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Chapter 12

Chapter 12. Enterprise Resource Planning. To Accompany Russell and Taylor, Operations Management, 4th Edition ,  2003 Prentice-Hall, Inc. All rights reserved. ERP and MRP. First came MRP around 1970 Thanks to George Plossl, Oliver Wight, Joseph Orlicki

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Chapter 12

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  1. Chapter 12 Enterprise Resource Planning To Accompany Russell and Taylor, Operations Management, 4th Edition,  2003 Prentice-Hall, Inc. All rights reserved.

  2. ERP and MRP • First came MRP around 1970 • Thanks to George Plossl, Oliver Wight, Joseph Orlicki • MRP is Material Requirements Planning • Then came MRP II around 1980 • MRP II is Manufacturing Resource Planning • Then came ERP around 1990 • Today, its ERP II

  3. Problems with the Mainframe Architecture • Poor data visibility • Long lead times on maintenance, modifications to legacy software (36 mos) • No GUI interfaces

  4. More problems • New software apps were expensive and time consuming to develop • Mainframes were computational bottlenecks • Desktop PCs sat idle 99% of the time

  5. Sales cannot track customer orders through the manufacturing/distribution process Sales cannot see what is happening in accounts receivable Information visibility across the enterprise is impossible Independent data pools are created that cannot be integrated Islands of automation are created End users develop their own independent applications that then run on departmental PC’s Centralized MIS shops have lead times of 36 months or longer Centralized mainframes are computing bottlenecks

  6. Mainframes were computational bottlenecks Centralized MIS shop backlogs were extending out to 36 months Only the centralized MIS shop could do maintenance and new development work Budgets for MIS shops were stretched to their limits Many new applications were being built Change requests for existing apps were frequent and increasing Each application had to reside entirely on the mainframe Competitive and customer environments are changing rapidly

  7. What to change to • An architecture in which the data are totally integrated • An architecture in which most of the processing is not done on mainframes • Decentralization of MIS • What architecture was this???

  8. How to cause the change • ERP implementation • Solves the problems identified above

  9. Enterprise Resource Planning (ERP) • Organizes and manages a company’s business processes by sharing information across functional areas • Connects with supply-chain and customer management applications

  10. ERP Modules

  11. ERP Modules Figure 12.1

  12. Finance & Accounting Sales & Marketing Production & Materials Management ERP Data Repository Human Resources ERP’s Central Database Figure 12.2

  13. ERP Implementation • First step is to analyze business processes • Which processes have the biggest impact on customer relations? • Which process would benefit the most from integration? • Which processes should be standardized? • Use of Internet portals can aid implementation

  14. Customer Relationship Management (CRM) • Plans and executes business processes that involve customer interaction • Changes focus from managing products to managing customers • Point-of-sale data is analyzed for patterns used to predict future behavior

  15. Supply Chain Management • Supply chain planning • Supply chain execution • Supplier relationships • Distinctions between ERP and SCM are becoming increasingly blurred

  16. Collaborative Product Commerce (CPC) • New product design and development and product life cycle management • Integrates customers and suppliers in the design process through the entire product life cycle

  17. Customer Relationship Management (CRM) Customers Collaborative Design Collaborative Manufacture Collaborative Product Commerce (CPC) Enterprise Resource Planning (ERP) Manufacture & Delivery Time to Customer Product Design Time to Market DFMA Collaborative Design Collaborative Manufacture Suppliers Supply Chain Management (SCM) Collaborative Product Commerce (CPC) Figure 12.3

  18. Design Production, Distribution Aftermarket Service mySAP PLM Supports the entire life-cycle Customer Relationship Management Support the entire business process Supply Chain Management Product Lifecycle Management As planned As maintained As required As designed As built

  19. Asset Life-Cycle Management Technical Assets Management Preventive Maintenance Business Partner Collaboration Work Clearance Management Work Order Cycle Quality Management Quality Engineering Quality Improvement Quality Notifications Quality Control Product Lifecycle Management, Edition 2001 Life-cycle Data Management Document Management Product Structure Management Integration to Office, CAD, SCADA & GIS Change& Configuration Management Program & Project Management Portfolio Management Product Life-cycle costing Project Management Life-Cycle Collaboration Collaborative Engineering Collaborative Project Management PLM Integration Product Safety Dangerous Goods Management Industrial Hygiene & Safety Waste Management Occupational Health Environment Health & Safety

  20. mySAP Services PLM in mySAP.com mySAP.com Enterprise Portal mySAP Enterprise Portals SRM mySAPSRM HRmySAPHR SCMmySAPSCM CRM mySAPCRM PLMmySAPPLM FINmySAPFinan- cials BImySAPBI 21 Industry Solutions ERPSAP R/3 Exchange mySAP Exchanges mySAP Technology

  21. Production Planning Capacity Planning Resource Level Items Aggregate production plan Resource requirements plan Product lines or families Plants Master production schedule Rough-cut capacity plan Critical work centers Individual products Material requirements plan Capacity requirements plan All work centers Components Shop floor schedule Input/ output control Manufacturing operations Individual machines Hierarchical Planning Process Forecast Figure 9.5

  22. Material Requirements Planning • Computerized inventory control & production planning system • Schedules component items when they are needed - no earlier and no later

  23. When to Use MRP • Dependent and discrete items • Complex products • Job shop production • Assemble-to-order environments

  24. Independent demand Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs 100 tables Discrete demand Continuous demand 400 – 300 – 200 – 100 – 400 – 300 – 200 – 100 – No. of tables No. of tables 1 2 3 4 5 Week M T W Th F M T W Th F Demand Characteristics Figure 12.4

  25. Material Requirements Planning

  26. Master production schedule Product structure file Material requirements planning Item master file Planned order releases Work orders Purchase orders Rescheduling notices Material Requirements Planning Figure 12.5

  27. Master Production Schedule • Drives MRP process with a schedule of finished products • Quantities represent production not demand • Quantities may consist of a combination of customer orders & demand forecasts • Quantities represent what needs to be produced, not what can be produced

  28. 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 Master Production Schedule

  29. Clipboard Level 0 Clip Ass’y (1) Rivets (2) Level 1 Pressboard (1) Top Clip (1) Bottom Clip (1) Pivot (1) Spring (1) Level 2 Product Structure Tree Figure 12.6

  30. Clipboard Top clip (1) Bottom clip (1) Pivot (1) Spring (1) Rivets (2) Finished clipboard Pressboard (1) Product Structure Tree Figure 12.6

  31. 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 Indented Bill of Material

  32. Specialized BOMS • Phantom bills • Transient subassemblies • Never stocked • Immediately consumed in next stage • K-bills • Group small, loose parts under pseudo-item number • Reduces paperwork

  33. Specialized BOMS • Modular bills • Product assembled from major subassemblies & customer options • Modular bill kept for each major subassembly • Simplifies forecasting & planning • X10 Automobile example • 3 x 8 x 3 x 8 x 4 = 2,304 configurations • 3 + 8 + 3 + 8 + 4 = 26 modular bills

  34. X10 Automobile Engines Exterior color Interior Interior color Body (1 of 3) (1 of 8) (1 of 3) (1 of 8) (1 of 4) 4-Cylinder (.40) Bright red (.10) Leather (.20) Grey (.10) Sports coupe (.20) 6-Cylinder (.50) White linen (.10) Tweed (.40) Light blue (.10) Two-door (.20) 8-Cylinder (.10) Sulphur yellow (.10) Plush (.40) Rose (.10) Four-door (.30) Neon orange (.10) Off-white (.20) Station wagon (.30) Metallic blue (.10) Cool green (.10) Emerald green (.10) Black (.20) Jet black (.20) Brown (.10) Champagne (.20) B/W checked (.10) Modular Bills of Material Figure 12.7

  35. Item Pressboard Lead time 1 Item no. 734 Annual demand 5000 Item type Purch Holding cost 1 Product/sales class Comp Ordering/setup cost 50 Value class B Safety stock 0 Buyer/planner RSR Reorder point 39 Vendor/drawing 07142 EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty LLC 1 Policy code 3 Item Master File DESCRIPTION INVENTORY POLICY Table 12.4

  36. PHYSICAL INVENTORY USAGE/SALES CODES On hand 100 YTD usage/sales 1100 Location W142 MTD usage/sales 75 On order 100 YTD receipts 1200 Allocated 75 MTD receipts 0 Cycle 3 Last receipt 8/25 Last count 9/5 Last issue 10/5 Difference -2 Cost acct. 00754 Routing 00326 Engr 07142 Item Master File Table 12.4

  37. Basic MRP Processes Exploding the bill of material Netting out inventory Lot sizing Time-phasing requirements

  38. ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIOD LOT SIZE QTY MADE IN LT - LEAD TIME 1 2 3 4 5 The MRP Matrix Table 12.5

  39. Basic MRP formulas • Net Requirements = Gross Requirements – scheduled receipts – On-hand Inventory(previous period) • Planned Order Receipt = function (Net Requirements, order policy) • Planned OrderRelease = Planned Order Receipt backed up by the lead time • Planned OrderReleasei-LT = Planned Order Receipti

  40. More formulas • On-hand inventoryi = on-hand inventoryi-1 + scheduled receiptsi + Planned Order Releasei – Gross Requirementsi • Gross Requirements for next level down are determined from the Planned Order Releases at the level above

  41. On-hand inventory • Is always the amount of on-inventory at the end of the period • All other items (gross req., net req., scheduled receipts, planned order receipts) are amounts at the beginning of the period

  42. 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 Example 12.1

  43. Product Structure Record Level 0 Clipboard Pressboard (1) Clip Ass’y (1) Rivets (2) Level 1 Level 0 Lapdesk Glue (4 oz) Pressboard (2) Beanbag (1) Trim (3’) Level 1 School Mate Products Example 12.1

  44. 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 Example 12.1

  45. 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 School Mate Products (25 + 175) = 200 units available (200 - 85) = 115 on hand at the end of Period 1 Example 12.1

  46. 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 School Mate Products 115 units available (115 - 85) = 20 on hand at the end of Period 2 Example 12.1

  47. 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 School Mate Products 20 units available (20 - 120) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3 Example 12.1

  48. 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 School Mate Products Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases Example 12.1

  49. 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 School Mate Products Example 12.1

  50. 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 School Mate Products Following the same logic, the Lapdesk MRP matrix is completed as shown Example 12.1

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