1. Enterprise Business Processes and Applications (IS 6006) Masters in Business Information Systems 4 th Nov 2008 Fergal Carton Business Information Systems

2. Last week Discussion of Dearden / Vizard Examples of issues with “OVOTT” Wastage / discrepancies in inventory Plan, Buy, Make, Deliver model Bill of Materials links raw materials to finished goods

3. This week MRP ERP modules (Sales, Finance, Logistics, Procurement, Manufacturing) ERP is single instance PCB exercise: assignment practice Bill of Materials: matching supply with demand Addditional reading

4. Material Requirement Planning Emerged from BOMP in 60s Conversion of production plan for parent items (finished products) into a production plan of production or purchasing for component items Explosion of the requirements for a top level item through the BOM to generate component demand Executed at each level of Assembly / sub- assembly

5. Principles of MRP System to plan and control production and material flows core principle: demand for material, parts and components depends upon the demand for finished product Chain of causality from finished goods back to inventories: –possible to reduce inventory to the minimum –plan for procurement based on actual needs –able to cater for “lumpy” (i.e. dependent) demand

6. BOM = Recipe or formula How to produce our products List of components including possible substitutes How much of each Special conditions of operation Expected yields and labour productivity (i.e. standards) Extrapolate a cost per unit Stored in a Bill of Material (BOM)

7. Example: Bill of Material for desk 1 – List out the components 2 – describe the steps required for assembly 3 – arrange them in a possible manufacturing sequence

8. Screw Kit (1) Desk Top (1) Frame (1) Adjustable legs (4) Painted metal legs (4)Painted tubing (4) Long Tubes (2)Paint (1 dl) Leg Tubes (4)Paint (0.6 dl) Short Tubes (2) Solution 3 way junctions (4)

9. How MRP works Master production schedule: drives the system based on customer orders Bill of material (dependent demand) Inventory status file MRP package - contains the logic See diagram next page

10. Benefits of MRP Understanding the implications of changes in production schedule (by de-expediting parts) Keeping inventory low (25% decreases reported) while removing risk of stock-outs Better planning leading to: –reduction in lead times –better use of capacity –lowered risk of obsolete production (e.g. engineering firms) Early warning system: earliest delivery dates are known before promises are made

11. Without MRP Safety Stock Demand variations

12. With MRP Safety Stock Demand variations

13. Keeping tabs on Work-in-Progress (WIP) Inventory consumption –Something must trigger inventory consumption as production proceeds (BO, WO, PO, SO, …) –Visibility of inventory in Work-in-Progress (WIP) is low –You can measure output / consumption at intermediate points but beware of disrupting process

14. ERP is often single instance Single point of data entry (PO’s, SO’s, …) Inventory control Opportunity to re-design processes Single technical platform (support) Common language, common pool of data SalesShippingCollect cashProduction Customer information (ship-to, bill-to, install-at, …)

15. Finance Value Real-Time Decision Support Costing Human Resource Mgmt Asset Mgmt Accounts Receivable Accounts Payable General Ledger Sales Real-Time Decision Support Sale Customer Demand Mgmt Specification/ Configuration Mgmt Sales Force Mgmt Client Information Systems Price & Promotion Mgmt Sales\Order Entry Engineering Specification Real-Time Decision Support Release Mgmt Test Mgmt Revision Mgmt Product Development Process Definition Product Definition Procurement Purchase Real-Time Decision Support Vendor Performance Mgmt Financial Interfaces Product Performance Mgmt Receiving Mgmt Purchase Order Mgmt Quote/ Contract Mgmt Manufacturing Product Real-Time Decision Support Quality Mgmt Maintenance Mgmt Process Monitoring & Control Production Mgmt Resource Mgmt Planning & Scheduling Real-Time Decision Support Customer Logistics Fulfillment Real-Time Decision Support Transportation Mgmt Warehouse Mgmt Trade Mgmt Inventory Mgmt Distribution Planning Network Infrastructure VendorsCustomers

16. Process Monitoring & Control Not covered in “core” ERP functionality Resource Management Capacity requirements based on standards; machine time, labor time, etc. Rough cut capacity planning Maintenance Management Ability to integrate maintenance work orders and inventory in system Robust integration with fixed assets Good tracking of maintenance costs Planning & Scheduling Basic APICS standard planning (MS, RCCP, MRP, SFC) - requirements netted against on- hand inventories, lead times, etc. Multilevel master scheduling Multiplant MRP and DRP Basic shop floor control utilizing workorders, backflush and repetitive options Actual orders consume forecast Product Quality Mgmt Maintenance Mgmt Process Monitoring & Control Production Mgmt Resource Mgmt Planning & Scheduling Manufacturing - Core functionality Production Management Support for variety of production strategies; kanban, etc. for JIT, production planning process Track WIP inventory Record detailed costs Integration to quality management Quality Management. Basic quality reporting and issue tracking

17. Product Performance Management Good granularity of data Basic quality and defect tracking Receiving Management Integrated receiving inspection and quality tracking Items non-nettable until approved Receiving routings, matched with PO at dock Purchase Order Management Orders automatically generated for items through MRP, Min/Max, or manual requisitions Integrated receiving inspection and quality tracking Vendor Performance Management Good granularity of data and control over receiving date Basic vendor ratings/qualifications mgmt. Basic quality and delivery tracking Quote/Contract Management Limited RFQ & quote tracking Blanket orders Basic contract management Procurement - Core functionality Purchase Vendor Performance Mgmt Financial Interfaces Product Performance Mgmt Receiving Mgmt Purchase Order Mgmt Quote/ Contract Mgmt Financial Interfaces Fully integrated w/AP for 2-way or 3-way matching Fully integrated with costing for variance analysis automatic voucher generation

18. Trade Management Landed costs, multinational taxation and currency Network Infrastructure Hierarchical system of branch/plants can include suppliers and virtual warehouses Logistics - Core functionality Fulfillment Transportation Mgmt Network Infrastructure Distribution Planning Distribution requirements planning with multiple replenishment strategies and inventory stocking strategies Warehouse Management Basic inventory location tracking RF capable Limited advanced capabilities (pick/put away strategies, cross-docking) Inventory Management Visibility across organization Serial and lot control Transportation Management. Supports basic transportation processing, shipping documents, and organization of shipments Inventory Mgmt Trade Mgmt Distribution Planning Warehouse Mgmt

19. Sales Force Management Some support for configured quotes and quote tracking Automatic generation of orders from quotes Price & Promotion Management Multiple pricing methods (by item, family, customer) Basic promotions management (effectivity dates, volume or value discounts) Limited complex promotions and pricing management Customer Demand Management Forecasts generated from sales history or other algorithms Sales - Core functionality Sale Customer Demand Mgmt Sales Force Mgmt Client Information Systems Price & Promotion Mgmt Sales\Order Entry Specification / Configuration Management Feature and option-based system with simple if/then rule checking Robust integration with fixed assets Good tracking of maintenance costs Client Information Systems Customer hierarchies Multiple ship-to, bill-to addresses and contacts Very limited customer information Sales/Order Entry. Order templates, blanket orders and interbranch orders UCC 128 compliance Automatic credit check, order validity check Specification/ Configuration Mgmt

20. http://www.sap.com/solutions/business- suite/crm/featuresfunctions/sales.epx

21. http://www.sap.com/solutions/manufact uring/featuresfunctions/index.epx

22. PCB exercise –Read narrative –Draw a process map of the sales order process –Show how you would take into account specific customer requirements. –What are the strengths / weaknesses of the process mapping exercise? –How will you use this process map in the next stage of the project?

23. Strengths of process mapping Separates physical from virtual flows Flexible Intuitive Fast Facilitates sharing of ideas Helps define roles and responsibilities Highlights potential for automation –Bottlenecks, delays, errors, redundancy, …

24. Weaknesses of process mapping Biased representation? –Difficult to meet all people involved –Dependent on accuracy of information given by participants –Holes in understanding -> poor process –Doesn’t take into account new processes –Interpreted differently –Consistency in analysis when using multiple analysts –Only maps repetitive processes? –What about manual work? Find right level of abstraction Only theoretical? Complexity / overcomplication

25. How will you use the process map? Spot problems Optimise process Tool to explain / educate Map alternatives Draw “how we would like the process to work”

26. What is a Bill of Materials? Links demand and supply Sales require a customer oriented language to describe functionality –See example for iPhone Manufacturing need a supplier oriented language to describe Bill of Materials

27. Model names (sales)

28. Model numbers (manufacturing)

29. Additional reading from library The enterprise resource planning decade : lessons learned and issues for the future (Adam, Frédéric) Hershey, PA : Idea Group Pub., c2004. Second-wave enterprise resource planning systems : implementing for effectiveness (Graeme Shanks, Peter B. Seddon and Leslie P. Willcocks.) Cambridge, U.K. ; New York : Cambridge University Press, 2003. Mission critical : realizing the promise of enterprise systems (Davenport, Thomas H.) Boston, MA : Harvard Business School Press, 2000. Enterprise resource planning : global opportunities and challenges (Liaquat Hossain, Jon David Patrick, Mohammad A. Rashid.) Imprint Hershey, PA : Idea Group Pub. ; London : Information Science Pub., 2002.