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

Learning Objectives

Describe the steps in the production planning process. 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.

Problems at Fitter Snacker (FN)

Production manager schedules production based on experience, rather than formal planning techniques

Consequences of the Failure to Use Formal Planning Techniques

Inaccurate

delivery promises to the

customer Inability to effectively manage shortages/overages when the order is placed

4

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

Facilitating the Production Plan

Production plan answers the following types of questions:

1) How much product should we make? 2) When should we make the product? 3) 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

Three Categories/Approaches of Production Systems

1. Make to Stock

2. Make to Order

3. Assemble to Order

Fitter Snackers Manufacturing Process

Mixes 4,000 lbs/hr Excess capacity to ensure line doesnt shutdown

Mixer Mixer Mixer

Snack Bar Line Form Bake Pack

Operates 1 8-hour shift per day

Changing from NRG-A to NRG-B bars takes 30 minutes

Finished Goods Warehouse

Raw Material Warehouse

Mixer

Produces 200 bars/minute, 3,000 lb/hr

Production Problems in Un-integrated Systems

Communication

Inventory

Accounting

What are some of these problems?

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 Not real-time, based on finished goods, large order production capacity conflicts, unable to accurately adjust production schedules, oversupply in raw materials Difficult to accurately estimate costs

Problems related to inventory management

Problems related to accounting

11

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)?

Sales Forecasting

Starting Inventory

Sales and Operations Planning

Demand Management

Detailed Scheduling

MRP

Production

Purchasing

Major Steps in the SAP R/3 Production Planning Process are:

Sales Forecasting 2. Sales and Operations Planning 3. Demand Management 4. MRP
1.
13

An Integrated Process
Predicts future demand for products
Sales Forecasting Starting Inventory

Sales and Operations Planning

Break production plan down into smaller time increments Create production schedule based on production plan from demand management Uses the schedule to 14 determine products and staffing

Demand Management

Determines what company should produce Requires starting inventory levels and sales forecast based on capacity Determines amount and timing of raw material orders

Detailed Scheduling

MRP

Production

Purchasing

Takes quantity and timing information from MRP and creates orders for suppliers

Sales Forecasting

Starting Inventory

Sales and Operations Planning

Demand Management

Detailed Scheduling

MRP

Production

Purchasing

15

1) Sales Forecasting

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

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

2) Sales and Operations Planning (SOP or S&OP)

What question does S&OP answer?

Jan. 5734 5734 172 5906 5906
Dec.

Sales Forecas ting Previous Year (cases ) Promotion Sales (cas es) Previous Year bas (cases e ) Growth: 3.0% Bas Projection (cas ) e es Promotion (cases) Sales Forecast (cas ) es
Sales and Operations Planning 1) Sales Forecast 2) Production Plan 3) Inventory 4) Working Days 5) Capacity (Shipping Cases ) 6) Utilization 7) NRG-A (cas es) 70.0% 8) NRG-B (cas es) 30.0%

Feb. 5823 5823 175 5998 5998

Jan. 5906 5906 100 22 7333 81% 4134 1772

March 5884 5884 177 6061 6061

Feb. 5998 5998 100 20 6667 90% 4199 1799 March 6061 6061 100 22 7333 83% 4243 1818

April 6134 6134 184 6318 6318

April 6318 6318 100 21 7000 90% 4423 1895

May 6587 300 6287 189 6476 6476

May 6476 6900 524 23 7667 90% 4830 2070

June 6735 300 6435 193 6628 500 7128

June 7128 6700 96 21 7000 96% 4690 2010

100

Demand Strategies
If

demand is greater than capacity

35 30 25 20 15 10 5 0 T im e S u p p ly C a p a c it y

Option Result Choose not to meet the Lost sales demand Reduce promotional expenditures Potential lost sales

Use overtime to increase Increased costs capacity Build up inventory in earlier periods Increased costs and lost inventory

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

Forecasting in an Integrated System

Sales provided from Sales and Distribution (SD) module Field where planner can correct the sales value

Kelloggs 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!

Sales and Operations Planning (SOP) Case Study

Kelloggs new sales order process focused on profit Kelloggs has reduced capacity, inventory and capital needs while increasing sales

Sales Forecasting

Starting Inventory

Sales and Operations Planning

Demand Management

Detailed Scheduling

MRP

Production

Purchasing

21

3) Demand Management

What does Demand Management do?

Week 1 1/2 - 1/5 4134 1772 4 22 752 322

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

4 4134 = 752 22 4 1772 = 322 22

4/22 represents how many work weeks are in each month

Sales Forecasting

Starting Inventory

Sales and Operations Planning

Demand Management

Detailed Scheduling

MRP

Production

Purchasing

23

4) MRPs Bill of Material (BOM)

What is a BOM?

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

Lead Times and Lot Sizing

When it comes to purchasing raw materials, what are

Lead

Times? Lot Sizes?

and why do I care?

5) Purchasing and ERP

Benefits if my production planning system is integrated with my procurement system

Convert MRP data to a purchase order

Options to evaluate vendors

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

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?

Raw Materials

$
Goods

$
Goods

$
Manufacturer
Goods

$
Wholesaler
Goods

$
Retailer
Goods

Supplier

Information

Information

Information

Information

Information

Customer

Supply Chain Integration

What kind of benefits do I get when I integrate my supply chain with my partners?

Inventory Control Case Study Hoyt Archery

Pre ERP, complete inventory count two times each year

Closed

plant for 3 days at cost of $5000 /day

Post ERP, accurate, real-time inventory information and ongoing cycle- counting process: items are counted each day

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

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

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
33