Chapter 12. Enterprise Resource Planning

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1 Chapter 12 Enterprise Resource Planning

2 Enterprise Resource Planning (ERP) Organizes and manages a company s business processes by sharing information across functional areas Connects with supply-chain and customer management applications

3 ERP Modules

4 ERP Modules Figure 12.1

5 ERP s Central Database Finance & Accounting Sales & Marketing ERP Data Repository Production & Materials Management Figure 12.2 Human Resources

6 ERP Implementation First step is to analyze business processes Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which processes should be standardized? Use of Internet portals can aid implementation

7 Customer Relationship Management (CRM) Plans and executes business processes that involve customer interaction Changes focus from managing products to managing customers Point-of of-sale data is analyzed for patterns used to predict future behavior

8 Supply Chain Management Supply chain planning Supply chain execution Supplier relationships Distinctions between ERP and SCM are becoming increasingly blurred

9 Collaborative Product Commerce (CPC) New product design and development and product life cycle management Integrates customers and suppliers in the design process though the entire product life cycle

10 Collaborative Product Commerce (CPC) Customer Relationship Management (CRM) Customers Time to Market Collaborative Product Commerce (CPC) Product Design Collaborative Design Collaborative Design DFMA Collaborative Manufacture Collaborative Manufacture Manufacture & Delivery Enterprise Resource Planning (ERP) Time to Customer Suppliers Figure 12.3 Supply Chain Management (SCM)

11 ERP and MRP MRP (material requirements planning) was the precursor to ERP Primarily a production planning and control system MRP evolved to MRP II (manufacturing resource planning) ERP and ERP II continue to extend the links through all business processes

12 Material Requirements Planning Computerized inventory control & production planning system Schedules component items when they are needed - no earlier and no later

13 When to Use MRP Dependent and discrete items Complex products Job shop production Assemble-to to-order order environments

14 Demand Characteristics Independent demand Dependent demand 100 x 1 = 100 tabletops 100 tables 100 x 4 = 400 table legs No. of tables Continuous demand No. of tables Discrete demand Figure Week M T W Th F M T W Th F

15 Material Requirements Planning

16 Material Requirements Master production schedule Planning Product structure file Material requirements planning Item master file Planned order releases Figure 12.5 Work orders Purchase orders Rescheduling notices

17 Master Production Schedule Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced

18 Master Production Schedule PERIOD MPS ITEM Clipboard Lapdesk Lapboard Pencil Case

19 Product Structure Tree Clipboard Level 0 Pressboard (1) Clip Ass y (1) Rivets (2) Level 1 Top Clip (1) Bottom Clip (1) Pivot (1) Spring (1) Level 2 Figure 12.6

20 Product Structure Tree Clipboard Top clip (1) Bottom clip (1) Pivot (1) Spring (1) Finished clipboard Pressboard (1) Rivets (2) Figure 12.6

21 Indented Bill of Material LEVEL ITEM Clipboard Clip Assembly Top Clip Bottom Clip Pivot Spring Rivet Press Board UNIT OF MEASURE QUANTITY ea 1 ea 1 ea 1 ea 1 ea 1 ea 1 ea 2 ea 1

22 Specialized BOMS Phantom bills Transient subassemblies Never stocked Immediately consumed in next stage K-bills Group small, loose parts under pseudo-item number Reduces paperwork

23 Specialized BOMS Modular bills Product assembled from major subassemblies & customer options Modular bill kept for each major subassembly Simplifies forecasting & planning X10 Automobile example 3 x 8 x 3 x 8 x 4 = 2,304 configurations = 26 modular bills

24 Modular Bills of Material X10 Automobile Engines Exterior color Interior Interior color Body (1 of 3) (1 of 8) (1 of 3) (1 of 8) (1 of 4) Figure Cylinder (.40) Bright red (.10) Leather (.20) Grey (.10) Sports coupe (.20) 6-Cylinder (.50) White linen (.10) Tweed (.40) Light blue (.10) 8-Cylinder (.10) Sulphur yellow (.10) Plush (.40) Rose (.10) Neon orange (.10) Metallic blue (.10) Cool green (.10) Emerald green (.10) Black (.20) Jet black (.20) Brown (.10) Champagne (.20) B/W checked (.10) Two-door (.20) Four-door (.30) Off-white (.20) Station wagon (.30)

25 Item Master File DESCRIPTION Item Pressboard Item no. 734 Item type Product/sales class INVENTORY POLICY Lead time 1 Annual demand 5000 Holding cost 1 Ordering/setup cost 50 Safety stock Annual demand Purch Comp Value class B Safety stock Buyer/planner RSR Reorder point 39 Vendor/drawing EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty LLC 1 Policy code 3 Table 12.4

26 Item Master File PHYSICAL INVENTORY USAGE/SALES On hand 100 YTD usage/sales 1100 Location W142 MTD usage/sales 75 On order 100 YTD receipts 1200 Allocated 75 MTD receipts 0 Cycle 3 Last receipt 8/25 Last count 9/5 Last issue 10/5 Difference -2 CODES Cost acct Routing Engr Table 12.4

27 Basic MRP Processes 1. Exploding the bill of material 2. Netting out inventory 3. Lot sizing 4. Time-phasing requirements

28 The MRP Matrix ITEM NAME OR NO. LOT SIZE QTY MADE IN LLC - LOW LEVEL CODE PERIOD LY - LEAD TIME Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases Beg Inv Derived from MPS or planned order releases of the parent On order and scheduled to be received Anticipated quantity on hand at the end of the period Gross requirements net of inventory and scheduled receipts When orders need to be received When orders need to be placed to be received on time Table 12.5

29 School Mate Products Master Production Schedule Clipboard Lapdesk Item Master File CLIPBOARD LAPDESK PRESSBOARD On hand On order 175 (Period 1) 0 0 (sch receipt) LLC Lot size L4L Mult 50 Min 100 Lead time Example 12.1

30 School Mate Products Product Structure Record Clipboard Level 0 Pressboard (1) Clip Ass y (1) Rivets (2) Level 1 Lapdesk Level 0 Pressboard (2) Trim (3 ) Beanbag (1) Glue (4 oz) Level 1 Example 12.1

31 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Gross Requirements Scheduled Receipts 175 Projected on Hand 25 Net Requirements Planned Order Receipts Planned Order Releases Example 12.1

32 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Gross Requirements Scheduled Receipts 175 Projected on Hand Net Requirements 0 Planned Order Receipts Planned Order Releases ( ) = 200 units available (200-85) = 115 on hand at the end of Period 1 Example 12.1

33 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Gross Requirements Scheduled Receipts 175 Projected on Hand Net Requirements 0 0 Planned Order Receipts Planned Order Releases 115 units available (115-85) = 20 on hand at the end of Period 2 Example 12.1

34 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Gross Requirements Scheduled Receipts 175 Projected on Hand Net Requirements Planned Order Receipts 100 Planned Order Releases units available (20-120) = additional Clipboards are required Order must be placed in Period 2 to be received in Period 3 Example 12.1

35 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Gross Requirements Scheduled Receipts 175 Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases Example 12.1

36 School Mate Products ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: Gross Requirements Scheduled Receipts Projected on Hand 20 Net Requirements Planned Order Receipts Planned Order Releases Example 12.1

37 School Mate Products ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases Following the same logic, the Lapdesk MRP matrix is completed as shown Example 12.1

38 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Planned Order Releases ITEM: LAPDESK LLC: 0 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MULT 50 LT: Planned Order Releases PERIOD LOT SIZE: MIN 100 LT: Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases Example 12.1

39 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Planned Order Releases ITEM: LAPDESK LLC: 0 LOT SIZE: MULT 50 LT: 1 ITEM: PRESSBOARD LLC: 0 PERIOD LT: Planned Order Releases x2 x1 x2 PERIOD x1 x1 LOT SIZE: MIN 100 LT: Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases Example 12.1

40 School Mate Products ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: Planned Order Releases ITEM: LAPDESK LLC: 0 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MULT 50 LT: Planned Order Releases PERIOD LOT SIZE: MIN 100 LT: Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases Example 12.1

41 School Mate Products Planned Order Report PERIOD ITEM Clipboard Lapdesk Pressboard Example 12.1

42 MRP Outputs Planned orders Work orders Purchase orders Changes to previous plans or existing schedules Action notices Rescheduling notices

43 Planned Order Report Item #2740 Date On hand 100 Lead time 2 weeks On order 200 Lot size 200 Allocated 50 Safety stock 50 DATE ORDER NO. GROSS REQS. SCHEDULED RECEIPTS PROJECTED ON HAND ACTION AL AL GR SR Expedite SR CO GR GR GR Release PO Key: AL = allocated WO = work order CO = customer order SR = scheduled receipt PO = purchase order GR = gross requirement Table 12.6

44 MRP Action Report Current date ITEM DATE ORDER NO. QTY. ACTION # Expedite # Move forward # Move forward # Move backward # De-expedite expedite # Release # Release SR PO PO PO SR PO WO Table 12.7

45 Capacity Requirements Planning (CRP) Computerized system that projects load from material plan Creates load profile Identifies underloads and overloads

46 Capacity Usually expressed as standard machine hours or labor hours Capacity = (no. machines or workers) x (no. shifts) x (utilization) x (efficiency)

47 Capacity Terms Load profile Compares released and planned orders with work center capacity Capacity Productive capability; includes utilization and efficiency Utilization % % of available working time spent working

48 More Capacity Terms Efficiency Load The standard hours of work assigned to a facility Load percent The ratio of load to capacity Load % = (load/capacity)x100%

49 Capacity Requirements Planning MRP planned order releases Routing file Capacity requirements planning Open orders file Figure 12.8 Load profile for each machine center

50 Determining Loads and Capacities 2 copiers, 2 operators 5 days/wk, 8 hr/day 1/2 hr meals, 1/2 hr maintenance per day Efficiency = 100% Utilization = 7/8 = 87.5% Daily capacity = 2 machines x 2 shifts x 8 hours/shift x 100% efficiency x 87.5% utilization = 28 hours or 1,680 minutes Example 12.2

51 JOB NO. Determining Loads and Capacities NO. OF COPIES SETUP TIME (MIN) RUN TIME (MIN/UNIT) TOTAL TIME (500 x 0.08) = , (1,000 x 0.10) = , (5,000 x 0.12) = , (10,000 x 0.14) = 1, , (2,000 x 0.10) = Load percent = 2,385.7 / 1,680 = 1.42 x 100% = 142% min Add another shift: Daily capacity = 2 machines x 3 shifts x 8 hours/shift x 100% efficiency x 87.5% utilization = 42 hours or 2,520 minutes Revised load percent = 2,385.7 / 2,520 = x 100% = 94.67% Example 12.2

52 Initial Load Profile Hours of capacity Figure Time (weeks) Normal capacity

53 Remedies for Underloads 1. Acquire more work 2. Pull work ahead that is scheduled for later time periods 3. Reduce normal capacity

54 Remedies for Overloads 1. Eliminate unnecessary requirements 2. Reroute jobs to alternative machines or work centers 3. Split lots between two or more machines 4. Increase normal capacity 5. Subcontract 6. Increase the efficiency of the operation 7. Push work back to later time periods 8. Revise master schedule

55 Adjusted Load Profile Hours of capacity Figure Pull ahead Overtime Work an extra shift Push back Push back Time (weeks) Normal capacity

56 Relaxing MRP Assumptions Material is not always the constraining resource Lead times can vary Not every transaction needs to be recorded JIT can be used with MRP The shop floor may require a more sophisticated scheduling system

57 Manufacturing Resource Planning (MRP II)

58 Manufacturing Forecast Aggregate production plan Customer orders Resource Planning (MRP II) No Feasible? Yes Master production schedule Material requirements planning Capacity requirements planning No Feasible? Yes Feedback Purchase orders Work orders Inventory Shop floor control Manufacture Figure 12.11

59 Manufacturing Forecast Aggregate production plan Customer orders Resource Planning Forecast Aggregate production plan Customer orders No Feasible? Yes Master production schedule (MRP II) Material requirements planning No Feasible? Capacity requirements planning Yes No Feasible? Yes Feedback Master production schedule Purchase orders Inventory Work orders Shop floor control Manufacture Figure 12.11

60 Manufacturing Forecast Aggregate production plan Customer orders Resource schedule Planning Master production No Feasible? Yes Master production schedule (MRP II) Material requirements planning Material requirements planning Capacity requirements planning Capacity requirements planning No Feasible? Feedback Yes No Feasible? Purchase orders Work orders Inventory Shop floor control Yes Manufacture Figure 12.11

61 Manufacturing Forecast Aggregate production plan Customer orders Resource No Feasible? Planning Purchase (MRP orders II) Work orders Yes Master production schedule Material requirements planning Capacity requirements planning Inventory Shop floor control No Feasible? Feedback Yes Manufacture Purchase orders Inventory Work orders Shop floor control Manufacture Figure 12.11

62 Manufacturing Forecast Aggregate production plan Customer orders Resource Planning (MRP II) No Feasible? Yes Master production schedule Material requirements planning Capacity requirements planning No Feasible? Yes Feedback Purchase orders Work orders Inventory Shop floor control Manufacture Figure 12.11

Materials Requirements Planning

Materials Requirements Planning Independent and Dependent Demand Independent Demand A Dependent Demand B(4) C(2) D(2) E(1) D(3) F(2) Independent demand is uncertain. Dependent demand is certain. Dependent