Production and Supply Chain Processes

1. Production and Supply Chain Processes MIS 2101: Management Information Systems Douglas M. Schutz Based on material developed by C.J. Marselis, Munir Mandviwalla. and Mart Doyle

2. Learning Objectives • Describe the steps in the production planning process. • Describe Fitter Snacker’s 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.

3. Problems at Fitter Snacker (FN) Production manager schedules production based on experience, rather than formal planning techniques

4. Consequences of the Failure to Use Formal Planning Techniques • Inaccurate delivery promises to the customer • Inability to effectively manage shortages/overageswhen the order is placed

5. What is Material Requirements Planning (MRP) and what is its relation to Enterprise Resource Planning (ERP)?

6. Facilitating the Production Plan • Production plan answers the following types of questions: • How much product should we make? • When should we make the product? • How much ____ materials should we procure and when? • A successful company must be able to • Develop and execute a good production plan • Make adjustments when customer demand differs from the forecast

7. Three Categories/Approaches of Production Systems 1. Make to Stock 2. Make to Order 3. Assemble to Order

8. Fitter Snacker’s Manufacturing Process

9. Mixer Snack Bar Line Mixer Form Bake Pack Raw Material Warehouse Finished Goods Warehouse Mixer Mixer Mixes 4,000 lbs/hr Excess capacity to ensure line doesn’t shutdown • Produces • 200 bars/minute, 3,000 lb/hr Operates 1 8-hour shift per day Changing from NRG-A to NRG-B bars takes 30 minutes

10. Production Problems in “Un-integrated” Systems Inventory Accounting Communication What are some of these problems?

11. Production Problems in “Un-integrated” Systems • Problems due to poor communications between Marketing and Production • Sales promotions, large orders, stockouts, increased procurement and production costs • Problems related to inventory management • Not real-time, based on finished goods, large order production capacity conflicts, unable to accurately adjust production schedules, oversupply in raw materials • Problems related to accounting • Difficult to accurately estimate costs

12. Production Planning Process • What are the major steps in the SAP R/3 Production Planning Process? (of any typical high-volume manufacturer such as Fitter Snacker)?

13. Major Steps in the SAP R/3 Production Planning Process are: • Sales Forecasting • Sales and Operations Planning • Demand Management • MRP

14. An Integrated Process Predicts future demand for products Determines what company should produce Requires starting inventory levels and sales forecast based on capacity Break production plan down into smaller time increments Determines amount and timing of raw material orders Create production schedule based on production plan from demand management Takes quantity and timing information from MRP and creates orders for suppliers Uses the schedule to determine products and staffing

15. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing

16. 1) Sales Forecasting • In an integrated system, where do I get the information to support my sales forecast? • Simple Sales Forecasting example:

17. 2) Sales and Operations Planning (SOP or S&OP) • What question does S&OP answer?

18. Demand Strategies • If demand is greater than capacity…

19. Forecasting in an Integrated System • Accurate historical sales values available for forecasting • “Fix” historical sales: • If production was unable to meet demand, sales does NOT represent actual demand • Unusual conditions like weather • The effect of sales promotions Sales provided from Sales and Distribution (SD) module Field where planner can “correct” the sales value

20. Sales and Operations Planning (SOP) Case Study • Kellogg’s achieved significant savings from coordinated Sales and Operations Planning (SOP) • Changed focus based on how they were evaluated; in the past: • Marketing and Sales: Evaluated on tons of cereal sold What is wrong with that measure? • Manufacturing: Evaluated on tons of cereal produced • No one evaluated on profit! • Kellogg’s new sales order process focused on profit • Kellogg’s has reduced capacity, inventory and capital needs while increasing sales

21. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing

22. 3) Demand Management • What does “Demand Management” do? 4/22 represents how many work “weeks” are in each month

23. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing

24. 4) MRP’s Bill of Material (BOM) • What is a BOM?

25. Lead Times and Lot Sizing • When it comes to purchasing raw materials, what are… • “Lead Times”? • “Lot Sizes”? and why do I care?

26. Options to evaluate vendors 5) Purchasing and ERP • Benefits if my production planning system is integrated with my procurement system Convert MRP data to a purchase order

27. Production and Accounting in an Integrated System • What benefits do I get when my production systems are integrated with my accounting systems? Material received (for MRP) and the purchase order

28. Implications for Supply Chain Management (SCM) • How quickly does information flow from the retailer all the way back to the raw materials suppliers when demand changes in: • Un-integrated system? • Integrated system?

29. Supply Chain Integration • What kind of benefits do I get when I integrate my supply chain with my “partners”?

30. SCM with Customer Collaboration: Case Study – Wal-Mart • POS (Point of Sale) data from bar code scanners is recorded in a data warehouse at Wal-Mart headquarters • Wal-Mart uses data mining techniques to predict what customers will buy at different times of the year • Data is shared with Wal-Mart suppliers to plan production • Wal-Mart also allows its 5,000 suppliers to directly access its data warehouse through its Retail Link program • Wal-Mart is leading the effort to leverage RFID technology

31. SCM Critical Success Factors 1) Business-driven strategy – Focus on customer 2) Management Commitment – Driven top down from the business supported by MIS 3) Supplier/Partner Expectation Management – Change Management 4) Internal Expectation Management – training and information 5) Learning Period Acceptance – takes time

32. Summary • An ERP system strategy can improve the efficiency of production and purchasing processes • Begins with Marketing sharing sales forecasts • Production plan is created based on forecast and shared with Purchasing so raw materials can be properly ordered. • Production planning could be done without an integrated system, but ERP containing MRP enables Production to be linked to Purchasing and Accounting • Data sharing increases efficiency and accuracy