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Chapter 4
Chapter Summary
• An ERP system can improve the efficiency of production and purchasing processes.
Efficiency begins with Marketing and Sales sharing a sales forecast. A production plan is
created based on that forecast and shared with Purchasing so raw materials can be
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ordered properly.
• Companies can do production planning without an ERP system, but an ERP system that
contains materials requirements planning capabilities allow a company to link Production to
Purchasing and Accounting. This data sharing increases a company’s overall efficiency.
• Companies are building on their ERP systems and integrated systems philosophy to
practice supply chain management, a strategy by which a company looks at itself as part of
a larger process that includes customers and suppliers. Using information more efficiently
along the entire chain can result in significant cost savings. Because of the complexity of
the global supply chain, developing a planning system that effectively coordinates
information technology and people and that can help a company manage uncertainty is a
considerable challenge.

Key Terms
bill of material (BOM) MRP record
capacity on-time performance
cash-to-cash cycle time repetitive manufacturing
initial fill rate rough-cut planning
initial order lead time standard costs
lead time supply chain
lot sizing vertical integration
master production schedule (MPS)
metrics

Exercises

1. In which industries is supply chain management important? In which industries is it not?
Why, or why not?
2. Recall from Chapter 1 that a business process cuts across functional lines. When a
customer orders a product, such as a custom-built car, the Supply Chain Management
function must interact with other functional areas in a company to complete this order.
List the functional areas involved in this process. What information must pass between
those areas and Supply Chain Management to fill the customer’s needs?
3. Create a two-column list, and in the first column, list Fitter’s flawed supply chain
management process. In the second column, list the ways in which an ERP system could
alleviate some of these problems.
4. Metrics are used to measure improvements in supply chain management. What are the
benefits of tracking metrics? How often should they be calculated and recorded? Does it
depend on the industry? Does it depend on the competitive environment? Why?

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