Production and supply chain process

Production and supply chain processMIS2101: Management Information Systems

Based on material developed by C.J. Marselis

At Fitter Snacker, production manager schedules production based onexperience, 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

Mat

eria

l War

ehou

se Mixer

Mixer

Mixer

Mixer

Form Bake Pack

Fini

shed

Goo

ds W

areh

ouse

Snack Bar Line

Produces 200 bars/minute, 3,000 lb/hr

Operates 1 8-hour shift per day

Mixes 4,000 lbs/hrExcess 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 Inventory Accounting

What are some of these problems?

Production planning process What are the

major steps in the production planning process?

Sales and Operations Planning

Demand Management

MRPDetailedScheduling

Sales Forecasting

PurchasingProduction

StartingInventory

Sales and Operations Planning

Demand Management

MRPDetailedScheduling

Sales Forecasting

Sales Forecasting

PurchasingProduction

StartingInventoryStarting

Inventory

9

An integrated process

Sales and Operations Planning

Demand Management

MRPDetailedScheduling

Sales Forecasting

PurchasingProduction

StartingInventory

Sales and Operations Planning

Demand Management

MRPDetailedScheduling

Sales Forecasting

Sales Forecasting

PurchasingProduction

StartingInventoryStarting

InventoryPredicts 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

produceRequires 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

MRPDetailedScheduling

Sales Forecasting

PurchasingProduction

StartingInventory

Simple Sales Forecast

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

Jan. Feb. March April May JunePrevious Year (cases) 5734 5823 5884 6134 6587 6735Promotion Sales (cases) 300 300Previous Year base (cases) 5734 5823 5884 6134 6287 6435Growth: 3.0% 172 175 177 184 189 193Base Projection (cases) 5906 5998 6061 6318 6476 6628Promotion (cases) 500Sales Forecast (cases) 5906 5998 6061 6318 6476 7128

Sales Forecasting

Sales and operations planning – SOP or S&OP

What question does S&OP answer?

Sales and Operations Planning Dec. Jan. Feb. March April May June1) Sales Forecast 5906 5998 6061 6318 6476 71282) Production Plan 5906 5998 6061 6318 6900 67003) Inventory 100 100 100 100 100 524 964) Working Days 22 20 22 21 23 215) Capacity (Shipping Cases) 7333 6667 7333 7000 7667 70006) Utilization 81% 90% 83% 90% 90% 96%7) NRG-A (cases) 70.0% 4134 4199 4243 4423 4830 46908) NRG-B (cases) 30.0% 1772 1799 1818 1895 2070 2010

Jan. Feb. March April May JunePrevious Year (cases) 5734 5823 5884 6134 6587 6735Promotion Sales (cases) 300 300Previous Year base (cases) 5734 5823 5884 6134 6287 6435Growth: 3.0% 172 175 177 184 189 193Base Projection (cases) 5906 5998 6061 6318 6476 6628Promotion (cases) 500Sales Forecast (cases) 5906 5998 6061 6318 6476 7128

Sales Forecasting

Demand Strategies If demand is greater than capacity…

Option ResultChoose 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

0

5

10

15

20

25

30

35

Time

SupplyCapacity

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 fromSD 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

MRPDetailedScheduling

Sales Forecasting

PurchasingProduction

StartingInventory

Demand Management What does “Demand Management” do?

Week 1 Demand Management 1/2 - 1/5 Monthly Demand NRG-A 4134

NRG-B 1772 Working Days in Week 4 Working Days in Month 22 MPS NRG-A 752 Weekly Demand NRG-B 322

7522244134

3222241772

4/22 represents how many

work “weeks” are in each

month

18

Sales and Operations Planning

Demand Management

MRPDetailedScheduling

Sales Forecasting

PurchasingProduction

StartingInventory

Bill of Material

What is a BOM? Ingredient NRG-A NRG-BOats (lb) 300 250Wheat germ (lb) 50 50Cinnamon (lb) 5 5Nutmeg (lb) 2 2Cloves (lb) 1 1Honey (gal) 10 10Canola Oil (gal) 7 7Vit./Min. Powder (lb) 5 5Carob Chips (lb) 50Raisins (lb) 50Protein Powder (lb) 50Hazelnuts (lb) 30Dates (lb) 70

Quantity

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 vendorsConvert 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?

Supplier

Raw

Mat

eria

ls

Manufacturer Wholesaler Retailer

Cus

tom

er

Goods Goods Goods Goods Goods

$$ $ $ $

Information Information Information Information Information

Supplier

Raw

Mat

eria

ls

Manufacturer Wholesaler Retailer

Cus

tom

er

Goods Goods Goods Goods Goods

$$ $ $ $

Information Information Information Information Information

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 yearClosed 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