Case Study 4: Operate a Manufacturing Company (Extension) EGN 5621 Enterprise Systems Collaboration Summer B, 2014

What’s New in Mfg Extension? Company can design own products based on specified rules, but the total number of products keeps six. Distribution channel 14 is available Company can make investment to improve production capacity Reduce set-up time Increase production capacity No starting inventory. Each company needs to do planning, run MRP, and convert purchase requisitions to POs before starting game.

What’s New in Mfg Extension? Depreciation of fixed assets is assessed Fixed overheads are assessed Inventory storage cost for excess stock is assessed

1. Develop New Products At beginning of the game, each company has six finished products with a preset recipe for each product. You can change the recipe of a product during the simulation by changing its bill of materials with T-code ZCS02. During simulation, your company always has six BOMs of finished products. If your company still has inventory of the finished product, the system doesn’t allow you to change its BOM. Your new product must meet the guideline for recipes. When the system accepts your changes in BOM, it will change the description in the material master to match the new content and weight. 4 4

Muesli Manufacturing Association Label Regulation

List of Master Data Created for the Simulation Alphanumeric codes   6 Finished products $$-F01 $$-F02 $$-F03 $$-F04 $$-F05 $$-F06 6 Raw materials $$-R01 $$-R02 $$-R03 $$-R04 $$-R05 $$-R06 4 Packaging materials $$-P01 $$-P02 $$-P03 $$-P04 2 Vendors V01 V02 6 Bill of materials 1 Work center $$ 6 Routings 3 x 6 price lists (DC 10, 12, and 14) 6 info-records and 6 source lists for raw materials V01-$$-R01 V01-$$-R02 V01-$$-R03 V01-$$-R04 V01-$$-R05 V01-$$-R06 4 info-records and 4 source lists for packaging materials V02-$$-P01 V02-$$-P02 V02-$$-P03 V04-$$-P04 1 profit center 1 coster center

New Product Development (1/2)

New product development (2/2)

Change BOM for New Product (Before change) 9 9

Change BOM for New Product (After Change) 10 10

2. Distribution Channel 14 Only buy small boxes (0.5 kg) Less price sensitive Sensitive to advertising Payment delay of 5 to 15 steps Stronger preference for 3 particular products during the simulation 11 11

3. Investment for Production Capacity Improvement Reduce set-up time The default set-up time is 12 hours for changing product in your production line. If you want to keep product variety and wish to run small production batches, you can make investment to reduce the set-up time. The table below shows the set-up time as a function of your investment. If your investment is zero, the set-up time is 12 hours. If you invest 44,117.65, then the set-up time reduces to 10.5 hours. 12 12

Investment for Reducing Set-up Time 13 13

Production Improvement Decision

Special Investment for Reducing Set-up Time in the First Quarter In the first quarter, every company must invest 5,000 euros to reduce set-up time. After the first investment, it is up to your company to decide whether to make further investment. 15 15

Investment in SAP to Reduce Set-up Time Use T-code: FB50 G/L Account: 113300 (Weizen bank) D/C: credit Amount: 5,000 (first investment) G/L Account: 478000 (Lean manufacturing expense) D/C: debit Amount: 5,000 (first investment) Cost center: $$ 16 16

Investment for Reducing Set-up Time in SAP 17 17

Investment for Increasing Production Capacity Your company can make investment on equipment to increase your production capacity. This is a strategic decision for your operation. At the start of simulation, your production equipment is worth of 5 million euros with the production capacity of producing 21,000 boxes per day. 18 18

Increase Production Capacity For an additional machinery investment of 100,000 euros you can increase production capacity by 400 boxes per day. In order to obtain a daily capacity of 25,000 boxes, you need to invest 1 million euros. Formula for capacity improvement: Total daily capacity = 21,000 + (0.004 x additional machinery investment). 19 19

Investment for Improving Production Capacity in SAP Use T-code: FB50 G/L Account: 113300 (Weizen bank) D/C: credit Amount: Your investment G/L Account: 11000 (Machinery & equipment) D/C: debit Amount: Your investment 20 20

Difference between Investment for Reducing Set-up Time & Improving Production Capacity Investment for reducing set-up time is a one shot investment as manufacturing expense. Investment for improving production capacity is an investment to increase machinery assets. The annual depreciation of machinery assets is calculated as 10% of machinery value. 21 21

Investment to Improve Production Capacity in SAP 22 22

4. No Inventory at Beginning Each company needs to plan and complete the following steps before simulation: - Planning for finished products (T-code: MD61), - Run MRP (T-code, MD01), and - Convert purchase requisitions to Purchase orders (T-code:ME59N) - Convert planned orders to production order after raw and packing materials are available (T-code CO41)

Pricing decision

Marketing decision

Create Planned Independent Requirement for 6 Finished Products (MD61)

Create Planned Independent Requirement for 6 Finished Products (MD61)

Execute MRP

Create Purchase Orders from Purchase Requisitions (ME59N)

Convert Purchase Requisitions into Purchase Orders

Convert Planned Orders to Production Orders After simulation is started and when required raw and packaging materials are received, the planning manager needs to convert planned orders to production orders (T-code: CO41). You can release only those planned orders into production orders with which the required raw materials are available in your inventory.

Conversion of Planned Order (CO41)

Release Production Order(s)

Release Production Orders (CO41)

5. Depreciation of fixed assets Depreciation of fixed assets is assessed (ZCK11) Annual depreciation is calculated as 5% of building value and 10% of machinery value at 5 million Euros.

5. Depreciation of fixed assets Depreciation of fixed assets is assessed (ZCK11)

6. Fixed Mfg Overhead Fixed mfg overhead is assessed (T-code: ZCK11)

7. Inventory Storage Cost Each team has 2 warehouse storage areas: Finished product (02) - space for 250,000 boxes Raw materials (88) - space for 250,000 kg of raw materials and space for 500,000 boxes and space for 500,000 bags Additional warehouse space can be rented for: 100,000 boxes of finished products (or part thereof), @ € 200/step (less than € 0.01 per box per step) 100,000 kg (or part thereof), @ € 350/step (more expensive because they are raw materials) 100,000 boxes AND/OR bags (or part thereof), @ € 50 step The cost of additional storage will be automatically billed, and paid immediately.

Corporate Roles Designation CEO Check Financial Statement Make investment decisions for production Check summary sales report Check price market report Market & Sales Manager Check sales order report Maintain and change market expenditure Change selling prices for finished goods 39 39

Corporate Roles Designation Production Planning & MM Manager Create planned independent requirement Run MRP Release production orders Modify BOM Monitor production schedule Check product costs, including overhead costs Check raw materials cost per production order Convert purchase requisitions to purchase orders Track PO report Check MRP results Check individual stock level Check inventory report 40 40

Tasks for the Manufacturing Case Study No Roles Functions Transaction Code 1 CEO Watch financial statement F.01 Create GL Post (Investment) FB50 Check Price market report ZMarket Check Summary sales report ZVC2 Sales & Marketing Manager Check Sales order report ZVA05 Maintain marketing expense ZADS Change selling price for FG VK32 3 Production & Planning & MM Manager Create planned independent Requirements MD61 Run MRP MD01 Convert planned orders to production orders CO41 Modify BOM ZCS02 Check production schedule ZCOOIS watch finished product cost analysis ZCK11 Check raw materials cost per Prod. order ZKSB1 Automatically generate POs from purchase requisitions ME59N Track Purchase order report ZME2N Check MRP results MD07 Check individual stock level MD04 Check Inventory report ZMB52 2

Rules of the Game Each round will last for 30 steps (approx 1 min per step) End-of-round inventory is carried over to the next round You can sell a product only if you have it in stock You compete against the other teams and importers Your objective is to maximize profit

Participant’s Job Aid & Menu for Mfg Extension

Participant’s Job Aid & Menu for Mfg Extension

Raw Material Cost per PO

Product Cost Planning

Game Layout 30 steps 20 min

Login Information Client : 570 Login : $# $ = Team Letter, I, J, K, and L for pilot run M, N, O, and P for real run # = User 1 to User 4 Password: ERPSIM

User Menu for Mfg Extension

User Menu for Mfg Extension

Initial Financial Statement (F.01)