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Ringkasan Materi A GUIDE TO ERP part 1
The Functioning of ERP systems

The value chain and the supply chain

Modern ERP systems support all management and operations processes in a company.The value chain
was originally developed for manufacturing companies. The value chain describes processes within the
boundaries of one organisation. A related concept is the demand & supply chain (or: supply chain).The
predecessors of ERP. ERP has its origins in manufacturing companies.The first planning technique that
was automated was Material Requirements Planning (or: MRP). MRP calculates the amount of raw
materials required to manufacture a customer order. In reality, such very simple processes rarely exist.
Production of a range of finished products using more than three raw materials, several production
processes, and intermediate inventories can be planned with MRP, but the manual calculation of the
MRP schema becomes too time-consuming for realistic planning purposes.

The first ERP systems – data integration for manufacturing companies

The first fully-fledged ERP systems became available in the late 1970s [Boot, 2003]. In order to clarify
how this data integration was realised in the first generation of ERP systems, the example of the table
manufacturing company is taken further in this section. Before the implementation of an ERP system the
physical and administrative flows of the sales transactions were the following.
The administrative flow was significantly more complex, as several people had to carry out a number of
administrative actions. The first action was carried out by the sales person: writing two copies of a sales
slip with the number of tables and the price, one for the customer and one for the financial department.
After the implementation of the ERP system the physical and administrative flow of sales transactions
are integrated. Because of the data integration characteristic of the ERP system, the administrative flow
becomes much simpler. This stylised example demonstrates the benefits of the data integration
characteristic of ERP. However, more benefits of data integration can be identified.

ERP extensions – Data integration for other value chains

The early ERP systems realised data integration between the processes in the value chain of
manufacturing companies, and focused on the integration between primary and financial processes.
During the 1980s ERP expanded over the full value chain including all secondary processes of
manufacturing companies.

ERP extensions – Sophisticated best practices

In the late 1980s and the early 1990s of the last century the best practices offered in ERP systems
became more and more sophisticated. In addition to the traditional MRP and MRPII methods, other
planning algorithms were built in to better support production processes. Examples of these algorithms
are Available to Promise (or: ATP) and Capable to Produce (or: CTP). When a customer order is entered,
both algorithms check whether the ordered product is in stock or will be in stock on the shipment date
requested by the customer. If the product will not be in stock, ATP checks whether a production run has
already been planned that will manufacture the product on time for the requested shipment date. CTP
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goes even further: if the forecast is that a requested product will not be on stock, the algorithm
automatically checks the availability of raw material, issues raw materials replenishment orders if
required, and plans a production run in which the product will be manufactured.

Summary
The value chain is a model for the processes within the boundaries of an organisation. In this
model, business management and operations of an organisation add value by combining primary and
secondary processes to create a profit margin. Primary processes are characteristic for the type of
organisation or the industry in which it operates, while secondary processes do not depend on the type
of company but exist in most organisations.