ERP Systems: Production & Materials Management

Enterprise Resource Planning (ERP) Systems: Production and Materials Management

• ERP systems integrate production and materials management processes.
• The objectives of this chapter are to examine production and materials management within ERP systems, and to understand how they work together.
• Atlantic Manufacturing faced issues like inconsistent raw materials and finished products, late change specifications, long lead times, and inadequate information sharing between divisions. This highlighted the weaknesses of traditional production systems.
• Manufacturing systems evolved from re-order inventory models in the past to high-volume production then dynamic, flexible production models. Mainframe-based databases helped production of new products to meet customer needs, as well as enabling flexible production capabilities.

Problems with Traditional Production Systems

• Lack of integration between divisions in an organization's production processes.
• Production disconnected from sales, resulting in incorrect inventory levels and inaccurate purchasing decisions.
• Inconsistent production forecasts lead to shortages or excess raw materials, and excess finished products or shortages.
• Excess inventories negatively impacted cash flow and profitability.

Production Systems Objectives

• Create production plans.
• Acquire raw materials.
• Schedule equipment, facilities, and human resources appropriately.
• Design products.
• Produce goods with appropriate quantities and quality levels.

Production Planning and Manufacturing Processes (Operational Level)

• Daily activities encompass purchasing the correct quantity of raw materials and supplies, receiving and inspecting deliveries, quality control (monitoring quality and unacceptable deliveries), and inventory management.

Information Systems Support

• Production planning and manufacturing processes are supported by data collection systems, material management systems, bill of materials (BOM) systems, inventory management systems, and cost accounting systems.

Material Resource Planning (MRP) Processes

• Identifying stock needed.
• Calculating lead time for stock.
• Determining safety stock levels.
• Assigning most cost-effective order quantities.
• Producing accurate purchase orders.
• MRP inputs come from the Master Production Schedule (MPS).
• MPS identifies needed products based on sales forecasts.

MRP Vocabulary (Table 6-3)

• MRP: Amount and timing of raw material orders to fulfill the Master Production Schedule (MPS).
• BOM: Recipe of materials needed to make a product.
• Lead times: Time for supplier to receive, process, and ship order to manufacturer.
• Lot sizing: Production quantities.
• MPS: Master Production Schedule.
• Gross requirements: Raw materials needed for production.
• Planned orders: Sufficient raw materials for production.

Just-in-Time (JIT) Systems

• Ideal production and manufacturing situation, with only necessary inventory levels.
• Supplies delivered just as needed to meet production schedule.
• Continuous replenishment of raw materials, through EDI or Internet.
• Reduces storage costs and space for pre- and post-production.
• Improves supply chain and value chain management.

Capacity Planning

• Evaluating production capacity against production goals, requiring specific information.
• Creating time-phased plans for product and production area.
• Scheduling and allocation of specific facilities, and estimating human resources needed.
• Integrating product design and development with cost information for comparison of alternatives.

ERP Production Planning and Materials Management Modules

• Extends information distribution supporting materials requirements planning, inventory management, and capacity planning.
• Merges multiple databases eliminating paperwork, decreasing costs and lead times, and boosting productivity.
• Develops production plans using sales forecasts.
• Determines quantities and dates for finished products using MPS and demand management.
• Provides efficient material plans, determining when and what needs ordering, and creates work orders sent to production.
• Provides complete integration support.

Materials Management Modules

• MES (Manufacturing Execution Systems): Factory floor information and communication systems providing real-time feedback.
• APS (Advanced Planning and Scheduling Systems): Supports business analysis, decision support, and leverage of real-time data for decision making via mobile phones and Internet-enabled devices.

eBusiness Strategies

• Facilitates communication along the supply chain using B2B methods.
• Enables easy exchange of information using the internet, enabling many suppliers.
• eMarketplaces allow aggregation of buyers improving purchasing power.
• Reduces costs and eliminates traditional supply chain problems.

ERP and Activity-Based Costing (ABC)

• ERP systems help use manufacturing data in managerial accounting modules to control costs maximizing productivity.
• Data integration supports managerial decision making using ABC.
• Activity-based costing systems need correct activity cost drivers and non-financial measures.
• ERP systems improve availability, reliability, and integration of multiple systems enabling accurate activity cost driver determination; direct costs determined instead of overhead.
• SAP's R/3 system effectively links production planning with materials management, allows standards establishment, and attributes materials handling process to specific products.
• ERP systems support activity-based budgeting estimating and anticipating demand, capacity, and materials and direct costs; can be used to improve processes, determine adjustments, and collect nonfinancial measures for use as drivers using formal processes with built-in controls for reliability and integrity.

Summary

• Traditional production systems lack integration.
• Most production planning is uncoordinated at operational levels.
• ERP systems enable material resource planning, JIT, and capacity planning.
• ERP facilitates communication along the supply chain and e-business functions, and improves operations overall.

This quiz explores the integration of production and materials management within ERP systems. It covers the evolution of manufacturing systems and highlights issues faced by traditional production methods. Understand how ERP systems can address these challenges and improve organizational efficiency.