Chapter 4

Chapter 4 Learning Objectives Describe steps in the production planning process of a high volume manufacturer like Fitter Snacker Describe Fitter Snacker’s production and materials management problems Describe how a structured process for production and materials management planning enhances efficiency and decision making

Chapter 4 Learning Objectives Describe how production planning data in an ERP system can be shared with suppliers to increase supply-chain efficiency

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

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

Fitter Snacker Manufacturing Process Raw Material Warehouse Mixer FormBakePack Finished Goods Warehouse Snack Bar Line

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

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

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

Sales Forecasting

Sales and Operations Planning

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

MRP Bill of Material

MRP MRP Record

MRP List in SAP R/3

Stock Requirements List in SAP R/3

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

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

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

ERP in Supply Chain Management Supplier Raw Materials ManufacturerWholesalerRetailer Customer Goods $ $ $ $ $ Information

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

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

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

Chapter 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

Chapter 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

Chapter 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.