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

At Fitter Snacker, production manager schedules production based on experience, rather than formal planning techniques

MRP and ERP What is MRP and what does it have to do with ERP?

Facilitating the production plan What kind of questions does the production plan answer? A successful company must be able to Develop a good production plan Execute the plan Make adjustments when customer demand differs from the forecast

Production Approaches Make to Stock Make to Order Assemble to order

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

Production Problems in “Un- integrated” systems Communication InventoryAccounting What are some of these problems?

Production planning process What are the major steps in the production planning process?

9 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

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

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

Sales and operations planning – SOP or S&OP What question does S&OP answer?

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

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 SD module Field where planner can “correct” the sales value

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

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

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

Bill of Material What is a BOM?

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

Purchasing and ERP What benefits do I get if my production planning system is integrated with my procurement system? Options to evaluate vendors Convert MRP data to a purchase order

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 How quickly does information flow from the retailer all the way back to the raw materials suppliers when demand changes in: Non-integrated system? Integrated system?

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

Top Line Versus Bottom Line Where do Supply Chain Systems add value?

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

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

SCM Critical Success Factors Business-driven strategy – Focus on customer Management Commitment – From the business and IT, not an IT project! Supplier/Partner Expectation Management Internal Expectation Management Learning Period Acceptance

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