ERP Systems: Production and Materials Management

ERP Systems: Production and Materials Management

• ERP systems encompass production management and materials management systems
• Objectives include examining production management, understanding materials management, and recognizing the interconnectedness of production and materials management processes
• Case study: Atlantic Manufacturing faced issues like inconsistent raw materials and finished product levels, delayed change specifications, long lead times, inadequate information sharing, and lost purchasing requests
• Manufacturing Systems Background:
  • Early systems focused on re-ordering inventory, adapting to customer orders, and high-volume production, often with limited product variety.
  • Mainframe-based databases emerged to handle growing product variety and customer demands in the late 1980s.
  • Manufacturing Execution Systems (MES) provided continuous feedback and control during the 1990s
  • ERP systems integrated processes and data for more holistic operational efficiency and supply chain integration
• Traditional Production Systems Problems:
  • Lack of integration between organizational divisions
  • Inaccurate production forecasts leading to incorrect purchasing decisions and either shortages or excess raw materials or finished goods
  • Excess inventory impacting cash flow and profitability
• Production System Objectives:
  • Create production plan
  • Acquire raw materials
  • Schedule equipment, facilities, and human resources
  • Design products
  • Produce appropriate quantities
  • Maintain expected quality
• Production Planning and Manufacturing Processes:
  • Operational-level processes encompassing daily activities, purchasing, receiving, quality control, and inventory management
  • Essential components for maintaining proper raw materials and production output
• Information Systems Support:
  • ERP production planning and manufacturing processes rely on various information systems
  • Key systems involved in this support include data collection systems, material management systems, BOM (Bill of Materials) systems, inventory management systems, and cost accounting systems
• Material Resource Planning (MRP) Processes:
  • Identify stock needs, calculate lead times, determine safety stock levels, assign cost-effective order quantities.
  • Produce purchase orders
  • MRP takes inputs from the Master Production Schedule (MPS)
  • MPS uses sales forecasts to identify needed products
• MRP Vocabulary (Table 6-3):
  • MRP: Amount and timing of raw materials.
  • BOM: Recipe of materials.
  • Lead times: Time for supplier processing and delivery.
  • Lot sizing: Production quantities
  • MPS: Master Production Schedule
  • Gross requirements: Raw materials for production
  • Planned orders: Sufficient raw materials for production
• Just-in-Time (JIT) Systems:
  • Ideal production, maintaining only necessary inventory
  • Supplies delivered only as needed
  • Continuous replenishment of raw materials
  • Reduces storage costs and improves supply chain and value chain management
• Capacity Planning:
  • Evaluates production capacity against goals
  • Requires specific information and creates time-phased plans for products
  • Includes production scheduling, human resource needs and allocation of facilities and product design integration with cost information
• Production Planning and Materials Management Modules:
  • ERP extends material requirement planning, inventory management, and capacity planning.
  • Integrates multiple databases, eliminating manual procedures and decreasing costs
  • Sales forecasts are used along with MPS for production plans, detailed and efficient materials plan, work orders for production, and ERP systems for integration
• Materials Management Modules:
  • Manufacturing Execution System (MES): factory floor information and communication systems that provide real-time feedback
  • Advanced Planning and Scheduling (APS) systems: for business analysis and support, leveraging data for decision making, and using real-time data with mobile devices for data collection
• eBusiness Strategies:
  • Facilitates communication along the supply chain (B2B)
  • Supports many suppliers, quick information exchange, e-marketplaces for buyer aggregation, cost reductions, and improved communication
• Featured Article: What ERP Can Offer ABC:
  • Manufacturing data use within ERP
  • Applying data to control costs, maximize productivity, and streamline operations
  • Data integration supporting managerial decision making
  • Discusses relationship of activity-based costing (ABC) systems and ERP.
  • ERP systems are valuable in ABC because they support more accurate activity-cost drivers and improve data accuracy
  • SAP R/3 system links production planning and materials management
  • Allows establishment of standards for materials handling
  • Accurate direct costs can be calculated (instead of considering them as overhead)
• Summary
  • Traditional manufacturing lacked integration
  • ERP systems integrate production planning and materials through various processes and information flows.
  • Facilitates better communication and manages business opportunities along the supply chain

This quiz focuses on the role of ERP systems in production and materials management. It explores the objectives of understanding these processes and their interconnections, using case studies like Atlantic Manufacturing to highlight practical challenges. Test your knowledge of the evolution of manufacturing systems and the integration provided by modern ERP solutions.