M0254 - ERP

(Enterprise Resources Planning)

Session 6 Production and Operation Information System

Production and Materials Management

Planning Need accurate forecasts from Marketing and Sales Compare costs with Accounting

M0254 Enterprise Resources Planning 2004

M0254 Enterprise Resources Planning 2004

Learning Objectives

Describe steps in the production planning process of a high volume manufacturer like Fitter Snacker Describe Fitter Snackers production and materials management problems Describe how a structured process for production and materials 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
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Production and Materials Management at Fitter Snacker

Must answer the following questions:

How much of each bar should be produced? What quantities of raw materials should be ordered? When should raw materials be ordered

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General Approaches to Production

Make-to-stock: Items produced in anticipation of orders Make-to-order: Items produced to meet specific customer orders Assemble to order: Final product assembled from make-to-stock items

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Fitter Snacker Manufacturing Process

Raw Material Warehouse Mixer
Mixer Mixer Mixer Finished Goods Warehouse

Snack Bar Line Form Bake Pack

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Fitter Snacker Production Problems

Communications

Marketing does not share data with production (sales promotions and large, unexpected orders) True inventory status not known No real-time data on actual sales Difficulty forecasting raw material and labor costs Adjusting accounts for actual vs. standard costs time consuming and done infrequently

Inventory

Accounting and Purchasing

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Production Planning Process

Work from sales forecast to create aggregate production plan Break down aggregate plan into more specific plans Use production plan to determine raw material requirements

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ERP Approach to Production Planning

Sales Forecasting Sales and Operations Planning Demand Management

Detailed Scheduling Production

MRP

Purchasing

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Fitter Snackers sales forecast for January through June

Sales Forecasting Previous Year (cases) Promotion Sales (cases) Previous Year base (cases) Growth: 3.0% Base Projection (cases) Promotion (cases) Sales Forecast (cases)

Jan. 5734 5734 172 5906 5906

Feb. 5823 5823 175 5998 5998

March 5884 5884 177 6061 6061

April 6134 6134 184 6318 6318

May 6587 300 6287 189 6476 6476

June 6735 300 6435 193 6628 500 7128

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Sales Forecasting

Starting Inventory

Sales and Operations Planning Demand Management

Detailed Scheduling
Production

MRP

Purchasing

Figure 4.6: Sales and operations planningthe second step of the production planning process
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Snackers sales and operations plan for January through June

Sales and Operations Planning 1) Sales Forecast 2) Production Plan 3) Inventory 4) Working Days 5) Capacity (Shipping Cases) 6) Utilization 7) NRG-A (cases) 70.0% 8) NRG-B (cases) 30.0%

Dec.

100

Jan. 5906 5906 100 22 7333 81% 4134 1772

Feb. 5998 5998 100 20 6667 90% 4199 1799

March 6061 6061 100 22 7333 83% 4243 1818

April 6318 6318 100 21 7000 90% 4423 1895

May 6476 6900 524 23 7667 90% 4830 2070

June 7128 6700 96 21 7000 96% 4690 2010

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Sales and Operations Planning in ERP

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Sales and Operations Planning

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Sales and Operations Planning

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Sales and Operations Planning

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Sales Forecasting

Starting Inventory

Sales and Operations Planning Demand Management

Detailed Scheduling
Production

MRP

Purchasing

Demand Managementthe third step of the production planning process

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Demand Management
Demand Management Monthly Demand NRG-A NRG-B Working Days in Week Working Days in Month MPS NRG-A Weekly Demand NRG-B Week 1 Week 2 Week 3 Week 4 Week 5 1/2 - 1/5 1/8 - 1/12 1/15 - 1/19 1/22 - 1/26 1/29 - 1/31 2/1 - 2/2 4134 4134 4134 4134 4134 4198 1772 1772 1772 1772 1772 1799 4 5 5 5 3 2 22 22 22 22 22 20 752 940 940 940 984 322 403 403 403 422

Demand Management Monthly Demand NRG-A NRG-B Working Days in Month MPS NRG-A Daily Demand NRG-B

Jan 2 4134 1772 22 188 81

Jan 3 4134 1772 22 188 81

Jan 4 4134 1772 22 188 81

Jan 5 4134 1772 22 188 81

Jan 6 4134 1772 22 188 81

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Demand Management

Calculation for Week 5

4,134 cases in Jan. x 3 days in week 5 22 working days in Jan. = 563.7 cases 4,1984 cases in Feb. x 3 days in week 5 20 working days in Feb. = 419.8 cases Total = 983.5 cases
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Sales Forecasting

Starting Inventory

Sales and Operations Planning Demand Management

Detailed Scheduling
Production

MRP

Purchasing

MRPthe Material Planning Process

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MRP

Bill of Material
Ingredient Oats (lb) Wheat germ (lb) Cinnamon (lb) Nutmeg (lb) Cloves (lb) Honey (gal) Canola Oil (gal) Vit./Min. Powder (lb) Carob Chips (lb) Raisins (lb) Protein Powder (lb) Hazelnuts (lb) Dates (lb) Quantity NRG-A NRG-B 300 250 50 50 5 5 2 2 1 1 10 10 7 7 5 5 50 50 50 30 70

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MRP

MRP Record

Oats Lead Time = 2 weeks MPS NRG-A (cases) NRG-B MPS NRG-A (500 lb. batches) NRG-B Gross Requirements (lb) Scheduled Receipts Planned Receipts On Hand 11,650 Planned Orders

Week 1 752 322 108 46 44,070 44,000 11,580 88,000

Week 2 940 403 135 58 55,087 44,000 493 44,000

Week 3 940 403 135 58 55,087 88,000 33,406 44,000

Week 4 940 403 135 58 55,087 44,000 22,319

Week 5 984 422 142 61 57,667 44,000 8,652

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MRP List in ERP

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Stock Requirements List in ERP

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Detailed Production Scheduling

Snack bar production line is bottleneck Scheduling of production line is key to determining detailed production schedule

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Detailed Production Scheduling

Length of production runs

Longer runs reduces cost of setups Longer runs increase capacity utilization Shorter runs reduces cost of inventory

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Providing Production Data to Accounting

Production data does not get entered into an ERP system directly

Many methods of gathering shop floor data are available ERP allows shop floor data to be collected once for production and accounting purposes, and data is consistent in both areas

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ERP in Supply Chain Management

$
Raw Materials Goods

$
Goods

$
Goods

$
Goods

$
Goods

Supplier

Manufacturer

Wholesaler

Retailer

Information

Information

Information

Information

Information

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Customer

Supply Chain Management and ERP

ERP not required for Supply Chain Management (SCM) ERP can facilitate sharing information in real time Use of internet can reduce communication costs

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Supply Chain Metrics

Total Supply Chain

Cash-to-cash cycle time: Time from paying for raw materials to the time when cash is collected from the customer Total supply chain costs

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Supply Chain Metrics

Buyer-Supplier

Initial fill rate Initial-order lead-time On-time performance

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Chapter Summary

An ERP system can improve the efficiency of the production and purchasing processes. Efficiency begins with Marketing sharing sales forecasts with Production, which shares its production plans with Purchasing

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Chapter Summary continued

Production planning can be done without an ERP system, but and ERP system allows production to be linked to Purchasing and Accounting. This data sharing increases a companys overall efficiency

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Chapter Summary continued

Companies are building on their ERP systems to practice supply chain management. In doing this, the company looks at itself as part of a large process that includes customers and suppliers. Using information more efficiently along the supply chain can significantly reduce costs.

M0254 Enterprise Resources Planning 2004