how they are going to implement
ERP, Company wide or quick slice i.e. only some modules with high problem.

Specific objective:
The specific objectives of this study are the following:

Increasing the responsiveness of GEF to the market requirements with high

efficiency;

Creating awareness on the factory that supply chain optimization through
effective resource allocation and Involving customers in total supply chain
optimization;

Achieving dynamic optimization of materials and inventory management;

Realizing total supply chain optimization including all linked enterprises;

Increasing the effectiveness of the information exchange and feedback.

Provide efficient and reliable maintenance management system.

1.4 Significance of the Study

ERP automates the tasks involved in performing a business process—such as order
fulfillment, which involves taking an order from a customer, shipping it and billing
for it. With ERP, when a customer service representative takes an order from a

4
customer, he or she has all the information necessary to complete the order (the
customer's credit rating and order history, the company's inventory levels and the
shipping dock's trucking schedule). Everyone else in the company sees the same
computer screen and has access to the single database that holds the customer's
new order. When one department finishes with the order it is automatically routed
via the ERP system to the next department. To find out where the order is at any
point, one need only log into the ERP system and track it down. The order
processes are streamlined through out the organization, and customers get their
orders faster and with fewer errors than before. ERP can apply the same
fundamentals to the other major business processes, such as inventory
management, human resource management and employee benefits or financial
reporting etc.

1.5 Thesis Organization

This thesis contains a total of nine chapters. The chapters are arranged in such
away that it follows a logical sequence in which it conveys some concepts in ERP
identify the main problem in GEF and apply some tools i.e. ERP implementing tools
to eradicate the problems occurred within the factory.

The contents of the chapters are as follows:

Chapter 1 – Introduction: This chapter is to give introductory view to the reader
about the thesis work, the statement of the problem, objectives, scopes,
significance, limitations and thesis organization.
Chapter 2 – Background of the study: This chapter gives a highlight on total
background of the factory, the total productivity and general performance of the
factory, company profile, organizational structure, motto, mission, objectives,
location, types of product produced, types of service provided to customers,
customer supplier relationship and so on.
Chapter 3 – Literature Survey: This chapter will review in detail the literature
available in the area of Enterprise Resource Planning. It will cover the evolution of
Enterprise Resource Planning, manufacturing system, which includes the inventory
system, production, and distribution system based on the experience, research of
intellectuals in the field.

5
Chapter 4 – Research Methodologies: will describe different aspects of the
methods used and situations that the researcher must consider during each phase
of the study. Different ways of carrying out the study and different ways of
collecting information will be discussed. The purpose of this chapter is to make the
reader understand the methodological choices made on the study. Finally it
elaborates the data and interprets the results obtained from the questionnaire.
Chapter 5- covers Data Analysis and interpretation based on the questionnaire
survey. It also covers an analysis to point out the main problem the factory has
faced by rating the various existing problems through cause and effect diagram
and Pareto analysis.
Chapter 6 – This chapter will cover general implementation model of ERP systems
in which a company chooses suitable implementation model based on three
factors. These are Time available to implement ERP, the amount of resource
available and the amount of workload. This chapter also will discuss the existing
systems in production planning, maintenance management, and related tasks and
suggests better modules in ERP. It also shows he costs to implement the system
and the benefits achieved.
Chapter 7 – Evaluation of the implementation model through conceptual design of
ERP system.
Chapter 8 – Friendly user software Development and Post ERP implementation:
This chapter will cover software development using visual basic 6 to integrate all
the activities of the enterprise and it discusses some issues to be performed after
ERP implementation.
Chapter 9 – Conclusions, Recommendations, and Future Works: This chapter will
present the conclusions drawn from the study, and give recommendation. It will
also include suggestions for further researches in the area.

6
I Bacground Review
Introduction, back ground & statement of the problem,
and objectives & significance of the study.

Create Effective Methods

II, III, IV, V Construction

Literature
Survey

Questionnaire Problem Earlier research

Survey works
Identification

Evaluate ERP Model

VI, VII Model development

and Evaluation

Problem ERP module Evaluation of

Identification selection selected
modules

Conceptual Design of ERP

System

Suitable software selection &

development
VII Solution to the existing
problems
Software Development and post implementation
techniques

Conclusion

VII Final

Conclusion, Recommendation & Future works

Fig.1.1 Thesis Organization

7
 CHAPTER 2

2.1 Background of Gafat Engineering Factory

GEF originally designed to manufacture 7.62mm automatic rifle (AkM-47) and

7.62mm light duty machine guns (RPD). Physical activities of the factory
commenced in early 1984 G.C. and it is anticipated to complete the project
implementation period of five years. After the completion of project phase the
factory commissioned and wished to produce product based on its designed
purpose; with annual production capacity of:

7.62mm (AKM-47) Automatic rifle ----------------------------20,000pcs/year

7.62mm (R.P.D) Light machine gun -------------------------1,400pcs/year

AKM-47 Automatic rifle magazine----------------------------80, 000pcs/year

Packing wooden boxes ------------------------------------------2000pcs/year

However, until the termination of the factory production activities in may

1991G.C. following the fall of former government only 10,420pcs of AKM-47 and
1228pcs R.P.D was produced during the two years (i.e. 1989-1991G.C.). Which are
26 % and 44% respectively compared with the available production capacity of the
factory. The factory was running under capacity during the two years due to the
following discovered major problems.

Shortage of skilled man power

Delay in delivery of ordered materials and equipment

The management system fails to organize and lead the factory as
technological activity demands

Afterwards, only some of the manufactured components were assembled.

Depending on government's decision recognized the factory through careful
investigation by the assigned committee from 1994-1996G.C. Depending on the
committee's conclusion some outfits and equipments were purchased and installed.
Activities of the producing spare parts, and some civilian products have been going
on; the beginning of the project ET-97and ET-97/1 according to the contract

8
between Ethiopian government and Korean Ryong bong General Corporation is the
first action taken which realize the return of the factory to its designed purpose.

2.2 Productivity in Gafat Engineering Factory

Due to the absence of SPM and continuous working situation; the factory fails to
get the technical experience regarding the production for which it is designed.
After the factory reorganized again also the factory was made to engage in under
capacity products and maintenance activities. Due to the above major problems
the productivity of the factory is discovered to be very poor, so that the factory is
forced to start from project stage like another new factory.

2.3 Mission and Vision of Gafat Engineering Factory

2.3.1 Vision of GEF

“GEF aspires to see insuring war readiness of defense forces by maintaining,

upgrading and producing modern individual and group artilleries.”

2.3.2 Mission of GEF

1. To produce individual and group artilleries with quality standard and
competitive price by enhancing the efficiency of the defense forces and
supplying proper technological aid for similar industries through research and
development.
2. To ensure the war readiness of the defense forces by maintaining and upgrading
individual and group artilleries.
3. To supply products which are important for the development of the country and
gain additional revenue.

9
 2.4 Organizational Structure of Gafat Engineering Factory

Defense industries and infrastructure

Manager

Plan and budget Audit

Plan and budget

section head MIS section

Quality control and quality assurance

Marketing and contract administration

Contract and Sales and marketing Laboratories head Quality control

legal section

Administration Logistics Production Research and

and finance department and devlopment
Engineering

Research Design&
Safety & Training Financ Purch Logistics and product
general & human e asing section adaptation develop
service resource head ment
Productio
n division

Maintenance Tools & spare Engineering

parts division Commercial
production production
division

Fig. 2.1 Organizational structure of GEF

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 CHAPTER 3
LITERATURE SURVEY

3.1 What Is Enterprise Resource Planning?

Enterprise Resource Planning (ERP)-and its predecessor, Manufacturing Resource

Planning (MRP II) is helping to transform industrial landscape. It's making possible
profound improvements in the way manufacturing companies are managed. It is a
strong contributor to America's amazing economic performance of the 1990s and
the emergence of the New Economy. A half century from now, when the definitive
industrial history of the twentieth century is written, the evolution of ERP will be
viewed as a watershed event. [1]

Enterprise resource planning software, or ERP, doesn't live up to its acronym.

Forget about planning—it doesn't do that—and forget about resource, a throwaway
term. But remember the enterprise part. This is ERP's true ambition. It attempts to
integrate all departments and functions across a company onto a single computer
system that can serve all those different departments' particular needs.

That is a tall order, building a single software program that serves the needs of
people in finance as well as it does the people in human resources and in the
warehouse. Each of those departments typically has its own computer system,
each optimized for the particular ways that the department does its work. But ERP
combines them all together into a single, integrated software program that runs
off a single database so that the various departments can more easily share
information and communicate with each other.

That integrated approach can have a tremendous payback if companies install the
software correctly. Take a customer order, for example. Typically, when a
customer places an order, that order begins a mostly paper-based journey from in-
basket to in-basket around the company, often being keyed and re-keyed into
different departments' computer systems along the way. All that lounging around
in in-baskets causes delays and lost orders, and all the keying into different

11
computer systems invites errors. Meanwhile, no one in the company truly knows
what the status of the order is at any given point because there is no way for the
finance department, for example, to get into the warehouse's computer system to
see whether the item has been shipped [6].
Enterprise resource planning is described as:

An enterprise-wide set of management tools that balances demand and supply,

Containing the ability to link customers and suppliers into a complete supply chain,
Providing high degrees of cross-functional integration among sales, marketing,
manufacturing, logistics, purchasing, finance, new product development, and
human resources, thereby enabling people to run their business with high levels of
customer service and productivity, and simultaneously lower costs and inventories;
and providing the foundation for effective e-commerce [1].

In the conventional organization set-up it is very difficult to cut across various

departments and meet the supply chain from one end to the other. The gaps
between delivery and expectations are critical and hence can be bridged only with
an integrated process data business modeling, which considers the various layers of
the business and cuts across departmental barriers by meeting the supply-chain
effectively [2].

3.2 The Evolution of Enterprise Resource Planning

3.2.1 Material Requirements planning (MRP)

Prior to 1960s, the business had to rely on the traditional ways of inventory
management to ensure smooth functioning of organization. The most popularly
known among them is EOQ (Economic Order Quantity). In this method, each item
in the stock is analyzed for its ordering cost and the inventory carrying cost. A
trade off is established on a phased out expected demand of one year, and this
way the most economic ordering quantity can be decided. This technique in
principle is a reactive way of managing inventory.

12
ERP began life in the 1960s as Material Requirements Planning (MRP), an outgrowth
of early efforts in bill of material processing. MRP or Material Requirement
Planning was first introduced in the 1970’s as a computerized approach to planning
and obtaining the required materials for manufacturing/production. MRP's
inventors were looking for a better method of ordering material and components,
and they found it in this technique.

MRP uses the Bill of Materials (BOM) in conjunction with the Master Production
Schedule (MPS) to project the material requirements of each
component/material/assembly. By comparing inventory to production quantity
requirements, MRP determines if more materials need to be purchased.
The logic of material requirements planning asks the following questions;

What are we going to make?

What does it take to make it?

What do we have?

What do we have to get?

This is called the universal manufacturing equation. Its logic applies wherever
things are being produced whether they are jet aircraft, tin cans, machine tools,
chemicals, cosmetics etc. [5].

In addition, MRP uses Mainframe computing as the main source for input and
processing. All application processing, including the user interface occurred
centrally on the mainframe. The user devices were "dumb terminal" with display
memory but virtually no processing power [4].

13
 EOQ
(Economic Order Quality)

MRP
(Material Requirement
Planning)

Closed Loop MRP

MRP II
(Manufacturing Resource
Planning)

ERP
(Enterprise Resource
Planning)

Fig 3.1 Evolution of ERP

14
3.2.2 Closed-Loop MRP
MRP quickly evolved, however, into something more than merely a better way to
order. Early users soon found that Material Requirements Planning contained
capabilities far greater than merely giving better signals for reordering. They
learned this technique could hip to keep order due dates valid after the orders had
been released to production or to suppliers. MRP could detect when the due date
of an order (when it's scheduled to arrive) was out of phase with its need date
(when it's required).

This was a break through. For the first time ever in manufacturing, there was a
formal mechanism for keeping priorities valid in a constantly changing
environment. This is important, because in a manufacturing enterprise, change is
not simply a possibility or even a probability. It's a certainty, the only constant,
the only sure thing.

The function of keeping order due dates valid and synchronized with these changes
is known as priority planning. Techniques for helping plan capacity requirements
were tied in with material Requirements Planning. Further, tools were developed
to support the planning of aggregates sales and production levels (sales and
Operations Planning); the development of the specific build schedule (master
scheduling); forecasting, sales planning, and customer-order promising (demand
management); and high-level resource analysis (Rough-Cut Capacity Planning).
Systems to aid in executing the plan were tied in: various plant scheduling
techniques for the inside factory and supplier scheduling for the outside factory
the suppliers. These developments resulted in the second step in this evolution:
closed-loop MRP. (See Figure 3-2.)

15
 Production Planning

D
E C
M A
A MASTER SCHEDLING P
N A
D C
I
M T
A Y
N MATERIAL
A REQUIREMENTS P
G PLANNING L
E A
M N
E N
N I
T N
PLANT & SUPPLIER G
SCHEDLING

Execution

Fig 3.2 Closed Loop MRP

Closed-loop MRP has a number of important characteristics:

It's a series of functions, not merely material requirements planning. It contains
tools to address both priority and capacity, and to support both planning and
execution.

It has provision for feedback from the execution functions back to the planning
functions. Plans can then be altered when necessary, thereby keeping priorities
valid as conditions change.

3.2.3 Manufacturing Resource Planning (MRP II)

The next step in this evolution is called Manufacturing Resource Planning or MPR II
(to distinguish it form Material Requirements Planning, MRP), A direct outgrowth
and extension of closed-loop MRP [1].

16
In the 1980’s MRP expanded from management of materials to plant and personnel
planning and distribution planning, which in turn became MRPII (Manufacturing
Resource Planning). As the materials requirements planning systems matured in
the 1970s and 1980s, other portions of the productive system were naturally added
to the computer software system. One of the first functions to be included was
purchasing. The software modules were expanded to handle cost data and selling
price capabilities. Additional data about work center capacity limitations were also
integrated into many systems as detailed scheduling for the shop floor was
provided by the MRP systems. It was quickly becoming obvious that “material
requirements planning” no longer was adequate to describe the expanded system.
Oliver Wight is credited for introducing the name “manufacturing resource
planning-MRP II” to reflect the idea that a larger part of the firm was becoming
involved with the program.

“The initial intent for MRP II was to plan and monitor all the resources of a
manufacturing firm; manufacturing, marketing, finance, and engineering through a
closed loop system generating financial figures.” MRP II was also intended as a
way to simulate the manufacturing system. The idea of the closed-loop system
indicate that once the MRP program produce an initial production schedule, the
output data is then sent to departments such as sales and operations to verify that
the plans are realistic and attainable. Ideally, not only are many functions
included in the output system, there is also feedback provided by the execution
functions so that the planning can be kept valid at all times [3].

MRP-II Manufacturing Resource Planning, a system in which the entire production

environment is evaluated to allow master schedules to be adjusted and created
based on feedback from current production/purchase conditions. Materials
Requirements Planning (MRP, or MRP-I) was launched in the mid-1960s and quickly
became popular for providing a logical, easily understood method for determining
the number of parts, components, and materials needed for the assembly of each
end item in production. As computer power grew and demands for software
applications increased, MRP systems evolved to consider other resources besides

17
materials. Software modules were added to include functions such as scheduling,
inventory control, finance, accounting, and accounts payable.
MRPII also used Mainframes, but in conjunction with LAN (Local Area Networks) to
input and access information. By utilizing powerful desktop computers and LANs,
along with client server applications, data became decentralized. This in turn
allowed departmental computing environments to emerge with local control. The
benefits of local computing were many: dedicated resources meant much better
response times, and departments were able to develop applications that best met
their needs. These applications were often isolated and invisible to the rest of the
company, with the inability to share information and resources with other parts of
the company.

MRP II is a method for the effective planning of all resources of a manufacturing

company. Ideally, it addresses operational planning in units, financial planning in
dollars, and has simulation capability to answer "what-if" Questions. It is made up
of a variety of functions, each linked together: business planning, sales and
operations planning, production planning, master scheduling, material
requirements planning, capacity requirements planning and the execution support
systems for capacity and material. Output form these systems are integrated with
financial reports such as the business plan, purchase commitment report, shipping
budget, and inventory projections in dollars. Manufacturing resource planning is a
direct outgrowth and extension of closed-loop MRP [5].
It involves three additional elements:

1. Sales and Operations Planning -a powerful process to balance demand and

supply at the volume level, they providing top management with far greater
control over operational aspects of the business.
2. Financial interface-the ability to translate the operating plan (in pieces,
pounds, gallons, or other units) into financial terms (dollars).
3. Simulation- the ability to ask" What-if questions and to obtain actionable
answers-in both units and dollars. Initially.

18
This was done only on an aggregate, "rough-cut "basis, but to day's advanced
planning systems (APS) enable effective simulation at very detailed levels.

3.2.4 Enterprise Resources Planning (ERP)

The latest step in this evolution is Enterprise Resource Planning (ERP). The need to
harmonize the functioning on an entire company has lead to the development of
ERP in the 1990’s. ERP has combined more areas within the company than either
MRP or MPRII. ERP uses WANs (Wide Area Networks), which allows coordination of
company activities globally. The appeal of such integrated information systems is
clear. The fundamentals of ERP are the same as with MRP II. However, thanks in
large measure to enterprise software, ERP as a set of business processes is broader
in scope, and more effective in dealing with multiple business units, financial
integration is even stronger. Supply chain tools, supporting business across
company boundaries, are more robust. For a graphical view of ERP, see Figure 3.3
[5].

Enterprise Resource Planning is a direct outgrowth and extension of Manufacturing

Resource Planning and, as such, includes all of MRP II's capabilities. ERP is more
powerful in that it: a) apples a single set of resource planning tools across the
entire enterprise, b) provides real-time integration of sales, operating, and
financial data, and c) connects resource planning approaches to the extended
supply chain of customers and suppliers.

The sales force enters an order on a computer, and the transaction ripples through
the entire company. Inventory lists and parts supplies are updated automatically,
worldwide. Production schedules and balance sheets reflect the changes. Best of
all every employee has just the information necessary for the job at hand.
Feedback cycles are positive and fast.

Salespeople can promise firm delivery dates, and managers can gauge almost
immediately the effects of decisions affecting credit terms, discounts, inventory,
or supply-chain management [5].

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 STRATEGIC PLANNING

Business Planning

F C
O
A
R VOLUME
E P
C SALES & OPERATION A
SUPPLY
A
DEMAND S PLANNING C
T
I
I SALES OPERATIONS
N PLAN PLAN T
G
Y
A
N
P
D
L
D MIX A
E
M N
A
MASTER SCHEDULING
N
N
D I
N
M
G DETAILED PLANNING & G
M EXECUTION PROCESSES MRP,
T PLANT SCHEDULING SUPPLIER
SCHEDULING, ETC

Execution

Fig. 3.3 Enterprise Resource Planning

20
3.3 Fundamentals of ERP Implementation
Referring to figure 3.3 the basic components of ERP are as follow

Strategic Planning And Business Planning

Strategic planning defines the overall strategic direction of the business, including
mission, goals, and objectives. The business planning process then generates the
overall plan for the company, taking into account the needs of the marketplace
(customer orders and forecasts), the capabilities within the company (people
skills, available resources, technology), financial targets (profit, cash flow, and
growth), and strategic goals (levels of customer service, quality improvements,
cost reductions, productivity improvements, etc.). The business plan is expressed
primarily in dollars and lays out the long-term direction for the company. The
general manager and his or her staff are responsible for maintaining the business
plan.

Sales & Operations Planning

Sales & Operations Planning (S&OP) addresses that part of the business plan, which
deals with sales, production, inventories, and backlog. It’s the operational plan
designed to execute the business plan. As such, it is stated in units of measure
such as pieces, standard hours, and so forth, rather than dollars. It’s done by the
same group of people responsible for business planning in much the same way.
Planning is done in the aggregate—in broad categories of products—and the focus is
on volume, not mix. It establishes an aggregate plan of attack for sales and
marketing, engineering, manufacturing and purchasing, and finance.

Demand Management
Forecasting /Sales Planning
Forecasting/sales planning is the process of predicting what items the sales
department expects to sell and the specific tasks they are going to take to hit the
forecast. The sales planning process should result in a monthly rate of sales for a
product family (usually expressed in units identical to the production plan), stated
in units and dollars. It represents sales and marketing’s commitment to take all
reasonable steps to make sure the forecast accurately represents the actual
customer orders to be received.

21
Customer Order Entry and Promising Customer order entry is the process of taking
incoming orders and determining specific product availability and, for a make-to-
order item, the product’s configuration. It results in the entry of a customer order
to be built/produced/shipped, and should also tie to the forecasting system to net
against the projections. This is an important part of an ERP system; to look at the
orders already in the system, review the inventory/backlog, available capacity,
and lead times, and then determine when the customer order can be promised.
This promise date is then entered as a customer commitment.

Rough cut Capacity Planning

Rough-cut capacity planning is the process of determining what resources (the
“supply” of capacity) it will take to achieve the production plan (“demand” for
capacity). The process relies on aggregate information, typically in hours and/or
units, to highlight potential problems in the plant, engineering, finance, or other
areas prior to the proposed schedule being approved.

Master Scheduling
Master scheduling addresses mix: individual products and customer orders. It
results in a detailed statement of what products the company will build. It is
broken out into two parts—how many and when. It takes into account existing
customer orders, forecasts of anticipated orders, current inventories, and
available capacities. This plan must extend far enough into the future to cover the
sum of the lead times to acquire the necessary resources. The master schedule
must be laid out in time periods of weeks or smaller in order to generate detailed
priority plans for the execution departments to follow. The sum of what’s
specified in the master schedule must reconcile with the Sales and Operations Plan
for the same time periods.

Material Requirements Planning (MRP)

Material Requirements Planning starts by determining what components are
required to execute the master schedule, plus any needs for service parts/spare
parts. To accomplish this, MRP requires a bill of material to describe the
components that make up the items in the master schedule and inventory data to
know what’s on hand and/or on order. By reviewing this information, it calculates

22
what existing orders need to be moved either earlier or later, and what new
material must be ordered.

Capacity Requirements Planning (CRP)

Capacity Requirements Planning takes the recommended needs for manufactured
items from MRP and converts them to a prediction of how much capacity will be
needed and when. A routing that defines the operations involved is required, plus
the estimate of time required for each. A summary by key work center by time
period is then presented to compare capacity needed to capacity available.

Plant Scheduling
Plant scheduling utilizes information from master scheduling and MRP to develop
start and completion times for jobs to be run. The plant scheduling process can be
as simple as lists derived directly from the master schedule or as complex as
utilizing sophisticated finite scheduling software to simulate various plant
schedules to help the plant and scheduling people select the best one.

Furthermore, a company must also monitor the flow of capacity by comparing how
much work was to be completed versus how much has actually been completed.
This technique is called input-output control, and its objective is to ensure that
actual output matches planned output.

Supplier Scheduling
Suppliers also need valid schedules. Supplier scheduling replaces the typical and
cumbersome cycle of purchase requisitions and purchase orders. Within ERP, the
output of MRP for purchased items is summarized and communicated directly to
suppliers via any or all of the following methods: the Internet, an intranet,
electronic data interchange (EDI), fax, or mail. Long term contracts define prices,
terms, conditions, and total quantities, and supplier schedules authorizing delivery
are generated and communicated at least once per week, perhaps even more
frequently in certain environments. Supplier scheduling includes those changes
required for existing commitments with suppliers—materials needed earlier than
originally planned as well as later—plus any new commitments that are authorized.
To help suppliers do a better job of long-range planning so they can better meet

23
the needs of the company, the supplier-scheduling horizon should extend well
beyond the established lead-time.

Execution And Feedback

The execution phase is the culmination of all the planning steps. Problems with
materials or capacity are addressed through interaction between the plant and the
planning department. This is done on an exception basis, and feedback will only be
necessary when some part of the plan cannot be executed. This feedback consists
of stating the cause of the problem and the best possible new completion date.
This information must then be analyzed by the planning department to determine
the consequences. If an alternative cannot be found, the planning department
should feed the problem back to the master scheduler. Only if all other practical
choices have been exhausted should the master schedule be altered. If the master
schedule is changed, the master scheduler owes feedback to sales if a promise
date will be missed, and sales owes a call to the customer if an acknowledged
delivery date will be missed.

By integrating all of these planning and execution elements, ERP becomes a

process for effectively linking long-range aggregate plans to short-term detailed
plans. From top to bottom, from the general manager and his staff to the
production associates, it ensures that all activities are in lockstep to gain the full
potential of a company’s capabilities. The reverse process is equally important.
Feedback goes from bottom to top on an exception basis—conveying unavoidable
problems in order to maintain valid plans. It’s a rack-and-pinion relationship
between the top-level plans and the actual work done in the plant.

Financial Integration
In addition to ERP’s impact on the operations side of the business, it has an equally
important impact on financial planning. By including the selling price and cost
data, ERP can convert each of the unit plans into dollars. The results are time-
phased projections of dollar shipments, dollar inventory levels, cash flow, and
profits.

24
Incorporating financial planning directly with operating planning produces one set
of numbers. The same data is driving both systems—the only difference being the
unit of measure. Too often financial people have had to develop a separate set of
books as they couldn’t trust the operating data. Not only does this represent extra
effort, but frequently too much guesswork has to be applied to determine the
financial projections.

Simulation
In addition to information for operational and financial planning, simulations
represent the third major capability of ERP. The ability to produce information to
help answer “what if” questions and to contribute to contingency planning is a
valuable asset for any manager to have. What if business increases faster than
expected? What if business goes as planned, but the mix of products shifts sharply?
What if our costs increase, but our prices do not? Do we have enough capacity to
support our new products and maintain sales for current ones? These are common
and critical issues that arise in manufacturing companies. A key part of the
management job is to think through alternative plans. With ERP, people can access
the data needed to help analyze the situation, play “what if,” and, if required,
initiate a better plan [7].

Let's now look at a complete definition of ERP; based on the description we saw a
few pages back:
Enterprises Resource Planning (ERP) predicts and balances demand and supply. It is
an enterprise-wide set of forecasting, planning, and scheduling tools, which:

Links customers and suppliers into a complete supply chain.

employs proven processes for decision-making, and

Coordinates sales, marketing, operations logistics, purchasing, finance,
product development, and human resources.
Its goals include high levels of customer service, productivity, cost reduction, and
inventory turnover, and it provides the foundation for effective supply chain
management and e-commerce. It does this by developing plans and schedules so

25
that the right re sources-manpower, materials, machinery, and money -are
available in the right amount when needed [6].

3.4 THE APPLICABILITY OF ERP

ERP and its predecessor, MRP II, have been successfully implemented in companies
with the following characteristics:

Make-to-stock

Make-to-order

Design-to-order

Complex product

Simple product

Multiple plants

Single plant

Contract manufacturers

Manufacturers with distribution networks

Sell direct to end users

Sell through distributors

Business heavily regulated by the government

Conventional manufacturing (fabrication and assembly)

Process manufacturing

Repetitive manufacturing

Job shop

Flow shop

Fabrication only (no assembly)

Assembly only (no fabrication)

High-speed manufacturing

Low-speed manufacturing [7]

26
Table 3.1: Comparisons between MRP, MRPII and ERP

3.5 How Can ERP Improve A Company's Business

Performance?

ERP automates the tasks involved in performing a business process—such as order

fulfillment, which involves taking an order from a customer, shipping it and billing
for it. With ERP, when a customer service representative takes an order from a
customer, he or she has all the information necessary to complete the order (the
customer's credit rating and order history, the company's inventory levels and the
shipping dock's trucking schedule). Everyone else in the company sees the same
computer screen and has access to the single database that holds the customer's
new order. When one department finishes with the order it is automatically routed
via the ERP system to the next department. To find out where the order is at any
point, one need only log into the ERP system and track it down. With luck, the

27
order process moves like a bolt of lightning through the organization, and
customers get their orders f aster and with fewer errors than before. ERP can
apply that same magic to the other major business processes, such as employee
benefits or financial reporting [10].

With ERP, the customer service representatives are no longer just typists entering
someone's name into a computer and hitting the return key. The ERP screen makes
them business people. It flickers with the customer's credit rating from the finance
department and the product inventory levels from the warehouse. Will the
customer pay on time? Will we be able to ship the order on time? These are
decisions that customer service representatives have never had to make before
and which affect the customer and every other department in the company. But
it's not just the customer service representatives who have to wake up. People in
the warehouse who used to keep inventory in their heads or on scraps of paper
now need to put that information online. If they don't, customer service will see
low inventory levels on their screens and tell customers that their requested item
is not in stock. Accountability, responsibility and communication have never been
tested like this before [7].

3.6 Issues of ERP Implementation

Organizations are spending large amounts of money implementing ERP systems in
the hope of achieving significant business from integration across functions and
business units, as well as from best practices embedded in the software. However,
it is not certain that organizations actually experience the expected benefits.
Although such glaring benefits and full-scale influences of implementing ERP
systems have been suggested, many researches indicated that the implementation
of an ERP system could be an extensive, lengthy and costly process. So the ERP
systems need to be implemented carefully with integral coordination among
experienced experts such as project leader, external consultants, and experienced
project team members of different functional areas in the enterprise. Meanwhile,
the importance of commitment from top management could not be emphasized
more to accomplish the ERP project [5].

28
3.6.1 The need for ERP implementation
The primary purpose of implementing Enterprise Resource Planning is to run the
business, in a rapidly changing and highly competitive environment, far better than
before.

Organizations today confront new markets, new competition and increasing

customer expectations. This has put a tremendous demand on manufacturers to:
(1) Lower total costs in the complete supply chain; (2) Shorten throughput times;
(3) Reduce stock to a minimum; (4) Enlarge product assortment; (5) Improve
Product quality; (6) Provide more reliable delivery dates and higher service to the
customer; (7) Efficiently coordinate global demand, supply and production.

This means that, in order to produce goods tailored to customer requirements and
provides faster deliveries; the enterprise must be closely linked to both suppliers
and customers (see Figure 3-4). In order to achieve this improved delivery
performance, decreased lead times within the enterprise and improved efficiency
and effectiveness, manufacturers need to have efficient planning and control
systems that enable very good synchronization and planning in all the processes of
the organization. By becoming the integrated information solution across the
entire organization, ERP systems allow companies to better understand their
business. This, in turn, demands integration of business processes of an enterprise.
Enterprise Resource Planning (ERP) is such a strategic tool, which helps the
company to gain competitive edge by integrating all business processes and
optimizing the resources available. Implementing ERP has become an inevitable
trend for the enterprise. Although ERP system becomes more and more popular
nearly, implementing ERP system is an even more daunting challenge. Because ERP
system encompasses all major of the business, users must make literally thousands
of choices about each step of each business process they operate to configure an
ERP system. ERP projects are also lengthy; involve large teams of people and
higher costs, vast majority of companies who have been through a less than fully
successful ERP implementation.

29
Enterprise Resource Planning (ERP) is an industry term for integrated, multi-
module application software packages that are designed to serve and support
multiple business functions. An ERP system can include software for
manufacturing, order entry, accounts receivable and payable, general ledger,
purchasing, warehousing, transportation and human resources. With ERP software,
companies can standardize business processes and more easily enact best
practices. By creating more efficient processes, companies can concentrate their
efforts on serving their customers and maximizing profit and optimizing the
resources available. Implementing Enterprise Resource system (ERP) has become
an inevitable trend for the enterprise [5].

Fig. 3.4: Link between suppliers and customers

3.6.2 How long will an ERP implementation take?

Company-wide implementation: total company project; all ERP functions

implemented; time frame one to two years.

Quick-Slice ERP implantation: confined to one or several Pareto high-
impact product lines; most, but not all, ERP functions implemented; time
frame three to five months.

30
With Quick-Slice ERP, the resources are considered a constant, because they are
limited. Further, the time is considered fixed and is a very short, aggressive
period. Thus the variable becomes the amount of work to be done. The principle
of urgency applies here; since only a portion of the products/company will be
cutting over to ERP, it should be done quickly. This is because the company will
need to move aggressively to the next step, which may be to do another Quick-
Slice implementation on the next product family or perhaps to convert to a
company-wide implementation.

Resource constraints are only one reason why companies elect to begin
implementation on a Quick-Slice basis [1].

3.6.3 The Implantation Challenge

1. It’s a lot of work

Implementing ERP as a new set of decision-making processes is a major
undertaking involving many people throughout the company, including general
management. In essence, the entire company must learn how to deal with demand
and supply issues in a new way. The speed of information flow with enterprise
software combined with ERP’s new approach to all of the planning and execution
systems represents a major shift in company thinking – and that means a lot of
work.

2. It’s a do-it-yourself project.

Successful implementations are done internally. In other words, virtually all of the
work involved must be done by the company’s own people. The responsibility can’t
be turned over to outsiders, such as consultants or software suppliers. That’s been
tried repeatedly, and hasn’t worked well at all. Consultants can have a real role in
providing expertise but only company people know the company well enough and
have the authority to change how things are done.

When implementation responsibility is de-coupled from operational responsibility,

which can be legitimately accountable for results? If results aren’t forthcoming,
the implementers can say that it wasn’t implemented correctly. Almost without

31
exception, the companies who have become Class A or B and have achieved the
greatest bottom-line benefits are the ones where the users implemented ERP
themselves.
Therefore, a key principle of implementation is:

IMPLEMENTERS = USERS

The people who implement the various tools within Enterprise Resource Planning
need to be the same folks who will operate those tools after they’re implemented.

3. It’s not priority number one.

The problem is, the people who need to do it are already very busy with their first
priority: getting customer orders, making shipments, meeting payroll, keeping the
equipment operating, running the business. All other activities must be
subordinate. Implementing ERP can’t be priority number one, but it does need to
be pegged as a high priority within the company, preferably the number two
priority, right below running the business.

It’s people-intensive.
ERP is commonly misperceived as a computer system. Not so. It’s a people system
made possible by the computer software and hardware.

4. It requires top management leadership and participation.

If the goal is truly to run the business better, then the general manager and staff
must be deeply involved because they and they alone have the real leverage over
how the business is to be managed. Changes made at a lower level in the
organization won’t matter much if it’s business as usual at the top.

5. It involves virtually every department within the company.

It’s not enough for just the manufacturing or logistics or materials departments to
be on board. Virtually all departments in the company must be deeply involved in
implementing ERP; those mentioned, plus marketing, engineering, sales finance,
and human resources [1].

32
3.6.4 ERP Methodology
Methodology refers to a systematic approach to implement an ERP system that will
ensure the proper integration of the four components i.e. the people, product,
process and performance. The ERP methodology component builds on the theory
that an enterprise can maximize its returns by maximizing the utilization of its
fixed supply of resources.

The five steps that make up the ERP methodology are: pre-implementation,
analysis, design, construction and implementation. These five steps transcend the
program management, change management, system installation and process
redesign needs, and are illustrated in Figure 3.5.

Fig. 3.5 ERP methodology

The following is a brief discussion on each of the steps.

Pre-implementation phase
Pre-implementation planning helps to identify the operational needs, business
drivers, strategic plans and other factors that will define the scope and objective
of the ERP solution. During the pre-implementation planning process, expectations

33
for benefits realization, magnitude of change, change ownership, process redesign
and functionality delivery options are identified.

Analysis phase
The analysis phase evaluates the organizational baselines that form the foundation
for process redesign, the system build and change management. A system build
determines the software components of the ERP system and how these components
interact with each other. Business processes are analyzed to understand the
current conditions. Functional and technical requirements are reviewed to
determine the system build needs. Cultural and workforce skill evaluations are
performed to identify workforce transition requirements.

Design phase
The design phase incorporates direction-setting information from the pre-
implementation phase and baseline information from the analysis phase to create
new designs for a desired future state.

Construction phase
The construction phase takes products from the design process to create tangible
operational processes and information system support. As the process model begins
to crystallize, the process model and the information system build are evaluated
against each other.

Implementation phase
The implementation phase prepares for the final ERP solution deployment. Final
changes are made to business processes, policies, and procedures and system
builds to prepare for a go-live. Go-live occurs when the ERP system is used within
the organization as the system to perform all the duties and processes as
determined by the design phase. Once a go-live occurs, a post-implementation
audit is performed to measure the effectiveness of the ERP solution in meeting its
goals and objectives. A measuring mechanism must be in place to measure the
result of the implementation phase against the aims and goals of the pre-
implementation phase. This measuring tool is the link between the pre-
implementation phase and the implementation phase.
The methodology comes full circle when the inputs of the first phase influence the
results of the implementation phase [15].

34
3.7 Benefits of ERP systems
There are various benefits ERP systems promise to provide:

Provide firms with a single, unified and all-encompassing information system
platform and database;

Eliminate the duchies and baronies that make up many modern business
organizations;

Give general managers a firm-wide understanding of value creation and cost
structure;

Change business processes based on new information and knowledge; and

Create a customer-driven rather than traditionally production-driven
organization.
In addition to these benefits ERP applications also provide various benefits such as
reduced development risk, increased global competitiveness, and increased
business efficiency. It seems ERP systems have been the ultimate solution for
business. Table 3.2 shows benefits of ERP n different departments [12].

35
 Table 3.2: Benefits of ERP on different Departments

Dimensions Sub dimensions

Cost reduction
Cycle time reduction
Operational Productivity improvement
Quality Improvement
Customer service improvement
Better resource Management
Managerial Improved decision making and planning
Performance Improvement
Support for business growth and alliance
Building business innovation and cost leadership
Strategic Building external linkages and e-commerce
Generating product differentiation
Sustain competitiveness
Building business flexibility
IT infrastructure It cost reduction
Increased IT infrastructure Capability
Changing work Pattern
Facilitating organizational learning
Empowerment
Organizational
Building Common Vision
Shifting work focus
Increased Employee morale and satisfaction

3.8 Causes for ERP system failures

Lack of top management commitment - “Part of the blame for the lack of top
management commitment may be MRP’s image. It sounds like a manufacturing
system rather than a business plan. However, an MRP system is used to plan
resources and develop schedules. Also, a well-functioning schedule can use the
firm’s assets effectively, thus increasing profits. MRP should be accepted by top
management as a planning tool with specific reference to profit results”.
Executives must be educated on the use of MRP as an integrated, strategic
planning tool.

36

Failure to recognize that MRP is only a software tool that needs to be used
correctly to adapt the organization and its processes to exploit the system’s
capabilities. “...MRP proponents overdid themselves in selling the concept. MRP
was presented and perceived as a complete and standalone system to run a
firm, rather than as part of the total system”.

Insufficient user training and education - In nearly every study conducted and in
many published cases, the lack of training or understanding is considered a
major barrier to MRP implementation. The lack of MRP expertise, training, and
education were major problems facing MRP implementers.

Lack of technical expertise - Not only is there a need to improve user training
techniques and general understanding of MRP systems, there is also a definite
lack of technical expertise to provide the leadership needed to implement the
systems. Not only would the technical experts need to be familiar with the
operational needs of daily production, the system integrators would also need
to understand how the computer software system can be built to handle the
production needs. Increasingly, the advanced MRP-type systems are seeking to
integrate concepts of Just-In-Time (JIT) production into the computer
applications system. Found “Lack of company expertise in MRP” to be the
major implementation obstacle, followed closely by “Lack of
training/experience on MRP.” suggested that the use of external programming
could compensate for the lack of technical expertise.

MRP requires a high degree of accuracy for operation. This often requires
changing how the company operates and how files are updated. Traditionally,
production management allowed for plenty of excess buffer stock to be stored
on site. The extra inventory stores allowed for differences between the
recorded inventory and actual inventory. One of the aims of the MRP system is
to minimize inventory, thus the accuracy of the recorded levels becomes
critical. Engineering drawings and bills of materials must also be kept up-to-
date if the MRP system is to function correctly. “Perhaps one of the biggest
complaints by users is that MRP is too rigid. When MRP develops a schedule, it
is quite difficult to veer away from the schedule if need arises” [8].

37
In this section, we list the main reasons of failure that ERP implement in Table3.3.

Table 3.3: Reasons for ERP Implement Failure

Author Years Reasons of ERP Implement Failure

Wateridge 1997 The project objectives are not defined at the outset and the
project invariably does not deliver the functionality required

There is a lack of any planning and control

The users very often complain of a lack of any
involvement in the project
Slater 1998
Lack of Comprehensive budgeting of project costs
Wilder and 1998
Lack of aligning with business goals is the leading reasons
Davis for ERP project failure

Lack of user training and failure to completely understand
how enterprise applications change business process are
often the offender in a problem ERP implementation

Difficulty acquiring adequate knowledge and skill in
software configuration (especially cross-module
integration).
Caldwell 1998
Lack of communication with users and business mangers,
lack of training lack of software ease-of-use users do not
understand the process and value and refuse to use the
system.
Cilffe 1999
Lack of appropriate cross-functional representation ERP
project team.
Glover 1999
Depend on software vendors and implementation
consultants too much

No on stopped to consider why he or she is implementing
ERP system, what business advantages they hoped to
consider.

Selection of inappropriate integrator, and/or project
manager-vender may not be familiar with the
business/industry.

System lacks critical controls-system personal and
consultants do not understand the nature, importance,
and value of well-controlled business.
Jordan and 1999
Failure to link technology plans to business strategic plan
Krumwiede
Failure to match the needs requirements of powerful
customers.
Sweat 1999
There is not enough communication with users.

Lack of mapping but business processes before
implementing the software.

Lack of technology transfer from external consultants.

38
3.9 ERP as A Foundation

Today, there are a wide variety of tools and techniques that have been designed to
help companies and their people produce their products better and more
efficiently. These include lean Manufacturing, Six Sigma Quality, and Employee
Involvement, Factory Automation, Design for Manufacturability, and many more,
these are excellent tools with enormous potential.

But none of them will ever yield their full potential unless they're coupled with
effective forecasting, planning, and scheduling processes. Here's why:

It's not good enough to be extremely efficient if you're making the wrong stuff.

It's not good enough to make items at a very high level of quality if they're not
the ones needed.

It's not good enough to reduce setup times and cut lot sizes if bad schedules
prevent knowing what really needed and when.
Improvements to business processes take one of three forms:
1. Improving process reliability. Six Sigma and other Total Quality tools are
predominant here.
2. Reducing Process complexity. Lean Manufacturing is heavily used here.
3. Coordinating the individual elements of the overall set of business process. ERP
lives here.

Enterprise Resource Planning, when operating at a high level of effectiveness, will

do several things for a company. First, it will enable the company's people to
generate enormous benefits. Many companies have experienced, as a direct result
of ERP (or MRP II) dramatic increases in responsiveness, productivity, on-time
shipments and sales, along with substantial decreases in lead times, purchase
costs, quality problems, and inventories.

Further, ERP can provide the foundation upon which additional productivity and
quality enhancements can be built-an environment where these other tools and
techniques can reach their full potential.

39
Effective forecasting, planning and scheduling-knowing routinely what is needed
and when via the formal system is fundamental to productivity ERP is the vehicle
for getting valid plans and schedules of shipments to customers, of personnel and
equipment requirements, of required product development resources, and of cash
flow and profit [5].

JIT and ERP

Back in the early 1980's a new way of thinking about manufacturing came out of
Japan and it was truly revolutionary. It is called it just-In-time (JIT), and more
recently it has evolved into lean manufacturing (Also called Agile Manufacturing or
Synchronous Flow Manufacturing) [2].

JIT (Just in Time) supply and delivery is a central element of Lean manufacturing.
The JIT concept was invented in Japan and is premised on delivering product just
in time. Simply described a pull production system controls the flow of work
through a factory by only releasing materials into production as the customer
demands them i.e. only when they are needed. JIT controls inventory on a just in
time (JIT) basis. A push system on the other hand would release material into
production as customer orders are processed and material becomes available, MRP
(Material Requirement Planning / Manufacturing Resource Planning) systems are
typically push systems. What must be made clear at this point is that JIT is not a
scheduling system but rather a production control system [10].

The information systems used in any organization must support the operating
philosophy and not vice versa. In other words, ERP is not an end in itself, but
rather a means to better manage the PSS (Product Supply System). The system is
not the solution; it exists to support the management of the PSS.

With the dramatic reductions in lead times and lot sizes that the TBM (Time Based
Manufacturing) environment creates, the operation of MRP should be significantly
altered as a planning tool. In practice, the TBM goal is to have the combined PSS

40
lead times shorter than customer delivery lead times. With short manufacturing
lead times, it becomes practical to manufacture to real demand. This facilitates
the need to improve “forecasting” with suppliers, because their capacity loads will
be more accurate as the total internal manufacturing lead times are in hours and
days, as opposed to weeks or months. The three major areas of change caused by
integrating MRPII into TBM are material flow and functions, demand management,
and material planning and control. They are discussed in detail in the following
section [13].

Supply Chain and ERP

Enterprise Resource Planning has proven it self to be the foundation, the bedrock,
for supply chain management. It’s the glue that helps bind the company together
with its customers, distributors, and suppliers all on a coordinated, cooperative
basis. ERP system is a transaction based execution system, and Supply Chain is a
decision support system. Net working, Detail scheduling, and Available to promise
(ATP) are all decision models of Supply Chain, thus their outputs are decisions. But
ERP is the set of process-oriented transactions that outputs business processes.
Networking focuses on the distribution level, while Detail scheduling focuses on
production level, ATP on demand and supply level. ERP focuses on enterprise
operations. We may say that supply chain is constructing upon the ERP. The main
task of a ERP system are transaction and data collecting, while that of a Supply
Chain system are planning and problem solving.

Since ERP is concerning about the inner process flow of a company, the
requirement of a ERP system is its database access ability and the consistency of
business process flow which is easy to configure and update. However, a Supply
Chain Management system is a decision support system which focusing on
integration and planning. Thus the computational ability is important of the system
to optimize the business decisions and strategies. To be a reference on the system
development of ERP and SCM, it is valuable to compare the requirements of these
two kinds of systems. Due to the different using purpose of ERP and SCM, the data
ERP keep and the data SCM will use are not in the similar types. The data in an ERP

41
system are detail raw data that are the result of its transactions. But the data that
SCM system may use must being aggregate and grouped first for its analysis and
planning purpose [14].

Table 3.4 comparison for the characteristics of Supply chain and ERP

Model Characteristic Type Output Level System

Networking Decision Model A decision Distribution Decision support

system
Detail Scheduling Decision Model A decision Production Planning system
Decision Model A decision Demand and Information and
ATP Supply decision support
system

Process Oriented A process Enterprise Traction based

ERP
Operation system

BPR as ERP Precedent

BPR and ERP Implementation projects can be thought of as being independent
initiatives. In theory, each project could exist within an organization without the
other. In practice, they are often both in process at the same time in an
organization and influenced by and dependent on each other in a myriad of
complex relationships often including common design for key business processes.
An ERP might be selected to replace an existing system, and the execution of a
BPR might be delayed. A BPR might be in place but terminate prior to completion,
and an included ERP implementation might continue. BPR and ERP
implementations are often at different stages of their development. A BPR project
may be started and several months into the project when it is concluded that an
ERP is required to support the new processes, an acquisition project commences.
Similarly, a business decision might have been made to acquire a new IT system
and an ERP chosen. During the implementation process it may be recognized that
the ERP would enable a business reengineering and a BPR initiative’s
commencement.

42
However, BPR has been touted by many as dramatic improvements become
necessary for organizations to improve competitiveness and remain strong
participants in economic development. If an enterprise rushes to install an
enterprise system such as ERP without first having a clear understanding of the
business implications, the dream of integration can quickly turn into a nightmare.
These are not technology problems. These are process problems—problems that
result from a failure to recognize that process excellence or “process think” is
necessary to make enterprise systems succeed. Consequently, BPR should be done
as a required precedent step and a critical successful factor for the ERP
implementation [15].

3.10 Previous Studies Used in Survey Development

A Study on Manufacturing Resource Planning (MRP II) Practices in Singapore

This study is sponsored by the National University of Singapore, extensively
surveyed manufacturing companies in Singapore that have adopted MRP II systems
for improving their business operations. The survey investigated application
practices, costs and benefits obtained, and the implementation process in MRP
companies. Typical titles of respondents included Materials Manager, Production
and Inventory Control Manager, Master Scheduler, MIS Manager, and Production
Manager. The questionnaire was sent to approximately 750 companies, 128 of
which responded, from which 59 had implemented MRP. Of the industries
represented, the largest representation of MRP companies was from electronic
products and components, fabricated metal products, and the electrical
machinery, apparatus, and supplies industries. MRP was found to be more
prevalent in older companies with more complex manufacturing processes and
operations.

It was found that as a company increased in size as measured by gross sales, it was
more likely to adopt MRP. Only 18.4% of companies with less than S$ 10 million
(Singapore dollars) used MRP while 83.3% of companies with sales between S$200
and S$500 million had adopted MRP. About half (49.2%) of the MRP systems resided
on minicomputers while microcomputers and mainframes each accounted for 20.3%

43
of the hardware platforms. A majority of the companies (71.1%) sourced their MRP
software from vendors. Only 13.6% of the companies developed the entire software
in-house.

The extent to which companies had implemented MRP II was measured by the
degree to which modules had been computerized. The most highly computerized
modules were bill of materials (BOM), inventory stock control, and materials
requirements planning (MRP). Sixteen modules were evaluated on the degree of
computerization using a six-point Likert scale. (‘0’ for ‘not at all’, ‘1’ for ‘1-20%’,
to ‘5’ for ‘81-100 %’). The understanding of the term “MRP II” was also evaluated
using the participants’ choice of definitions of the term MRP. Rather than
identifying MRP II as a general system for computerizing any business function, or a
computerized planning and control system for production only, 67.2% of the survey
participants identified MRP II as a “primarily computerized materials/production
planning and control system integrated with other business areas to achieve a total
business system.” Information pertaining to the total hardware and software
investment in MRP was collected and summarized. The results suggested that there
are two major groups of users.

“The first group comprises of smaller users who had spent between S$100,000 and
S$300,000 (US $141K to $423K) while the other group of larger users had spent
more than S$500,000 (US $705K).” The smaller systems belonged to small and
medium enterprises while the larger systems are owned by multi-national
corporations and larger enterprises. “The additional system investment is more
evenly spread among the different types of enterprises, indicating that the smaller
companies were prepared to further invest large amounts in their MRP systems.”
Major MRP benefits and reasons for implementation were ranked on a 5 point
Likert scale. Benefits such as better delivery, better responses to changes, and
better scheduling generally matched reasons for implementation. Reasons were
primarily operational in nature.

It appears that companies intend to apply MRP II as a tool for improving

operational efficiency rather than as a means for increasing competitiveness.

44
Sum and Yang noted that top management in Singapore plays a major role in
introducing MRP to their companies. The study showed that 67.8% of the Singapore
companies cited top management as the MRP II initiator while only 18% of the US
companies cited top management as their MRP II initiator. Lack of MRP expertise,
training, and education were identified as major problems facing MRP
implementers. Surprisingly, they found that cost was not a major barrier to MRP
implementation. The authors suggest, “Case studies could be carried out to better
understand the complexities of the implementation process and to study how
companies cope with organizational changes that accompany MRP adoption [10].

45
 CHAPTER 4
RESEARCH METHODOLOGIES

4.1 Methods of Data Collection

The methods employed to achieve the objectives of the research are:

1. Literature survey ;
2. Visit to companies and gather all the available data and Conduct
interviews;
3. Proper consultation will be conducted with concerned expertise;
4. Survey of literature and previous research works on similar topics; and
5. User friendly based application software will be developed.

4.2 Data Collection (Survey Questionnaires)

The questionnaire constitutes a central part of the approach to define the business
strategy required to make sure a company focuses on creating value for customers
and suppliers, integrates all critical business processes and reduces or even
eliminates lateral hand-offs or complex chain of business steps. The whole idea of
this approach is to rethink and redesign business processes and recognize and
realize the potential of new business processes and recognize and realize the
potential of new technology.

The purpose of the interviewed and circulated questionnaire is:

 First, the questionnaire result is used as one input data to the implementation
model of ERP.
 Secondly the questionnaire is a way of creating awareness in Material
requirement planning, manufacturing recourse planning, enterprise resource
planning. Furthermore, it can be used to assess the level of awareness on the
mentioned fields.

46
The questionnaire consists of 50 questions. It was distributed to 75 Gafat
Engineering Factory staffs’, who are representative employees of each plant as
shown in table 6-1 below and some external customers. Out of the 75
questionnaires, 60 were filled and returned. This means 80 % respondent rate.

4.2.1 Nature of the Circulated Questionnaires

The questionnaire is prepared for both the employees. Interview was held with
some external customers.

The questionnaire distributed for employees has three sections whose main targets
are described below.

Section One: Question 1-12 is mainly concerned with finding out the general
attitude and awareness of the employees towards Material Requirement planning,
Manufacturing resource planning, Enterprise resource planning, quality concepts
and the company’s background such as, company profile, organizational structure,
motto, mission, objectives, location, customer supplier relationship, and existing
cost analysis.

Section Two: Question 13-40 is mainly concerned with assessing the material
requirement planning, general inventory systems and other production related
parameters.

Section Three: Question 41-50 is mainly concerned with the manufacturing system
like major process, types of products produced, production flow chart, production
capacity, annual consumption of materials, and product costing parameters.

4.2.2 Categories of respondents

The study considered a sample size of 75 candidates from 5 relevant departments

in GEF for questionnaire. Out of 75 questionnaires distributed to the employees, 60
of the respondents properly completed and returned the questionnaires. This gives
a response rate of 80% Table 5.1 summarizes this data.

47
Table 4.1: Categories of Respondents
Department Questionnaire
Distributed Returned
(No.) Percentage (%) (No.) Percentage (%)
Quality Management 5 6.67 5 100
Logistics Department 15 20.0 13 86.67
Production And Engineering 35 46.67 33 94.23
Human Recourse 10 13.33 8 80.0
Research and Development 10 13.33 7 70

4.2.3 Respondents position

In order to collect reliable information the respondents were selected from the
different position, for which they are responsible by considering out their duties in
their respective department. Table 6.2 shows the respondents who filled the
questionnaire from each department with regard to their position. According to
the data presented in the table most of the respondents of the questionnaire are
experts, senior experts and team leaders.

48
Table 4.2: Respondents position
Departments Positions
Head Team Senior Expert Associate Total
Leader Expert Expert
Quality - 2 1 1 1 5
Management
Logistics - 3 3 4 5 15
Department
Production And 3 8 7 9 8 35
Engineering
Human Recourse 1 3 2 2 2 10
Research and 1 2 3 2 2 10
Development
Total No. 5 18 16 18 18 75
Perce 6.67 24 21.33 24 24 100
ntage
(%)

4.2.4 Summarized Responses

Prior to questionnaire distribution the questionnaire is assessed by heads of the

different departments, senior experts, team leaders, and associate experts of GEF.
This is helpful to point out the core problem.
Thus based on the questionnaire survey, the main problem in the factory is the
production delay and its immediate consequence of high manufacturing cost. The
same result is obtained when a discussion is held with the heads, experts and team
leaders. The past data records of the factory also depicts the same reason with
that of the questionnaire survey. The main causes for the problem and their
frequency is shown in the next chapter. Based on the information that has been
collected, it is tried to identify the core problem of the situation.

49
 CHAPTER 5
DATA ANALYSIS AND INTERPRETATION

5.1 Problem Analysis in the Production of Et-97/1

GEF is a producer of different artilleries to satisfy the demand of the defense

forces and other civilian products used for different purposes. Products are
manufactured and sold as individually specified units. Component types are
similar; however, each customer configures the product to its own needs, primarily
using available options. Some products are completely custom designed and built
to customer specifications. The product is shipped directly from the manufacturing
plant to the customer.

The company has annual sales of approximately one hundred twenty million Birr.
The company has six hundred employees, including about four hundred fifty non
union employees on the shop floor. The manufacturing organization was very
traditional, with a process plant layout consisting of components fabrication,
subassemblies, and final assembly. A tremendous amount of data collection effort
was expended initially to match company products with producing equipment in
the process flow analysis.

A large amount of product flow complexity existed, with many different products
running across any given machine.

The current plant setup and production processes resulted in long travel distances
to produce a finished product.

The production of ET 97/1 rifle consists of a lot of process performed in different

shops of the factory. The assembly of the different components of the rifle has 53
parts. Each component on the assembly line has passed through long and bulky
processes in which there is at an average of 9 inspection check ups at each
inspection point.

50
The production of the ET 97/1 rifle is liable to high manufacturing cost due to the
different factors mentioned in chapter 4. As the core problem lays on the
production planning this chapter deals with the main problems in the production
area of ET 97/1 in shop1 only. That is the production of one component of the
assembled part.

The first assembled component is the assembled receiver and is done on shop 1 in
which it consists of a lot of parts to be assembled. As shown in the table. Among
the different component parts the breach block has 72 production steps and 14
inspection points.

Each inspection points have at an average of 9 inspection instruments and

repetition of measurement is done on each step.

Breach block is purchased in a block form and the required shape is given in the
plant through 72 processes via the available machines and jigs and fixtures. Each
machine is arranged in the respective processes to be performed in the breach
block. Most of the machines are performing more number of activities.
The process flow of the breach block is shown in table 5.1

51
 Table 5.1 process flow of assembled receiver

Parts to Be Sub Assembled

No Description of Sub Assemble Parts to be Assembled Part Manuf. Remark

Sub Assembly Assembly d In Shop Code in Shop
Code
- Receiver body 11-1A 4
- Receiver rear lug 21-3K 1
- Right guide 11-4 4
- Left guide 11-5 4
- Trigger guard 11-6 4
- Grip Screw Frame 11-8 1
- Bolt Locking Lug 11-9 1
- Bolt Locking Lug Pin 11-16 4
- Trigger guard base 11-20 4
- Butt stock Fixing 11-44 3
- Butt Stock Fixing Plate rivet 11-65 3
- Magazine feed tray rivet 11-67 3
1 Assembled Ps11-1 Shop 1 - Breech Block rivet 11-68 3
Receiver - Distance tube 11-69 3
- Distance axle 11-70 3
- Upper Pin 11-80 3
- Trigger Guard rivet 11-82 3
- Lower Pin 21-84 3
- Breech block 11-2 1
- Receiver body 11-1b 4
- Receiver rear lug 11-3d 1
- Assembled selector Ps 11-3 1

52
5.2 Cause and Effect Diagram and Pareto Analysis

Once the core problem has been identified, the cause of the core problem and the
effect caused by the core problem are stated from the organized information. Thus
the next process is forming a diagram showing the cause and effect relationship in
the form of a problem tree. This is done by restating all negative condition of the
problem into positive condition that is desirable and realistically achievable.

53
 Problems in
maintenance Row material and Out Dated Machines
management tools cost
Old Special work
machine s Poor Inspection holding device
techniques Single supplier required
Poor maintenance
system Less service Globally Old
Lack of Less skilled life Poor Purchasing less work
measurement labor force and marketing competent holding
tools Higher costs of
produced
Cost of Use of less Lack of
specialized Remote safety
components
materials
machine, jigs location of the Inadequate Poor Sales
High & fixtures factory training Forecasting
Labor Poor Method Poor Capacity
cost scheduling of Less Budget Requirement
materials Motivation deficiency Planning
Poor of workers Poor
material inventory
High over Long distance handling plan Less salary of System
head costs travel of No defined rights and No EOQ
workers
products obligations of workers

Problems in human Poor production

High Production cost Poor production Resource mgt planning
Layout

Fig. 5.1 Cause and effect Diagram

54
The questionnaire based upon the specific criteria has been provided to assess the
whole structure of current business. The next and the most important step of
analysis is to study the performance gaps and to identify the underlying factors
which explain the causes of the gap and provide the necessary fit. With accurate
information and systematic analysis it will become easy for the whole organization
to reach the ultimate goal of "Transformed Organization".

Table 5.2: Percentage of Respondents for the Causes of Production delay and
manufacturing cost
Department Number of Causes for production %age of
Respondents delay cause
Problems in human 20.5%
resource mgt.
Poor Production Layout 29.5%
Rework and Scrap 9.75%
Quality Management 5 Outdated machines 10.25%
Poor production layout 12.0%
Supply of raw materials 12.67%
and tools
High Production Costs 5.33%
Problems in human 13.25%
resource mgt.
Poor Production Layout 31.75%
Rework and Scrap 12.0%
Logistics Department 15 Outdated machines 17.0%
Poor production layout 11.67%
Supply of raw materials 9.33%
and tools
High Production Costs 6.0%
Production And Problems in human 15.50%
35
Engineering resource mgt.
Poor Production Layout 21.33%

55
 Rework and Scrap 15.67%
Outdated machines 15.25%
Poor production layout 12.25%
Supply of raw materials 10.25%
and tools
High Production Costs 9.75%
Problems in human 12.33%
resource mgt.
Poor Production Layout 25.0%
Rework and Scrap 13.67%
Human Recourse 10 Outdated machines 9.25%
Poor production layout 13.50%
Supply of raw materials 15.25%
and tools
High Production Costs 11.0%
Problems in human 13.0%
resource mgt.
Poor Production Layout 25.33%
Rework and Scrap 18.67%
Research and
10 Outdated machines 13.0%
Development
Poor production layout 12.0%
Supply of raw materials 10.0%
and tools
High Production Costs 8.0%

56
Table 5.3: Percentage of the causes for production delay

Reasons for the main problem Percentage(average) Cumulative

percentage
Poor production planning 26.582 26.58
Problems In human Resource 14.916 41.49
management.
Rework and Scrap 13.752 55.25
Poor production layout 12.95 68.20
Outdated Machines 12.284 80.48
Raw materials and tool cost 11.50 91.98
High production costs 8.016 100.0

Pareto analysis for High manuacturing cost in GEF

120
Values in Percentage

100 100
91.98
80 80.48
68.2 Reasons
60 55.25 Cumulative values
40 41.49
26.58
20

0
1 2 3 4 5 6 7
Reasons

Fig 5.2 Pareto Analysis for the Production Delay and High manufacturing cost

57
5.2.1 Interpretation of the Pareto curve

A useful first step is to draw a vertical line from the 20- 30 percent area of the
horizontal axis. This has been done in the figure and shows that:

28.6 percent of the reasons are responsible for 41.49 percent of the cost of
the produced component. The reasons are:

Poor production Planning (26.58 %) and

Problems In human Resource management (20.40%)
These are often called the ‘A’ elements or the “vital few” which have been high
lighted for a special attention it is clear that, if the objective is to reduce costs,
then the production planning problems must be tackled as a priority. Similarly
concentration on the problem of human resources will have the biggest effect on
minimizing the cost of the produced components and it enables the factory to be
competent in the global market.

It is conventional to further arbitrarily divide the remaining 70-80 percent of

elements in to two classifications the ‘B’ and ‘C’ elements, the so called “trivial
many”.

In summary, the pre ERP characteristics in shop one of GEF included the following:

The plant layout and personnel resources were organized and managed
functionally. Materials traveled excessive distances and Material handling
systems were labor intensive.

The maintenance and quality system was audit based with no statistical quality
control.

Key raw materials came from single supplier. Work-in-process inventory storage
used forty percent of production floor space.

Inventory

Logistics

Bulky inspections on each inspection points

Repetition of similar activities on different steps which can be finished on one
machine.

High setup times due to more number of process

Operator negligence

More number of reject

58
 CHAPTER 6
ERP MODEL IMPLEMENTATION AND EVALUATION
OF SELECTED MODELS IN
GAFAT ENGINEERING FACTORY

6.1 Selection of Implementation Models

Is Enterprise Resource Planning the best step to take now to make more
competitive? If so, what is the best way to implement: company-wide or Quick-
Slice? The analysis will serve as the basis for putting together a short-term action
plan to bridge the time period until the detailed project schedule is developed.

The Three Knobs

In project management, there are three primary variables: the amount of work to
be done; the amount of time available and the amount of resources available to
accomplish the work. Think of these as three Knobs, which can be adjusted (as
shown in Figure6.1).

It’s possible to hold any two of these knobs constant by varying the third. For
example, let’s assume the following set of conditions:

1. The workload is considered to be a constant, a given. There is a certain amount

of work that simply has to be done to implement ERP.
2. The time can also be considered a constant, and, in this example, let’s say it’s
fixed at about 18 months.
3. The variable then becomes the resource knob. By adjusting it, by providing
resources at the appropriate level, the company can accomplish the necessary
amount of work in the defined time. Developing a proper cost-benefit analysis
can put the resource issue into clearer focus.

But, what if a company can’t increase the resource knob? Sometimes, it’s simply
not possible. May be there’s not enough money, or the organization is stretched so

59
thin already that consuming large blocks of employee time on an implementation
just isn’t in the cards.

Within the Proven Path, provisions are made for:

Work, Time, and Resources

WORK TIME RESOURCES

Fig. 6.1 Work Time and Resource Knob

Company-wide implementation: total company project; all ERP functions

implemented; time frame one to two years.

Quick-Slice ERP implantation: confined to one or several Pareto high-
impact product lines; most, but not all, ERP functions implemented; time
frame three to five months.

With Quick-Slice ERP, the resources are considered a constant, because they are
limited. Further, the time is considered fixed and is a very short, aggressive
period. Thus the variable becomes the amount of work to be done. The principle
of urgency applies here since only a portion of the products/company will be
cutting over to ERP, it should be done quickly. This is because the company will
need to move aggressively to the next step, which may be to do another Quick-
Slice implementation on the next product family or perhaps to convert to a
company-wide implementation.
Resource constraints are only one reason why companies elect to begin
implementation on a Quick-Slice basis [1].

60
Based on the above fact from the questionnaire delivered the company have only a
crowded time schedule and can not allot much of its resources to ERP
implementation. Besides this the following are the main factors.

There is not enough money i.e. No budgets are allotted to ERP

implementation.

The human resource is totally allotted to production and other tasks of the
factory.

Thus it’s better to implement ERP using Quick slice Method. The question is on
which department will be ERP functions implemented first.

From the previous chapter we have come through the problems, which may be
accountable for the high costs of the components produced with in the factory I.e.
poor production planning which includes poor inventory system, poor sales
forecasting methods, etc., and the human resource management. In addition to
this for the rework and scrap and other causes of high manufacturing cost of the
factory poor maintenance system of the factory can be mentioned as a vital cause.

Gafat Engineering Factory is a 'job ordered company that manufactures its

products after getting an order from Ministry of National Defense and other
external customers. As it is tried to be explain before, the factory is facing a great
challenge to satisfy the requirements of its customer. When we see the existing
situation of the factory, frankly speaking, it is not guaranteed to continue as an
effective and efficient factory in the future. This is because survival of this
industry is strictly dependent on its productivity and competitiveness at the
market. The competition may be in national or international level.
Especially the Armament technology is growing in a faster rate and production of
different riffles is becoming simple and simple. This in turn results a dynamic
change in national defense demand. To cope with such dynamic changes, the
factory has to identify the main problems facing in its day-to-day activity. It is
believed that setting Proper Production Planning and Control system leads the
factory to an organized set of activity to solve its production problems. Thus to

61
stay in the market and satisfy its customer needs, like any factory does, the
factory is expected to apply a sound production planning and controlling system.
Production planning includes allocation of resources, routings of each of the
factory product, due date setting and dispatching order to the shop. For the
annual production plan to be maintained there should be relevant and constant
controlling mechanism of the production progress.

Since the types of products manufactured are different, high in variety and high in
volume, the type of layout available in Gafat Engineering Factory is mixed type
(process and product determined lay out).
Planning and controlling is must be integrated functions. It is ineffective to control
the factory resources, if there is no plan against which the factory could compare
its progress and it is insufficient to plan production if there is no control of the
factory resources. Based on the forecasted demand, aggregate production
planning, master production schedule, material requirement planning and capacity
requirement planning the factory production technical planning methods
department decides which product to be made, how many of each and when they
should be completed, by scheduling the production and the existing resources.
Based on the data collected from the production floor, the department controls
the progress of the job. Production control is concerned with determining whether
the production activity is running according to the plan and if not it attempts to
take corrective actions to address the difference.

6.2 Evaluation of the Problems Identified

Based upon the understanding of the factory’s historical characteristics, several

key design considerations emerged as most important to the success of ERP. These
include:

Redesigning the production planning and control system and shop floor
controlling and monitoring activities.

Redesigning the Product Supply System process flow into product families to
reduce the excessive travel distances. This involved heavy group technology

62
 analysis to understand product structure modularity and product/equipment
relationships.

Reducing changeover times in the fabrication area to eliminate the need for
large batch sizes and to eliminate the grouping of similar manufacturing orders.

Improving reliability and process capability was heavily emphasized because no
data were available in these areas, the need to establish performance baselines
were critical.
To complete the conceptual design, the following components should be
constructed.

6.2.1 Evaluation of the production planning and control

Activities with in the scope of production planning includes:

Demand forecasting

Aggregate production planning

Master production planning

Material requirement planning

Capacity requirement planning

Process planning
Production planning in GEF is based on a push system with the following elements;

The master scheduler used forecasts, an inventory status report, and
customer orders to determine manufacturing orders. Manufacturing engineers
used the manufacturing orders to decide lower-level manufacturing orders.
Orders are frequently grouped in large batches to minimize setup costs.

The sales forecast used in GEF is traditional and large amount of materials are
get stocked based on the need of various clients for different products i.e.
based on earlier demands, Materials are stocked before any orders have been
placed. As it is discussed with the factory employees most of the time this
system has a draw back in that if any order is not placed by the anticipated
companies the factory has incurred a lot of costs in placing orders and stock
holding cost.

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Proposed production planning and control method
ERP functions are shown as a matrix. The matrix is divided horizontally into
planning and execution activities, and further divided vertically into demand,
supply, and capacity elements. The planning elements of ERP are all vital to the
success of any manufacturing strategy.
Production control is the updating and revising procedure where, according to the
requirements of implementation, the labor assignments, the machine assignments,
the job priorities, the line speeds, the production routes etc. It is basically a
correcting mechanism, which goes on through out the implementation process of
the already drawn up production plan and schedule. To have a control over the
production, a system called Shop Floor Monitoring and Controlling system is used.
The production control means that products shall be produced in the best and
cheapest method. It will be of required quantity and it shall be produced at the
required time. If there is some deviation from the planning, the production control
will lead to adjustment, modifications and refining the plans. In short the
production control maintains the progress of the work as per the plan.

64
 Demand management Supply management Capacity management

P Product Production Resource

forecasting Factors
L and Control planning
planning
A
N
Product
N distribution
I requirement
planning
N
G
Customer Master Capacity
order production planning
entry planning (Rough cut)

Material Capacity
Requirement requirement
planning planning
E
X
E
C Capacity
Shop
U Control
Scheduling
T
I
O Purchase Vendor
order Capacity
N scheduling control

Fig.6.2 ERP planning and control

65
 Shop floor control is an essential part of the overall production planning and
control tasks of a company, responsible for operational control of the
manufacturing related activities. The shop floor control feedback involves
evaluating the movement of the job through the shop. The overall system that
provides information on released orders to the floor and their progress to the shop
is normally the SFMCS.
In addition to the activities of the production control and shop floor monitoring
and controlling techniques the factory should have a sound inventory system,
which is integrated and computerized. This is discussed on chapter 7 in detail on
the software development.
MRP
System Payroll system
Incoming
Planned Order Accounting system
Inventory
status
Labor
Hour Work center
Production Planning Performance
Purchase Schedule job operation sequence
Information Monitor job progress
Issue material order
Engineering issue shop packet
Information
Data SFMCS
Release Shop Collection Data Base
Order
Work Shop Two

Work Shop Three

Work Shop Six

Work Shop Four

Issue Material
Work Shop One

Inventory
Work Shop

Location

Job Routing
SFMCS Domain

Fig. 6.3 Overview of Factory Shop Floor Monitoring And Controlling System
(SFMCS)

66
 6.2.2 Evaluation of the Maintenance Management System

Since cost of the machineries in the factory are old in age and not equipped with
maintenance equipments there exists repetitive machineries break dawn. To
justify its effect on the production process, there are no mechanisms to register
machineries breakdown time. In addition to this there is no annual preventive
maintenance plan.

The quality control system of the factory is following traditional means to inspect
products while it is processed. Even if there are too many inspection points on the
process flow, large number of rejection has occurred. Thus the factory has to use
statistical quality control tool in order to minimize the number of rejections. The
number of rejection per year for a sample number of 24 is tabulated below.

P-CHART

0.4500
0.4000 Proportional defective
0.3500
0.3000 Average P
0.2500 UAL
0.2000 LAL
0.1500
UWL
0.1000
0.0500 LWL
0.0000
1 3 5 7 9 11 13 15 17 19 21 23
Sample Number

Fig. 6.4 Control chart for number of defectives in the production of ET 97/1

Integrating Maintenance Management System in to ERP

The most important elements of the proposed maintenance model includes

Maintenance load

Maintenance Resources

Maintenance planning and scheduling

67

Work orders executing

Quality control

Performance measurement
Besides the model considers three types of maintenance
1. Preventive maintenance : a work that must be carried out on a plan periodic
schedule
2. Emergency or breakdown work that must be done immediately; and
3. Diagnostic predictive maintenance or condition based maintenance wok that
must be planed as son as possible triggered by deterioration indicated by a
monitored parameter.
Thus one way or another maintenance load is created, must be planned, scheduled
and executed within a certain time span while complying with specific quality
standards.
The work orders generated as a result of maintenance job requests are scheduled
and executed by utilizing necessary maintenance resources according to prescribed
maintenance policies. These policies can be acquired either from maintenance
historic data files or from manufacturer’s manual of the maintained item.
The maintenance resources considered in the proposed model include:

Work shops;

Man power;

Machines;

Equipments and tools; and

Material, spare parts and consumables.
The maintenance management system as shown in figure 6.5, must cope with the
maintenance load. The nature of the maintenance load is partly deterministic
(planned maintenance), but also stochastic (unplanned maintenance). Each time a
maintenance load is created; maintenance is planned and scheduled. At this point
the procedure can return the previous step if the scheduling time period is not
complying with the requested execution time span. A scheduled work order is
executed and, when completed, if some of these tests are not satisfying; a request
for a repetition of the maintenance job may be imposed. A successful quality
control is followed by performance measurement and cost analysis. Finally, all

68
data are recorded in the database and, as a result, the historic data file of the
maintained item is updated and new future periodic maintenance dates are
calculated.

Period Planned
Maintenance Maintenance Management

Abort or Fail to
Future Periodic Equipment Schedule within
Maintenance Break down Maintenance Job
Request
requested time
Generator span

Condition based Work order

Planning
Monitoring

Maintenance Load Scheduling

Reschedule

Dispatching

Execution Pause

Work order
Completion

Quality Control Abort

Performance
Evaluation

Cost Analysis

Finalization
(Recording)

Fig. 6.5 Maintenance management System

69
6.3 Cost and benefit of implementing ERP

The costs of implementing an ERP project can be described as follow

1. Computer system
Include in this category the following costs
• New computer hardware necessary for ERP or ES.
• ES software for a combined ERP/ES
• Systems people and others to: --
- configure and enhance the ES software
- Install the software, test it and debug it
- Interface the purchased software with existing system that will remain in
place after ERP and ES are implemented
- Assist in user training
- Develop Documentation
- Provide system maintenance
• Software maintenance costs
2. Data
Include here the costs involved to get and maintain necessary data

Inventory record accuracy

Bill of material accuracy, structure and completeness
3. People
Include here costs for:

The project team Education, including travel and loading

Professional guidance etc.
The benefits can be described as:

Increased sales

Increased direct labor productivity

Reduced purchase cost

Reduced inventories

Reduced quality costs

Increased productivity of the indirect wk force

70
The following operating costs are obtained during the research work in GEF. The
costs related to computer system, data and People used in this paper are based on
cost information found from ERP implementers guide on the internet and based on
the factory’s past record data and from discussions held with some of the workers
of the factory.
Annual sales = 25,000,000
Number of employees = 600
Manufacturing process = Fabrication and assembly
Annual direct labor cost = 10,000,000
Annual Purchase Volume (production material) = 12,000,000
Raw Material and Work in progress (estimated) = 10,000,000
Finished goods (estimated) = 15,000,000
Pre tax net profit = 10% of sales
The costs are divided in to one time (acquisition) and recurring (Annual operating)
cost
Table 6.1: costs incurred for computer system

Costs
(Computer One time Recurring Comments
System) cost(Birr) cost(Birr)
Hardware 3,500,000 - Costs primarily for work stations,
computers etc. (50 computers are
assumed to be used)
Software 1,000,000 30000 Costs accounted for the total
software.
System and 300000 20000 Adapting the software to the
programming company and training in its use.

71
Table 6.2: costs Incurred for Data

One
Costs (Data) time(Birr) Recurring(Birr) Comments
Inventory record 50,000 18,000 Includes new Equipments
Accuracy and added cycle counters
Bill of material 100,000 - Bills will need to be
accuracy and structured in to the modular
Structure format

Table 6.3: costs incurred for people

Costs (Data) One Recurring(Birr) Comments

time(Birr)
Project Team 300,000 100000 5 equivalent full time people including
costs for education time and teaching the
new ERP software interactions to the org.
(Past training data and internet source )
Professional 150,000 50,000 Professional guidance during installation
Guidance

Subtotal (one time) (Birr) = 5,400,000

Subtotal (Recurring) (Birr) = 218,000
Total Cost (Birr) = 5,618,000
Contingency (15% of the sub total cost) = 842700
Total Cost incurred (for ERP implementation) = 4775300

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Table 6.4: Benefits Gained from ERP implementation
improvement
Benefits Current (Assumed and Annual Comments
(Birr) internet source) benefit
(%) (Birr)
Improvement due to
Sales 25,000,000 7% 1,750,000 improved product
availability.
Reduction in idle time,
Direct labor 10,000,000 10% 1,000,000 over time, layoffs, and
productivity other items caused by the
lack of planning and
information flow.
Better planning and
Purchase cost 12,000,000 5% 600,000 information will reduce
total purchase cost
Raw material Better inventory
and work in 10,000,000 10% 1,000,000 management
progress
Finished goods Better inventory
15,000,000 10% 1,500,000 management
Premium Produce and ship on time.
freight (3% of 360,000 50% 180,000
purchase cost)

Total (Birr) = 6030000

Contingency (10%) (Birr) =- 603000
Net annual benefit (Birr) =5427000
4775300
Thus pay back period = =0 .87years
5,427,000

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 CHAPTER 7
INTEGRATING CONCEPTUAL COMPONENTS OF ERP

7.1 Conceptual Components of ERP

The ERP model consists of four components that are implemented through a
methodology. Figure 7.1 illustrates the integration between the components. A
clear mapping results, as can be seen in Table I, when this conceptual model is
compared to the 4Ps model.

Fig.7.1 Conceptual components of ERP

Table 7.1 the 4ps and ERP conceptual Model

The 4Ps ERP conceptual model

People Customer mind set
Product Software
Process Change management
Performance Process flow

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7.1.1 The software component

The software component of the ERP model is the component that is most visible to
the users and is therefore seen as the ERP product. It consists of several generic
modules, some of which are listed below:

(1) Inventory Management The inventory management system the main component
of the ERP System. This part is used to facilitate the inventory system of the
factory. Items are recorded in proper manner their respective groups. Adding a
new item, editing and deleting of an existing items, receiving and issuing of items
is possible and enable fast and reliable system of recording the assets of the
company.

(2) Human resources (HR). HR forms an integral part of an ERP system. HR

administration automates personnel management processes, including payroll,
recruitment etc.

(3) Supply chain management (SCM). SCM is the oversight of materials, information
and finances as they move in a process from supplier to manufacturer to
wholesaler to retailer to consumer.

(4) Supplier relationship management (SRM). To maximize profitability, companies

must be able to select the right suppliers quickly, establish strategic relationships
and effectively collaborate with them as they help meet business goals.

(5) Customer relationship management (CRM). CRM is a term for methodologies,

software and usually internet capabilities that help an enterprise manage customer
relationships in an organized and efficient manner.

7.1.2 Process flow

The second component in the conceptual model is the process flow within an ERP
system.
Process flow deals with the way in which the information flows among the
different modules within an ERP system.

75
Fig. 7.2 Master Process Flow

76
This forms a very important part of understanding ERP systems. Figure7.2
illustrates the master process flow, showing how information flows within and
between the different modules.
Before an ERP system can be implemented in an organization, the business
processes must be modeled and, if need be, reengineered to allow smooth
integration. The following are some examples to illustrate the process flow within
each of the software components:

Finance: An organization places an order using the purchase order process. The
stock or goods purchased through the purchase order process are delivered to the
organization and are allocated as stock in the inventory. If a purchase is a capital
expense, such as vehicles or buildings, the item will be transferred to fixed assets.
The stock items in the inventory can be sold to a customer. The process is the
sales order process. The inventory levels are adjusted as stock flows in and out. A
sales invoice is generated and accompanies the goods to the customer. This invoice
will be the proof that the customer received the delivered goods and owes the
company money.

The above-mentioned process also forms part of the SCM component. The
organization needs to pay its creditors for the goods it received and the
organization must also make sure that it collects its debt from its debtors. All the
entries of the modules described above will be made in the general ledger.

HR: HR administration involves the organization’s internal activities. Information

gathered from HR administration is populated into the payroll system itself. This
information, as well as that gathered from the self-service HR module, influences
the payroll. Information such as a new employee’s salary package will be pulled
from the HR administration module. Changes made by the employee in the self-
service HR module are also reflected in the payroll module. Interaction between
the payroll and the self-service HR module is a continuous process.
SCM: The stock levels in the inventory control trigger the generation of a purchase
order. The stock levels are determined through demand planning. An order for the

77
required stock is placed with the supplier. This order placement can be a physical
order or an e-commerce transaction between the organization and the supplier.
The supplier delivers the required stock to the organization and uses supply and
transportation planning to optimize delivery to the organization. The stock from
the supplier will be delivered at a predetermined price, as negotiated in the SRM
component. The delivery time and duration will also be governed by the SRM
component.

SRM: The SRM process begins with a design and engineering phase. This phase
establishes the minimum requirements and specifications of a product. It also
defines the criteria the supplier must fulfill. These criteria form the basis for the
tendering process. Different suppliers will tender and submit documentation based
on the criteria. A selection will be made and a preferred supplier chosen.

A contract is drafted between the parties. The procurement process is determined

and forms part of the bigger SCM process. Ongoing management of the supplier and
its services will continue and adjustments will be made to accommodate changes
and shortfalls.

CRM: The first and most important process within CRM is to gather all relevant
information for a specific customer. This process is tedious and cumbersome and
involves sources such as spreadsheets and users’ personal information management
utilities. Business decisions will be based on this information.

Once all the relevant information has been gathered, it needs to be maintained.
This is crucial, as no organization can afford to make decisions based on old and
wrong information. A central database is instituted where all the information is
stored and maintained through a chosen CRM tool.

The CRM tool organizes the information in a structured way so that the information
is easily accessible. The information can be viewed using either web interface or a
client-server application. The information related to a specific customer will be

78
viewed differently by each user, for example the customer call centre will want to
view the problem history of a specific customer, whereas the salespeople will want
to see all products sold to a customer.
BI: A vast amount of data are stored within the organization and can be found
within the ERP system itself or within planning and forecasting, which forms part
of SCM. The main purpose of BI is to accumulate the data and process it into useful
information. The data are accumulated through different BI tools, such as data
mining and data warehousing.

The information is stored in a presentable manner and the relevant people access
it using an interface that is easy to use, such as a web-based or graphical
interface. The information can be viewed from the internet or within the
company.

7.1.3 Customer mindset

The third proposed component of the ERP model is the customer’s mindset.
Resistance kills many ERP projects. A proposed ERP system may hold great
promise, but often fails to consider how the users are likely to view this so-called
improvement.

ERP systems remove the old tried-and-true ways of working which users understand
and are comfortable with, even though some of these existing, cobbled-together
legacy systems are not all that good. When users are asked to give up what they
know and what they can rely on, they will resist. For any ERP project to succeed,
the users must buy into the new ERP system. A paradigm shift or customer mindset
change must be achieved. This has to be done at three levels.

(1) User Influence: Training plays a major role in the operation of the ERP system
after implementation. One of the major advantages of an ERP system is increased
productivity. This can only be acquired once the user is trained sufficiently on the
use of the ERP system. Users should not be expected to be able to perform
immediately at the same level of productivity as on the old legacy system.

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(2) Team Influence: A typical ERP project involves internal people from a number
of departments within an organization, as well as many external people in the
form of consultants and vendors. A primary reason for unsuccessful ERP
implementations is the inability of this disparate group to come together in a
focused, team-oriented manner. All too often the team membership polarizes into
“us-versus-them” factions and the project degenerates into mass finger pointing. A
successful ERP project will require that the functional and technical leadership and
teams develop a strong partnership and a shared commitment to the success of the
ERP implementation. Without this joint commitment to work together, any
attempt to implement an ERP system will result in failure. Consultants play a
major role and key partnerships at every level will be required to maintain the
cohesiveness of the team. When possible, the consultants should be incorporated
directly into the team. This requires major trust on the part of the organization.

(3) Organizational Influence: The users will be expected to work twice as hard
during the implementation of the system. They still need to do their normal
operational work to make sure the business continues to run smoothly and they
need to give inputs to the different project teams of which they are a part. This
causes the users to become overworked, tired and stressed. It must be pointed out
to the user’s right at the start what the issues will be during implementation, and
the rewards must be clearly stated. It will be necessary to remind the users
regularly of the benefits of installing the ERP system

7.1.4 Change management

Change management plays a major role in the successful implementation of an ERP

system and is the fourth component in the ERP model. Change needs to be
managed at several levels.

User Attitude
Resistance to change is one of the major issues that all ERP projects will face. User
attitude change management focuses on managing the users’ expectations and on
converting the non-believers to believers and supporters of the system. What the
organization needs are people to understand what it is all about, to like the new

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system, to take part in making it a success and to have confidence in the project
team.

Project Changes
All ERP projects are subject to scope change at some time during the lifecycle.
The key to successful ERP implementation is to manage the change of scope
process effectively.
The Project Management Body of Knowledge (PMBOK) defines scope change control
as:

Influencing the factors which create scope changes to ensure that changes
are beneficial;

Determining that a scope change has occurred; and

Managing the actual changes when and if they occur.

System Changes
This module in the change management component involves the review of current
version management. Most organizations have implemented some form of version
management processes to preserve the integrity of custom software developed
within an organization. At the same time, organizations have established a formal
promotion protocol to manage the testing and release of custom-developed
software.

When ERP applications are introduced, a number of new change management

issues are encountered that are associated with maintaining and reconciling
custom and packaged applications.

Generally speaking, version management helps an organization to manage

effectively version control and security issues that are typical to a software
development and maintenance project.

An effective change management strategy will improve an organization’s change

analysis capabilities and provide more fluid and efficient change
implementation/migration processes.

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 CHAPTER 8
SOFTWARE DEVELOPMENT

8.1 Software Packages

Today there are a lot of software packages to support enterprise resource

planning. Many companies failed to be successful because the complete software
doesn’t match with their businesses. Thus even if there are a lot of software
packages it is believed that based on the result of the problem analysis depicted
on earlier chapters to develop a friendly user software using Visual basic 6.0.
The software package has two main parts the production planning and human
Resource planning. The production planning covers mostly the inventory system
and purchasing activities within the organization. The inventory system has three
divisions, i.e. the consumable items, fixed asset and the EOQ (Economic Order
Quantity).

8.2 Basic components of the software

From the Pareto analysis in chapter 5 the vital few i.e. the reasons that causes
majority of the problem i.e.41.49 % are the production planning and the problems
in human resource management. Thus even if the ERP software covers different
aspects of the factory systems like the manufacturing data base, product design
data base, and business data base in this thesis only the manufacturing database
specifically inventory system and the human resource management are covered.

8.2.1 Production planning

On this part of the software the basic issues like inventory system and
determination of the economic order quantity is clearly shown.

Consumable Items
The consumable items include components purchased and stored in different
departments. These components include spare parts, Raw materials, tools,

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auxiliaries, stationary, Construction materials, petroleum, Sanitary, Medicals, food
and Beverages, Weapons and finished products.

Earlier the inventory systems of the components are poor in which materials are
issued and received manually which is tedious and it is liable to loss of materials
due to improper registration and negligence.

Thus the software is capable of showing the different items to be issued, received,
to add new or existing items, to edit existing items, to delete existing items to
control returned items and so on.

The software is also adjusted in such away that to show the ware houses where the
components are stored either by search directly or browsing from its group. The
details of the forms are shown on appendix 2.

Fixed Assets
Fixed asset of the factory includes plant and machinery, furniture and fixtures,
different equipment, vehicles, building and so on. Similarly the existing fixed
assets are also registered. Whenever inventory processes are required we can
perform any inventory process as it is shown in appendix 2.

Economic Order Quantity

This part of the inventory system is used to show some calculations of EOQ with
shortage and with out shortage. The software shows some calculations to find the
economic order quantity based on given parameters.

8.2.2 Human resource management

The human resource management is simple software shows the total human
resources available and is showing individual data about the employees. We can
retrieve any employee data and we can easily access any information about
him/her.

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8.3 The software

8.3.1 Consumable items

The above part of the software shows the list of the consumable items among
which the spare part item has further classified as mechanical spare parts,
electrical spare parts and automotive spare parts.

The form shown is similar for all the the catagories, the only difference is the data
ecch category holds.
In this forms the inventory representative can add a new item, edit the existing
items, delete an exisiting item, issue an existing item, issue items which are not in
the store but to be issued from where they are and see different items returned,
by just clicking the respective command buttons.

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85
This part o f the software (above) is used to edit the existing data based on
requirement.

The software has also a mechanism by which it assures weather the data is to be
really edited or not before complete edition is done as shown below.

This part of the software (below) is showing the electrical spare part.

86
The form shown below is used to add new items in to an existing inventory. Once
the item is added to the database the earlier amount is updated. The form has an
option to select a group, which we want to update.

87
The form shown below shows a message to select the item to be deleted.

88
The form shown below shows a message box, which gives a caution weather to
delete an item, or not when the delete command button is pressed.

89
The form shown below is used to show issue an item from an existing inventory.
Like the adding of new items, the issue of items is also update the existing
inventory.

90
If it is required to issue materials, which are not available in the store, it is
possible to issue from the place where the item is available via simple issue as
shown below.

91
The next form shows the return from data i.e. the inventory representative can
retrieve the items taken by an individual and at the same time it shows items still
available on his hand.

92
Those materials issued from individual’s hand with out entering the inventory
should be registered as returned item and this can be shown as follow.

93
The next form shows the returned items. It also shows items that are re issued and
therefore possible to delete it from the returned item data.

94
95
8.3.2 The Fixed Asset

The form shown below shows fixed asset machinery. The rest parameters are the
same with that of the consumable items i.e. to edit, to add, to delete etc. of an
item. Similarly as shown in the form we do have similar forms for the items listed
in the menu like furniture, vehicles etc.

8.3.3 The EOQ

The form shown below is used to calculate EOQ with out shortage and uniform
demand rate.

96
Similarly the form shown below is used to calculate EOQ with out shortage and non
uniform demand rate in different cycles.

97
The next form is used to calculate the EOQ with shortage and constant rate of
demand.

98
8.3.4 Human resource management

This part of the software shows every data of an employee, which can be shown on
the interface by retrieving it from the database.

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100
 Chapter 9
Conclusion, Recommendation and Future Work

9.1 Conclusion

To be truly competitive, manufacturing companies must deliver products on time,

quickly, and economically. The set of business processes known as Enterprise
Resource Planning (ERP) has proven to be an essential tool in achieving these
objectives. Their capabilities offer a means for effectively managing the required
resources: materials, labor, equipment, tooling, engineering specifications, space,
and money. For each of these resources, ERP can identify what’s required, when
it’s needed, and how much is needed. Having matched sets of resources at the
right time and the right place is essential for an economical, rapid response to
customer demands.
GEF is a 'job ordered company' that manufactures its products after getting an
order from Ministry of National Defense and other external customers. As it
explained before, the factory is facing a great challenge to satisfy the
requirements of its customers. The survival of this industry is strictly dependent on
its productivity and competitiveness at the market. The competition may be in
national or international level.
From the detailed analysis the following conclusions are derived:

The main problems observed are the problems in production planning like
demand forecasting, inventory system and on managing the Human Resource.

There is no strong production as well as performance measurement; evaluation
and progress follow-up mechanism. The skill, capacity and training need of
each individual operator is not determined.

Since most of the machineries in the factory are old and not equipped with
maintenance equipments there exists repetitive machineries break dawn more
over, there are no mechanisms to register machineries breakdown time and
there is no preventive maintenance plan.

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A report prepared by varies sections and departments do not consider the
factory's overall activities in detail. There is no feed back mechanism about
what kinds of corrective action to be taken.

There is no clear information exchange between varies departments of the
factory about the progress of job. For example the quality control test results is
not prepared in such a manner that it could explain test request receiving time,
result delivering date and time, causes of reject, amount of re-workable
materials and possible remedial solution that have to be made by the
concerning section.

The total cost of each product is not known because direct and indirect cost of
material, labor and other expense to produce varies product is not determined.

There is no effective utilization of resources (manpower, machineries, raw
materials, time)

The current actual Production capacity of the shops and the factory is
unknown.

From the detailed analysis the main problems have been observed in production
planning which includes Poor inventory system, poor capacity requirement,
Planning, and poor sales and forecasting and human resource Management.

On the other hand the factory has followed poor maintenance management
system in which it is pointed out that no preventive maintenance system has
existed.

9.2 Recommendation

Today the Armament technology is growing in a faster rate and production of

different riffles is becoming simple and simple. This in turn results a dynamic
change in national defense demand. To cope with such dynamic changes, the
factory has to identify the main problems facing in its day-to-day activity.

The following recommendations are made based on the study that has been

conducted.

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If the factory has implemented ERP system then it can achieve benefit of
5427000 birr with in a pay back period of 1.035 year.

It is believed that setting Proper Production Planning and Control system leads
the factory to an organized set of activity to solve its production problems.
Thus to stay in the market and satisfy its customer needs, the factory is
expected to apply a sound production planning and controlling system.
Production planning includes allocation of resources, routings of each of the
factory product, due date setting and dispatching order to the shop. For the
annual production plan to be maintained there should be relevant and constant
controlling mechanism of the production progress.

To make the system well functional, the factory shall implement ERP system as
faster as possible.

The required qualified manpower for directly related sections with production
technical planning and control section like material requirement section,
costing section should be assigned by qualified personnel as soon as possible.
Other wise the system could not bring meaningful significance for this factory.

Materials and office equipments like computers should be fulfilled to support
the system effectively.

Various departments of the factory must prepare data exchanging formats and
provide convenient information, which can provide detailed information.

The quality assurance department must prepare a formal inspection certificates
that can be provided to Production technical Planning and control (PTPC)
department at each stages of the production inspections. The department also
must give fast and accurate inspection services in each production line and
must use statistical methods to trap any errors which have occurred in
production.

The marketing and supplies management department must organize its stores in
such a manner that they could give detail information about each material
inventory balance whenever requested by any department.

The technique and maintenance department must prepare preventive, overall,
and predictive maintenance programs so that the occurrence of breakdown
maintenance could decreases there by the production down times shall be

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 minimized. More over the department has better used computer data base of
the maintenance management system to have effective preventive, break down
and predictive maintenance system.

Motivation should be introduced to minimize turn over, tardiness and
absenteeism of workers in GEF. Moreover there should be participatory or
democratic management system to motivate and initiate creativity and to let
enjoy the factory by its resources.

9.3 Limitation of the Study and Future Work

The study has focused on production planning which mainly focuses on developing
software on inventory management system, evaluating production planning and
control system, maintenance management system and the human resource
management system based on the Pareto analysis driven in chapter 5 and selected
ERP implementation model i.e. Quick slice. Thus future works should be done on
the rest of the problems identified based on priorities given.

9.4 Post ERP Implementation

There are two major objectives involved in operating ERP after fully implemented:

Don’t let it slip or deteriorate.

Make it better and better.
How should a company address these issues? How can they not let it slip? ‘What’s
involved in making it better and better?
Five important elements are involved:
• Understanding.
• Organization.
• Measurements.
• Education.
• Lean Manufacturing/Just-in-Time.

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Understanding
In this context, understanding means lack of arrogance. Operating at a Class A
level is much the same. A company needs to understand that:
• Today’s success is no guarantee of tomorrows.
• People are the key.
• The name of the game is to win, to be better than the compete

Organization
Don’t disband the ERP project team and the executive steering committee. Keep
these groups going.

Measurements
Measuring the effectiveness of ERP performance requires both operational and
financial measurements.

Operational Measurements
This part should be reviewed by the ERP operating committee formally, as a group.
For any answer that’s lower than excellent, this group should focus on:
• What’s going wrong?
• What’s the best way to fix the problem?
• Does the problem exist only within one department? If so, that department
manager should be charged with correcting the problem. On the other hand, if
the problem crosses departmental boundaries, should the company activate a
spin-off task force?
• How quickly can it be fixed?
• What’s the best way to fix the problem?

Financial Measurements
At least once a year, the ERP operating committee should take a check on “how
we’re doing” financially with the ERP. Actual results should be compared to the
benefits projected in the cost justification.
Just as with the operational measurements, straightforward approach should be
used here: Is the company getting at least the benefits expected? If not, why not?
Start fixing what’s wrong,

Education

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Failure to establish an airtight ongoing education program is a major threat to the
long-term successful operation of ERP. Ongoing education is essential because:
New people enter the company plus, current employees move into different jobs
within the company, with different and perhaps expanded responsibilities. Failure
to educate these new job incumbents spells trouble. It means that sooner or later
the company will lose that critical mass of ERP knowledgeable people. The
company then will be unable to operate ERP as effectively as before.

Lean Manufacturing

Lean Manufacturing (formerly called Just-in-Time) is arguably the best thing that
ever happened to ERP. Because Lean Manufacturing, done properly, will not allow
the factory to neglect ERP processes.
Lean Manufacturing does more than keep ERP from slipping. It also helps it to get
better and better. How so? By simplifying and streamlining the real world.

As setup times drop, so do order quantities and, hence, inventories.

As quality improves, safety stock can be decreased and scrap factors
minimized.

As flow replaces job shop, queues go down and so do lead times.
As these real world improvements are expressed into ERP, it work better and
better. As the real world gets simpler, data integral becomes easier and planning
becomes simpler.

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