1. ERP Supply Chain Management:Production Planning, MRP, andDemand Management

2. Agenda / Lesson Summary Inefficient SCM inProblems at FitterDemand Detailed scheduling a Non-integrated Snacker Management& MRP System ProductionProduction Planning Master Production What to Make, How MuchPlanning in an ERP System Schedule (MPS) to Make, and, When to Make it? How M/S Integrates with How much materials toSales ForecastingSCM for this ProcessMRP Order, and when to The importance of order it?Sales & Operation Case Study:Focusing on demand Utilization and Planning (SOP)Kellogg Company and profit, not sales Capacity In SCM 3. New Terminology Material Requirements Planning (MRP) Stock out Sales Forecast Safety Stock Sales and Operations Plan (SOP) Demand Planning Master Production Schedule (MPS) Standard Costs Stock Requirements List Standard Costs Bill of Material (BOM) Direct Costs Lead Time Indirect Costs Lot Sizing Capacity Demand Management Purchase Requisition Sales History Purchase Order Aggregate Disaggregate Rpugh Cut Plan Inventory Production Plan Raw materials 4. Production OverviewTo meet customer demand efficiently, Fitter Snacker must: Develop a forecast of customer demand Develop a production schedule to meet the estimated demand ERP system is a good tool for developing and executing production plans Goal of production planning is to schedule production economically 5. Fitter Snackers Production ProblemsFitter Snacker has problems deciding how many bars to make and when to make them Communication problems FSs Marketing and Sales personnel do not shareinformation with Production personnel Production personnel find it hard to deal with sudden increases in demand might cause shortages or stockout 6. Fitter Snackers Production Problems Inventory problems Production manager lacks systematic method for: -Meeting anticipated sales demand -Adjusting production to reflect actual sales Accounting and purchasing problems The Production and Accounting Depts. must periodically compare standard costs (normal costs of manufacturing a product)with actual costs (overhead and labor)and then adjust the accounts for the inevitable differences 7. The Production Planning ProcessThree important principles for production planning: Work from sales forecast and current inventory levels to create an aggregate (combined) production plan for all products Break down aggregate plan into more specific production plans for individual products and smaller time intervals Use production plan to determine raw material requirements 8. The SAP ERP Approach to Production Planning 9. Sales Forecasting SAPs ERP system Simple To make a takes an integratedforecasting forecast fortechnique Fitter Snacker approachWhenever a sale isUse a prior Use previous yearsrecorded in Sales and periods salessales data inDistribution (SD) module, and then adjust combination withquantity sold is recorded those figures marketingas a consumption valuefor current initiatives tofor that material conditionsincrease sales 10. Sales Forecasting (contd.)Sales Forecasting JanFeb MarchApril MayJunePrevious Year5734 5823 58846134 6587 6735Promotion sales 300300Previous year base 5734 5823 58846134 6287 6435Growth (3%)172175177 184189193Base projection5906 5998 60616318 6476 6628Promotion500Sales Forecast 5906 5998 60616318 6476 7128 11. Sales & Operations PlanningSales and Operations Planning DecJan Feb March April May1) Sales Forecast 5906 5998 6061 631864762) Production 5906 5998 6061 63186900PlanPromotion sales3) Inventory100 100100100100 5244) Working Days 22 20 22 23235) Capacity 7333 6667 7333 700076676) Utilization81%90%83%90% 90%NRG A Bars 70%4134 4199 4223 44234830NRG A Bars 30%1772 1799 1818 18952070 12. Sales & Operations Planning In SAP ERP, sales forecast can be made using: Historical sales data from the Sales and Distribution (SD) module Input from plans developed in Controlling (CO) module CO module Profit goals for company can be set Sales levels needed to meet the profit goals can be estimated 13. Sales & Operations Planning Rough-cut planning: common term in manufacturing foraggregate planning Disaggregated to generate detailed production schedules Once SAP ERP system generates a forecast, the planner canview the results graphically Rough-cut capacity planning applies simple capacity-estimating techniques to the production plan to see if thetechniques are feasible 14. Sales and Operations Planning 15. Sales and Operations Planning 16. Demand Management Links the sales and operations planning process with detailedscheduling and materials requirements planning processes Output: master production schedule (MPS) Production plan for all finished goods For Fitter Snacker, MPS is an input to detailed scheduling, whichdetermines what bars to make and when to make them 17. Demand Management 18. Materials Requirements Planning (MRP) Determines required quantity and timing of the production orpurchase of subassemblies and raw materials needed tosupport MPS Bill of material (BOM): list of the materials (includingquantities) needed to make a product 19. Materials Requirements Planning (MRP) 20. Materials Requirements Planning (MRP) Lead times and lot sizing Lead time: cumulative time required for the supplier to receive and process the order, take the material out of stock, package it, load it on a truck, and deliver it to the manufacturer Lot sizing: determining production quantities and order quantities MRP record: standard way of viewing the MRP process on paper 21. Materials Requirements Planning (MRP)Figure 4-17 The MRP record for oats in NRG bars, weeks 1 through 5 22. Sales and Operations Planning (contd.) Disaggregating the sales and operations plan--Companies typically develop sales and operations plans for product groups--SAP ERP system allows any number of products to be assigned to a product group--Sales and operation plan disaggregated Production plan quantities specified for the group are transferred to the individual products that make up the group 23. Sales and Operations PlanningFigure 4-11Productgroupstructure inSAP ERP 24. Sales and Operations PlanningFigure 4-12Stock/Requirements Listfor NRG-A bars afterdisaggregation 25. Demand Management Links the sales and operations planning process with detailed scheduling andmaterials requirements planning processes Output: master production schedule (MPS) Production plan for all finished goods For Fitter Snacker, MPS is an input to detailed scheduling, which determineswhat bars to make and when to make them 26. Materials Requirements Planning (MRP) Determines required quantity and timing of the production orpurchase of subassemblies and raw materials needed to supportMPS Bill of material (BOM): list of the materials (including quantities)needed to make a product 27. Materials Requirements Planning (MRP) Figure 4-16 The bill of material (BOM) for Fitter Snackers NRG bars 28. Materials Requirements Planning (MRP)Lead times and lot sizing Lead time: cumulative time required for the supplier to receive and process the order, take the material out of stock, package it, load it on a truck, and deliver it to the manufacturer Lot sizing: determining production quantities and order quantitiesMRP record: standard way of viewing the MRP process on paper 29. Materials Requirements PlanningFigure 4-17 The MRP record for oats in NRG bars, weeks 1 through 5 30. Materials Requirements Planning in SAP ERP MRP list shows results of MRP calculationsMRP process creates planned orders tomeet dependent requirements Stock/Requirements List shows:Planned ordersPurchase requisitions (PurRqs)Purchase orders (POitem) Planner can convert a planned order to a purchase order from Stock/Requirements List by double- clicking the planned order line 30 31. Materials Requirements Planning in SAP ERP 31 32. Materials Requirements Planning in SAP ERP32 33. Materials Requirements Planning in SAP ERP Integrated information system allows Purchasing to make the best decision on a vendor based on relevant, up-to-date information Once Purchasing employee decides which vendor to use, the purchase order is transmitted to vendor System can be configured to fax order to vendor, transmit it electronically through EDI (electronic data interchange), or send it over the Internet 33 34. Detailed Scheduling Detailed plan of what is to be produced, considering machine capacity and available labor One key decision in detailed production scheduling How long to make the production runs for each product Production run length requires a balance between setup costs and holding costs to minimize total costs to the companyConcepts in Enterprise Resource Planning, Third Edition 34 35. Detailed Scheduling 36. Detailed Scheduling Production runs should be decidedby evaluating the cost ofequipment setup and holdinginventory Integrated information systemsimplifies this analysis Automatically collects accountinginformation that allows managersto better evaluate schedule trade-offs in terms of costs to company 37. Providing Production Data to Accounting In the manufacturing plant, ERP packagesdo not directly connect with productionmachines Data can be entered into SAP ERP througha PC on the shop floor, scanned by abarcode reader, or entered using a wirelessPDA Radio frequency identification (RFID)technology simplifies data collection In an integrated ERP system, theaccounting impact of a material transactioncan be recorded automatically 38. Providing Production Data to Accounting Once FS accepts shipment, Receivingmust notify SAP ERP system of the arrivaland acceptance of the material Goodsreceipt transaction Receiving department must match goodsreceipt with purchase order that initiatedit When receipt is successfully recorded,SAP ERP system immediately records theincrease in inventory levels for thematerial 39. Providing Production Data to Accounting Figure 4-23 Goods receipt screen in SAP ERP Concepts in Enterprise Resource Planning, Third Edition 39 40. The Traditional Supply Chain Supply chain: all activities that occur betweenthe growing or mining of raw materials andthe appearance of finished products on thestore shelf Traditional supply chain Information is passed through the supply chainreactively as participants increase theirproduct orders Inherent time lags cause problems40 41. The Traditional Supply Chain 42. Summary ERP system can improve the efficiency of production andpurchasing processes Efficiency begins with Marketing sharing a sales forecast Production plan is created based on sales forecast and sharedwith Purchasing so raw materials can be ordered properly 43. Summary Companies can do production planning without an ERPsystem, but an ERP system increases companys efficiency ERP system that contains materials requirements planningallows Production to be linked to Purchasing andAccounting This data sharing increases a companys overall efficiency 44. Summary Companies are building on their ERP systems and integrated systemsphilosophy to practice supply chain management (SCM) SCM: company looks at itself as part of a larger process that includescustomers and suppliers Using information more efficiently along the entire chain can result insignificant cost savings Complexity of the global supply chain Developing a planning system that effectively coordinates informationtechnology and people is a considerable challenge 45. Questions? More Information?