OPS 405 Week 1 ERP and Business Process Integration Example

Order to Cash in Nine Handoffs: ERP and Business Process Integration at a Michigan Hydraulic Cylinder Maker

[Student Name]

University of Phoenix

OPS/405: Enterprise Resource Management

Week 1 Assignment

[Instructor Name]

[Date]

Saginaw Valley Fluid Power, its systems, processes and figures are composites written for a model paper.

Saginaw Valley Fluid Power is a composite manufacturer in Saginaw, Michigan, with about 380 employees and sales of about $95 million. It builds welded and tie-rod hydraulic cylinders that lift booms, tilt buckets and steer wheels on tractors, loaders and excavators made by about 30 equipment manufacturers. Some cylinders are built to stock for distributors; most are built to order for manufacturers' production schedules. The company runs on an aging accounting package, a separate production scheduling program, an engineering drawing database and dozens of spreadsheets. Customers complain that order confirmations are slow and delivery dates unreliable. This paper explains enterprise resource planning (ERP) and how it would integrate the company's processes.

What ERP Is and Where It Came From

Jacobs and Weston (2007) traced ERP's history from the material requirements planning systems of the 1960s and 1970s, which calculated parts needs from production schedules, through manufacturing resource planning, which added capacity and financial planning, to the enterprise-wide systems of the 1990s that integrated finance, human resources, sales and distribution in a single database. The defining feature is shared data: an order entered once is visible to production, purchasing, inventory and finance, each of which acts on the same record.

Following One Order Today

A tractor manufacturer sends a purchase order by electronic data interchange for 400 boom cylinders over eight weeks. The order passes through nine handoffs:

Customer service prints the order and retypes it into the accounting system.

Engineering checks the drawing revision in its database and emails confirmation.

Customer service emails planning, which enters the order into the scheduling program.

Planning checks a spreadsheet of tube and rod stock and emails purchasing for shortfalls.

Purchasing places orders for tubing, chrome rod and seal kits in the accounting system.

The shop receives paper travelers printed from the scheduling program.

Quality records test results in a spreadsheet.

Shipping prints packing lists from the accounting system, re-keying quantities shipped.

Accounting invoices from the packing list and matches payments.

The order is retyped four times. Confirmation takes three to five days. When the customer changes quantities, which it does weekly, each system must be updated by hand.

Three Processes, One Data Set

Integration changes three processes.

Order-to-cash: the order loads automatically from electronic data interchange; the system checks available-to-promise inventory and capacity, confirms a date the same day, generates work orders and, on shipment, creates the invoice.

Procure-to-pay: material requirements calculated from orders and bills of materials become purchase requisitions; receipts update inventory; invoices match automatically to orders and receipts.

Plan-to-produce: a master schedule drives work orders with routings for each machining, welding, assembly and test step; labor and material are reported against the work order, giving real-time status and cost.

A customer's quantity change should be typed once, not chased through nine desks.

The Master Data That Makes It Work

Integration depends on accurate master data shared by all three processes: item records for about 4,800 parts; bills of materials for about 1,900 cylinder models; routings with operations and standard times; customer records with prices and terms; and supplier records with lead times. Today these live in separate places and disagree; the scheduling program, for example, lists a seal kit as 3 weeks' lead time, while purchasing's spreadsheet says 6. Cleaning and owning this data is the first and largest task of any ERP effort.

What Research Says About Integration

Gattiker and Goodhue (2005) studied plant-level outcomes after ERP implementation and found that benefits depended on interdependence and differentiation: plants that were highly interdependent with other units gained more from the integration ERP provides, while plants with distinctive local needs faced greater costs from the standardization it imposes. Bendoly and Jacobs (2004) found that order-processing performance was better when a firm's ERP architecture was aligned with its operational strategy. For Saginaw Valley, whose departments depend heavily on each other for every order, integration should pay, but standardization could hurt if the system cannot handle both make-to-order and make-to-stock work.

Make-to-Order and Make-to-Stock in One System

Saginaw Valley runs two kinds of business. About 70 percent of volume is built to order for manufacturers, who send releases against annual agreements and change quantities often. The rest is built to stock for distributors, who expect common cylinders on the shelf. An integrated system must handle both: available-to-promise logic that checks finished stock for distributor orders and capacity for manufacturer orders, and planning that builds stock cylinders in economical batches without crowding out customer orders. Many smaller systems handle one mode well and the other poorly, so this requirement will drive system selection.

Who Owns the Data

Integration also requires owners. Engineering will own bills of materials and drawing revisions; manufacturing engineering will own routings and standard times; purchasing will own supplier lead times; customer service will own customer records and prices. Each owner signs off on changes, and a monthly audit samples records for accuracy. Without named owners, shared data decays quickly because everyone assumes someone else is keeping it current.

Challenges

Integration has costs: a multi-year project, a dip in productivity during transition, significant data cleanup and new ways of working for nearly everyone. Engineering will need to maintain bills of materials as controlled records rather than drawings, and the shop will report labor on terminals rather than paper.

Measures

Saginaw Valley would judge integration by order confirmation time, from three to five days to one; on-time delivery against confirmed dates; invoice errors; inventory record accuracy; and the time planners spend reconciling systems each week.

Conclusion

Saginaw Valley's order-to-cash process passes through nine handoffs and four retypings because its processes run on separate systems. ERP, built on a single shared database, would let one order record drive confirmation, production, purchasing, shipping and invoicing, provided the company invests in clean master data and accepts new ways of working. Research suggests that a business as interdependent as this one should benefit, and the measures above will show whether it does.

References

Bendoly, E., & Jacobs, F. R. (2004). ERP architectural/operational alignment for order-processing performance. International Journal of Operations & Production Management, 24(1), 99-117. https://doi.org/10.1108/01443570410511013

Gattiker, T. F., & Goodhue, D. L. (2005). What happens after ERP implementation: Understanding the impact of interdependence and differentiation on plant-level outcomes. MIS Quarterly, 29(3), 559-585. https://doi.org/10.2307/25148695

Jacobs, F. R., & Weston, F. C., Jr. (2007). Enterprise resource planning (ERP): A brief history. Journal of Operations Management, 25(2), 357-363. https://doi.org/10.1016/j.jom.2006.11.005