IS560 ERP Session Number: 4

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IS560 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

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ERP 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

3
Traditional 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

4
ERP 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

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Highlight 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

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Traditional 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
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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
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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

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MRP, 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

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MRP 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)

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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

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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)

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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

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Aggregate 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

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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

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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

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Medium-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)

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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)

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Material 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

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MRP - 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

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Capacity 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

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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.

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Support for Manufacturing Integration

• MRP-Based Production Planning and Scheduling
• Kaizen
• Just-in-Time (JIT)
• Total Quality Management (TQM)
• Lean Production
• Extended Enterprise

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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)
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Just-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

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Total 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)

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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
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Lean 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

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Lean 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

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Distinguishing 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

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The 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

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ERP 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.

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ERP Functional Evolution Morphing to ERP II
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ERP Functional Evolution (continued)
35
ERP Evolution to ERP II
36
ERP Evolution to ERP II (continued)
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Next 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.