ERP Systems: Production Management Insights

ERP Systems: Production and Materials Management

• ERP systems aim to integrate production and materials management.

• Chapter objectives include examining production management and materials management systems within ERP. Key interrelationships among supporting business processes are also noted.

Case Study: Atlantic Manufacturing

• Materials and manufacturing experienced inconsistent raw material and finished product levels.

• Timely change specifications were often missing.

• Sequential design contributed to longer lead times.

• Information flow between divisions was inadequate.

• Purchasing requisitions were lost.

Manufacturing Systems Background

• Earlier systems focused on re-ordering inventory using a reorder point.

• Systems adapted to customer orders for increased flexibility and responsiveness.

• The 60s, 70s, and 80s saw high-volume production of a limited number of products.

• Mainframe-based databases later facilitated production of new products to suit customer needs.

• Flexible and changeable systems emerged, followed by manufacturing execution systems for feedback and control.

• The 1990s saw integration of processes and data, leading to operational efficiency, and total integration.

Problems with Traditional Production Systems

• Lack of integration between organizational divisions.

• Production not adequately linked to sales.

• Inaccurate forecasts led to incorrect purchasing decisions.

• Imbalances in raw material and finished goods often resulted.

• Excess or insufficient inventory levels were common.

• These issues negatively impacted cash flow and profitability.

Production Systems Objectives

• Establish a production plan.

• Acquire necessary raw materials.

• Schedule equipment, facilities, and human resources.

• Design products.

• Produce products in appropriate quantities and with expected quality.

Production Planning and Manufacturing Processes

• Operational-level processes like daily activities, purchasing, receiving, inspection, quality control, and inventory management are key components.

• Effective handling of raw materials, products, and receivables is crucial.

Information Systems Support

• ERP relies on information systems like data collection systems, material management systems, Bill of Materials (BOM) systems, inventory management systems, and cost accounting systems.

Material Resource Planning (MRP) Processes

• MRP identifies needed stock, calculates lead times, and determines safety stock levels.

• It assigns optimal order quantities.

• MRP creates accurate purchase orders using inputs from the Master Production Schedule (MPS).

• MPS relies on sales forecasts to determine needed products.

MRP Vocabulary

• MRP: The amount and timing of raw material orders needed to support the Master Production Schedule (MPS).

• BOM: The materials needed to make a product ("recipe").

• Lead times: Time for supplier to process and ship materials.

• Lot sizing: Production quantities.

• MPS: Master Production Schedule.

• Gross requirements: Raw materials needed for production.

• Planned orders: Required raw materials.

Just-in-Time Systems

• Ideal manufacturing models prioritize maintaining only necessary inventory levels.

• Materials are delivered only as needed to meet production schedules.

• Continuous replenishment of raw materials is critical.

• Reduced storage space and costs are realized.

• Supply chain and value chain management effectiveness improves.

Capacity Planning

• Evaluating production capacity against goals.

• Defining specific production goals demands specific information.

• Time-phased plans for products based on specific production areas.

• Production scheduling allocation of resources.

• Human resource needs are estimated.

• Product design and development should integrate cost information.

• Decision-making concerning cost reduction is improved.

Production Planning and Materials Management Modules

• ERP systems improve information distribution for materials requirement planning, inventory management, and capacity planning.

• Database merging eliminates paperwork and bottlenecks.

• Efficiency increases via reduced costs, shorter lead times, and fewer personnel.

• Sales forecasts are used to plan production.

• The Master Production Schedule (MPS) aids in determining product and finished goods quantities and dates.

• Material requirements planning (MRP) ensures materials are ordered at the right times.

• Work orders are issued to production as a result.

Materials Management Modules

• Manufacturing Execution Systems (MES) provide factory floor information and real-time communication.

• Advanced Planning and Scheduling (APS) systems support business analysis and decision support.

• Data collection includes real-time capture using mobile or internet-enabled devices.

eBusiness Strategies

• Facilitates supply chain communication to enable B2B relations.

• Planning forecasts are improved via market places, enabling aggregation of buyer purchasing power, and reduced costs.

• Supply chains and e-business problems are addressed.

Featured Article: What ERP Can Offer ABC

• Focuses on the use of manufacturing data within managerial accounting modules, maximizing productivity, streamlining operations, and supporting managerial decisions.

Featured Article: What ERP Can Offer ABC—Continued

• Activity-based costing systems improve accuracy for cost drivers.

• ERP systems are valuable for cost driver information, availability, reliability, and integration with multiple systems. Includes systems such as SAP R/3.

Featured Article: What ERP Can Offer ABC—Continued

• SAP R/3 linking production planning with management.

• Establishment of standards for materials handling and activity cost driver (number of pallet moves).

• Materials handling processes attributed to specific products allow direct costs to be calculated.

• Bills of services are created.

Featured Article: What ERP Can Offer ABC—Continued

• Activity-based budgeting anticipates demand.

• Estimates are performed for practical capacity, direct materials, direct costs, and process adjustments.

• Formal process, reliability, and high integrity result in nonfinancial measures use as drivers.

Summary

• Traditional production systems lack integration.

• Organizations experience coordination problems in production, materials, and management.

• Need for material resource planning (MRP), Just-in-Time (JIT) systems, and capacity planning motivates use of ERP systems.

• ERP benefits include facilitating supply chain communications and improving e-business capabilities.

This quiz explores the role of ERP systems in production and materials management. It includes objectives related to key business processes, challenges faced by Atlantic Manufacturing, and historical development of manufacturing systems. Test your knowledge on integrating production and materials management effectively.