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334 PART II Transaction Cycles and Business Processes

vendors, receive invoices from vendors and pay them, software vendors to sell MRP II packages to nonmanu-
as well as send and receive shipping documents. EDI facturing companies.
is a central element of many electronic commerce The market for ERP systems was for many years
systems. We will revisit this important topic in Chap- limited by high cost and complexity to only the largest
ter 12. companies and was dominated by a few software ven-
Similarities in functionality between ERP and MRP dors such as SAP, J.D. Edwards, Oracle, and People-
II systems are quite apparent. Some argue that very little Soft. In recent years this market has expanded
real functional difference exists between the two con- tremendously with the entry of many small vendors tar-
cepts. Indeed, the similarities are most noticeable when geting small and mid-sized customers with less expen-
comparing top-end MRP II systems with low-end ERP sive and more easily implemented ERP systems. The
packages. A primary distinction, however, is that the importance of the ERP phenomenon warrants separate
ERP has evolved beyond the manufacturing market- treatment that goes beyond the scope of this chapter. In
place to become the system of choice among nonmanu- Chapter 11, therefore, we will examine ERP systems
facturing firms as well. On the other hand, cynics argue and related topics, including supply chain management
that changing the label from MRP II to ERP enabled (SCM) and data warehousing.

Summary

This chapter examined the conversion cycle, whereby a com- production facilities and the employment of automated tech-
pany transforms input resources (that is, materials, labor, and nologies. We also saw that achieving lean manufacturing
capital) into marketable products and services. The principal requires significant departures from traditional standard cost-
aim was to highlight the changing manufacturing environment ing techniques. In response to deficiencies in traditional
of the contemporary business world and to show how it calls accounting methods, lean manufacturing companies have
for a shift away from traditional forms of business organization adopted alternative accounting models including activity-based
and activities toward a world-class way of doing business. We costing and value stream accounting. The chapter concluded
saw how companies that are attempting to achieve world-class with a discussion of three information systems commonly
status must pursue a lean manufacturing philosophy. associated with lean manufacturing: (1) materials requirements
Key to successful lean manufacturing is achieving manufac- planning (MRP), (2) manufacturing resources planning (MRP II),
turing flexibility, which involves the physical organization of and enterprise resource planning (ERP).

Key Terms

activities (328) materials requirements planning (MRP) (330)
activity driver (328) materials requisition (307)
activity-based costing (ABC) (328) move ticket (307)
automated storage and retrieval systems (AS/RS) (324) product family (329)
bill of materials (BOM) (307) production schedule (307)
computer-aided design (CAD) (325) pull processing (320)
computer-aided manufacturing (CAM) (325) reorder point (ROP) (315)
computer-integrated manufacturing (CIM) (324) robotics (305)
computer numerical controlled (CNC) (324) route sheet (307)
cost objects (328) safety stock (316)
economic order quantity (EOQ) model (314) storekeeping (313)
electronic data interchange (EDI) (333) Toyota Production System (TPS) (320)
enterprise resource planning (ERP) (331) value stream (325)
islands of technology (324) value stream accounting (329)
just-in-time (JIT) (320) value stream map (VSM) (325)
lean manufacturing (320) work order (307)
manufacturing flexibility (322) world-class company (320)
manufacturing resources planning (MRP II) (331)