ERP Systems: Production Management Overview

ERP Systems: Production and Materials Management

• ERP systems integrate production management and materials management systems
• Objectives include understanding the production and materials management systems, and recognizing the interrelationships between supporting business processes
• Case study of Atlantic Manufacturing highlights issues with inconsistent raw materials, finished goods, untimely change specifications, long lead times and inadequate information, and lost purchasing requisitions.
• Manufacturing systems background shows evolution of re-order point systems evolving to high-volume production of few products; later to mainframe based databases for new product demand and flexible manufacturing systems with feedback and control, eventually culminating in 90s integration of processes and data for efficient operation via ERP total integration including the supply chain
• Traditional production systems were not integrated across divisions, resulting in problems such as improper inventory levels, incorrect purchasing decisions, excess or shortage of raw materials and finished products, and excessive inventories. This impacts cash flow and profitability
• Production system objectives include creating a production plan, acquiring raw materials, scheduling equipment, facilities, and human resources, and designing and producing goods with appropriate quantities and quality level
• Operational-level processes include daily activities, purchasing, receiving, inspection of deliveries, quality control, monitoring of receivables for acceptability, inventory management, and inventory level maintenance
• Information systems support production planning and manufacturing processes, including data collection systems, material management systems, BOM systems, inventory management systems and cost accounting systems
• Material Resource Planning (MRP) processes include identifying stock needs, calculating lead times, determining safety stock levels, assigning order quantities, and producing accurate purchase orders. MRP takes inputs from the Master Production Schedule (MPS) which employs sales forecasts to identify products needed. Key MRP vocabulary includes MRP, BOM, Lead times, Lot sizing, MPS, Gross requirements and planned orders.
• Just-in-Time (JIT) systems maintain only necessary inventory levels, requiring deliveries only as needed to meet production schedules, using EDI or Internet for orders, and reducing pre and post-production storage cost and space with improved supply chain and value chain management
• Capacity planning evaluates production capacity against production goals, requiring specific information to create time-phased plans for production areas, allocating specific facilities, and estimating human resources. Product design and development is integrated with cost information, allowing comparison of alternatives to decrease expenses.
• ERP extends information distribution, supporting materials requirements planning, inventory management and capacity planning by merging multiple databases, eliminating paperwork and bottlenecks to decrease design costs, lead time and personnel costs, increasing productivity, providing sales forecasts for production plans, managing quantities and dates for finished products. It creates efficient detailed material plans, determining what needs to be ordered and when, and creating work orders that send production information to manufacturing, providing integration across the entire system
• Materials Management Modules include Factory floor information and communication systems (MES) for real-time feedback; Business analysis and support systems (APS) using data for decision support using real-time data collected and leveraged through mobile phones and Internet enabled devices, leading to automated data collection.
• eBusiness Strategies facilitate communication along the supply chain, utilize B2B utilizing many suppliers and Internet enabled quick and ease of information exchange, utilizing marketplaces for aggregation of buyers to improve purchasing power and reduce costs, for more efficient supply chains and to handle RFPs more quickly
• Featured Article focuses on ABC (Activity-Based Costing), questioning what manufacturing data is used for managerial accounting in ERP, how is this information used for controlling costs, maximizing productivity, streamlining operations and supporting managerial decision making.
• Activity-based costing systems need the right activity cost driver and nonfinancial measures are often difficult to find. ERP systems increase availability, reliability, and allow for integration of multiple systems
• SAP's R/3 system links production planning to materials management, allows establishment of standards, utilizing Activity cost drivers such as "number of pallet moves", attributed to materials handling for specific products, allowing direct cost calculations instead of being considered overhead.
• Activity-based budgeting anticipates demand on process, estimates practical capacity, quantity of direct materials and direct costs, to be used for improving processes and determining adjustments. ERP systems collect nonfinancial measures and have formal processes, including built in controls and high degree of integrity
• Summary describes how traditional production systems lacked integration, and most production planning lacks coordination with the organization's manufacturing, particularly at the operational level. Organization's are seeking material resource planning, JIT systems, and capacity planning, and ERP systems offer both production planning and materials management, facilitating communication to improve e-Business opportunities

This quiz delves into ERP systems, focusing on production and materials management. It explores integration issues and the progression from traditional systems to modern ERP solutions, using Atlantic Manufacturing as a case study to illustrate challenges. Test your knowledge on the key concepts and interrelationships in these essential business processes.