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Professor Debbie NightingaleRole of Information Technology in the Lean Enterprise Professor Debbie Nightingale October 2, 2002
Integrated EnterpriseCustomer Supplier Network Organization Processes Technology INFORMATION Manufacturing Operations Product Development Product Support Finance, H/R, Legal, etc... Information is a Key Enabler! 2 Deborah Nightingale, MIT © 2002
Learning Objectives Enterprise Resource PlanningProduct Data Management IT as Enabler for Collaborative Business Models Enterprise IT issues 3 Deborah Nightingale, MIT © 2002
Manufacturing Resources Planning (MRP II) DefinitionA method for the effective planning of all resources of a manufacturing company. Includes: Business Planning Sales & Operations Planning Production Planning MPS/MRP/CRP Execution Support for Resources and Material All integrated with Finance Source: APICS Dictionary 4 Deborah Nightingale, MIT © 2002
Work Centers/ Routings Materials Requirements PlanningTypical MRP II Diagram Production Plan Master Production Schedule Customer Orders Forecasts Work Centers/ Routings Materials Requirements Planning Item Master/ Bill of Material Capacity Requirements Planning Shop Floor Control Inventory Purchasing Source: T. Shaw Finance Functions 5 Deborah Nightingale, MIT © 2002
Typical Organization Chart vs. MRP IICEO Sales & Marketing Human Resources Engineering Quality Manufacturing Finance Distribution Field Service Production Plan Customer Orders Master Production Schedule Forecasts Item Master/ Bill of Material Work Centers/ Routings Materials Requirements Planning Capacity Requirements Planning Shop Floor Control Inventory Purchasing Finance Functions 6 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Integrated Closed-Loop SystemEnterprise Resources Planning (ERP) Definition1 Enterprise Resources Planning A method for the effective planning and controlling of ALL these sources needed to take, make, ship and account for customer orders in a manufacturing, distribution or service company. Includes: Typical MRP II Functions Sales Force Automation Engineering Functions/PDM Advanced Manufacturing Function Distribution/Logistics Functions Quality Functions Field Service Functions Complete Financial Functions Human Resources Functions Management Reporting ERP is a System for the Entire Company - A Global Tightly Integrated Closed-Loop System (1) Source:APICS Complex Industries Special Interest Group 7 Deborah Nightingale, MIT © 2002
Distribution/ LogisticsTypical ERP Functionality Sales & Marketing Manufact- uring Distribution/ Logistics Engineering PROGRAM MANAGEMENT Human Resources Quality Finance Field Service Source: T. Shaw 8 Deborah Nightingale, MIT © 2002
Engineering/Product Data Mgt.Document Creation, Management & Control CAD Interface/ Image Management Configuration Management − Change Order Creation & Control − Revision Control Engineering Data Management Product Information Management Technical Data Management Technical Information Management Engineering Item Data & BOMs 9 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Manufacturing − MPS, BOM, Routings, MRP, CRP,PAC MRPII FunctionalitySales & Operations Planning Integrated Production Configuration Statistical Inventory Control Flexible Product & Job Costing Options Kanban/JIT/Flow Manufacturing Support Theory of Constraints/Advanced Planning Systems 10 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Sales and Operations PlanningBalance Market Demand With Resource Capability Develops a Contract Between Manufacturing and Marketing A Single Set of Numbers Upon Which to Base Plans and Schedules Manages Inventory and Backlog Forecasting 11 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Advance Planning and Optimizing SystemSupply Chain Optimization Constraint-based multi-location master Planning − Generation of feasible production plans across multiple plants Constraint-based factory level scheduling − Generation of feasible schedules (integrated with feasible production plan) Optimized distribution and transportation planning − Intelligent allocation of inventory through a network 12 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Distribution/LogisticsPurchasing Supplier Reliability Analysis Distribution Requirements Planning Global Transportation Management Fleet Management Shipping & Receiving Import/Export Warehouse Management 13 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Human Resources Requisition Management Applicant TrackingEmployee Master Job Descriptions Employee Evaluations Training & Certification Management Payroll Deduction Accounting Benefits Tracking 14 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Quality Quality Management Plans Quality Specifications/RequirementsTest/Inspection Results Cause and Corrective Action Tracking Process/Product Certification Statistical Quality Control Cost of Quality Reporting Equipment & Tool Calibration Mgt 15 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Finance Financial Budgets General Ledger Accounts PayableAccounts Receivable Payroll Fixed Assets Cash Management Activity Based Costing Financial Statements 16 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Field Service Installation Management As-Maintained BOMWarranty Tracking Preventative Maintenance Scheduling & Control Service Order Planning & Control 17 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Typical ERP IntegrationSystem Wide Elements Sales & Marketing Engineering Manufact- uring Distribution/ Logistics Human Resources Quality Field Service Finance Implementation Support Tools Technology People / Processes 18 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Typical ERP IntegrationSystem Wide Elements Project Management & Project Costing (EVM) Executive Management Information System Work Flow Management Multi-Company Multi-Currency Multi-Lingual Multi-Mode EDI / Electronic Commerce Web Enabled / Internet Communications Imaging & Multi-Media 19 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Typical ERP TechnologyOpen Systems Client/Server RDBMS Standard APIs GUI, both navigation and function CASE Tools 4GL Report Writer/Data Warehouse People / Processes 20 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Why ERP? There Are Several Reasons Why a Company Will ConsiderThe Implementation of a New Backbone Business System: To Improve the Profitability of the Company To solve problems of Legacy Systems (Year 2000) To Be Able to Cope With New Production Requirements To Provide the Architectural Anchor for Rationalization of Acquisitions To Provide Interoperability of Its Organizations To Provide the Means for Supply Chain Management 21 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Why ERP? (continued) Reduce Costs - How Will ERP Help?Enable Reduced Resource Requirements due to: Fully Integrated Systems Where Everyone Has Instant Access to the Latest Accurate Information One Data Base, Data Is Added Only Once and Used by All The System Allows Interoperability of the Internal and External Supply Chain On Line (Vs.Batch) System Elements - Data Is Ther Automatically Work Flow Is Managed Efficiently Through System Action Messages and Routing of Decisions Paperless Systems Allow Efficient On-line approvals 22 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Who is Using and Installing ERP? America's Most Successful Companies6 out of the top 10 companies 7 of the 10 most profitable companies 9 of the 10 companies with the highest market value 7 of the top 10 pharmaceutical companies. 7 of the top 10 computer companies. 7 of the top 10 petroleum companies. 6 of the top 10 electronics companies. 8 of the top 10 chemical companies. 8 of the top 10 food companies. 23 Deborah Nightingale, MIT © 2002
Learning Objectives Enterprise Resource PlanningProduct Data Management IT as Enabler for Collaborative Business Models Enterprise IT issues 24 Deborah Nightingale, MIT © 2002
PDM Functional ComponentsElectronic Vault View and Markup Work Flow Tools and Integration- ware Electronic Collaboration Configuration Management Project Management Design Retrieval/ Component Libraries Scanning and Imaging Source : T. Shaw, Andersen consulting 25 Deborah Nightingale, MIT © 2002 Source: T. Shaw
An “Industrial Strength” PDM Enables All Participants Involved with Design Intent to Share and Disseminate All Heterogeneous Product Data ConfigurationManagement CAD Integration Product Data Management (PDM) Team Data Management (TDM) Work Flow Document Vaulting Electronic Document Management Systems (EDMS) DocumentImaging Work Group Enterprise Inter-enterprise 26 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Manufacturing Execution Systems Enterprise Requirements PlanningThe "Big M" or Enterprise View Encompasses all Components of the Product Life Cycle Generate Demand Marketing Strategic Planning Sales Management Engineered by Customer ry New Technologies CAD Simulations Models Constraint Management Two Dimensional Geometry Three Dimensional Geometry Solids Computer Aided Engineering “One” Bill of Materials Supply Chain IPPD Planning and Scheduling Fulfill Demand PDM WFM Performance Measurement and Enterprise Management Enetrprise Connectivity PDES/IGES Interoperability Manufacturing Execution Systems Enterprise Requirements Planning Near Real-Time "MRP" With Algorithms Appropriate to the Industry Dynamic Lead-times Capacity Constrained Master Scheduling Manufacturing Execution Systems Appropriate to the Industry Constraint Based Scheduling RF Data Transmission Logistics and Customer Support 27 Deborah Nightingale, MIT © 2002 Source: T. Shaw
PDM Systems View of FunctionalityECAD CSM Redline MCAD Workflow CAE CAM Project Management Configuration Management Bill of Material Part Master Routing 28 Deborah Nightingale, MIT © 2002 Source: T. Shaw
ERP Systems View of FunctionalityHuman Resources Bill of Material Part Master Sales & Marketing MRP II CSM Distribution Routing Financials Quality 29 Deborah Nightingale, MIT © 2002 Source: T. Shaw
The Enterprise View of PDM-ERP FunctionalityShared Resources Interoperability Area Management Reporting Human Resources Data Vault Sales & Marketing ECAD Redline Part Master MCAD CAE PDM Bill of Material ERP MRP II Distribution CAM Workflow Routing Financials Project Management Quality CSM Concurrent Engineering Design Manufacture Configuration Management 30 Deborah Nightingale, MIT © 2002 Source: T. Shaw
A Robust PDM Product Interfaces with Most Core Processes and Their Best Practice Implementation Support/Service Customer Instantaneous Delivery Real Time Services Solutions Near Real Time Customer Reaction Assessment Service Actions Data Base Develop Products/Processes Rapid Cycle Time Execution Team Based Program/Project Implementation 6 s Process Variability Information Technology Resources Optimization Multi-Discipline, Multi- Function Team Composition Integrated Development Processes Integrated Product/Process Release Fulfill Demand Single Bill of Materials Integrated Supply Chain Low Process Variability: Cpk ³ 1.6 Just-in-Time Inventory Strategy Information Technology Control of Operations Generate Demand Global Requirements – Local Interpretation Ultimate Customer Knowledge/ Understanding/ Characterization Real Time Market Intelligence Solutions Provider Customer(s) Chain Life Cycle Characterization Information Technology Resources Optimization Emerging Best Practices Full System/Product/ Process Modeling/ Simulation Highly Segmented Market Intelligence Real Time Supply Network Integration Adaptive Maintenance 31 Deborah Nightingale, MIT © 2002 Source: T. Shaw
PDM-ERP Will Dictate the Industry’s Future for Integration and Interoperability “Single System” versus “Integrated Systems” Solution Examples of Each Model Are Successfull Used Many Issues Impact Appropriate Decision − Scope, focus, objective, business, interoperability ERP PDM PDM ERP PDM ERP PDM ERP ERP PDM PDM 32 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Interfaces and Problem Resolution ??Integrated vs. Best of Breed Ferrari Dealership Big Al’s Auto Nirvana 2002 Best of Breed Ferrari Roadster Corvette 5.0 Liter Engine BMW M3 Transmission Porsche Transaxle Maserati Fuel Injection System Mercedes Designed Michelin Tires 2002 Ferrari Roadster 385hp Engine Tiptronic Transmission Multi Link Transaxle Motronic Fuel Injection Ferrari Designed Pirelli Tires (all components specifically designed to Ferrari specifications) Interfaces and Problem Resolution ?? One Call to your local Ferrari Service Mgr • Do you call the Service Mgr from….. You are Covered by a Single Warranty Corvette, BMW, Porsche, Maserati or Mercedes ?? 33 Deborah Nightingale, MIT © 2002 Source: T. Shaw
ERP Issues 1. 2. Implementation - can’t be outsourced!ERP - a Strategic Enterprise Decision – Providing interoperability of systems – Integrating supply chain – Enabling collaborative partnering 2. Implementation - can’t be outsourced! – Core cadre of key process owners – Minimum dependence on third party providers 3. Process Re-Engineering – Examine existing processes – Upgrade to best practices BEFORE implementing ERP 4. Data Conversion – Cleansed and accurate population of new data bases in essential 34 Deborah Nightingale, MIT © 2002
ERP Issues (continued)5. Stress Testing – Akin to a major system qualification – Often short changed since it occurs late in implementation 6. Stabilization of Systems – Minimum of 60 days after going live – Requires contingency plan for addressing by deliverables 7. Discipline - No cheating allowed! – Enterprise management must insist all data/reports come from ERP – Significant cultural change 8. Education and training – Personnel involved need extensive training – At least 10% of implementation budget 35 Deborah Nightingale, MIT © 2002
ERP Issues (continued)9. Implementation Cycle Time – Critical to assign outstanding program managers and capable people – Up to 100 people at one time – Cycle times of 15 months can be achieved 10. Cost -- why are ERP systems so expensive?!!! – ERP rolls all or most legacy systems, their licensing costs, maintenance costs, etc. into one systems – ROI can be VERY SIGNIFICANT! 36 Deborah Nightingale, MIT © 2002
Learning Objectives Enterprise Resource PlanningProduct Data Management IT as Enabler for Collaborative Business Models Enterprise IT issues 37 Deborah Nightingale, MIT © 2002
Everyone Shares InformationThe Vision of Collaborative Business Everyone Shares Information “Seamless flow of information” Source: LEM Overarching Principle Customers, employees, suppliers and business partners working together as one successful entity. 38 Deborah Nightingale, MIT © 2002
Personal, Collaborative Solutions on DemandMarketplaces Collaboration hubs Workplaces Portals for personalized, universal, role-based access e-Business Applications e-Commerce, CRM, SCM, Business Intelligence, Logistics, Financials, Human Resources Application Hosting Throughout the solution life cycle 39 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Electronic Marketplaces / Portals / Internet HubsBuying companies Selling companies Old World Customers Marketplace Suppliers New World Employees Partners 40 Deborah Nightingale, MIT © 2002 Source: T. Shaw
integration architectureIntegration Continues to be Key High Short term fix: Buy/build tactically A real plan: integration architecture Needed: A plan Openness Partners‘ Components Cross company synchronization Federated Marketplaces Common messaging semantics Strategic nature of integration Hacker‘s heaven Application System B Go to the lab: Low Time before plan changes High 41 Deborah Nightingale, MIT © 2002 Source: T. Shaw
New Type of Inter-Enterprise AppsB) Components migrate into marketplaces Serving multiple companies at a time Hosted Ubiquitious Personalized Self help Partner software built-in Integrated with back-end Scalability, performance, availability and security Supply Chain Optimization MRO Procurement Direct Procurement Planning and Optimizing Analysis Relationship Management Sales Service Marketing 42 Deborah Nightingale, MIT © 2002 Source: T. Shaw
Evolution of Business SolutionsEnterprise Resource Planning Objectives − Cost and Efficiency − Automation − Best-Practice Business Processes Integration of business processes Process-orientation Focus on internal systems Inter-Enterprise Cooperation Objectives − Cost and Efficiency − Optimization − Supply Chain Excellence Cooperation across enterprises Process-orientation Focus on point-to- point linking Business Collaboration Objectives − Create Value − Flexibility − Customer Relationship Management Collaboration within business communities User-orientation Focus on the Internet hub 43 Deborah Nightingale, MIT © 2002 Source: T. Shaw
exchange-based integrationExample: SRM Collaboration Application on a Web Services Architecture A&D Potential\ Suppliers Small Suppliers DoD portal-based interaction Web Browser exchange-based integration Large Suppliers Enterprise Systems 44 Deborah Nightingale, MIT © 2002 Source: SAP Group
Web Services ArchitecturePortal Infrastructure User-centric collaboration Unification of underlying sources for seamless navigation Device independent presentation technology PORTAL APPLICATIONS Web Application Server Web services provision Open standards-based connectivity through native Web technology Platform independent infrastructure EXCHANGE Exchange Infrastructure Process-centric collaboration Common business process semantics for seamless integration Application-independent business process collaboration * Example mySAP Technology 45 Deborah Nightingale, MIT © 2002 Source: SAP Group
Learning Objectives Enterprise Resource PlanningProduct Data Management IT as Enabler for Collaborative Business Models Enterprise IT issues 46 Deborah Nightingale, MIT © 2002
ERP Evolving Reality ERP systems are being implemented in companies of all sizes ERP is generally viewed as a business solution, not an IT solution Results on cost reduction for IT operations are mixed A single ERP system does not provide end-to-end solution - most companies use systems for specialized functionalities or decision-making processes ERP simplifies and standardizes systems across the firm ERP systems are very stable, able to handle large transaction processing ERP systems significantly improve data availability and quality Most companies are pleased with their ERP systems Source: Mabert, Soni and Venkataraman, “Enterprise Resource Planning: Common Myths Versus Reality” 47 Deborah Nightingale, MIT © 2002
Is There a Lean Way to Implement Enterprise Information Systems?1. Address process Simplify/eliminate waste Determine “best practice” Standardize across enterprise 2. Determine enterprise processes information requirements 3. Integrate information using ERP/PDM systems 4. Implement across extended enterprise Supplier Partner e-commerce/e-business 48 Deborah Nightingale, MIT © 2002
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