Production and Supply Chain Processes

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Production and Supply Chain Processes

• MIS 2101 Management Information Systems
• Douglas M. Schutz

Based on material developed by C.J. Marselis,
Munir Mandviwalla. and Mart Doyle
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Learning Objectives

• Describe the steps in the production planning
  process.
• Describe Fitter Snackers production and
  materials management problems.
• Describe how a structured process for production
  and materials management planning enhances
  efficiency and decision making.
• Describe how production planning data in an ERP
  system can be shared with suppliers to increase
  supply-chain efficiency.

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Problems at Fitter Snacker (FN)
Production manager schedules production based
on experience, rather than formal planning
techniques
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Consequences of the Failure to Use Formal
Planning Techniques

• Inaccurate delivery promises to the customer
• Inability to effectively manage
  shortages/overages when the order is placed

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What is Material Requirements Planning (MRP) and
what is its relation to Enterprise Resource
Planning (ERP)?
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Facilitating the Production Plan

• Production plan answers the following types of
  questions
• How much product should we make?
• When should we make the product?
• How much ____ materials should we procure and
  when?
• A successful company must be able to
• Develop and execute a good production plan
• Make adjustments when customer demand differs
  from the forecast

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Three Categories/Approaches of Production Systems
1. Make to Stock
2. Make to Order
3. Assemble to Order
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• Fitter Snackers
• Manufacturing Process

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Mixes 4,000 lbs/hr Excess capacity to ensure line
doesnt shutdown
Produces 200 bars/minute, 3,000 lb/hr
Operates 1 8-hour shift per day
Changing from NRG-A to NRG-B bars takes 30 minutes
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Production Problems in Un-integrated Systems
Communication
Inventory
Accounting
What are some of these problems?
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Production Problems in Un-integrated Systems

• Problems due to poor communications between
  Marketing and Production
• Sales promotions, large orders, stockouts,
  increased procurement and production costs
• Problems related to inventory management
• Not real-time, based on finished goods, large
  order production capacity conflicts, unable to
  accurately adjust production schedules,
  oversupply in raw materials
• Problems related to accounting
• Difficult to accurately estimate costs

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Production Planning Process

• What are the major steps in the SAP R/3
  Production Planning Process? (of any typical
  high-volume manufacturer such as Fitter Snacker)?

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Major Steps in the SAP R/3 Production Planning
Process are

• Sales Forecasting
• Sales and Operations Planning
• Demand Management
• MRP

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An Integrated Process
Predicts future demand for products
Determines what company should produce Requires
starting inventory levels and sales forecast
based on capacity
Break production plan down into smaller time
increments
Determines amount and timing of raw material
orders
Create production schedule based on production
plan from demand management
Takes quantity and timing information from MRP
and creates orders for suppliers
Uses the schedule to determine products and
staffing
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1) Sales Forecasting

• In an integrated system, where do I get the
  information to support my sales forecast?
• Simple Sales Forecasting example

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2) Sales and Operations Planning (SOP or SOP)

• What question does SOP answer?

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Demand Strategies

• If demand is greater than capacity

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Forecasting in an Integrated System

• Accurate historical sales values available for
  forecasting
• Fix historical sales
• If production was unable to meet demand, sales
  does NOT represent actual demand
• Unusual conditions like weather
• The effect of sales promotions

Sales provided from Sales and Distribution (SD)
module
Field where planner can correct the sales value
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Sales and Operations Planning (SOP) Case Study

• Kelloggs achieved significant savings from
  coordinated Sales and Operations Planning (SOP)
• Changed focus based on how they were evaluated
  in the past
• Marketing and Sales Evaluated on tons of cereal
  sold
• What is wrong with that measure?
• Manufacturing Evaluated on tons of cereal
  produced
• No one evaluated on profit!
• Kelloggs new sales order process focused on
  profit
• Kelloggs has reduced capacity, inventory and
  capital needs while increasing sales

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3) Demand Management

• What does Demand Management do?

4/22 represents how many work weeks are in each
month
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4) MRPs Bill of Material (BOM)

• What is a BOM?

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Lead Times and Lot Sizing

• When it comes to purchasing raw materials, what
  are
• Lead Times?
• Lot Sizes?
• and why do I care?

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5) Purchasing and ERP

• Benefits if my production planning system is
  integrated with my procurement system

Convert MRP data to a purchase order
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Production and Accounting in an Integrated System

• What benefits do I get when my production systems
  are integrated with my accounting systems?

Material received (for MRP) and the purchase order
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Implications for Supply Chain Management (SCM)

• How quickly does information flow from the
  retailer all the way back to the raw materials
  suppliers when demand changes in
• Un-integrated system?
• Integrated system?

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Supply Chain Integration

• What kind of benefits do I get when I integrate
  my supply chain with my partners?

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Inventory Control Case Study Hoyt Archery

• Pre ERP, complete inventory count two times each
  year
• Closed plant for 3 days at cost of 5000 /day
• Post ERP, accurate, real-time inventory
  information and ongoing cycle- counting process
  items are counted each day

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SCM with Customer Collaboration Case Study
Wal-Mart

• POS (Point of Sale) data from bar code scanners
  is recorded in a data warehouse at Wal-Mart
  headquarters
• Wal-Mart uses data mining techniques to predict
  what customers will buy at different times of the
  year
• Data is shared with Wal-Mart suppliers to plan
  production
• Wal-Mart also allows its 5,000 suppliers to
  directly access its data warehouse through its
  Retail Link program
• Wal-Mart is leading the effort to leverage RFID
  technology

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SCM Critical Success Factors

• 1) Business-driven strategy
• Focus on customer
• 2) Management Commitment
• Driven top down from the business supported by
  MIS
• 3) Supplier/Partner Expectation Management
• Change Management
• 4) Internal Expectation Management
• training and information
• 5) Learning Period Acceptance
• takes time

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Summary

• An ERP system strategy can improve the efficiency
  of production and purchasing processes
• Begins with Marketing sharing sales forecasts
• Production plan is created based on forecast and
  shared with Purchasing so raw materials can be
  properly ordered.
• Production planning could be done without an
  integrated system, but ERP containing MRP enables
  Production to be linked to Purchasing and
  Accounting
• Data sharing increases efficiency and accuracy