O'Brien MIS, 6th Ed.

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Informatics in Logistics Management
Lecturer Prof. Anatoly Sachenko
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Lecture Overview

• Main Definitions and Approaches
• MRP Concept
• CIM and CALS
• Enterprise Resource Planning
• KANBAN System
• Optimized Production Technology
• Lean Production Concept

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Main Definitions and Approaches

• Logistics, for a long time, was confined to the
  execution of tasks such as
• transport, storage, handling, conditioning,
• have moved upstairs over the last twenty years
  and now represents a strategic function.
• Logistics strategic feasibility
• Industrial
• Purchasing
• Commercial

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Main Definitions and Approaches

• De facto, no current corporate strategy must be
  undertaken without having consulted Logistics
• whether upstream with industrial strategies or
  purchasing strategies
• Whether downstream with distribution strategies
  which are now, under the impulsion of the OMC,
  one a global scale.
• These new strategies indeed require logistics at
  a more complex level in terms of customer
  techniques and transport.

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Main Definitions and Approaches

• Logistics in constant rebuilding

Upstream logistics rebuilding downstream logistics rebuilding
Production unit specialization Production delocalization Postponement cross docking worldwide OEM localization Reduction of products life cycle Promotions Cross docking E-commerce et  last mile  Global trading Logistics Marketing
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Main Definitions and Approaches

• Consumption and production are more and more
  geographically separated (delocalization)
• Regions are specialized in the commodities they
  can produce more efficiently (specialization)
• Logistics activities provide the bridge between
  production and market locations
• Permanent changing business logistics practices
  due to
• Growing internationalization and globalization
• Shifting toward more service-oriented economies
• Computer software available to assist in solving
  practical-size problems

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Manufacturing Resource Planning Definition and
Goal

• Manufacturing Resource Planning (MRP II) is
  defined by APICS (American Production and
  Inventory Control Society) as a method for the
  effective planning of all resources of a
  manufacturing company
• It is a total company management concept for
  using human resources more productively
• The goal of MRPII is to provide consistent data
  to all players in the manufacturing process as
  the product moves through the production line
• This is not exclusively a SW function, but a
  marriage of people skills, dedication to data
  base accuracy, and computer resources

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Manufacturing Resource Planning 16 Group
Functions

• Sales and Operation Planning
• Demand Management
• Master Productiol1 Scheduling
• Material Requirement Planning and ?ill of
  Materials
• Inventory Transaction Subsystem
• Scheduled Receipts Subsystem
• Shop Flow Control
• Capacity Requirement Planning
• Input/output control
• Purchasing
• Distribution Resource Planning
• Tooling P1anning and Control
• Financial Planning
• Simulation
• Performance Measurement

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Manufacturing Resource Planning Traits

• MRP II systems have been implemented in most
  manufacturing industries
• Some industries need specialized functions e.g.
  lot traceability in regulated manufacturing such
  as pharmaceutics or food
• Other industries can afford to disregard
  facilities required by others
• Capacity planning is the key to success in this
  as in many industries, and
• it is in those that MRP II is less appropriate.

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MRP and MRPII History Comparison

• MRPII systems begin with MRP, Material
  Requirements Planning the end of 1960s
• Manufacturing Resource Planning (MRPII) the end
  of 70s-begin of 80s and MRP are both
  incremental info integration business process
  strategies
• that are implemented using HW and modular SW
  applications linked to a central database that
  stores and delivers business data and information
• MRP is dealing primarily with manufacturing
  materials purchasing,
• while MRPII is concerned with the coordination of
  the entire manufacturing production, including
  materials, finance, and human relations

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MRP and MRPII

• MRP allows for the input of sales forecasts from
  sales and marketing
• MRP and MRPII systems draw on a Master Production
  Schedule, the break down of specific plans for
  each product on a line
• An MRPII output is a final labor and machine
  schedule
• Data about the cost of production, machine time,
  labor time and materials used, as well as final
  production numbers, is provided from the MRPII
  system to accounting and finance

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Manufacturing Resource Planning Frame
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Manufacturing Resource Planning Algorithm
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Manufacturing Resource Planning Algorithm
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Manufacturing Resource Planning Algorithm
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Manufacturing Resource Planning Algorithm
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Manufacturing Resource Planning -Benefit

• MRP II systems can provide
• Better control of inventories
• Improved scheduling
• Productive relationships with suppliers
• For Design / Engineering
• Improved design control
• Better quality and quality control
• For Financial and Costing
• Reduced working capital for inventory
• Improved cash flow through quicker deliveries
• Accurate inventory records

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Manufacturing Resource Planning Criticism

• Some authors argue that MRP and MRP II are
  actually sets of heuristics
• Better production plans could be obtained by
  optimization over more powerful mathematical SW
  models, usually integer programming models
• While they acknowledge that the use of
  heuristics, like those prescribed by MRP and MRP
  II,
• were necessary in the past due to lack of
  computational power to solve complex optimization
  models,
• this is no longer true

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CIM

• Computer Integrated Manufacturing CIM appeared
  in the beginning of 1980s
• CIM is the manufacturing approach of using
  computers to control the entire production
  process
• This integration allows individual processes to
  exchange info with each other and initiate
  actions
• Through the integration of computers,
  manufacturing can be faster and less error-prone,
  although the main advantage is the ability to
  create automated manufacturing processes
• Typically CIM relies on closed-loop control
  processes, based on real-time input from sensors
• It is also known as flexible design and
  manufacturing

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CALS

• CALS - Continuous Acquisition and Life-cycle
  Support is a DOD initiative for electronically
  capturing military documentation and linking
  related info
• The initiative has developed a number of
  standards for the exchange of e-data with
  commercial suppliers
• It was often referred to as simply "CALS which
  have been adopted by several other allied nations
• CALS includes standards for electronic data
  interchange, electronic technical documentation,
  and guidelines for process improvement
• CALS was known formerly as Computer-aided
  Acquisition and Logistic Support

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Enterprise Resource Planning - Definitions

• Enterprise Resource Planning (ERP) is an
  integrated computer-based system used to manage
  internal and external resources, including
  tangible assets, financial resources, materials,
  and human resources
• Its purpose is to facilitate the flow of
  information between all business processes and
  functions inside the organization and provide
  its optimization in sense of time and resources
• Built on a centralized database and normally
  utilizing a common computing platform, ERP
  systems consolidate all business operations into
  a uniform and enterprise-wide system environment
• An ERP system can either reside on a centralized
  server or be distributed across modular HW SW
  units that provide "services" and communicate on
  a local area network

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Enterprise Resource Planning Evolution

• The initialize ERP was first employed by research
  and analysis firm Gartner Group in 1990 as an
  extension of MRP (Material Requirements
  Planning-later Manufacturing Resource Planning
  and CIM (Computer Integrated Manufacturing)
• While not supplanting these terms, it has come to
  represent a larger whole
• It came into use as makers of MRP software
  started to develop software applications beyond
  the manufacturing arena
• ERP systems now attempt to cover all core
  functions of an enterprise, regardless of the
  organization's business or charter
• These systems can now be found in
  non-manufacturing businesses,
• non-profit organizations and governments

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Enterprise Management System within ERP Concept
Processes

• Supply Chain Management-SCM
• Advanced Planning and Scheduling - APS
• Sale Force Automation SFA
• Stand Alone Configuration Engine SACE
• Finite Resource Planning EFP
• OLAP Technologies
• E-Commerce
• Product Data Management - PDM
• Decision Support System
• Main Task-to provide an optimization of those
  processes above

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ERP System - Software Package

• To be considered an ERP system, a software
  package should have the following traits
• Should be integrated and operate in real time
  with no periodic batch updates.
• All applications should access one database to
  prevent redundant data and multiple data
  definitions.
• All modules should have the same look and feel.
• Users should be able to access any information
  in the system without needing integration work on
  the part of the IS department.

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Enterprise Resource Planning

• Organizes and manages a companys business
  processes by sharing information across
  functional areas, and
• Giving the company an integrated real-time view
  of its core processes, such as production, order
  processing, and inventory management
• Connects with supply-chain and customer
  management applications

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ERP System Functional Structure
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ERP General Structure
Finance Accounting
Production Materials Management
Sales Marketing
ERP Data Repository
Human Resources
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Enterprise Resource Planning - Implementation

• Businesses have a wide scope of applications and
  processes throughout their functional units
• Producing ERP software systems that are typically
  complex and usually impose significant changes on
  staff work practices
• Implementing ERP software is typically too
  complex for "in-house" skill, so it is desirable
  and highly advised to hire outside consultants
  who are professionally trained to implement these
  systems
• This is typically the most cost effective way
• There are three types of services that may be
  employed for - Consulting, Customization, Support

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Enterprise Resource Planning - Data Migration

• Data migration is one of the most important
  activities in determining the success of an ERP
  implementation
• The following are steps of a data migration
  strategy that can help with the success of an ERP
  implementation
• Identifying the data to be migrated
• Determining the timing of data migration
• Generating the data templates
• Freezing the tools for data migration
• Deciding on migration related setups
• Deciding on data archiving

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Enterprise Resource Planning ERP Systems
Benefits

• Centralize the data in one place
• Eliminates the problem of synchronizing changes
  between multiple systems - consolidation of
  finance, marketing and sales, human resource, and
  manufacturing applications
• Permits control of business processes that cross
  functional boundaries
• Provides top-down view of the enterprise,
• real time information is available to management
  anywhere, anytime to make proper decisions
• Reduces the risk of loss of sensitive data by
  consolidating multiple permissions and security
  models into a single structure
• Shorten production lead-time and delivery time
• Facilitating business learning, empowering, and
  building common visions

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Enterprise Resource Planning - Disadvantages

• Customization of the ERP software is limited
• Re-engineering of business processes to fit the
  "industry standard" prescribed by the ERP system
  may lead to a loss of competitive advantage.
• ERP systems can be very expensive
• ERPs are often seen as too rigid and too
  difficult to adapt to the specific workflow and
  business process of some companies.
• Many of the integrated links need high accuracy
  in other applications to work effectively.
• Once a system is established, switching costs
  are very high for any one of the partners.
• Resistance in sharing sensitive internal
  information between departments can reduce the
  effectiveness of the software.

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ERP - in Market

• ERP Systems
• SAP (BPS, CRM, ERP, APS etc)
• Oracle (CRM, ERP, DBMS, SCM etc)
• Microsoft Dynamics (Nav ? Ax)
• IFS Application
• JD Edwards Enterprise One
• BAAN
• Epicor/Scala

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KANBAN System - Definition

• Kanban (or kamban in Hepburn Romanization -kanji
  ??, katakana ????, meaning "signboard" or
  "billboard") is a concept related to Lean and
  Just-in-Time (JIT) production
• According to Taiichi Ohno, the man credited with
  developing JIT, kanban is one means through which
  JIT is achieved
• Kanban is not an inventory control system
• Rather, it is a scheduling system that tells you
  what to produce, when to produce it, and how much
  to produce

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KANBAN and JIT - History

• The term kanban describes an embellished wooden
  or metal sign often representing a trademark or
  seal
• Kanban became an important part of the Japanese
  mercantile scene in the 17th century
• In the late 1940s, Toyota began studying
  supermarkets with a view to applying store and
  shelf-stocking techniques to the factory floor
• In 1950s the JIT-Just in time -is a production
  strategy that strives to improve a business
  return on investment by reducing in-process
  inventory and associated carrying costs
• Just-in-time production method is also called the
  Toyota Production System
• 1972-Kanban was firstly applied by corporation
  Toyota

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KANBAN System Traits

• An important determinant of the success of
  production scheduling based on "pushing" the
  demand is the quality of the demand forecast that
  can receive such "push"
• Kanban, by contrast, is part of an approach of
  receiving the "pull" from the demand
• Therefore, the supply or production is determined
  according to the actual demand of the customers
• In contexts where supply time is lengthy and
  demand is difficult to forecast, the best one can
  do is to respond quickly to observed demand
• This is exactly what a kanban system can help
  with It is used as a demand signal that
  immediately propagates through the supply chain

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KANBAN System Toyotas Six Rules

• Do not send defective products to the subsequent
  process
• The subsequent process comes to withdraw only
  what is needed
• Produce only the exact quantity withdrawn by the
  subsequent process
• Equalize production
• Kanban is a means to fine tuning
• Stabilize and rationalize the process

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KANBAN System Three-bin System

• A simple example of the kanban system
  implementation might be a "three-bin system" for
  the supplied parts (where there is no in-house
  manufacturing)
• one bin on the factory floor (demand point),
• one bin in the factory store, and
• one bin at the suppliers' store
• The bins usually have a removable card that
  contains the product details and other relevant
  information the kanban card

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KANBAN System
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KANBAN E-kanban systems

• Many manufacturers have implemented electronic
  kanban systems or E-Kanban systems
• E-Kanban systems help to eliminate common
  problems such as manual entry errors and lost
  cards
• E-Kanban systems can be integrated into
  ERPsystems
• It allows for real-time demand signaling across
  the supply chain and improved visibility
• There is implemented a TQM Total Quality
  Management
• Data pulled from E-Kanban systems can be used to
  optimize inventory levels
• Inventories cost per one produced car in 2000
• Toyota-77, U.S. companies-about 500

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Optimized Production Technology - Definitions

• Optimized production technology (OPT) is a
  planning and scheduling software
• It was developed by U.S. and Israel together, and
• its known also as Israeli KANBAN
• The OPT philosophy and SW aim to achieve the
  stated goal of manufacturing, which is to make
  money now and in the future
• Some expert consider the OPT as a computerized
  Kanban
• which prevents bottlenecks in a chain
  supply-manufacturing-sale, and
• in contrast Kanban itself allows to delete the
  existing already bottlenecks
• The philosophy of OPT was first expounded by Dr
  Eliyahu Goldratt in his book The Goal (1984)
• Goldratt introduced three new measures that he
  claimed are needed to assist in decision-making
  at the operational level in a manufacturing
  company

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OPT Technology - Three Measures

• The three measures are in a form that can be used
  as a guide to operational decision-making
• It is reasonable to ask a foreman to consider
  whether running overtime,
• which will certainly increase operating expenses,
  
• will also increase throughput
• These three measures can be shown to have direct
  impacts on the traditional measures of business
  performance, namely, profit, return on
  investment, and cash flow
• Ideal situation would therefore be to schedule a
  factory in such a way that throughput is
  increased while, simultaneously, operating
  expenses and inventory are reduced

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OPT Technology - Data

• Models in the OPT system have two major
  components dynamic and static data
• The dynamic data include orders, inventories, and
  open purchase orders
• The static data include the bill of materials,
  routings, and resource listings
• All these data are usually to be found on the
  database of a manufacturing resources planning
  (MRPII) system
• The OPT modeling language is flexible enough to
  permit quite complicated operations to be
  represented

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Lean Production Concept

• Lean manufacturing, lean enterprise, or lean
  production, often simply, "Lean," is a production
  practice that considers the expenditure of
  resources for any goal other than the creation of
  value for the end customer to be wasteful
• Working from the perspective of the customer who
  consumes a product or service, "value" is defined
  as any action that a customer would be willing to
  pay for
• Essentially, Lean is centered on preserving value
  with less work
• Lean manufacturing is a management philosophy
  derived mostly from the Toyota - Toyota
  Production System (TPS) identified as "Lean" only
  in the 1990s

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Lean Goals

• Improve quality To stay competitive in today's
  marketplace, a company must understand its
  customers' wants and needs and design processes
  to meet their expectations and requirements
• Eliminate waste Waste is any activity that
  consumes time, resources, or space but does not
  add any value to the product or service
• Reduce time Reducing the time it takes to finish
  an activity from start to finish is one of the
  most effective ways to eliminate waste and lower
  costs
• Reduce total costs To minimize cost, a company
  must produce only to customer demand
• Overproduction increases a companys inventory
  costs because of storage needs.

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Lean Strategy and Steps to Achieve Lean Systems

• The strategic elements of Lean
• Lean as a fixed state or goal (Being Lean)
• Lean as a continuous change process (Becoming
  Lean)
• Lean as a set of tools or methods (Doing
  Lean/Toolbox Lean)
• Lean as a philosophy (Lean thinking)
• The following steps to achieve lean systems
• Design a simple manufacturing system
• Recognize that there is always room for
  improvement
• Continuously improve the lean manufacturing
  system design

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Design a Simple Manufacturing System

• A fundamental principle of lean manufacturing is
  demand-based flow manufacturing
• In this type of production setting, inventory is
  only pulled through each production center when
  it is needed to meet a customer's order
• The benefits of this goal include
• decreased cycle time
• less inventory
• increased productivity
• increased capital equipment utilization

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Chronology of ERPs Concepts