1. Production Logistics and ERP
Chapter 6

2. Production Logistics
Increased competitive pressures on production processes due to:
Shorter product development times
Focus on product quality
Shorter product life cycles
Production Logistics is SAP approach to production planning and control
Integrated with other Value chains in R/3 such as procurement and warehousing and SD.

3. Production Logistics (cont.)
Builds upon the integration of MRP II
Provides specific support for TQM and Kanban material management processes
More customer centric than MRP II with integration of sales information

4. Production Logistics (cont)
R/3 Org. Elements
Plant
Storage Location
Work center
MRP area
R/3 Business Objects
Material master
Production order
BOM
Sales & Operations plan
Master recipe

5. Production Logistics Scenarios
Sales-order related production
Production by lot size
Sales-order related repetitive manufacturing
Project-oriented make-to-order production
Production replenishment

6. Production Logistics VC
Order Prelim
Costing
Production
Order
Execution
Quality
Inspection
After production
Capacity
Planning
Production
Order
Creation
Inspection
Check by
lot
Defects
Recording
Inspection
Point
Related to process
Material
Staging
Sales
Support
Capacity
Planning
Information
System
QM cost
input

7. Production by Lot Size Scenario
Processing of Sales Plan
Determining quantities and dates
Purchase requisitions created
Single Item MPS
Creation, release and execution of production order
5. Goods issue
6. Completions of PO confirmation
7. Goods receipt
8. Settlement of PO

8. Production By Lot Size: Plan Processing
Profitability
Analysis w/static
Standard cost
Sales quantity
Copied from
CO-PA
Processing of
Sales and operation
planning
Demand
Program is to
Be created
Production
Plan is
created
Sales plan
Is created V V
Demand
Management
Demand
Program
edited

9. Production By Lot Size: Demand Management
Single
Item MPS V
Purchase
Requisition
created
Planned
Orders
created ^
Planned
Order
conversion
Processing
Stock
Material
Requests for
quotation sent
to vendors
Management
Of consignment
stocks
Internal procurement
With stock support
Order
arrived

10. Production By Lot Size: Creating Production Order
Con. Of plan
Order to prod.
Order is started
Creation of
Production
order
Production
Order is
created
Release of
Production
order V
Quality
Management
In production
Trans. Req.
generated
Prod. Order
Is released
Inspection lot
Created for
Prod order

11. Production By Lot Size: Execute Production Order
Execution of
Production order ^
Material is
produced
Material issue for
Production order
Is to be posted
Production order to
Be confirmed
Goods receipt
To be posted
Goods issue
For production
orders
Completion
Confirmation of
Prod. order
Goods receipt
processing V
Prod. Order
Is completely
confirmed
Prod. Order
Status is
Fully delivered
Actual costs
Updated in
Prod. order
Goods issue is
Posted for
Prod. order
Time management
processing
Settlement of
Production
order

12. Other Production Scenarios
Repetitive manufacturing
Make-to-order production
Process manufacturing
Project-related “Engineer to order”
Quality management for goods receipt from production

13. Autodesk Inc. Case $400M Company, growing at 20%/year
Ten sales offices in US and 5 development centers in US and Switzerland with 1900 people
Sells famous CAD and MM software
Goal was to maintain growth rate and ship products within 1 hour of receiving customer order
existing system was stretched by global growth and couldn’t handle multiple order codes; operating info was not available to executives for decision making
Used R/3 to redesign business model and 25 major business processes, including 240 subprocesses
Re-engineered order process for automatic pricing; reduced number of order codes
Can track sales in real time along with new product evaluation copies and manufacturing costs around the world
Future plans were to extend the software to Europe and Asia regions, remote access, allow for product downloading

14. A Normal Company’s Systems
Fitter Snacker, Inc.
Founded in the ’50s
A small manufacturer of healthy snack bars
NRG-A and NRB-B bars
Two divisions; Wholesale and Direct Sales

15. Problems with Fitter Snacker’s Systems:
Sources:
Three unintegrated systems
Sales Order System
Warehouse System
Accounting System
Manual handling of transactions
Information not available in “real time”

16. Fitter Snacker’s Systems
Quote
Sales
Order
Pick,
Pack and
Ship
Invoice
Payment
Returns
Warehouse
Accounting
Receiving
Fitter Snacker’s
Sales Process

17. Production and Materials Management at Fitter Snacker
Must answer the following questions:
How much of each bar should be produced?
What quantities of raw materials should be ordered?
When should raw materials be ordered

18. General Approaches to Production
Make-to-stock: Items produced in anticipation of orders
Make-to-order: Items produced to meet specific customer orders
Assemble to order: Final product assembled from make-to-stock items

19. Fitter Snacker Manufacturing Process
Raw Material Warehouse
Mixer
Form
Bake
Pack
Finished Goods Warehouse
Snack Bar Line

20. Fitter Snacker Production Problems
Communications
Marketing does not share data with production (sales promotions and large, unexpected orders)
Inventory
True inventory status not known
No real-time data on actual sales
Accounting and Purchasing
Difficulty forecasting raw material and labor costs
Adjusting accounts for actual vs. standard costs time consuming and done infrequently
MRP allows plant manager to plan production and raw materials for many periods. It works backwards from a sales forecast to create a production schedule. From there, given supplier lead times and finished product recipes, MRP works backwards to schedule raw material purchases. This is impossible to figure w/o a computer.

21. Production Planning Process
Work from sales forecast to create aggregate production plan
Break down aggregate plan into more specific plans
Use production plan to determine raw material requirements

22. SAP R/3 Approach to Production Planning
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales Forecasting
Purchasing
Production

23. Sales Forecasting

24. Sales and Operations Planning

25. Sales and Operations Planning

26. Sales and Operations Planning

27. Sales and Operations Planning

28. Sales and Operations Planning

29. Demand Management

30. Demand Management Calculation for Week 5
4,134 cases in Jan. x 3 days in week 5 ÷ 22 working days in Jan.
= cases
4,1984 cases in Feb. x 3 days in week 5 ÷ 20 working days in Feb.
= cases
Total = cases

31. MRP
Bill of Material

32. MRP
MRP Record

33. MRP List in SAP R/3

34. Stock Requirements List in SAP R/3

35. Detailed Production Scheduling
Snack bar production line is bottleneck
Scheduling of production line is key to determining detailed production schedule

36. Detailed Production Scheduling
Length of production runs
Longer runs reduces cost of setups
Longer runs increase capacity utilization
Shorter runs reduces cost of inventory

37. Providing Production Data to Accounting
Production data does not get entered into an ERP system directly
Many methods of gathering shop floor data are available
ERP allows shop floor data to be collected once for production and accounting purposes, and data is consistent in both areas

38. ERP in Supply Chain Management$ $ $ $ $
Goods
Goods
Goods
Goods
Goods
Raw Materials
Customer
Supplier
Manufacturer
Wholesaler
Retailer
Information
Information
Information
Information
Information

39. Supply Chain Management and ERP
ERP not required for Supply Chain Management (SCM)
ERP can facilitate sharing information in real time
Use of internet can reduce communication costs

40. Supply Chain Metrics Total Supply Chain
Cash-to-cash cycle time: Time from paying for raw materials to the time when cash is collected from the customer
Total supply chain costs

41. Supply Chain Metrics Buyer-Supplier Initial fill rate
Initial-order lead-time
On-time performance

42. Summary
An ERP system can improve the efficiency of the production and purchasing processes. Efficiency begins with Marketing sharing sales forecasts with Production, which shares its production plans with Purchasing

43. Summary continued
Production planning can be done without an ERP system, but and ERP system allows production to be linked to Purchasing and Accounting. This data sharing increases a company’s overall efficiency

44. Summary continued
Companies are building on their ERP systems to practice supply chain management. In doing this, the company looks at itself as part of a large process that includes customers and suppliers. Using information more efficiently along the supply chain can significantly reduce costs.