Concepts in Enterprise Resource Planning PDF

Concepts in Enterprise Resource Planning Fourth Edition Chapter Four – Part 1 Production and Supply Chain Management Information Systems  Objectives After completing this chapter, you will be able to: Describe the steps in the production planni...

Concepts in Enterprise Resource Planning Fourth Edition Chapter Four – Part 1 Production and Supply Chain Management Information Systems  Objectives After completing this chapter, you will be able to: Describe the steps in the production planning process of a high-volume manufacturer such as Fitter Snacker Describe Fitter Snacker’s production and materials management problems Describe how a structured process for Supply Chain Management planning enhances efficiency and decision making Describe how production planning data in an ERP system can be shared with suppliers to increase supply chain efficiency Concepts in Enterprise Resource Planning, Fourth Edition 2  Introduction Supply Chain Management (SCM) in an ERP system Fitter Snacker is part of a supply chain FS’s SCM problems and how ERP can help fix them Concepts in Enterprise Resource Planning, Fourth Edition 3  Production Overview To meet customer demand efficiently, Fitter Snacker must: – Develop a forecast of customer demand – Develop a production schedule to meet the estimated demand ERP system is a good tool for developing and executing production plans Goal of production planning is to schedule production economically Concepts in Enterprise Resource Planning, Fourth Edition 4  Production Overview (cont’d.) Three general approaches to production – Make-to-stock items: made for inventory (the “stock”) in anticipation of sales orders – Make-to-order items: produced to fill specific customer orders – Assemble-to-order items: produced using a combination of make-to-stock and make-to-order processes Concepts in Enterprise Resource Planning, Fourth Edition 5  Fitter Snacker’s Manufacturing Process Fitter Snacker uses make-to-stock production Figure 4-1 Fitter Snacker’s manufacturing process Concepts in Enterprise Resource Planning, Fourth Edition 6  Fitter Snacker’s Manufacturing Process (cont’d.) Snack bar line can produce 200 bars a minute, or 12,000 bars per hour Each bar weighs four ounces Product 48,000 ounces/hour, or 3,000 lbs/hour Entire production line operates on one shift a day Fitter Snacker’s production sequence – Capacity: number of bars that can be produced Concepts in Enterprise Resource Planning, Fourth Edition 7  Fitter Snacker’s Production Problems Fitter Snacker has problems deciding how many bars to make and when to make them Communication problems – FS’s Marketing and Sales personnel do not share information with Production personnel – Production personnel find it hard to deal with sudden increases in demand Might cause shortages or stockout Concepts in Enterprise Resource Planning, Fourth Edition 8  Fitter Snacker’s Production Problems (cont’d.) Inventory problems – Production manager lacks systematic method for: Meeting anticipated sales demand Adjusting production to reflect actual sales Accounting and purchasing problems – Standard costs: normal costs of manufacturing a product – Production and Accounting must periodically compare standard costs with actual costs and then adjust the accounts for the inevitable differences Concepts in Enterprise Resource Planning, Fourth Edition 9  The Production Planning Process Three important principles for production planning: – Work from sales forecast and current inventory levels to create an “aggregate” (“combined”) production plan for all products – Break down aggregate plan into more specific production plans for individual products and smaller time intervals – Use production plan to determine raw material requirements Concepts in Enterprise Resource Planning, Fourth Edition 10 The SAP ERP Approach to Production Planning Figure 4-2 The production planning process Concepts in Enterprise Resource Planning, Fourth Edition 11  Sales Forecasting SAP’s ERP system takes an integrated approach – Whenever a sale is recorded in Sales and Distribution (SD) module, quantity sold is recorded as a consumption value for that material Simple forecasting technique – Use a prior period’s sales and then adjust those figures for current conditions To make a forecast for Fitter Snacker: – Use previous year’s sales data in combination with marketing initiatives to increase sales Concepts in Enterprise Resource Planning, Fourth Edition 12  Sales Forecasting (cont’d.) Figure 4-3 Fitter Snacker’s sales forecast for January through June Concepts in Enterprise Resource Planning, Fourth Edition 13  Sales and Operations Planning Sales and operations planning (SOP) – Input: sales forecast provided by Marketing – Output: production plan designed to balance market demand with production capacity Production plan is the input to the next step, demand management Concepts in Enterprise Resource Planning, Fourth Edition 14  Sales and Operations Planning (cont’d.) Figure 4-5 Fitter Snacker’s sales and operations plan for January through June Concepts in Enterprise Resource Planning, Fourth Edition 15  Sales and Operations Planning (cont’d.) In SAP ERP, sales forecast can be made using: – Historical sales data from the Sales and Distribution (SD) module – Input from plans developed in Controlling (CO) module CO module – Profit goals for company can be set – Sales levels needed to meet the profit goals can be estimated Concepts in Enterprise Resource Planning, Fourth Edition 16  Sales and Operations Planning (cont’d.) Rough-cut planning: common term in manufacturing for aggregate planning – Disaggregated to generate detailed production schedules Once SAP ERP system generates a forecast, the planner can view the results graphically Rough-cut capacity planning applies simple capacity-estimating techniques to the production plan to see if the techniques are feasible Concepts in Enterprise Resource Planning, Fourth Edition 17  Sales and Operations Planning (cont’d.) Figure 4-6 Sales and operations planning screen in SAP ERP Concepts in Enterprise Resource Planning, Fourth Edition 18  Figure 4-7 Historical sales figures in SAP Concepts in Enterprise Resource Planning, Fourth Edition 19  Sales and Operations Planning (cont’d.) Historical sales screen allow planner to correct sales values Do not account for external factors, such as unusual weather Sales figures forecasting represent best estimate of demand Concepts in Enterprise Resource Planning, Fourth Edition 20  Figure 4-8 Forecasting model options in SAP ERP Concepts in Enterprise Resource Planning, Fourth Edition 21  Sales and Operations Planning (cont’d.) Figure 4-9 Forecasting results presented graphically in SAP ERP Concepts in Enterprise Resource Planning, Fourth Edition 22  Figure 4.10 Sales and operation plan with rough-cut capacity calculation in SAP ERP Concepts in Enterprise Resource Planning, Fourth Edition 23  Sales and Operations Planning (cont’d.) Disaggregating the sales and operations plan – Companies typically develop sales and operations plans for product groups – SAP ERP system allows any number of products to be assigned to a product group – Sales and operation plan disaggregated Production plan quantities specified for the group are transferred to the individual products that make up the group Concepts in Enterprise Resource Planning, Fourth Edition 24  Sales and Operations Planning (cont’d.) Figure 4-11 Product group structure in SAP ERP Concepts in Enterprise Resource Planning, Fourth Edition 25  Sales and Operations Planning (cont’d.) Figure 4-12 Stock/Requirements List for NRG-A bars after disaggregation Concepts in Enterprise Resource Planning, Fourth Edition 26  Demand Management Links the sales and operations planning process with detailed scheduling and materials requirements planning processes Output: master production schedule (MPS) – Production plan for all finished goods For Fitter Snacker, MPS is an input to detailed scheduling, which determines what bars to make and when to make them Concepts in Enterprise Resource Planning, Fourth Edition 27  Demand Management (cont’d.) Figure 4-14 Fitter Snacker’s production plan for January: The first five weeks of production are followed by a day-by-day disaggregation of week 1 Concepts in Enterprise Resource Planning, Fourth Edition 28  Materials Requirements Planning (MRP) Determines required quantity and timing of the production or purchase of subassemblies and raw materials needed to support MPS Bill of material (BOM): list of the materials (including quantities) needed to make a product Concepts in Enterprise Resource Planning, Fourth Edition 29  Figure 4-15 Fitter’s factory calendar for August Concepts in Enterprise Resource Planning, Fourth Edition 30  Materials Requirements Planning (MRP) (cont’d.) Figure 4-16 The bill of material (BOM) for Fitter Snacker’s NRG bars Concepts in Enterprise Resource Planning, Fourth Edition 31  Materials Requirements Planning (MRP) (cont’d.) Lead times and lot sizing – Lead time: cumulative time required for the supplier to receive and process the order, take the material out of stock, package it, load it on a truck, and deliver it to the manufacturer – Lot sizing: determining production quantities and order quantities MRP record: standard way of viewing the MRP process on paper Concepts in Enterprise Resource Planning, Fourth Edition 32  Materials Requirements Planning (MRP) (cont’d.) Figure 4-17 The MRP record for oats in NRG bars, weeks 1 through 5 Concepts in Enterprise Resource Planning, Fourth Edition 33  The End Q’s and A’s Concepts in Enterprise Resource Planning, Fourth Edition 34