Ch 14 MRP - Operations Management Chapter 14 – Chapter...

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Unformatted text preview: Operations Management Chapter 14 – Chapter Material Requirements Planning (MRP) and ERP Planning 14 – 1 Outline Global Company Profile: Wheeled Global Coach Coach Dependent Demand Dependent Inventory Model Dependent Requirements Requirements Master Production Schedule Bills of Material Accurate Inventory Records Purchase Orders Outstanding Lead Times for Components 14 – 2 Outline – Continued MRP Structure MRP Management MRP Dynamics MRP and JIT Lot-Sizing Techniques 14 – 3 Outline – Continued Extensions of MRP Material Requirements Planning II Material (MRP II) (MRP Closed-Loop MRP Capacity Planning MRP In Services Distribution Resource Planning Distribution (DRP) (DRP) 14 – 4 Outline – Continued Enterprise Resource Planning (ERP) Advantages and Disadvantages of Advantages ERP Systems ERP ERP in the Service Sector 14 – 5 Learning Objectives When you complete this chapter you should be able to: 1. Develop a product structure 2. Build a gross requirements plan 3. Build a net requirements plan 4. Determine lot sizes for lot-for-lot, Determine EOQ, and PPB EOQ, 14 – 6 Learning Objectives When you complete this chapter you should be able to: 1. Describe MRP II 2. Describe closed-loop MRP 3. Describe ERP 14 – 7 Wheeled Coach Largest manufacturer of Largest ambulances in the world ambulances International competitor 12 major ambulance designs 18,000 different inventory items 6,000 manufactured parts 12,000 purchased parts 14 – 8 Wheeled Coach Four Key Tasks Material plan must meet both the Material requirements of the master schedule and the capabilities of the production facility facility Plan must be executed as designed Minimize inventory investment Minimize Maintain excellent record integrity 14 – 9 Benefits of MRP 1. Better response to customer Better orders orders 2. Faster response to market Faster changes changes 3. Improved utilization of facilities Improved and labor and 4. Reduced inventory levels 14 – 10 Dependent Demand The demand for one item is related The to the demand for another item to Given a quantity for the end item, Given the demand for all parts and components can be calculated components In general, used whenever a In schedule can be established for an item item MRP is the common technique 14 – 11 Dependent Demand Effective use of dependent demand Effective inventory models requires the following following 1. 2. 3. 4. 5. Master production schedule Specifications or bill of material Inventory availability Purchase orders outstanding Lead times 14 – 12 Master Production Schedule Master (MPS) (MPS) Specifies what is to be made and when Must be in accordance with the aggregate Must production plan production Inputs from financial plans, customer Inputs demand, engineering, supplier performance demand, As the process moves from planning to As execution, each step must be tested for feasibility feasibility The MPS is the result of the production The planning process planning 14 – 13 Master Production Schedule Master (MPS) (MPS) MPS is established in terms of specific MPS products products Schedule must be followed for a Schedule reasonable length of time reasonable The MPS is quite often fixed or frozen in The the near term part of the plan the The MPS is a rolling schedule The MPS is a statement of what is to be The produced, not a forecast of demand produced, 14 – 14 The Planning Process Production Capacity Inventory Marketing Customer demand Finance Cash flow Procurement Supplier performance Human resources Manpower planning Management Return on investment Capital Aggregate production plan Engineering Design completion Master production schedule Change production plan? Figure 14.1 14 – 15 The Planning Process Master production schedule Change requirements? Change capacity? Material requirements plan Capacity requirements plan No Is capacity plan being met? Is execution meeting the plan? Change master production schedule? Realistic? Yes Execute capacity plans Execute material plans Figure 14.1 14 – 16 Aggregate Production Plan Months Aggregate Production Plan (Shows the total quantity of amplifiers) Weeks Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 240-watt amplifier 150-watt amplifier 75-watt amplifier 100 500 300 100 500 100 450 100 Figure 14.2 14 – 17 January 1,500 February 1,200 1 2 3 4 5 6 7 8 100 450 Master Production Schedule Master (MPS) (MPS) Can be expressed in any of the Can following terms: following A customer order in a job shop (maketo-order) company Modules in a repetitive (assemble-toorder or forecast) company An end item in a continuous (stock-toforecast) company 14 – 18 Focus for Different Focus Process Strategies Process Make to Order Number of Number end items end (Process Focus) Assemble to Order Assemble or Forecast or (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Typical focus of the Typical master production schedule schedule Number of Number inputs inputs Examples: Schedule orders Schedule modules Figure 14.3 Print shop Machine shop Fine-dining restaurant Motorcycles Autos, TVs Fast-food restaurant Steel, Beer, Bread Lightbulbs Paper 14 – 19 MPS Examples For Nancy’s Specialty Foods Gross Requirements for Crabmeat Quiche Day Amount 6 50 7 8 100 9 47 10 60 11 12 110 13 75 14 and so on Gross Requirements for Spinach Quiche Day Amount 7 8 9 100 200 150 10 11 12 60 13 75 14 15 100 16 and so on Table 14.1 14 – 20 Bills of Material List of components, ingredients, List and materials needed to make product Provides product structure Items above given level are called Items parents parents Items below given level are called Items children children 14 – 21 BOM Example Level 0 1 B(2) Std. 12” Speaker kit Std. Product structure for “Awesome” (A) Product A td. Std. 12” Speaker kit w/ C(3) Smp-booster amp-booster a 2 E(2) Packing box and Packing installation kit of wire, bolts, and screws bolts, E(2) Std. F(2) Std. 12” Speaker booster assembly booster 3 D(2) G(1) D(2) Amp-booster 12” Speaker 12” Speaker 14 – 22 BOM Example Level 0 1 Product structure for “Awesome” (A) Product A 2 3 D(2) Part B: 2 x number of As = (2)(50) = 100 Std. Parttd. (3)(50) =Std. 12” Speaker kit w/ B(2) Std. 12” 3 x number of As = Speaker kit C(3) amp-booster 150 S C: amp-booster Part D: 2 x number of Bs + 2 x number of Fs = (2)(100) + (2)(300) = 800 Part E:(2) 2 x number of Bs Std. E E(2) F(2) Std. 12” Speaker booster 500 booster + 2 x number of Cs = (2)(100) + (2)(150) = assembly Part F: 2 x Packing box and = number of Cs (2)(150) = 300 Packing Part G: 1installation kit ofFs = x number of wire, (1)(300) = 300 G(1) D(2) bolts, and screws bolts, Amp-booster 12” Speaker 12” Speaker 14 – 23 Bills of Material Modular Bills Modules are not final products but Modules components that can be assembled into multiple end items into Can significantly simplify planning Can and scheduling and 14 – 24 Bills of Material Planning Bills (Pseudo Bills) Created to assign an artificial parent Created to the BOM to Used to group subassemblies to Used reduce the number of items planned and scheduled and Used to create standard “kits” for Used production production 14 – 25 Bills of Material Phantom Bills Describe subassemblies that exist Describe only temporarily only Are part of another assembly and Are never go into inventory never Low-Level Coding Item is coded at the lowest level at Item which it occurs which BOMs are processed one level at a time 14 – 26 Accurate Records Accurate inventory records are Accurate absolutely required for MRP (or any dependent demand system) to operate correctly operate Generally MRP systems require Generally 99% accuracy 99% Outstanding purchase orders must Outstanding accurately reflect quantities and scheduled receipts 14 – 27 Lead Times The time required to purchase, The produce, or assemble an item produce, For production – the sum of the For order, wait, move, setup, store, and run times and For purchased items – the time For between the recognition of a need and the availability of the item for production production 14 – 28 Time-Phased Product Time-Phased Structure Structure Start production of D 1 week Must have D and E Must completed here so production can begin on B begin D 2 weeks 2 weeks to weeks produce produce B E 2 weeks A E 1 week 2 weeks 1 week G 3 weeks 1 week C F | | | | D | | | | 1 2 3 4 5 Time in weeks 6 7 8 Figure 14.4 14 – 29 MRP Structure Data Files BOM Master production schedule Output Reports MRP by period report MRP by date report Lead times (Item master file) Planned order report Inventory data Material requirement planning programs (computer and software) Purchase advice Purchasing data Exception reports Order early or late or not needed Order quantity too small or too large Figure 14.5 14 – 30 Determining Gross Determining Requirements Requirements Starts with a production schedule for the Starts end item – 50 units of Item A in week 8 50 Using the lead time for the item, Using determine the week in which the order should be released – a 1 week lead time means the order for 50 units should be 50 released in week 7 released This step is often called “lead time This offset” or “time phasing” offset” 14 – 31 Determining Gross Determining Requirements Requirements From the BOM, every Item A requires 2 From Item Bs – 100 Item Bs are required in 100 week 7 to satisfy the order release for Item A Item The lead time for the Item B is 2 weeks – The release an order for 100 units of Item B in 100 week 5 week The timing and quantity for component The requirements are determined by the order release of the parent(s) release 14 – 32 Determining Gross Determining Requirements Requirements The process continues through the entire The BOM one level at a time – often called “explosion” “explosion” By processing the BOM by level, items By with multiple parents are only processed once, saving time and resources and reducing confusion reducing Low-level coding ensures that each item Low-level appears at only one level in the BOM appears 14 – 33 Gross Requirements Plan 1 . . . . . . . Required date Order release date Required date Order release date Required date Order release date Required date Order release date Required date Order release date Required date Order release date Required date Order release date 300 600 200 300 600 300 200 200 300 200 100 150 300 300 2 3 4 Week 5 6 7 50 100 150 8 Lead Time 50 1 week 2 weeks 1 week 2 weeks 3 weeks 1 week 2 weeks Table 14.3 14 – 34 Net Requirements Plan 14 – 35 Net Requirements Plan 14 – 36 Determining Net Determining Requirements Requirements Starts with a production schedule for the Starts end item – 50 units of Item A in week 8 50 Because there are 10 Item As on hand, Because 10 only 40 are actually required – (net 40 requirement) = (gross requirement - onhand inventory) hand The planned order receipt for Item A in The week 8 is 40 units – 40 = 50 - 10 40 40 14 – 37 Determining Net Determining Requirements Requirements Following the lead time offset procedure, Following the planned order release for Item A is now 40 units in week 7 units The gross requirement for Item B is now The 80 units in week 7 80 There are 15 units of Item B on hand, so There 15 the net requirement is 65 units in week 7 65 A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5 65 14 – 38 Determining Net Determining Requirements Requirements A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5 65 The on-hand inventory record for Item B The is updated to reflect the use of the 15 is items in inventory and shows no on-hand inventory in week 8 inventory This is referred to as the Gross-to-Net This calculation and is the third basic function of the MRP process of 14 – 39 Net Requirements Plan The logic of net requirements Gross Gross Allocations requirements + requirements Total Total requirements requirements – On Scheduled On Scheduled hand + receipts hand receipts Available inventory 14 – 40 Net Net = requirements requirements Gross Requirements Gross Schedule Schedule Figure 14.6 A S B C B C Master schedule for B for sold directly 1 2 3 Lead time = 4 for A Master schedule for A Periods 5 6 40 7 8 50 9 10 11 15 Lead time = 6 for S Master schedule for S 8 9 10 11 12 13 40 20 30 10 10 Periods Gross requirements: B 1 10 2 40+10 3 40 4 50 5 20 6 7 15+30 8 =50 =45 Therefore, these Therefore, are the gross requirements for B requirements 14 – 41 MRP Planning Sheet Figure 14.7 14 – 42 Safety Stock BOMs, inventory records, purchase and production quantities may not be perfect Consideration of safety stock may be prudent Should be minimized and ultimately eliminated Typically built into projected onhand inventory 14 – 43 MRP Management MRP is a dynamic system Facilitates replanning when changes Facilitates occur occur System nervousness can result from System too many changes too Time fences put limits on replanning Pegging links each item to its parent Pegging allowing effective analysis of changes changes 14 – 44 MRP and JIT MRP is a planning system that MRP does not do detailed scheduling does MRP requires fixed lead times MRP which might actually vary with batch size batch JIT excels at rapidly moving small JIT batches of material through the system system 14 – 45 Finite Capacity Scheduling MRP systems do not consider MRP capacity during normal planning cycles cycles Finite capacity scheduling (FCS) Finite recognizes actual capacity limits recognizes By merging MRP and FCS, a finite By schedule is created with feasible capacities which facilitates rapid material movement material 14 – 46 Small Bucket Approach 1. MRP “buckets” are reduced to daily or hourly The most common planning period (time The bucket) for MRP systems is weekly bucket) 2. Planned receipts are used internally to sequence Planned production production 3. Inventory is moved through the plant on a JIT Inventory basis basis 4. Completed products are moved to finished goods Completed inventory which reduces required quantities for subsequent planned orders subsequent 5. Back flushing based on the BOM is used to Back deduct inventory that was used in production deduct 14 – 47 Balanced Flow Used in repetitive operations MRP plans are MRP executed using JIT techniques based on “pull” principles principles Flows are carefully Flows balanced with small lot sizes small 14 – 48 Supermarket Items used by many products are Items held in a common area often called a supermarket supermarket Items are withdrawn as needed Inventory is maintained using JIT Inventory systems and procedures systems Common items are not planned by Common the MRP system the 14 – 49 Lot-Sizing Techniques Lot-for-lot techniques order just what Lot-for-lot is required for production based on net requirements net May not always be feasible If setup costs are high, lot-for-lot can If be expensive be Economic order quantity (EOQ) EOQ expects a known constant EOQ demand and MRP systems often deal with unknown and variable demand with 14 – 50 Lot-Sizing Techniques Part Period Balancing (PPB) looks at Part future orders to determine most economic lot size economic The Wagner-Whitin algorithm is a The complex dynamic programming technique technique Assumes a finite time horizon Effective, but computationally Effective, burdensome burdensome 14 – 51 Lot-for-Lot Example 1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 30 35 35 0 0 30 30 40 0 40 40 10 0 0 0 10 10 40 0 40 40 30 0 30 30 30 0 0 0 30 30 55 0 55 55 35 2 30 3 40 4 0 5 10 6 40 7 30 8 0 9 30 10 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Holding $1/week; Lead week 14 – 52 Lot-for-Lot Example No on-hand inventory is carried through the system Total holding cost = $0 3 4 5 6 7 8 9 10 1 2 Gross There are seven 35 30 for this 10 40 this plan setups 40 0 item in 30 0 30 requirements Total setup cost = 7 x $100 = $700 Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 30 35 35 0 0 30 30 40 0 40 40 10 0 0 0 10 10 40 0 40 40 30 0 30 30 30 0 0 0 30 30 55 55 0 55 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Holding $1/week; Lead week 14 – 53 EOQ Lot Size Example 1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 73 35 35 0 0 30 73 73 43 0 3 0 3 7 73 73 66 0 26 4 73 73 69 0 69 0 39 16 73 35 2 30 3 40 4 0 5 10 6 40 7 30 8 0 9 30 10 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 Holding $1/week; Lead week week Average weekly gross requirements = 27; EOQ = 73 units EOQ units 14 – 54 Annual demand = 1,404 Total cost = setup cost + 3holding cost 7 8 9 10 1 2 4 5 6 Total cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks) Gross 35 Total cost = $3,798 30 40 0 10 40 30 0 30 55 requirements Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) = Scheduled $730 receipts Projected on hand Net requirements Planned order receipts Planned order releases 73 35 35 0 0 30 73 73 0 0 0 0 0 7 73 73 0 0 0 4 73 73 0 0 0 0 0 16 73 EOQ Lot Size Example Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Holding $1/week; Lead week Average weekly gross requirements = 27; EOQ = 73 units EOQ units 14 – 55 PPB Example 1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 35 35 2 30 3 40 4 0 5 10 6 40 7 30 8 0 9 30 10 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Holding $1/week; Lead week EPP = 100 units units 14 – 56 Periods Combined Trial Lot Size (cumulative net requirements) PPB Example Part Periods Setup Costs Holding Total 2 30 0 1 2 3 4 5 6 7 8 9 10 2, 3 70 40 = 40 x 1 2, 3, 70 35 3040 40 Gross 4 0 10 40 30 0 30 55 r2, 3, 4, 5 equirements 80 70 = 40 x 1 + 10 x 3 100 + 70 = 170 2, 3, Combine periods 2 - 5 as= 40 xresultsxin the Part Period 4, 5, 120 230 this 1 + 10 3 Scheduled 6 + the EPP receipts closest to 40 x 4 Projected on hand 35 6 Net r6, 7 equirements 6, 7, 8 Planned order r6, 7, 8, 9 eceipts 40 70 70 100 0 30 = 30 x 1 30 = 30 x 1 + 0 x 2 120 = 30 x 1 + 30 x 3 100 + 120 = 220 Combine Planned order releases 10 periods 6 - 9 as this results in the Part Period closest to the EPP 55 0 100 + 0 = 100 Holding cost = $1/week; Setup cost = 300 + 190 = 490 $100; Holding $1/week; $100; Total cost EPP = 100 units units 14 – 57 PPB Example 1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 35 35 0 80 80 100 0 30 50 0 10 0 10 0 0 40 100 60 0 30 0 30 0 0 55 55 55 35 2 30 3 40 4 0 5 10 6 40 7 30 8 0 9 30 10 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Holding $1/week; Lead week EPP = 100 units units 14 – 58 Lot-Sizing Summary For these three examples Lot-for-lot EOQ PPB $700 $730 $490 e yielded a v in would ha 5 agner-Whit W cost of $45 with a total plan 14 – 59 Lot-Sizing Summary In theory, lot sizes should be recomputed In whenever there is a lot size or order quantity change quantity In practice, this results in system In nervousness and instability nervousness Lot-for-lot should Lot-for-lot be used when low-cost JIT can be achieved be 14 – 60 Lot-Sizing Summary Lot sizes can be modified to allow for Lot scrap, process constraints, and purchase lots lots Use lot-sizing with care as it can cause Use considerable distortion of requirements at lower levels of the BOM at When setup costs are significant and When demand is reasonably smooth, PPB, Wagner-Whitin, or EOQ should give reasonable results reasonable 14 – 61 Extensions of MRP Closed-Loop MRP MRP system provides input to the capacity MRP plan, MPS, and production planning process process Capacity Planning MRP system generates a load report which MRP details capacity requirements details This is used to drive the capacity planning This process process Changes pass back through the MRP Changes system for rescheduling system 14 – 62 Material Requirements Material Planning II Planning Once an MRP system is in place, inventory Once data can be augmented by other useful information information Labor hours Material costs Capital costs Virtually any Virtually resource resource System is generally called MRP II or System Material Resource Planning Material 14 – 63 Material Resource Planning Week 5 A. Units (lead time 1 week) Units Labor: 10 hours each Machine: 2 hours each Machine: Payable: $0 each Payable: $0 A. Units (lead time 2 weeks, Units 2 each required) Labor: 10 hours each Labor: 10 Machine: 2 hours each Machine: Payable: Raw material at $5 each Payable: $5 A. Units (lead time 4 weeks, Units 3 each required) Labor: 2 hours each Labor: Machine: 1 hour each Machine: Payable: Raw material at $10 each Payable: $10 6 7 100 1,000 200 0 200 2,000 400 1,000 300 600 300 3,000 Table 14.4 14 – 64 8 Closed-Loop MRP System Figure 14.8 14 – 65 Closed-Loop MRP System Production plan Priority Planning Capacity Planning No Desired Desired master production schedule schedule Realistic? Yes Material Material requirements (detailed) (detailed) Resource Resource planning planning First cut First capacity capacity Planning Capacity Capacity requirements (detailed) (detailed) Figure 14.8 14 – 66 Closed-Loop MRP System (detailed scheduling) Priority Control (work center throughput) Capacity Control Dispatch list No Is specific specific capacity adequate adequate ? No Input/output Input/output report report Execution Yes Execute the plan Is average average capacity adequate adequate ? Figure 14.8 14 – 67 Resource Requirements Profile 200 – 200 Standard labor hours 150 – 150 100 – 100 50 –Lot 50 1 Lot 2 Lot 7 Lot 4 Lot Lot 8 5 Lot Lot 10 Lot 14 13 Lot 16 Capacity exceeded Capacity in periods 4 & 6 in 200 – 200 Standard labor hours 150 – 150 Lot 6 Lot 6 “split” Lot 11 moved Lot 6 Lot 9 Lot 11 Available Available capacity capacity Lot 15 Available Available capacity capacity Lot 9 Lot 12 Lot 11 Lot 15 100 – 100 50 –Lot 50 1 Lot 2 Lot 7 Lot 4 Lot 8 Lot 12 – Lot 3 – Lot 3 Lot 5 Lot Lot 10 Lot 14 13 Lot 16 1 2 3 45 Period (a) 6 7 8 1 2 3 45 Period (b) 6 7 8 Figure 14.9 14 – 68 Resource Requirements Profile 200 – 200 Standard labor hours 150 – 150 100 – 100 50 –Lot 50 1 Lot 2 Lot 7 Lot 4 Lot Lot 10 Lot 14 13 Capacity exceeded Capacity in periods 4 & 6 in 200 – 200 Standard labor hours 150 – 150 Lot 6 Lot 6 “split” Lot 11 moved Lot 6 Lot 9 Lot 11 Available Available capacity capacity Lot 15 Available Available capacity capacity Lot 9 Lot 12 Lot 11 Lot 15 100 – 100 50 –Lot 50 1 Lot 2 Lot 7 Lot 4 Lot 12 – 1 Lot – Lot It isLot also possible to split lots 6 and 11 and Lot 16 16 Lot Lot Lot Lot 8 8 3 3 move them earlier in the schedule. This would 5 5 a3 with 4 5 6 7 2 void4any potential problems 2 3 late orders 8 5678 1 Period but Period increase inventory holding cost. would Lot Lot 10 Lot 14 13 (a) (b) Figure 14.9 14 – 69 Smoothing Tactics 1. Overlapping Sends part of the work to following Sends operations before the entire lot is complete operations Reduces lead time 2. Operations splitting 2. Sends the lot to two different machines for Sends the same operation the Shorter throughput time but increased setup Shorter costs costs 3. Order or lot splitting Breaking up the order into smaller lots and Breaking running part ahead of schedule running 14 – 70 MRP in Services Some services or service items are Some directly linked to demand for other services services These can be treated as dependent These demand services or items demand Restaurants Hospitals Hotels 14 – 71 MRP in Services (a) PRODUCT STRUCTURE TREE Veal picante #10001 Chef; Work Center #1 Helper one; Work Center #2 Cooked linguini #20002 Spinach #20004 Prepared veal and sauce #20003 Asst. Chef; Work Center #3 Figure 14.10 Uncooked linguini #30004 Sauce #30006 Veal #30005 14 – 72 MRP in Services (b) BILL OF MATERIALS Part Number 10001 20002 20003 20004 30004 30005 30006 Description Veal picante Cooked linguini Prepared veal and sauce Spinach Uncooked linguini Veal Sauce Quantity 1 1 1 0.1 0.5 1 1 Unit of Measure Serving Serving Serving Bag Pound Serving Serving Unit cost — — — 0.94 — 2.15 0.80 14 – 73 MRP in Services (c) BILL OF LABOR FOR VEAL PICANTE Labor Hours Work Center 1 2 3 Operation Assemble dish Cook linguini Cook veal and sauce Labor Type Chef Helper one Assistant Chef Setup Time .0069 .0005 .0125 Run Time .0041 .0022 .0500 14 – 74 Distribution Resource Planning Distribution (DRP) (DRP) Using dependent demand techniques Using through the supply chain through Expected demand or sales forecasts Expected become gross requirements Minimum levels of inventory to meet Minimum customer service levels customer Accurate lead times Definition of the distribution structure 14 – 75 Enterprise Resource Planning Enterprise (ERP) (ERP) An extension of the MRP system to An tie in customers and suppliers tie 1. Allows automation and integration of Allows many business processes many 2. Shares common data bases and Shares business practices business 3. Produces information in real time Coordinates business from Coordinates supplier evaluation to customer invoicing invoicing 14 – 76 Enterprise Resource Planning Enterprise (ERP) (ERP) ERP modules include Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management Customer (CRM) (CRM) 14 – 77 ERP and MRP Figure 14.11 14 – 78 ERP and MRP Customer Relationship Management Sales Order (order entry, product configuration, sales management) Shipping Distributors, retailers, and end users Invoicing Figure 14.11 14 – 79 ERP and MRP Master Production Schedule Inventory Management Bills of Material MRP Work Orders Purchasing and Lead Times Table 13.6 Figure 14.11 Routings and Lead Times 14 – 80 ERP and MRP Supply Chain Management Vendor Communication (schedules, EDI, advanced shipping notice, e-commerce, etc.) Figure 14.11 14 – 81 ERP and MRP Finance/ Accounting Accounts Receivable General Ledger Accounts Payable Payroll Figure Table 13.6 14.11 14 – 82 Enterprise Resource Planning Enterprise (ERP) (ERP) ERP can be highly customized to ERP meet specific business requirements requirements Enterprise application integration Enterprise software (EAI) allows ERP systems to be integrated with to Warehouse management Logistics Electronic catalogs 14 – 83 Enterprise Resource Planning Enterprise (ERP) (ERP) ERP systems have the potential to Reduce transaction costs Increase the speed and accuracy of Increase information information Facilitates a strategic emphasis on Facilitates JIT systems and integration 14 – 84 Advantages of ERP Systems 1. Provides integration of the supply chain, Provides production, and administration production, 2. Creates commonality of databases 3. Can incorporate improved best processes 4. Increases communication and Increases collaboration between business units and sites sites 5. Has an off-the-shelf software database 6. May provide a strategic advantage 14 – 85 Disadvantages of ERP Systems Systems 1. Is very expensive to purchase and even Is more so to customize more 2. Implementation may require major changes Implementation in the company and its processes in 3. Is so complex that many companies cannot Is adjust to it adjust 4. Involves an ongoing, possibly never Involves completed, process for implementation completed, 5. Expertise is limited with ongoing staffing Expertise problems problems 14 – 86 SAP’s ERP Modules Cash to Cash Covers all financial related activity: Accounts receivable General ledger Accounts payable Treasury Figure 14.12 Cash management Asset management Promote to Deliver Covers front-end customer-oriented activities: Marketing Quote and order processing Transportation Documentation and labeling After sales service Warranty and guarantees Design to Manufacture Covers internal production activities: Design Shop floor engineering reporting Production Contract/project engineering management Plant Subcontractor maintenance management Procure to Pay Recruit to Hire Covers all HR- and payroll-oriented activity: Time and attendance Payroll Travel and expenses Covers sourcing activities: Vendor sourcing Purchase requisitioning Purchase ordering Purchase contracts Inbound logistics Supplier invoicing/ matching Supplier payment/ settlement Supplier performance Dock to Dispatch Covers internal inventory management: Warehousing Forecasting Distribution planning Replenishment planning Physical inventory Material handling 14 – 87 ERP in the Service Sector ERP systems have been developed ERP for health care, government, retail stores, hotels, and financial services services Also called efficient consumer Also response (ECR) systems response Objective is to tie sales to buying, Objective inventory, logistics, and production inventory, 14 – 88 ...
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