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What is an Enterprise?

• An enterprise is a group of people with a common goal,


which has certain resources (people, money, energy,
materials, space, time) at its disposal to achieve this
goal.
• Examples: IBM, Ford, Tata Motors, Accenture,
Microsoft, Indian Railways, Ramu’s Teashop, etc.
• The enterprise acts as a single entity.
• The resources are considered the inputs, and the
attainment of the goals the output of the process.
• The degree of success of the enterprise is often
measured by the ratio between the outputs and inputs.
This ratio is called productivity.
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Enterprise

P e o p le

G o a ls & O b je c t iv e s
Re s ource s

The Enterprise

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Traditional Organization
• The organization is divided into different units based on the
functions they perform— finance, manufacturing, production
planning, purchasing, sales and distribution, R&D, HR, etc.
• The various departments have their own goals.
• The different departments function in isolation and have their own
data collection & analysis systems.
• The result is that, instead of taking the organization towards the
common goal the various departments end up pulling it in different
directions as one department does not know what the other does
and for what purpose.
• So unless all the departments know what the others are doing and
for what purpose, the inter-departmental conflicts will arise thus
disrupting the normal functioning of the organization.
• The solution is to have a centralized information storage and
management facility.

4
Traditional Organization

Organization where there is no or little Communication between Departments

5
Enterprise Way…
• In the enterprise way, the entire organization is
considered as a single system.
• Information about all the aspects of the organization is
stored centrally and is available to all departments, thus
avoiding conflicts.
• ERP systems help to make this task easier by integrating
the information systems, enabling smooth and seamless
flow of information across departmental barriers, and
automating business process and functions.
• ERP systems help the organization to work and move
forward as a single entity.

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Resources

Some Ms

7
Functional Areas and Business
Processes
• To understand ERP, you must understand how a
business works
– Functional areas of operation
– Business processes

Concepts in Enterprise Resource Planning, Fourth Edition 8


Function vs. Process
• Recently organizations have started focusing on business
processes rather than business functions.
• A business process is a collection of activities that takes one or
more kinds of input and creates an output that is of value to the
customer.
• The difference between a BF and a BP is that a process cuts
across more than one business function to get a task done.
• Organizations are now trying to view their business operations
from the perspective of a satisfied customer.
• Sharing data effectively and efficiently between and within
functional areas leads to more efficient business processes.
• Information systems can be designed so that accurate and timely
data are shared between functional areas. These systems are
called integrated information systems.
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Functional Areas of Operation
• Marketing and Sales (M/S)
• Supply Chain Management (SCM)
• Accounting and Finance (A/F)
• Human Resources (HR)
• Business functions: Activities specific to a
functional area of operation

Concepts in Enterprise Resource Planning, Fourth Edition 11


Functional Areas of Operation (cont’d.)

Figure 1-1 Examples of functional areas of operation and their business functions

Concepts in Enterprise Resource Planning, Fourth Edition 12


Functional Areas of Operation (cont’d.)
• Functional areas are interdependent
– Each requires data from the others
• Better integration of functional areas leads to
improvements in communication, workflow, and
success of company
• Information system (IS): Computers, people,
procedures, and software that store, organize, and
deliver information

Concepts in Enterprise Resource Planning, Fourth Edition 13


Business Processes
• Collection of activities that takes one or more kinds
of input and creates an output that is of value to
customer
– Customer can be traditional external customer or
internal customer
• Thinking in terms of business processes helps
managers to look at their organization from the
customer’s perspective

Concepts in Enterprise Resource Planning, Fourth Edition 14


Business Processes (cont’d.)

Figure 1-2 Sample business processes related to the sale of a


personal smartphone

Concepts in Enterprise Resource Planning, Fourth Edition 15


Cross-Functional Nature of BPs

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Business Processes (cont’d.)
• Businesses must always consider customer’s
viewpoint in any transaction
• Successful customer interaction
– Customer (either internal or external) is not required
to interact with each business function involved in
the process
• Successful business managers view business
operations from the perspective of a satisfied
customer

Concepts in Enterprise Resource Planning, Fourth Edition 17


Business Processes (cont’d.)
• Sharing data effectively and efficiently between and
within functional areas leads to more efficient
business processes
• Integrated information systems: Systems in
which functional areas share data

Concepts in Enterprise Resource Planning, Fourth Edition 18


Business Processes (cont’d.)

Figure 1-3 A process view of business

Concepts in Enterprise Resource Planning, Fourth Edition 19


Business Processes (cont’d.)
• Businesses take inputs (resources) and transform
these inputs into goods and services for customers
– Inputs: Material, people, equipment
• Managing inputs and business processes
effectively requires accurate and up-to-date
information

Concepts in Enterprise Resource Planning, Fourth Edition 20


Major Business Processes
• Procurement or purchasing process (buy) refers to all of the activities
involved in buying or acquiring the materials used by the organization, such
as raw materials, components, consumables, etc. that are needed to make
products.
• Production or manufacturing process (make) involves the actual creation
of the products within the organization. While the production process is
concerned with acquiring needed materials internally (by making them), the
procurement process is concerned with obtaining needed materials
externally (by buying them).
• Fulfillment process (sell) consists of all the steps involved in selling and
delivering the products to the organization's customers.
• Financial Management process (manage money) consists of two major
areas—financial accounting and management accounting (also known as
management controlling). Financial accounting processes track the financial
impact of process steps with the goal of meeting legal reporting
requirements while management accounting or controlling processes focus
on internal reporting to manage costs and revenues.
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Major Business Processes (Contd.)
• Product data management process (design) supports the design and
development of products from the initial product idea stage through the
discontinuation of the product.
• Production planning process (plan) uses historical data and sales forecasts
to plan which materials will be produced, in what quantity and when.
• Inventory management process (store) is used to store and track the both the
raw materials and finished goods ensuring that there is no surplus stock or
shortage.
• Customer service process (service) is used to deliver after-sales customer
service such as repairs.
Support Business Processes
• Human resources management (HRM) process (people) focuses on the
people within the organization and includes functions such as recruiting, hiring,
training, and benefits management.
• Information Management (IM) process (information) focuses on providing the
decision-makers the right information at the right time so that they can make
quality decisions and use information as a competitive weapon.

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Functional Areas and Business
Processes of a Very Small Business
• Example: A fictitious coffee shop
– Examine business processes of the coffee shop
– See why coordination of functional areas helps
achieve efficient and effective business processes
– Look at how integration of the information system
improves the business

Concepts in Enterprise Resource Planning, Fourth Edition 23


Marketing and Sales
• Functions of Marketing and Sales
– Developing products
– Determining pricing
– Promoting products to customers
– Taking customers’ orders
– Helping create a sales forecast

Concepts in Enterprise Resource Planning, Fourth Edition 24


Marketing and Sales (cont’d.)
• Marketing and Sales tasks for the coffee shop
– Formal recordkeeping not required
– Need to keep track of customers
– Product development can be done informally
– Good repeat customers allowed to charge purchases
—up to a point
• Records must show how much each customer owes
and his or her available credit

Concepts in Enterprise Resource Planning, Fourth Edition 25


Supply Chain Management
• Functions within Supply Chain Management
– Making the coffee (manufacturing/production)
– Buying raw materials (purchasing)
• Production planning requires sales forecasts from
M/S functional area
– Sales forecasts: Analyses that attempt to predict
the future sales of a product

Concepts in Enterprise Resource Planning, Fourth Edition 26


Supply Chain Management (cont’d.)
• Production plans used to develop requirements for
raw materials and packaging
– Raw materials: Bottled spring water, fresh lemons,
artificial sweetener, raw sugar
– Packaging: Cups, straws, napkins
• SCM and M/S must choose a recipe for each
coffee product sold

Concepts in Enterprise Resource Planning, Fourth Edition 27


Accounting and Finance
• Functions within Accounting and Finance
– Recording raw data about transactions (including
sales), raw material purchases, payroll, and receipt
of cash from customers
• Raw data: Numbers collected from sales,
manufacturing and other operations, without any
manipulation, calculation, or arrangement for
presentation

Concepts in Enterprise Resource Planning, Fourth Edition 28


Accounting and Finance (cont’d.)
• Data from Accounting and Finance used by
Marketing and Sales and Supply Chain
Management
– Sales records are important component of sales
forecast
– Sales forecast is used in making staffing decisions
and in production planning
– Records from accounts receivable used to monitor
the overall credit-granting policy of the coffee shop

Concepts in Enterprise Resource Planning, Fourth Edition 29


Human Resources
• Functions of Human Resources
– Recruit, train, evaluate, and compensate employees
• HR uses sales forecasts developed by the
individual departments to plan personnel needs
• Systems integrated using ERP software provide
the data sharing necessary between functional
areas

Concepts in Enterprise Resource Planning, Fourth Edition 30


Functional Area Information Systems
• Potential inputs and outputs for each functional
area described next
• Note the kinds of data needed by each area and
how people use the data
• Information systems maintain relationships
between all functional areas and processes

Concepts in Enterprise Resource Planning, Fourth Edition 31


Marketing and Sales
• Needs information from all other functional areas
• Customers communicate orders to M/S in person
or by telephone, e-mail, fax, the Web, etc.
• M/S has a role in determining product prices
– Pricing might be determined based on a product’s
unit cost, plus some percentage markup
– Requires information from Accounting and Finance,
and Supply Chain Management data

Concepts in Enterprise Resource Planning, Fourth Edition 32


Marketing and Sales (cont’d.)

Figure 1-4 The Marketing and Sales functional area exchanges data with
customers and with the Human Resources, Accounting and Finance, and
Supply Chain Management functional areas
Concepts in Enterprise Resource Planning, Fourth Edition 33
Marketing and Sales (cont’d.)
• M/S needs to interact with Human Resources to
exchange information on hiring needs, legal
requirements, etc.
• Inputs for M/S
– Customer data
– Order data
– Sales trend data
– Per-unit cost
– Company travel expense policy

Concepts in Enterprise Resource Planning, Fourth Edition 34


Marketing and Sales (cont’d.)
• Outputs for M/S
– Sales strategies
– Product pricing
– Employment needs

Concepts in Enterprise Resource Planning, Fourth Edition 35


Supply Chain Management
• Needs information from various functional areas
• Production plans based on information about
product sales (actual and projected) that comes
from Marketing and Sales
• With accurate data about required production
levels:
– Raw material and packaging can be ordered as
needed
– Inventory levels can be kept low, saving money

Concepts in Enterprise Resource Planning, Fourth Edition 36


Supply Chain Management (cont’d.)
• Supply Chain Management data and records can:
– Provide data needed by Accounting and Finance to
determine how much of each resource was used
– Support the M/S function by providing information
about what has been produced and shipped
• Supply Chain Management interacts in some ways
with Human Resources

Concepts in Enterprise Resource Planning, Fourth Edition 37


Supply Chain Management (cont’d.)

Figure 1-5 The Supply Chain Management functional area exchanges data
with suppliers and with the Human Resources, Marketing and Sales, and
Accounting and Finance functional areas

Concepts in Enterprise Resource Planning, Fourth Edition 38


Supply Chain Management (cont’d.)
• Inputs for SCM
– Product sales data
– Production plans
– Inventory levels
– Layoff and recall company policy

Concepts in Enterprise Resource Planning, Fourth Edition 39


Supply Chain Management (cont’d.)
• Outputs for SCM
– Raw material orders
– Packaging orders
– Resource expenditure data
– Production and inventory reports
– Hiring information

Concepts in Enterprise Resource Planning, Fourth Edition 40


Accounting and Finance
• Needs information from all other functional areas
• A/F personnel:
– Record company’s transactions in the books of
account
– Record accounts payable when raw materials are
purchased and cash outflows when they pay for
materials
– Summarize transaction data to prepare reports
about company’s financial position and profitability

Concepts in Enterprise Resource Planning, Fourth Edition 41


Accounting and Finance (cont’d.)
• People in other functional areas provide data to A/F
– M/S provides sales data
– SCM provides production and inventory data
– HR provides payroll and benefit expense data
• M/S personnel require data from A/F to evaluate
customer credit

Concepts in Enterprise Resource Planning, Fourth Edition 42


Accounting and Finance (cont’d.)

Figure 1-6 The Accounting and Finance functional area exchanges data with
customers and with the Human Resources, Marketing and Sales, and Supply
Chain Management functional areas

Concepts in Enterprise Resource Planning, Fourth Edition 43


Accounting and Finance (cont’d.)
• Inputs for A/F
– Payments from customers
– Accounts receivable data
– Accounts payable data
– Sales data
– Production and inventory data
– Payroll and expense data

Concepts in Enterprise Resource Planning, Fourth Edition 44


Accounting and Finance (cont’d.)
• Outputs for A/F
– Payments to suppliers
– Financial reports
– Customer credit data

Concepts in Enterprise Resource Planning, Fourth Edition 45


Human Resources
• HR needs information from the other departments
• Tasks related to employee hiring, benefits, training,
and government compliance are all responsibilities
of HR
• HR needs accurate forecasts of personnel needs
from all functional units
• HR needs to know what skills are needed to
perform a particular job and how much the
company can afford to pay employees

Concepts in Enterprise Resource Planning, Fourth Edition 46


Human Resources (cont’d.)

Figure 1-7 The Human Resources functional area exchanges data with the
Accounting and Finance, Marketing and Sales, and Supply Chain
Management functional areas

Concepts in Enterprise Resource Planning, Fourth Edition 47


Human Resources (cont’d.)
• Observing governmental regulations in recruiting,
training, compensating, promoting, and terminating
employees
• Inputs for HR
– Personnel forecasts
– Skills data

Concepts in Enterprise Resource Planning, Fourth Edition 48


Human Resources (cont’d.)
• Outputs for HR
– Regulation compliance
– Employee training and certification
– Skills database
– Employee evaluation and compensation

Concepts in Enterprise Resource Planning, Fourth Edition 49


Human Resources (cont’d.)
• Significant amount of data is maintained by and
shared among the functional areas
• Timeliness and accuracy of these data critical to
each area’s success and to company’s ability to
make a profit and generate future growth
• ERP software allows all functional areas to share a
common database
– Allows accurate, real-time information to be available

Concepts in Enterprise Resource Planning, Fourth Edition 50


Procurement Process

51
Production Planning Process

52
Production Process

53
Fulfillment Process

54
Information Islands
• No organization can function as islands of different
departments.
• All the departments should have access to the
organization’s information.
• In today’s competitive business environment, the key
resource of every organization is information.
• If all the information islands, which are functioning in
isolation, are integrated into a single system, the impact
of that would be dramatic.
• If the organization does not have an efficient and
effective mechanism then the chances of that
organization succeeding are very remote.
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Integrated Data Model
• The most critical step in the ERP implementation is the creation of an
integrated data model as all the employees from the different departments
get access to the integrated data and this will help in better decision-
making.
• With the implementation of ERP systems all the data will be from the
integrated database.
• Maintaining and managing the integrated data constantly updated and up-
to-date is one of the biggest challenges of ERP implementation and
operation.
• The integrated database will reduce data redundancy and give all
employees access to the updated and up-to-the minute information about
the entire organization.
• When designing the data model for the ERP system, the most important
thing that should be kept in mind is the information integration and the
process/ procedure automation.
• The data model should reflect the entire organization and should
successfully depict and integrate the data structures of the entire
organization.
56
What is ERP?
• ERP is an abbreviation for Enterprise Resource Planning and
means, the techniques and concepts for integrated management of
businesses as a whole from the viewpoint of the effective use of
management resources to improve the efficiency of enterprise
management.
• ERP packages are integrated (covering all business functions)
software packages that support the ERP concepts.
• ERP software is a mirror image of the major business processes of
an organization, such as customer order fulfillment and
manufacturing.
• ERP integrates all business functions into a single, integrated
software program that runs on a single database so that the various
departments can more easily share information and communicate
with each other.
• The integrated approach of ERP has tremendous power and
potential in improving the efficiency, productivity, and
competitiveness of the organization.
Define ERP

ERP is a combination of business


management practice and technology,

where Information & Communication


Technology integrates with core business
process of an enterprise to enable the
achivement of specific business objectives.
Common Myths about ERP
1. ERP means more work and procedures
2. ERP will make many employees redundant and jobless
3. ERP is the sole responsibility of the management
4. ERP is just for the managers/ decision-makers
5. ERP is just for manufacturing organizations
6. ERP is just for the ERP implementation team
7. ERP slows down the organization
8. ERP is just to impress customers
9. ERP package will take care of everything
10. One ERP package will suit everybody
11. ERP is very expensive
12. Organizations can succeed without ERP
Components of ERP Systems
The various components of ERP system
are:

• People (Users and IT staff)


• Hardware (servers, peripherals) and
Software (Information Systems software,
Operating systems and databases)
• Database (organizational data from within
and outside)
• Model base
• Processes (Business processes, procedures,
and policies)
Scope of ERP System
ERP Systems are organization-wide information
systems and cover all the functional areas of a
typical business organization. The main areas
covered by ERP systems are:

• Production and manufacturing planning


• Finance and accounting
• Sales and Distribution
• Human Resources
• Quality
• Plant Maintenance
• Marketing
• Inventory Management
ERP Modules
A typical ERP system consists of the
following modules:

• The Sales and Distribution (SD) module


 The Materials Management (MM) module
 The Production Planning (PP) module
 The Quality Planning (QM) module
 The Plant Maintenance (PM) module
 The Asset Management (AM) module
 The Human Resources (HR) module
 The Project Systems (PS) module
 The Financial Accounting (FI) module
 The Controlling (CO) module
 The Workflow (WF) module
ERP Modules (Contd…)

Modules of a Typical ERP System


Why use ERP Software?
Porter's Five Forces Model
Bargaining Power of Supplier
Good students do not give preference to the Institute.
Institute may not attract attention of society (Students and Teachers).

Bargaining Power of Customer


Reputed companies do not visit to the Institute for campus selection process.
Some companies visit then do not offer good salary or job profile.
Institute may have to spend a lot for the jobs of their students.

Threat of Substitute Product or Service


Syllabus to be update to match with industry standards and requirements
New branches of engineering with better job prospects and opportunities need to
start.
Courses run by this Institute got obsolete or irrelevant.

Threat of New Entrants


A new Institute may come up with better resources
New career option (other than engineering) may be introduced and students
preferring those programme.Threat of New Entrants
A new Institute may come up with better resources
New career option (other than engineering) may be introduced and students
preferring those programme.
Rivalry among Existing Competitors
Other Institutes are getting good students.
Other Institutes are offering low fee structure.
Other Institutes are having better manpower (faculty & staff members).
Other Institutes are getting good recognition of society.
Just how much power the supplier has is
determined by factors such as:
Several factors determine the bargaining
power of customers, including:

The following are common examples of successful barriers:


Several factors determine the degree of
competitive rivalry; the main ones are:
The following are common examples of
successful barriers:

Just how much power the supplier has is determined by factors such as:
Why use ERP Software?
Benefits of ERP
Implementation Challenges: Support/ Maintenance Challenges:

Scope Changes Getting Right People


Huge Budget Managing Multiple Vendor
Long Timeline Managing Regular Upgrades
Process Re-design Challenges Technology Obsolence
Unrealistic Expectation Managing Transition
Complex Interfaces Realizing Benefits

Managing People:

Managing Change
Managing Large Project Team
Managing employee retention and relocation
Top Management Support
Is ERP the Solution for Sawhney &
Sawhney?
http://sapbrainsonline.com/help/list-of-
sap-companies-in-india.html
Independent and Dependent
DemandIndependent Demand
(end item)
A Dependent Demand
(component parts)

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is
uncertain.
Dependent demand is certain.
Dependant vs. Independent
Demand
• Independent demand:
demand Demand for end items.
• Dependent demand:
demand Demand for items that
are subassemblies or component parts to be
used in production of finished goods.
– Once the independent demand is known, the
dependent demand can be determined.
Independent demand Dependent demand

100 x 1 =
100 tabletops

100 tables 100 x 4 = 400 table legs

Continuous demand
400 – Discrete demand
400 –
300 –
300 –
200 –
No. of tables

200 –

No. of tables
100 –
100 –

1 2 3 4 5
Week M T W Th F M T W Th F
Material requirements planning

(MRP)
Material requirements planning (MRP):
(MRP)
Computer-based information system that translates
master schedule requirements for end items into
time-phased requirements for subassemblies,
components, and raw materials.
• MRP works backward from the due date using lead
times and other information to determine when and
how much to order.

Before MRP?? Challenges??


Before MRP
• Two difficulties of ordering and scheduling:

1. Enormous task of setting up schedules, keeping


track of large numbers of parts and components,
and coping with schedule and order changes.

2. Lack of differentiation between independent


demand and dependent demand. Too often,
techniques designed for independent-demand
items were used to handle assembled items, which
resulted in excessive inventories.
• Consequently, inventory planning and
scheduling presented major problems for
manufacturers.
MRP
• MRP begins with a schedule for finished goods
that is converted into a schedule of requirements
for subassemblies, component parts and raw
materials needed to produce the finished items in
the specified time frame
• MRP designed to answer the following questions
• What is needed ?
• How much is needed?
• When is it needed ?
Overview of MRP
Benefits of MRP
• Low levels of in-process inventories.
• The ability to keep track of material
requirements.
• The ability to evaluate capacity
requirements generated by a given
master schedule.
• A means of allocating production time.
Requirements of MRP
• A computer and the necessary software
programs to handle computations and maintain
records.
• Accurate and up-to-date
• a. Master schedules
• b. Bills of materials
• c. Inventory records.
• Integrity of file data.
Format of MRP
Week Number 0 1 2 3 4 5 6 7 8

Item:
Gross requirements

Scheduled receipts

Projected on hand

Net requirements

Planned-order
receipts
Planned-order
releases
Terms Defined
• Item – name or number for the item being
scheduled
• Low-Level Code – the lowest level of the
item on the product structure file
• Lot Size – order multiples of quantity
• Lead Time – the time from when an order is
placed to when it is received
Terms Defined
• Gross Requirements – demand for an item by
time period
• Scheduled Receipts – material already ordered
• Projected on Hand – expected ending inventory
• Net Requirements – number of items to be
provided and when
• Planned Order Receipts – net requirements
adjusted for lot size
• Planned Order Releases – planned order
receipts offset for lead times
Master Production Schedule

PERIOD
MPS ITEM 1 2 3 4 5
Clipboard 85 95 120 100 100
Lapdesk 0 50 0 50 0
Lapboard 75 120 47 20 17
Pencil Case 125 125 125 125 125
Product Structure Tree

Clipboard Level 0

Pressboard Clip Ass’y Rivets Level 1


(1) (1) (2)

Top Clip Bottom Clip Pivot Spring Level 2


(1) (1) (1)

(1)
Product Structure Tree

Clipboard

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)
Finished clipboard Pressboard (1)

Figure 12.6
Indented Bill of Material

LEVEL ITEM UNIT OF MEASURE QUANTITY


0---- Clipboard ea 1
-1--- Clip Assembly ea 1
--2-- Top Clip ea 1
--2-- Bottom Clip ea 1
--2-- Pivot ea 1
--2-- Spring ea 1
-1--- Rivet ea 2
-1--- Press Board ea 1
School Mate Products
Product Structure Record

Clipboard Level 0

Pressboard Clip Ass’y Rivets Level 1


(1) (1) (2)

Lapdesk Level 0

Pressboard Trim Beanbag Glue Level 1


(2) (3’) (1) (4 oz)
School Mate Products
Master Production Schedule
1 2 3 4 5

Clipboard 85 95 120 100 100


Lapdesk 0 60 0 60 0
Item Master File
CLIPBOARD LAPDESK PRESSBOARD
On hand 25 20 150
On order 175 (Period 1) 0 0
(sch receipt)
LLC 0 0 1
Lot size L4L Mult 50 Min 100
Lead time 1 1 1
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100


Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100


Scheduled Receipts 175
Projected on Hand 25 115
Net Requirements 0
Planned Order Receipts
Planned Order Releases

(25 + 175) = 200 units available


(200 - 85) = 115 on hand at the end of Period 1
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100


Scheduled Receipts 175
Projected on Hand 25 115 20
Net Requirements 0 0
Planned Order Receipts
Planned Order Releases

115 units available


(115 - 85) = 20 on hand at the end of Period 2
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100


Scheduled Receipts 175
Projected on Hand 25 115 20 0
Net Requirements 0 0 100
Planned Order Receipts 100
Planned Order Releases 100

20 units available
(20 - 120) = -100 — 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100


Scheduled Receipts 175
Projected on Hand 25 115 20 0 0 0
Net Requirements 0 0 100 100 100
Planned Order Receipts 100 100 100
Planned Order Releases 100 100 100

Following the same logic Gross Requirements in Periods 4


and 5 develop Net Requirements, Planned Order Receipts, and
Planned Order Releases
School Mate Products
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

Gross Requirements 0 60 0 60 0
Scheduled Receipts
Projected on Hand 20
Net Requirements
Planned Order Receipts
Planned Order Releases

Example 12.1
School Mate Products
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

Gross Requirements 0 60 0 60 0
Scheduled Receipts
Projected on Hand 20 20 10 10 0 0
Net Requirements 0 40 50
Planned Order Receipts 50 50
Planned Order Releases 50 50

Following the same logic, the Lapdesk MRP matrix is


completed as shown
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Planned Order Releases 100 100 100
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Planned Order Releases 50 50
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases

Example 12.1
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Planned Order Releases 100 100 100
ITEM: LAPDESK LLC: 0 x1 PERIOD x1 x1
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Planned Order Releases 50 50
ITEM: PRESSBOARD LLC: 0 x2 x2 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements 100 100 200 100 0
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases

Example 12.1
School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Planned Order Releases 100 100 100
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Planned Order Releases 50 50
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements 100 100 200 100 0
Scheduled Receipts
Projected on Hand 150 50 50 0 0 0
Net Requirements 50 150 100
Planned Order Receipts 100 150 100
Planned Order Releases 100 150 100

Example 12.1
School Mate Products

Planned Order Report


PERIOD
ITEM 1 2 3 4 5

Clipboard 100 100 100


Lapdesk 50 50
Pressboard 100 150 100

Example 12.1
MRP II
MRP II Module
Capacity Requirements Planning
(CRP)

 Computerized system that projects


load from material plan
 Creates load profile
 Identifies underloads and overloads
Capacity

Usually expressed as standard


machine hours or labor hours

Capacity = (no. machines or workers)


x (no. shifts) x (utilization)
x (efficiency)
Capacity Terms

 Load profile
 Compares released and planned
orders with work center capacity
 Capacity
 Productive capability; includes
utilization and efficiency
 Utilization
 % of available working time spent
working
More Capacity Terms

 Efficiency
 Load
 The standard hours of work
assigned to a facility
 Load percent
 The ratio of load to capacity
Load % = (load/capacity)x100%
Capacity Requirements Planning
MRP planned
order
releases

Capacity Open
Routing
requirements orders
file planning file

Load profile for


each machine center
Determining Loads
and Capacities

2 copiers, 2 operators
5 days/wk, 8 hr/day
1/2 hr meals, 1/2 hr maintenance per day

Efficiency = 100%
Utilization = 7/8 = 87.5%
Daily capacity = 2 machines x 2 shifts
x 8 hours/shift x 100% efficiency
x 87.5% utilization
= 28 hours or 1,680 minutes
Determining Loads
and Capacities
JOB NO. OF SETUP RUN TIME
NO. COPIES TIME (MIN) (MIN/UNIT) TOTAL TIME
10 500 5.2 0.08 5.2 + (500 x 0.08) = 45.2
20 1,000 10.6 0.10 10.6 + (1,000 x 0.10) = 110.6
30 5,000 3.4 0.12 3.4 + (5,000 x 0.12) = 603.4
40 10,000 11.2 0.14 11.2 + (10,000 x 0.14) = 1,411.2
50 2,000 15.3 0.10 15.3 + (2,000 x 0.10) = 215.3
2385.7 min
Load percent = 2,385.7 / 1,680 = 1.42 x 100% = 142%
Add another shift:
Daily capacity = 2 machines x 3 shifts x 8 hours/shift
x 100% efficiency x 87.5% utilization
= 42 hours or 2,520 minutes
Revised load percent = 2,385.7 / 2,520 = 0.9467 x 100% = 94.67%
Initial Load Profile
120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 –
60 –
50 –
40 – Normal
30 – capacity
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)
Remedies for Underloads

1. Acquire more work


2. Pull work ahead that is scheduled
for later time periods
3. Reduce normal capacity
Remedies for Overloads

1. Eliminate unnecessary requirements


2. Reroute jobs to alternative machines or
work centers
3. Split lots between two or more machines
4. Increase normal capacity
5. Subcontract
6. Increase the efficiency of the operation
7. Push work back to later time periods
8. Revise master schedule
Adjusted Load Profile
120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 – Work
60 – an
extra Push back
50 – Pull ahead
shift
40 – Overtime Push back Normal
30 – capacity
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)

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