production and supply chain process mis2101: management information systems based on material...
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Production and supply chain process
MIS2101: Management Information Systems
Based on material developed by C.J. Marselis
2
The supply chainRecall from Part 7…
In the sales process, the organization is the supplier
In the purchasing process, the organization is the buyer
The movement of goods from supplier to the end customer is the “supply chain”
Supplier Organization Customer
3
MRP and ERP
Enterprise Resource Planning (ERP) systems evolved from Materials Resource Planning (MRP) systems
MRP systems are a subset of ERP systems Concerned with
the Supply Chain From raw
materials to finished goods
4
Facilitating the production plan
A production plan answers: Quantity of product to make?When to make product?How much raw materials to procure and
when? A successful company must be able to
Develop a good production planExecute the planMake adjustments when customer demand
differs from the forecast
5
Production Approaches
Products are made for inventory in anticipation of orders
Most consumer products
Products are made to fulfill specific orders
Expensive products or high-customization products
Combination of make-to-stock and make-to-order
Final product assembled from stock for a customer(Dell!)
Make to
Stock
Make to
Order
Assemble
to order
6
Fitter Snacker’s Manufacturing Process
Ra
w M
ater
ial W
areh
ous
e
Mixer
Mixer
Mixer
Mixer
Form Bake Pack
Fin
ish
ed G
oods
War
eho
use
Snack Bar Line
Ra
w M
ater
ial W
areh
ous
e
Mixer
Mixer
Mixer
Mixer
Form Bake Pack
Fin
ish
ed G
oods
War
eho
use
Snack Bar Line
Production Quantities:200 bars/minute3,000 lb/hr
Each mixer makes: 4,000 lb dough/hr
Packed 24/box 12 boxes/case.
Changing machines from one product to the other: 30 minutes
7
Production Problems in “Un-integrated” systems
Hard to know how much and when to produce
Problems arise in:
Communication Inventory Accounting
8
Communication issues
If production isn’t integrated with marketing:Production doesn’t know about sales
promotions or unexpected planned orders • Results: depleted inventory, overtime, expedited
shipments, and material shortages
Marketing doesn’t know about planned maintenance
• Results: unexpected reduction in production and unmet demand
9
Production planning process
Develop aggregate production plan for groups of products
Break down aggregate plan into product specific plans for smaller time periods
Determine raw material requirements based on plan
Sales and Operations Planning
Demand Management
MRPDetailedScheduling
Sales Forecasting
PurchasingProduction
StartingInventory
Sales and Operations Planning
Demand Management
MRPDetailedScheduling
Sales Forecasting
Sales Forecasting
PurchasingProduction
StartingInventoryStarting
Inventory
10
An integrated process
Sales and Operations Planning
Demand Management
MRPDetailedScheduling
Sales Forecasting
PurchasingProduction
StartingInventory
Sales and Operations Planning
Demand Management
MRPDetailedScheduling
Sales Forecasting
Sales Forecasting
PurchasingProduction
StartingInventoryStarting
Inventory
Predicts future demand for products
Break production plan down into smaller time increments
Create production schedule based on production plan from demand management
Uses the schedule to determine products and staffing
Determines what company should
produceRequires starting
inventory levels and sales forecast based on capacity
Determines amount and
timing of raw material orders
Takes quantity and timing information
from MRP and creates orders for
suppliers
11
Simple Sales Forecast
In an integrated systemSales automatically recordedAccurate sales data available for forecasting
Sales based on adjustment to previous year’s sales values
Jan. Feb. March April May JunePrevious Year (cases) 5734 5823 5884 6134 6587 6735Promotion Sales (cases) 300 300Previous Year base (cases) 5734 5823 5884 6134 6287 6435Growth: 3.0% 172 175 177 184 189 193Base Projection (cases) 5906 5998 6061 6318 6476 6628Promotion (cases) 500Sales Forecast (cases) 5906 5998 6061 6318 6476 7128
Sales Forecasting
Figure 4.3 Fitter Snacker’s sales forecast for January through June
12
Sales and operations planning
How can manufacturing efficiently produce enough goods to meet projected sales?
Sales and Operations Planning Dec. Jan. Feb. March April May June1) Sales Forecast 5906 5998 6061 6318 6476 71282) Production Plan 5906 5998 6061 6318 6900 67003) Inventory 100 100 100 100 100 524 964) Working Days 22 20 22 21 23 215) Capacity (Shipping Cases) 7333 6667 7333 7000 7667 70006) Utilization 81% 90% 83% 90% 90% 96%7) NRG-A (cases) 70.0% 4134 4199 4243 4423 4830 46908) NRG-B (cases) 30.0% 1772 1799 1818 1895 2070 2010
Figure 4.5 Fitter Snacker’s sales and operations plan for January through June
13
Demand Strategies
If demand is greater than capacity
Option ResultChoose not to meet the demand
Lost sales
Reduce promotional expenditures
Potential lost sales
Use overtime to increase capacity
Increased costs
Build up inventory in earlier periods
Increased costs and lost inventory
0
5
10
15
20
25
30
35
Time
Supply
Capacity
14
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
This is essentially data warehousing and data mining!
Sales provided fromSD module
Field where planner can “correct” the sales value
15
Sales and Operations Planning (SOP) Case Study
Kellogg’s achieved significant savings from coordinated sales and operations planning (SOP)
Changed focus based on how they were evaluated Marketing and sales: Evaluated on tons of cereal sold Manufacturing: Evaluated on tons of cereal produced No one evaluated on profit!
Kellogg’s new sales order process focused on profit Kellogg’s has reduced capacity, inventory and capital
needs while increasing sales
16
Demand Management
Fitter Snacker’s Demand Management process splits the Monthly SOP plan into weekly and daily increments(MPS – Master Production Schedule)
Week 1 Demand Management 1/2 - 1/5 Monthly Demand NRG-A 4134
NRG-B 1772 Working Days in Week 4 Working Days in Month 22 MPS NRG-A 752 Weekly Demand NRG-B 322
752224
4134
322224
1772
4/22 represents how many
work “weeks” are in each
month
17
Bill of Material
MRP facilitates accurate planning of raw material purchases
Bill of Material (BOM) List of materials and
quantities needed to make a product
Ingredient NRG-A NRG-BOats (lb) 300 250Wheat germ (lb) 50 50Cinnamon (lb) 5 5Nutmeg (lb) 2 2Cloves (lb) 1 1Honey (gal) 10 10Canola Oil (gal) 7 7Vit./Min. Powder (lb) 5 5Carob Chips (lb) 50Raisins (lb) 50Protein Powder (lb) 50Hazelnuts (lb) 30Dates (lb) 70
Quantity
18
Lead Times and Lot Sizing
To determine timing and quantity of purchases Lead time includes:
Time for supplier to receive and process order Time to take material out of stock, package it, load it
on a truck and deliver it to the manufacturer Time required at manufacturer to receive the material:
• Unload the truck, inspect the materials, move to storage location or production line
Lot sizing: determining production or order quantities In many cases, lot sizes for purchased items are
constrained by packaging and transportation
19
Purchasing and ERP
Provides way to convert Requirements to Purchase Order automatically
Help the purchasing specialist select the best vendor (best price)
Options to evaluate vendorsConvert MRP data to a purchase order
20
Production and Accounting in an Integrated System
Information entered for material movement automatically updates accounting records Info can be
entered through data entry, barcode, RFID, etc.
Material received (for MRP) and the
purchase order
21
Implications for Supply Chain Management
Supply chain participants often use competitive bidding to reach a “winning” prices by reacting
Creates adversarial relationship among participants
Supplier
Raw
Mat
eria
ls
Manufacturer Wholesaler Retailer
Cus
tom
er
Goods Goods Goods Goods Goods
$$ $ $ $
Information Information Information Information Information
Supplier
Raw
Mat
eria
ls
Manufacturer Wholesaler Retailer
Cus
tom
er
Goods Goods Goods Goods Goods
$$ $ $ $
Information Information Information Information Information
22
Supply Chain with ERP (Integration)
Production plans can be shared along the supply chain in real time
Managers can evaluate impact of plans on total cost across the supply chain
Collaboration among participants leads to: Improved product quality Reduced paperwork Reduced inventories Increased customer responsiveness
23
Inventory Control Case Study – Hoyt Archery
Pre ERP, complete inventory count two times each yearClosed 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
Hoyt also simplified customer interaction with its configure-to-order (CTO) process
24
SCM with Customer Collaboration Case Study – Wal-Mart
POS data from bar code scanners is recorded in a massive 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 5000 suppliers to directly access its data warehouse through its Retail Link program
Wal-Mart is leading the effort to leverage RFID technology
25
Summary
An ERP system can improve the efficiency of production and purchasing processes
Begins with Marketing sharing sales forecast Production plan is created based on forecast
and shared with Purchasing so raw materials can be ordered properly.
Production planning can be done without an integrated system, but integrated system that allows MRP and Production to be linked to Purchasing and Accounting
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