Production and supply chain process MIS2101: Management Information Systems Based on material developed by C.J. Marselis

2 The supply chain Recall from Part 7… In the sales process, the organization is the supplier In the purchasing process, the organization is the buyer The movement of goods from supplier to the end customer is the “supply chain” Supplier  Organization  Customer

3 MRP and ERP Enterprise Resource Planning (ERP) systems evolved from Materials Resource Planning (MRP) systems MRP systems are a subset of ERP systems Concerned with the Supply Chain From raw materials to finished goods

4 Facilitating the production plan A production plan answers: Quantity of product to make? When to make product? How much raw materials to procure and when? A successful company must be able to Develop a good production plan Execute the plan Make adjustments when customer demand differs from the forecast

5 Production Approaches Products are made for inventory in anticipation of orders Most consumer products Products are made to fulfill specific orders Expensive products or high-customization products Combination of make-to- stock and make-to-order Final product assembled from stock for a customer (Dell!) Make to Stock Make to Order Assemble to order

6 Fitter Snacker’s Manufacturing Process

7 Production Problems in “Un- integrated” systems Hard to know how much and when to produce Problems arise in: Communication InventoryAccounting

8 Communication issues If production isn’t integrated with marketing: Production doesn’t know about sales promotions or unexpected planned orders Results: depleted inventory, overtime, expedited shipments, and material shortages Marketing doesn’t know about planned maintenance Results: unexpected reduction in production and unmet demand

9 Production planning process Develop aggregate production plan for groups of products Break down aggregate plan into product specific plans for smaller time periods Determine raw material requirements based on plan

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

11 Simple Sales Forecast In an integrated system Sales automatically recorded Accurate sales data available for forecasting Sales based on adjustment to previous year’s sales values Figure 4.3 Fitter Snacker’s sales forecast for January through June

12 Sales and operations planning How can manufacturing efficiently produce enough goods to meet projected sales? Figure 4.5 Fitter Snacker’s sales and operations plan for January through June

13 Demand Strategies If demand is greater than capacity OptionResult Choose not to meet the demand Lost sales Reduce promotional expenditures Potential lost sales Use overtime to increase capacity Increased costs Build up inventory in earlier periods Increased costs and lost inventory

14 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 This is essentially data warehousing and data mining! Sales provided from SD module Field where planner can “correct” the sales value

15 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 Marketing and sales: Evaluated on tons of cereal sold 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

16 Demand Management Fitter Snacker’s Demand Management process splits the Monthly SOP plan into weekly and daily increments (MPS – Master Production Schedule) 4/22 represents how many work “weeks” are in each month

17 Bill of Material MRP facilitates accurate planning of raw material purchases Bill of Material (BOM) List of materials and quantities needed to make a product

18 Lead Times and Lot Sizing To determine timing and quantity of purchases Lead time includes: Time for supplier to receive and process order Time to take material out of stock, package it, load it on a truck and deliver it to the manufacturer Time required at manufacturer to receive the material: Unload the truck, inspect the materials, move to storage location or production line Lot sizing: determining production or order quantities In many cases, lot sizes for purchased items are constrained by packaging and transportation

19 Purchasing and ERP Provides way to convert Requirements to Purchase Order automatically Help the purchasing specialist select the best vendor (best price) Options to evaluate vendors Convert MRP data to a purchase order

20 Production and Accounting in an Integrated System Information entered for material movement automatically updates accounting records Info can be entered through data entry, barcode, RFID, etc. Material received (for MRP) and the purchase order

21 Implications for Supply Chain Management Supply chain participants often use competitive bidding to reach a “winning” prices by reacting Creates adversarial relationship among participants

22 Supply Chain with ERP (Integration) Production plans can be shared along the supply chain in real time Managers can evaluate impact of plans on total cost across the supply chain Collaboration among participants leads to: Improved product quality Reduced paperwork Reduced inventories Increased customer responsiveness

23 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 Hoyt also simplified customer interaction with its configure-to-order (CTO) process

24 SCM with Customer Collaboration Case Study – Wal-Mart POS data from bar code scanners is recorded in a massive 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 5000 suppliers to directly access its data warehouse through its Retail Link program Wal-Mart is leading the effort to leverage RFID technology

25 Summary An ERP system can improve the efficiency of production and purchasing processes Begins with Marketing sharing sales forecast Production plan is created based on forecast and shared with Purchasing so raw materials can be ordered properly. Production planning can be done without an integrated system, but integrated system that allows MRP and Production to be linked to Purchasing and Accounting