Lecture 5. Enterprise Resource Planning Systems

1. Lecture 5. Enterprise Resource Planning Systems Informatics in Logistics Management Lecturer: Prof. Anatoly Sachenko

2. Lecture Overview • Main Definitions and Approaches • MRP Concept • CIM and CALS • Enterprise Resource Planning • KANBAN System • Optimized Production Technology • Lean Production Concept

3. Main Definitions and Approaches Logistics, for a long time, was confined to the execution of tasks such as : transport, storage, handling, conditioning, have moved upstairs over the last twenty years and now represents a strategic function. • Logistics & strategic feasibility: • Industrial • Purchasing • Commercial

4. Main Definitions and Approaches • De facto, no current corporate strategy must be undertaken without having consulted Logistics: • whether upstream with industrial strategies or purchasing strategies • Whether downstream with distribution strategies which are now, under the impulsion of the OMC, one a global scale. • These new strategies indeed require logistics at a more complex level in terms of customer techniques and transport.

5. Main Definitions and Approaches Logistics in constant rebuilding

6. Main Definitions and Approaches • Consumption and production are more and more geographically separated (delocalization) • Regions are specialized in the commodities they can produce more efficiently (specialization) • Logistics activities provide the bridge between production and market locations • Permanent changing business logistics practices due to: • Growing internationalization and globalization • Shifting toward more service-oriented economies • Computer software available to assist in solving practical-size problems

7. Manufacturing Resource Planning Definition and Goal • ManufacturingResource Planning (MRP II) is defined by APICS (American Production and Inventory Control Society) as a method for the effective planning of all resources of a manufacturing company • It is a total company management concept for using human resources more productively • The goal of MRPIIis to provide consistent data to all players in the manufacturing process as the product moves through the production line • This is not exclusively a SW function, but a marriage of people skills, dedication to data base accuracy, and computer resources

8. Manufacturing Resource Planning – 16 Group Functions • Sales and Operation Planning • Demand Management • Master Productiol1 Scheduling • Material Requirement Planning and Вillof Materials • Inventory Transaction Subsystem • Scheduled Receipts Subsystem • Shop Flow Control • Capacity Requirement Planning • Input/output control • Purchasing • Distribution Resource Planning • Tooling P1anning and Control • Financial Planning • Simulation • Performance Measurement

9. Manufacturing Resource Planning – Traits • MRP II systems have been implemented in most manufacturing industries • Some industries need specialized functions e.g. lot traceability in regulated manufacturing such as pharmaceutics or food • Other industries can afford to disregard facilities required by others • Capacity planning is the key to success in this as in many industries, and • it is in those that MRP II is less appropriate.

10. MRP and MRPII: History & Comparison • MRPII systems begin with MRP, Material RequirementsPlanning – the end of 1960’s • Manufacturing Resource Planning (MRPII) – the end of 70’s-begin of 80’s and MRP are both incremental info integration business process strategies • that are implemented using HW and modular SW applications linked to a central database that stores and delivers business data and information • MRP is dealing primarily with manufacturing materials purchasing, • while MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human relations

11. MRP and MRPII • MRP allows for the input of sales forecasts from sales and marketing • MRP and MRPII systems draw on a Master Production Schedule, the break down of specific plans for each product on a line • An MRPII output is a final labor and machine schedule • Data about the cost of production, machine time, labor time and materials used, as well as final production numbers, is provided from the MRPII system to accounting and finance

12. Master production schedule Product structure file Material requirements planning Item master file Planned order releases Work orders Purchase orders Rescheduling notices Manufacturing Resource Planning Frame

13. Customer orders Aggregate production plan Forecast No Feasible? Yes Master production schedule Material requirements planning Capacity requirements planning No Feasible? Feedback Yes Work orders Purchase orders Shop floor control Inventory Manufacture Manufacturing Resource Planning Algorithm

14. Customer orders Aggregate production plan Forecast No Feasible? Customer orders Aggregate production plan Forecast Yes Master production schedule Material requirements planning No Capacity requirements planning Feasible? No Feasible? Feedback Yes Yes Work orders Purchase orders Master production schedule Shop floor control Inventory Manufacture Manufacturing Resource Planning Algorithm

15. Customer orders Aggregate production plan Forecast No Feasible? Yes Master production schedule Master production schedule Material requirements planning Capacity requirements planning Material requirements planning No Capacity requirements planning Feasible? Feedback Yes No Work orders Purchase orders Feasible? Shop floor control Inventory Yes Manufacture Manufacturing Resource Planning Algorithm

16. Customer orders Aggregate production plan Forecast No Feasible? Yes Master production schedule Material requirements planning Capacity requirements planning No Feasible? Feedback Yes Purchase orders Work orders Shop floor control Inventory Work orders Purchase orders Shop floor control Inventory Manufacture Manufacture Manufacturing Resource Planning Algorithm

17. Manufacturing Resource Planning -Benefit • MRP II systems can provide: • Better control of inventories • Improved scheduling • Productive relationships with suppliers • For Design / Engineering: • Improved design control • Better quality and quality control • For Financial and Costing: • Reduced working capital for inventory • Improved cash flow through quicker deliveries • Accurate inventory records

18. Manufacturing Resource Planning – Criticism • Some authors argue that MRP and MRP II are actually sets of heuristics • Better production plans could be obtained by optimization over more powerful mathematical SW models, usually integer programming models • While they acknowledge that the use of heuristics, like those prescribed by MRP and MRP II, • were necessary in the past due to lack of computational power to solve complex optimization models, • this is no longer true

19. CIM • Computer Integrated Manufacturing – CIM appeared in the beginning of 1980’s • CIM is the manufacturing approach of using computers to control the entire production process • This integration allows individual processes to exchange info with each other and initiate actions • Through the integration of computers, manufacturing can be faster and less error-prone, although the main advantage is the ability to create automated manufacturing processes • Typically CIM relies on closed-loop control processes, based on real-time input from sensors • It is also known as flexible design and manufacturing

20. CALS • CALS - Continuous Acquisition and Life-cycle Support is a DOD initiative for electronically capturing military documentation and linking related info • The initiative has developed a number of standards for the exchange of e-data with commercial suppliers • It was often referred to as simply "CALS” which have been adopted by several other allied nations • CALS includes standards for electronic data interchange, electronic technical documentation, and guidelines for process improvement • CALS was known formerly as Computer-aided Acquisition and Logistic Support

21. Enterprise Resource Planning - Definitions • Enterprise Resource Planning (ERP) is an integrated computer-based system used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources • Its purpose is to facilitate the flow of information between all business processes and functions inside the organization and provide its optimization in sense of time and resources • Built on a centralized database and normally utilizing a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise-wide system environment • An ERP system can either reside on a centralized server or be distributed across modular HW & SW units that provide "services" and communicate on a local area network

22. Enterprise Resource Planning – Evolution • The initialize ERPwas first employed by research and analysis firm Gartner Group in 1990 as an extension of MRP (Material Requirements Planning-later Manufacturing Resource Planning and CIM (Computer Integrated Manufacturing) • While not supplanting these terms, it has come to represent a larger whole • It came into use as makers of MRP software started to develop software applications beyond the manufacturing arena • ERP systems now attempt to cover all core functions of an enterprise, regardless of the organization's business or charter • These systems can now be found in non-manufacturing businesses, • non-profit organizations and governments

23. Enterprise Management System within ERP Concept – Processes • Supply Chain Management-SCM • Advanced Planning and Scheduling - APS • Sale Force Automation – SFA • Stand Alone Configuration Engine – SACE • Finite Resource Planning – EFP • OLAP Technologies • E-Commerce • Product Data Management - PDM • Decision Support System • Main Task-to provide an optimization of those processes above

24. ERP System - Software Package • To be considered an ERP system, a software package should have the following traits: • Should be integrated and operate in real time with no periodic batch updates. • All applications should access one database to prevent redundant data and multiple data definitions. • All modules should have the same look and feel. • Users should be able to access any information in the system without needing integration work on the part of the IS department.

25. Enterprise Resource Planning • Organizes and manages a company’s business processes by sharing information across functional areas, and • Giving the company an integrated real-time view of its core processes, such as production, order processing, and inventory management • Connects with supply-chain and customer management applications

26. ERP System Functional Structure

27. ERP General Structure Finance & Accounting Production & Materials Management Sales & Marketing ERP Data Repository Human Resources

28. Enterprise Resource Planning - Implementation • Businesses have a wide scope of applications and processes throughout their functional units; • Producing ERP software systems that are typically complex and usually impose significant changes on staff work practices • Implementing ERP software is typically too complex for "in-house" skill, so it is desirable and highly advised to hire outside consultants who are professionally trained to implement these systems • This is typically the most cost effective way • There are three types of services that may be employed for - Consulting, Customization, Support

29. Enterprise Resource Planning - Data Migration • Data migration is one of the most important activities in determining the success of an ERP implementation • The following are steps of a data migration strategy that can help with the success of an ERP implementation: • Identifying the data to be migrated • Determining the timing of data migration • Generating the data templates • Freezing the tools for data migration • Deciding on migration related setups • Deciding on data archiving

30. Enterprise Resource Planning – ERP SystemsBenefits • Centralize the data in one place • Eliminates the problem of synchronizing changes between multiple systems - consolidation of finance, marketing and sales, human resource, and manufacturing applications • Permits control of business processes that cross functional boundaries • Provides top-down view of the enterprise, • real time information is available to management anywhere, anytime to make proper decisions • Reduces the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure • Shorten production lead-time and delivery time • Facilitating business learning, empowering, and building common visions

31. Enterprise Resource Planning - Disadvantages • Customization of the ERP software is limited • Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage. • ERP systems can be very expensive • ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies. • Many of the integrated links need high accuracy in other applications to work effectively. • Once a system is established, switching costs are very high for any one of the partners. • Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.

32. ERP - in Market • ERP Systems: • SAP (BPS, CRM, ERP, APS etc) • Oracle (CRM, ERP, DBMS, SCM etc) • Microsoft Dynamics (Nav и Ax) • IFS Application • JD Edwards Enterprise One • BAAN • Epicor/Scala

33. KANBAN System - Definition • Kanban (or kamban in Hepburn Romanization -kanji 看板, katakana カンバン, meaning "signboard" or "billboard") is a concept related to Lean and Just-in-Time (JIT) production • According to TaiichiOhno, the man credited with developing JIT, kanban is one means through which JIT is achieved • Kanban is not an inventory control system • Rather, it is a scheduling system that tells you what to produce, when to produce it, and how much to produce

34. KANBAN and JIT - History • The term kanbandescribes an embellished wooden or metal sign often representing a trademark or seal • Kanbanbecame an important part of the Japanese mercantile scene in the 17th century • In the late 1940s, Toyota began studying supermarkets with a view to applying store and shelf-stocking techniques to the factory floor • In 1950s the JIT-Just in time -is a production strategy that strives to improve a business return on investment by reducing in-process inventory and associated carrying costs • Just-in-time production method is also called the Toyota Production System • 1972-Kanban was firstly applied by corporation Toyota

35. KANBAN System – Traits • An important determinant of the success of production scheduling based on "pushing" the demand is the quality of the demand forecast that can receive such "push" • Kanban, by contrast, is part of an approach of receiving the "pull" from the demand • Therefore, the supply or production is determined according to the actual demand of the customers • In contexts where supply time is lengthy and demand is difficult to forecast, the best one can do is to respond quickly to observed demand • This is exactly what a kanban system can help with: It is used as a demand signal that immediately propagates through the supply chain

36. KANBAN System – Toyota’s Six Rules • Do not send defective products to the subsequent process • The subsequent process comes to withdraw only what is needed • Produce only the exact quantity withdrawn by the subsequent process • Equalize production • Kanban is a means to fine tuning • Stabilize and rationalize the process

37. KANBAN System – Three-bin System • A simple example of the kanban system implementation might be a "three-bin system" for the supplied parts (where there is no in-house manufacturing): • one bin on the factory floor (demand point), • one bin in the factory store, and • one bin at the suppliers' store • The bins usually have a removable card that contains the product details and other relevant information — the kanban card

38. KANBAN System

39. KANBAN – E-kanban systems • Many manufacturers have implemented electronic kanban systems or E-Kanban systems • E-Kanban systems help to eliminate common problems such as manual entry errors and lost cards • E-Kanban systems can be integrated into ERPsystems • It allows for real-time demand signaling across the supply chain and improved visibility • There is implemented a TQM –Total Quality Management • Data pulled from E-Kanban systems can be used to optimize inventory levels • Inventories cost per one produced car in 2000: • Toyota-$77, U.S. companies-about $500

40. Optimized Production Technology - Definitions • Optimized production technology (OPT) is a planning and scheduling software • It was developed by U.S. and Israel together, and • it’s known also as Israeli KANBAN • The OPT philosophy and SW aim to achieve the stated goal of manufacturing, which is to make money now and in the future • Some expert consider the OPT as a computerized Kanban • which preventsbottlenecks in a chain “supply-manufacturing-sale”, and • in contrast Kanban itself allows to delete the existing already bottlenecks • The philosophy of OPT was first expounded by Dr EliyahuGoldratt in his book The Goal (1984) • Goldratt introduced three new measures that he claimed are needed to assist in decision‐making at the operational level in a manufacturing company

41. OPT Technology - Three Measures • The three measures are in a form that can be used as a guide to operational decision‐making • It is reasonable to ask a foreman to consider whether running overtime, • which will certainly increase operating expenses, • will also increase throughput • These three measures can be shown to have direct impacts on the traditional measures of business performance, namely, profit, return on investment, and cash flow • Ideal situation would therefore be to schedule a factory in such a way that throughput is increased while, simultaneously, operating expenses and inventory are reduced

42. OPT Technology - Data • Models in the OPT system have two major components: dynamic and static data • The dynamic data include orders, inventories, and open purchase orders • The static data include the bill of materials, routings, and resource listings • All these data are usually to be found on the database of a manufacturing resources planning (MRPII) system • The OPT modeling language is flexible enough to permit quite complicated operations to be represented

43. Lean Production Concept • Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful • Working from the perspective of the customer who consumes a product or service, "value" is defined as any action that a customer would be willing to pay for • Essentially, Lean is centered on preserving value with less work • Lean manufacturing is a management philosophy derived mostly from the Toyota -Toyota Production System(TPS) identified as "Lean" only in the 1990s

44. Lean Goals • Improve quality: To stay competitive in today's marketplace, a company must understand its customers' wants and needs and design processes to meet their expectations and requirements • Eliminate waste: Waste is any activity that consumes time, resources, or space but does not add any value to the product or service • Reduce time: Reducing the time it takes to finish an activity from start to finish is one of the most effective ways to eliminate waste and lower costs • Reduce total costs: To minimize cost, a company must produce only to customer demand • Overproduction increases a company’s inventory costs because of storage needs.

45. Lean Strategy and Steps to Achieve Lean Systems • The strategic elements of Lean • Lean as a fixed state or goal (Being Lean) • Lean as a continuous change process (Becoming Lean) • Lean as a set of tools or methods (Doing Lean/Toolbox Lean) • Lean as a philosophy (Lean thinking) • The following steps to achieve lean systems • Design a simple manufacturing system • Recognize that there is always room for improvement • Continuously improve the lean manufacturing system design

46. Design a Simple Manufacturing System • A fundamental principle of lean manufacturing is demand-based flow manufacturing • In this type of production setting, inventory is only pulled through each production center when it is needed to meet a customer's order • The benefits of this goal include: • decreased cycle time • less inventory • increased productivity • increased capital equipment utilization

47. Chronology of ERP’s Concepts