Title: IS560 ERP Session Number: 4
1IS560 ERP - Session Number 4
- Session Date January 27, 2003
- Session Objectives
- Introductions Administrative Items
- Session Topics
- ERP System Technology Background (continued)
- ERP Support for Business Processes
2ERP System Technology Background - mySAP SCM
Example
- Servers
- Windows NT
- AS/400 System/390 (incl. S/390 Parallel
Enterprise Server - Unix Systems from Bull, IBM, HP, Sun, Compaq
- Databases
- Adabas D for Unix Windows
- DB2 for AIX, OS/400, OS/390, Windows NT
- Informix for Unix Windows
- Oracle for Unix Windows
- MS SQL Server for Unix Windows
- Note MS SQL Server 7.0 is strategic platform for
mySAP.com on WinNT W2K - Clients
- Windows NT 2000
- Sun Solaris
- Linux
- IBM RS/6000, AS/400, S/390
3Traditional ERP solutions Accomdating industry
needs
Traditional ERP consists of modules that support
plant/manufacturing operations, corporate
functions and direct purchasing/procurement "blue
collar for various industries.
- Financial Services
- Banking
- Insurance
- Process Industries
- Chemicals
- Mill Products
- Oil Gas
- Pharmaceuticals
- Mining
- Discrete Manufacturers
- Aerospace Defense
- Automotive
- Engineering Construction
- High Tech
- Consumer Goods
- Consumer Products
- Retail
- Utilities Communications
- Media
- Telecommunications
- Utilities
- Public Services
- Healthcare
- Higher Education Research
- Public Sector
4ERP Supported Business Processes
- Plant Manufacturing Operations
- Corporate Functions
- Fulfillment
- Order Management
- Asset Management,
- Service Management
- Project Management
- Corporate Compliance
- QA/QC
- HR
- Recruitment
- Benefits
- Personnel Administration
- Education and Training
- Contingent Workforce Management
- Organization Development
- Performance Management
- Payroll
- Workforce Analytics
- Financial Management
- Accounting
- Budgeting
- Activity-based Management
- Indirect Purchasing/Procurement
- Consolidation
- Enterprise Asset Management
- Asset Management
- HRMS
- Materials Management
- Financials
- Integrated Plant Systems
- Plant Resource Management
- Production Operations Management
- Open Control Systems
- Production Info Management
- Process Modeling/Knowledge Management
- Supply Chain Management
- Supply Chain Planning
- Supply Chain Execution
- Warehouse Management
- Transportation Management
- Import/Export Trade Management
- Buy-side Ecommerce
- e-Procurement
- eSourcing
- eMarketplace
- eCommerce Content Management
- Collaboration Knowledge Management
- Email Scheduling/Calendaring
- Team Support Real-time Collaboration
- Content/Document Management
- Design Engineering
5Highlight on Plant Manufacturing Operational
Support Support for Manufacturing Integration
- MRP-Based Production Planning and Scheduling
- Kaizen
- Just-in-Time (JIT)
- Total Quality Management (TQM)
- Lean Production
- Extended Enterprise
6Traditional Material and Capacity Planning
Hierarchy
Material Planning
Capacity Planning
Business Planning
Resource Requirements Planning
Production Planning
Rough-Cut Capacity Planning
Master Production Scheduling
Capacity Requirements Planning
Material Requirements Planning
Operation Sequencing
Production Activity Control
Input / Output Control
7 Materials Requirements Planning
Master Production Schedule
- MRP types
- Regeneration
- Net change
Exploding the requirements
- Time fences
- Frozen-Firm
- Flexible-open
Bills of Materials
Inventory Status File
MRP Procedure
Special Reports
Inventory Transactions
e.g., Inventory costs
Planned Order Schedules Actual Order
Releases Exception and Change Notices
8 Push Production vs. Pull Production
- Push --- Job orders at every stage of the
production process are pushed from one operation
to the neshop floor on job schedules - Pull --- Job orders are initiated from
downstream operations that require parts, i.e..
they are pulled from one operation to the next - MRP is associated with push production but
still retains usefulness as a tool for long-range
and medium-range planning (as well as for
materials procurement) - Pull production is a tool for short-range work
scheduling and shop floor control
9MRP, Closed-Loop MRP and MRP II
- Material Requirements Planning
- Procedure for determining how much of and when
dependent-demand items should be manufactured /
ordered to satisfy requirements for an end-item - Determines required quantities of components and
sends out manufacturing / purchase orders for
them at the appropriate times - Closed-Loop MRP
- Considers material and capacity requirements
- Prior to releasing production orders to shop
floor, it adds the planned workload to existing
workload, and compares it with the available
capacity - MRP II (Manufacturing Resource Planning)
- Closed-Loop MRP plus planning and managing
resources - Other departments (purchasing, marketing,
engineering, finance) use output from MRP
procedure to coordinate work and achieve cost
savings - Used for resource and aggregate planning and RCCP
10MRP terminology
- Available Stock On-Hand Scheduled Receipt
- Net Requirement (NR) Gross Requirement
Available Stock - Lot-sizing Rules
- Lot for lot (POR quantity NR quantity)
- Fixed lot (constant quantity for every order)
- Safety stock
- Amount held to protect against changes in supply
and demand - Safety margin
- Shortages result when items produced are
unsuitable to fill the NR. - If NR 300 and Yield-loss 2, then POR amount
306 - Safety lead time
- Orders placed to arrive before needed (to reduce
the risk of an order arriving late) - System Nervousness
- Small changes at higher levels induce large
changes at lower levels (degree to which changes
to MPS or GRs of upper-level items affect GRs and
PORs of lower-level items)
11MRP-Based Production Planning and Scheduling
Planning Horizon Long-Range -------------------
---- Medium-Range ----------------------- Sh
ort-Range
MRP Components
- Demand Management
- Aggregate Demand
- Resource Planning
- Master Production Scheduling (MPS)
- Rough Cut Capacity Planning
- Material Requirements Planning
- Capacity Requirements Planning
- Material Capacity Plans
- Order Release
- Shop-floor Scheduling/Control
- Purchasing
- Vendor Scheduling/Follow-up
12 Long-Range Planning
- What will happen to demand over the next 1-5
years and how should we prepare for it? - Considers alternative strategies and tactics
- Plant size/location, workforce size, new
products, capital, etc - Work shifts, overtime, inventories, outsourcing,
etc - Multi-functional perspective
- finance, marketing, sales, operations
- Demand Management External vs.. Internal
- Customer demand
- Service parts, Intra-company requirements,
inventory stocking - Forecasting, promotional campaigns, product
pricing - Aggregate Demand
- Demand for product groups (similar routings,
parts, operating times, resources)
13 Long-Range Planning (contd)
- Resource Planning
- Resource measured in terms of its capacity level
- Amount of resources necessary to satisfy
aggregate demand - Only key resources considered (bottleneck
operations, special equipment and labor skills) - Checks whether capacity of existing resources
available to meet forecasted demand - Maximum capacity is based on 3 shifts per day, 7
days a week - Available capacity depends on factors such as
actual number of shifts and days worked per week,
worker efficiency, equipment levels, etc
14Aggregate Production Plan
- Considers not only overall resource requirements
but also how the resource utilization will be
adjusted to meet fluctuations in demand - Plan for a product group from 3-6 months in the
future up to 12 or more months - 2 extreme cases
- Level-Production (constant workforce, constant
output, use inventory to absorb demand
fluctuations) - Chase-Production (varies output to match
demand by changing workforce size, outsourcing,
adding shifts, etc) - Usual plan is to have extended periods of level
production, inter-mixed with brief periods of
increased or decreased production to match demand - Baseline for more detailed medium-range planning
15 MRP-Based Production Planning and Scheduling
Planning Horizon Long-Range -------------------
---- Medium-Range ----------------------- Sh
ort-Range
MRP Components
- Demand Management
- Aggregate Demand
- Resource Planning
- Master Production Scheduling (MPS)
- Rough Cut Capacity Planning
- Material Requirements Planning
- Capacity Requirements Planning
- Material Capacity Plans
- Order Release
- Shop-floor Scheduling/Control
- Purchasing
- Vendor Scheduling/Follow-up
16 Medium-Range Planning
- Time horizon 6 months or less into the future
- Facilities, product groups and processes are
largely fixed - Increase in capacity through overtime,
subcontracting, etc - Individual products, not product groups
- Weekly requirements, not monthly or yearly
- Master Production Schedule (MPS)
- A more detailed plan for every end-item, usually
in weekly time buckets - Usually derived from the most immediate portion
of the aggregate production plan - Usually takes into account actual customer orders
rather than just forecasts. Mix of actual and
forecast orders in later time buckets - Available-To-Promise (ATP)
- The difference between the forecasted amount and
the customer ordered amount in a time bucket - Sales people try to keep new customer orders
within the ATP amount, otherwise extreme measures
(OT, grave-yard shifts) might be needed
17Medium-Range Planning (contd)
- Rough-Cut Capacity Planning (RCCP)
- Workload associated with the quantity in each of
the MPS time bucket is compared to the capacity
of available resources - Ensures that scarce, critical or bottleneck
resources are not overloaded - If workload exceeds available capacity in a
certain time bucket, then either - adjust MPS (e.g.. moving a portion of the
quantity to another time bucket) - Adjust the capacity in that overloaded time
bucket (egg. OT)
18 Materials Requirements Planning
- Procedure
- Starts with scheduled due-date for an end-item
- Works backward in time to determine the
quantities and timing for orders of every of its
sub-assemblies and components - Includes both manufactured orders and purchased
orders - Major Inputs
- MPS
- Time fences
- Example
- First 2 weeks (frozen - no changes allowed)
- The next 4 weeks (firm only minor changes
allowed) - After 6 weeks (the schedule is open and any
changes allowed) - BOM
- Exploding the requirements (down the various
levels of the BOM)
19Material Requirements Planning Major Inputs
- Inventory Status File
- Record of the current inventory status of every
component in weekly or daily time buckets - Contains the following information for each time
bucket - Amount of the item required (REQ)
- On-hand amount of the item (OH)
- Scheduled deliveries of existing orders for the
item (RECP) - MRP checks whether (OH RECP) gt REQ. If
not, it will issue additional orders for the item - Re-generation
- Entire file is regenerated (re-updated)
regularly, usually weekly - Re-assesses the inventory status of every item,
and generates new orders for every item, if
needed - More costly than Net-change but has poorer record
accuracy - Net-Change
- Only the records that need updating are changed
- Re-assesses only items affected by a transaction
and re-issues orders if needed
20MRP - Major Outputs
- Inventory Transactions
- Updates to Gross Requirements and Scheduled
Deliveries - Planned Order Releases
- Future orders that will be necessary to satisfy
the requirements of all items in the BOM - Actual Order Releases
- Planned order becomes actual order, when the time
bucket for the planned order reaches the present
time - For manufactured part, the order is sent to the
shop floor - For purchased part, the order is sent to external
supplier - Manual approval before releasing order is
possible - Exception and Change Notices
- The actual dates of delivery and amounts received
may differ from the dates and amounts scheduled - Special Reports
- Management reporting needs
21Capacity Requirements Planning, Order Releases
and Picking
- CRP
- Checks the short-term and medium-term capacity
feasibility of the MPS - Similar to RCCP but is more detailed and accurate
- Instead of product groups, it uses individual
products or end-items - Compares total loading of every resource with the
available capacity - If overcapacity is discovered, the resource is
flagged so that planners can take action - Order Releases and Picking
- Planned order releases (POR) generated by MRP are
accumulated in a job pool - When the time bucket for a particular POR reaches
the present, the order is released to the shop
floor or to a supplier - For manufactured parts, a released order is an
authorization to shop floor personnel to withdraw
materials from stockroom and to begin production - Picking Tickets are sent to the stockroom,
specifying the quantity of each material to be
issued to the particular released order
22 MRP Limitations
- Centralized systems relying on a manual system of
support that is often not up to the task - Garbage-in, garbage-out problem (BOM, inventory
status, lead-times) - MRP assumes fixed lead-times
- In reality, lead-times vary depending on workload
- MRP planners tend to use inflated lead times
- This leads to large WIP inventories
- MRP requires too much effort for tracking, record
keeping, status updating, etc. This is due to
its attempt to schedule and control everything on
the shop floor - MRP does not encourage the improvement of process
or product quality - Built-in safety measures (safety stock, safety
lead-time, safety margin) - Too much emphasis on system updating that leaves
little time for problem solving, elimination of
waste and continuous improvement - However, the limitations of MRP are largely
restricted to shop floor matters, but it is
effective for resource / capacity planning and
master scheduling.
23 Support for Manufacturing Integration
- MRP-Based Production Planning and Scheduling
- Kaizen
- Just-in-Time (JIT)
- Total Quality Management (TQM)
- Lean Production
- Extended Enterprise
24 Kaizen
- Continuous, incremental improvement in a
companys products, manufacturing processes,
methods and procedures - Idea that great improvement eventually comes from
a series of small, incremental gains
Improvement
Performance
The S-curve of incremental improvement
Cumulative effort (Resources)
25Just-in-Time
- A production system aiming for zero inventory and
yet assuring that parts are available for
assembly at the right time - A pull system in which no materials move and no
work is done until a downstream customer consumes
a product - In contrast, MRP systems anticipate customer
requirements and push materials through the
production system to be ready for the customer - JIT is also a philosophy focusing on identifying
and eliminating all waste, and on continuous
improvement - Overproduction, Waiting, Transportation,
Processing, Stock, Motion, Making defective parts - Use of kanbans for pull production
- Signboard in Japanese
- Rectangular piece of card (ERP systems use
electronic kanbans) - Authorization to assemble/ship parts to the next
operation
26Total Quality Management (TQM)
- Integrated approach that focuses all functions
and levels of an organization on quality and
continuous improvement - Emphasizes quality not just for customers of the
final product but also for internal customers - Quality of Performance/Service as an example
- TQM and JIT
- JIT is aimed at eliminating waste and increasing
value-added - This cannot be achieved by manufacturing alone
- TQM ensures that improvements are fundamental and
not superficial, through a company-wide
commitment to quality - For example, inspection to detect manufacturing
defects does reduce waste and is an improvement.
But the improvement is not fundamental - TQM provides procedures and tools for identifying
and eliminating the sources of defects (which may
originate not in manufacturing, but in the
product design or in purchasing practices)
27 Total Quality Management (contd)
Product Design / Development Quality of Design
Product Design and Engineering
Marketing And Sales
Product and Process Requirements / Definition
Finance
Manufacturing / Process Engineering
Purchasing
Product Manufacture Quality of Conformance
Production Management, Supervisors, Line Workers
External Suppliers
Customer Service
Final Product Of End-Item
Production Application Quality of
Performance/Service
External Customer
28Lean Production some key principles
- Value
- Defined by the customer, created by the producer
- Value Stream
- Set of all the specific actions required to bring
a specific product through the 3 critical
management tasks of any business - Problem-solving (concept through detailed design
and engineering to production launch) - Information management (order taking through
detailed scheduling to delivery) - Physical transformation (raw materials to a
finished product in the hands of the customer) - Map each of these actions into 3 categories
- Those that actually create value as perceived by
the customer - Those that create no value but are currently
required by product development, order filling or
production systems, and so cant be eliminated
just yet - Those that create no value as perceived by the
customer and can be eliminated immediately
29Lean Production some key principles (contd)
- Flow
- Focus on the actual object and never let it out
of sight from beginning to end - Ignore traditional boundaries of jobs,
departments and firms to form a lean enterprise
removing all impediments to the continuous flow
of the specific product. Cross-functional
teams are key. - Rethink specific work practices and tools to
eliminate scrap and stoppages of all sorts so
that design, order and the production of the
specific product can proceed continuously - Pull
- Let the customer pull the product from you as
needed rather than pushing products, often
unwanted, onto the customer - Perfection
- No end to the process of reducing effort, time,
space, cost and mistakes while offering a product
which is nearer to what the customer actually
wants - Trying to flow faster always exposes hidden waste
in the value stream - Pulling harder will reveal more impediments to
flow
30Distinguishing Features of TQM / JIT / Lean
Production Organizations
- The number of people who are involved in
identifying and eliminating obstructions - People at all levels trained in analysis and
problem-solving - Given responsibility and authority to implement
improvements - Measure, diagnose and improve whats happening
- The process employed to identify and prioritize
problems and sources of waste - In JIT, the primary process is reduction of
inventory - This is to reveal the obstructions and prioritize
them - With less inventory, the obstructions become
visible, thus allowing them to be identified and
removed
31The Extended Enterprise and Collaborative
Advantage
- Implications of Electronic Marketplaces (egg. the
automotive parts exchange enabled through the
Internet) - Toyota the first automaker to recognize that
the fundamental unit of competition had changed
from the individual firm to the extended
enterprise - Toyota gains competitive advantage through
collaborative systems - Toyotas lean Extended Enterprise a set of
firms within a value chain that collaborate to
produce a finished product - Time to market, Cost, Quality and perhaps Styling
- Toyota the first automaker to recognize that
the fundamental unit of competition had changed
from the individual firm to the extended
enterprise
32ERP Evolution - ERP II Targeted to accommodate
industry-specific needs
- ERP II
- Focus on strategies technologies to utilize
core ERP systems and the Web. - ERP II extends beyond operational, transaction
processing, and enterprise-centric optimization. - Focus now directed toward
- improving enterprise competitiveness.
- process integration and external collaboration.
33ERP Functional Evolution Morphing to ERP II
34ERP Functional Evolution (continued)
35ERP Evolution to ERP II
36ERP Evolution to ERP II (continued)
37Next Session Highlights
- Topics
- ERP Support for Business Processes (continued).
- Reading Assignment
- Complete reading chapter 12 of ERP Tools,
Techniques, and Applications by Ptak and
Schragenheim targeting completion by week 5. Will
be important preparation for team assignment. - Read chapters 6, 11 15 of ERP Tools,
Techniques, and Applications by Ptak and
Schragenheim targeting completion by week 7. Will
be helpful with the first team assignment. - Complete reading Geneva Pharmaceutical Case
targeting completion for week 6.