ERP

This book is designed for use in academic and executive programs, which are aimed at teaching students how integrated systems work. The book assumes no prior knowledge in operating systems; we recommend this material as a textbook for the basic Operations Management course or as a textbook for courses on ERP systems and the development of business processes. A course on integrated planning and control systems would probably be the ideal place in a business school setting. In an industrial engineering school, this book may give students their first, and perhaps only, introduction to business issues such as market demand and supplier relationships.

The history of organizations is probably as long as the history of mankind. Early organizations like families or groups of hunters evolved into tribes, kingdoms and empires. The need to survive in a hostile world, to carry out missions too great for a single person and to share scarce resources, are just some of the reasons for the creation of early organizations.

Enterprise Process Modeling is a core vehicle to analyze, design, implement, and deploy ERP-related business process suites and the ERP information systems supporting them. However, the modeling process often requires extensive resources and is often incomplete. As a way to cope with these hurdles and to improve the quality of enterprise-specific models, the idea of reference modeling has become the accepted methodology to develop an enterprise-specific application. While an application model represents a particular enterprise system, a generic model represents a class of similar enterprise systems. It is a conceptual framework that can be used as a blueprint and progressively adapted to the requirements of a particular enterprise. The ultimate aim of enterprise modeling is to enable the designer to obtain a definitive picture of the business functionalities of the organization and the suite of business processes required. (For more information on the idea of business process reference models readers are referred to Kindler and Nuttgens (2005).) He/she can then proceed with the design of the business processes required, planning of the corresponding IT support as exemplified by ERP systems, and elaboration of a program for business process management. These topics are discussed in this and other chapters in the book.

The first aspect deals with the generation and collection of data, such as a new customer order that enters the system. New data is generated when transactions take place; new data is also collected from a variety of internal and external sources by data collection systems.

Like many other processes in modern organizations, Integrated Production and Order Management (IPOM) is an integrated process that crosses traditional functional and organizational lines (see Sect. 1.5). This process, that starts with customer orders for end products (in the following discussion the term “end products” will be used for products or parts supplied to customers), proceeds with purchasing from suppliers and subcontractors and includes production, assembly, packaging and shipping of the finished products. The whole process is aimed at fulfilling customer orders to ensure the long-term success of the organization. Since the process is triggered by customer orders, and is designed to fulfill such orders, it is important to manage such orders and thus we start this chapter by defining what exactly constitutes an order that triggers the process.

“Purchasing refers to a function in business whereby the enterprise obtains the inputs for what it produces, as well as other goods and services it requires. Outsourcing became part of the business lexicon during the 1980s and often refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation” (Wikipedia 2007).In this chapter we discuss the importance of purchasing and outsourcing to the order-fulfillment process, focusing on decision-making and models that can help management decide on when to use purchasing and outsourcing and how to do it. We start by introducing the term capacity and will proceed to discuss models for inventory management and control.

Time-based competition starts with carefully planning the timing of each activity in the order-fulfillment process to meet customer due date requirements. It proceeds with an effort to execute the plan with minimum deviations despite the uncertain and ever-changing environment. Scheduling concerns the allocation of limited resources to tasks over time (Pinedo 1995, 1998; Conway et al. 2003). The driver of all scheduling efforts in the order-fulfillment process is the Master Production Schedule (MPS) that sets the timing and quantities of independent demand items and deliveries. The MPS is translated into purchasing orders and production orders. The timely execution of these orders, both in purchasing operations and on the shop floor, is essential to guarantee on time delivery to the customers.

A business process design is a description of a business process expressed in terms of the components constituting the process and its operational environment, their attributes, and values for these attributes. It comprises two key aspects: a design concept and a detailed design (Karni and Arciszewski 1997): A conceptual design is a qualitative description of a process and its operational environment in terms of its functionally essential components, characterized as nominal components with qualitative values. The components are connected by general relations: taxonomies, categories and flows. A detailed design is a quantitative description of a process and its operational environment in terms of its functionally essential components, characterized as concrete components with quantitative values. The components are connected by specific relations: functional or operational.

In this book we describe and utilize three central frameworks for ERP and operations management: business functions, business processes and IT support: Business functions relate to centers of professionalism or expertise within the organization, and usually, but not necessarily, coincide with organizational units (e.g., purchasing, manufacturing, inventory, sales). Business processes relate to activities - actions and decisions - carried out by employees within the organization in order to create value for the organization. IT support relates to the computerization of data-based and knowledge-based activities and transactions, and the maintenance of organizational data and knowledge repositories, in order to facilitate and empower the performance of such activities and transactions.

The integrated order-fulfillment process provides an outstanding archetype of the evolutionary approach to cross-enterprise operations management. We describe this process in detail in the following sections. However, in order to position it in relation to the ERP paradigm, we first provide an overview of the whole process, and its cross-functional nature, through the use of a focused reference model (Table 10.1). The model itemizes the various processes involved in the integrated order-fulfillment process and portrays the progression from the basic MRP processes (*) through the enterprise-wide involvement of several functionalities at the ERP (***) and ERP II (****) levels. It highlights the nature of the cooperation and coordination required - as well as the multi-functional knowledge required of the order-fulfillment team.

The essence of Integrated Production and Order Management is teamwork – a process-based organization in which a team is responsible for each process. To ensure a competitive process, each member of the team has to understand the team’s task, its objectives, constraints and the performance measures used to evaluate the team. Furthermore, each individual has to learn the concepts of process and cross-functional process, information systems, the use of information, and the support provided by ERP-type systems. This knowledge of individual team members is the basis of coordination and teamwork. It provides the necessary communication channel for group decisions regarding the design of the process and its implementation. In addition to individual learning, team building and team training are major issues in the implementation of IPOM.The discussion so far has focused on the knowledge each individual participating in the order-fulfillment process must have. The following discussion focuses on teams, specifically the building teaching and training of the group of people responsible for the design implementation and control of the order-fulfillment process.

The best description of our approach to the management of business processes is described by Maddern et al. (2004): At the heart of practitioner understanding is the idea that all businesses have processes. Businesses provide goods and services to customers; processes are the means through which those goods and services are delivered. Critical to this perspective, is the idea that processes are universal. Given the universal nature of processes, process management, in some form, is not optional. Practitioners recognize the hierarchical nature of the process concept, and the associated terms used to describe different levels of process granularity, such as subprocesses, activities, tasks and so on. However, activity at these lower levels is not, in itself, evidence of conscious process management. Moreover, most companies establish, control and, potentially, try to improve individual processes and subprocesses under the banner of “business process management” (BPM) as part of traditional operational practice. A critical feature of the management of business processes is process management on an end-to-end basis. Such activity does not constitute conscious process management. Conscious process management involves addressing processes as a whole rather than in isolation or in fragments; to understand the totality of processes, their boundaries and interrelationships; to actively manage the totality of an organization's processes, on an “end-to-end” basis. As such, it is a management philosophy, which requires initiating intervention aimed at the delivery of a sustained capability to understand, manage and improve processes. Further, businesses manage within business silos: functional business models continue to dominate. Identification and management of end-to-end processes is needed to enable companies to overcome functional barriers, typically leading to reduced costs and improved service.

For a process-centric organization, the management and improvement of its business processes is an essential factor in organizational advancement. From the same perspective, the implementation and change of these processes has all the facets of Change Management - including managerial disputes about the nature of advancement; a socio-cultural challenge resulting from the severe organizational effects on the involved people, which may lead them to react against those changes; and a technical challenge, which is due to the difficulty in developing a business process redesign which aims towards an improvement of the current design (Reijers and Mansar 2005; Carr and Johansson 1995). To keep pace with the ever-changing environment, organizations need to be aware of their ability to adapt. Business Process Management is one approach to enhance internal efficiency and to change the way the organization functions (Forster 2006b). In effect, Business Process Management is an essential part of enterprise management. For an in-depth review of Business Process Management the reader is referred to the many books on this topic (see, for example, Jeston and Nelis 2006). Within the scope of this book, we focus on one aspect: the modification and improvement of business processes resulting from problems such as dissatisfaction with current processes, feedback from process performers and customers, changes in the modus operandi of the organization, enhancement of IT and knowledge resources, and adaptation of the enterprise to developments in the external environment.In previous chapters we have concentrated on two levels: the enterprise process suite (Chap. 3) and the individual business process (Chap. 8). If we accept the definition by Davenport (1993) that business process improvement (BPI) is an incremental bottom-up enhancement of existing processes within functional borders, we take the opinion that “Business Process Improvement initiatives primarily have to deal with the improvement of the business process itself” (Grove and Kettinger 1998, quoted in Forster 2006b). This chapter therefore concentrates on the process redesign aspect of BPI. It provides a set of specific guidelines as to how an existing business process can be modified and thereby improved (for further reading on this topic see Reijers and Mansar 2005; Forster 2006a; Forster 2006b), how the ability of the process performer can be evaluated and improved, and how the capability of the process designer can be reinforced in order to take the lead in implementing a business process improvement.