Business Systems Operations Management

Transcription

1 Business Systems Operations Management Session 7 - Enterprise Resource Planning Facilitator: Dr. Jonathan Farrell 1 This Evening s s Program Enterprise Resources Planning (ERP) The origins of ERP (MRP, MRP II) Case Study Dalrymple Bay Coal Terminal (refer to the Folder of Readings) OPT (Optimised Production Technology) principles ERP Systems (web-integrated ERP, supply chain ERP, the Internet, etc.) 2 1

2 Printing your Digital Photos What was the cheapest price? What was the most expensive price? What was the reason, if any, for variation? Was there any perceived difference in quality? What about traditional methods e.g. The local Chemist shop A Photo print shop? Mail order? What lessons can be learned? 3 Pricing - 4 x 6 prints Chemist shop 0.15 to PhotoMax Megapixels Chemist Shop Austwide Harvey Norman Snapfish - US FujiColour Michaels Photolab Print@Kodak Frogprint Fotofast Microsoft/Kodak The Edge 4 2

3 Some Definitions Supply Chain: The linked set of resources and processes that begins with the sourcing of raw material and extends through the delivery of end items to the final customer. It includes vendors, manufacturing facilities, logistics providers, internal distribution centres, distributors, wholesalers and all other entities that lead up to final customer acceptance. 5 Some Definitions (cont.) Supply Chain Management: Supply Chain Management: The coordinated set of techniques to plan and execute all steps in an organisation s network used to acquire raw materials from vendors, transform them into finished goods, and deliver both goods and services to customers. It includes chainwide information sharing, planning, resource synchronisation and performance measurements. 6 3

4 Some Definitions (cont.) Logistics: The linked set of resources used in moving and storing material at the required location and time, both external (vendors, customers, distribution centres and transportation providers) and internal (production, material movement and storage). Value Chain: The linked set of activities within a supply chain that actively add value to the product or service 7 The Value Chain Support Activities Firm Infrastructure Human Resource Management Technology Development Procurement Margin Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Margin Primary Activities 8 4

5 Measures of Supply Chain Performance External: Customer Satisfaction Supplier Satisfaction Internal: Factory or Service Delivery System Efficiency Inventory Levels 9 Formulas for Measuring Supply-Chain Performance One of the most commonly used measures in all of operations management is Inventory Turnover Inventory turnover = Cost of goods sold Average aggregate inventory value In situations where distribution inventory is dominant, Weeks of Supply is preferred and measures how many weeks worth of inventory is in the system at a particular time Weeks of Average aggregate inventory supply = Cost of goods sold value 52 weeks 10 5

6 Example of Supply Chain Performance An organisation announces their cost of goods sold for the year was $160m and their inventory is $35m. They normally have an inventory turnover ratio of 10. How does this year compare? 11 Example of Measuring Supply Chain Performance (Cont.) Inventory turnover = Cost of goods sold Average aggregate inventory value = $160/$35 $160/$35 = Since Since the the company s company s normal normal inventory inventory turnover turnover ration ration is is 10, 10, a drop drop to to means means that that the the inventory inventory is is not not turning turning over over as as quickly quickly as as it it had had in in the the past. past. Without Without knowing knowing the the industry industry average average of of turns turns for for this this company company it it is is not notpossible to to comment comment on on how how they they are are competitively competitively doing doing in in the the industry, industry, but but they they now now have have more more inventory inventory relative relative to to their their cost cost of of goods goods sold sold than than before. before. 12 6

7 Types of Supply Chains Efficient Designed to minimise cost Maintain high utilization of resources Minimize inventory Suppliers chosen on cost Responsive Designed to minimise lead times Responsive to unpredictable demand Excess capacity High buffer stocks / modules Suppliers chosen on speed / flexibility 13 Matching the Supply Chain to the Product or Service Efficient Supply Chain Match Mismatch Responsive Supply Chain Mismatch Match Functional Products Innovative Products 14 7

8 The meaning of MRP Supply of products and services The operation s resources MRP Deciding the volume and timing of materials flow in dependent demand conditions Demand for products and services The operation s customers 15 The Process of MRP Explode the master production schedule. Identify what parts and assemblies are required. Check whether the required parts and assemblies are available. For every part or assembly that is required, but not available, identify when work needs to be started for it to be made available by its due date Generate the appropriate works and purchase orders. Repeat the process for the next level of the bill of materials. 16 8

9 Material Requirements Planning (MRP) Customer orders Master production schedule Forecast demand Bill of materials Material requirements planning Inventory records Purchase orders Materials plans Works orders 17 Master Production Schedule (MPS) Forecast demand Sister plant demand R & D demand Promotion requirements etc. Known orders Master production schedule Key capacity constraints Spares demand Safety stock requirements Inventory levels 18 9

10 The concept of MRP II Marketing Finance Central database Design Operations 19 Enterprise Resource Planning Supply The operation Operations resources The informational ability to deliver products/services Required time, quantity and quality of products and services Demand The market Customer requirements ERP integrates the information that reconciles the organisation and supply of an operation s products and services with the demand for them 20 10

11 ERP - What is it? ERP is a generic term used to describe a comprehensive information system designed to integrate all the business processes found in an enterprise. Efficiency and productivity are improved through the integration of information and the removal of duplicate information and processes. 21 The Development of ERP Increasing impact on the whole supply network Manufacturing Resource Planning (MRP II) Material Requirements Planning (MRP) Web-integrated Enterprise Resource Planning (Collaborative Commerce, c-commerce) Enterprise Resource Planning (ERP) Increasing integration of information systems 22 11

12 Sales/Distribution and Manufacturing Features of ERP Real-time Available to Promise & scheduling. Multi-national and multi-site distribution Integration with financial module MRP or Kanban logic Configurable BOM (by order) Engineering change control (date oriented) Backflush for raw and in-process stocking locations Interactive planning function Operations splitting and overlapping 23 Managing Enterprise Systems Customers Sales force and customer service reps Sales and delivery applications Managers and Stakeholders Reporting applications Suppliers Back office administration and workers Financial applications Service applications Central database Manufacturing applications Human resource management applications Inventory and supply applications Employees 24 12

13 Underpinning the Supply Chain with an Effective Architecture Many organisations use a combination of ERP systems and best of breed technology. Given the scope of business functions within internal supply chains, and the need to integrate processes and provide visibility and across the extended supply network, the information technology requirements are extremely complex. 25 Underpinning the Supply Chain with an Effective Architecture (cont.) The market for Collaboration tools is still relatively new, with many immature products. No vendor alone is offering a complete solution A combination of several tools and vendors provide the best options at present. The first step is for any organisation is to put its own house in order. Streamline processes and technology across all of the supply chain functions, from sales to planning to manufacturing. Develop a clear vision across all the components of the Supply Chain Model and the relationships that are required to integrate all of the components 26 13

14 Internal Integration Every organisation will continue to have functional, geographic and organisational silos in some form or fashion. However, there are different strategic imperatives and processes that are required across the supply network functions. The way that each organisational node interacts with the rest of the organisation, and the way that information is managed across the organisation needs to be optimised. The first step in this process is to ensure that the organisation has synchronised the internal IT Architecture. 27 Internal Integration (cont.) Historically, organisations have focused on data warehouses, integrated business reporting, and ERP implementations. Some organisations invested large amounts of money on complex ERP systems: In most instances the ERP implementations solved a number of problems, but focused predominately on the core transactional processes. The ERP implementations often included interfaces to legacy systems or best of breed solutions to provide additional functionality outside of the processes enabled within these core systems

15 The Bullwhip Effect The The magnification of of variability in in orders orders in in the the supply-chain Retailer s Orders Wholesaler s Orders Manufacturer s Orders Order Quantity Order Quantity Order Quantity Time Time Time A lot lot of of retailers each each with with little little variability in in their their orders. can can lead lead to to greater variability for for a fewer fewer number of of wholesalers, and and can can lead lead to to even even greater variability for for a single single manufacturer. 29 Reducing the Bullwhip Effect 1. Increase Operational Effectiveness - Reduce information flow times e.g. EDI - Reduce economies of scale (e.g. fixed costs of ordering) - Purchase in batches of 1 2. Information Sharing - Share consumption information upstream - Share availability information downstream 3. Channel Alignment - Co-ordinate ordinate replenishment decisions - Partnership See also pp of Slack et al 30 15

16 Case Study Dalrymple Bay Coal Terminal (DBCT) 31 Dalrymple Bay Coal Terminal Some Questions What do you see are the challenges facing DBCT management in 1999 / 2000 (the timeframe of this case study)? What areas of opportunity can you identify for optimising DBCT s coal supply chain? If you were the external consultant asked to carry out a strategic review of DBCT s IT, what recommendations would you give? 32 16

17 Where is DBCT Now? ERP system was implemented (JD Edwards Operations, Supply, Finance, HR, Payroll) Sophisticated Scheduling System (Minetrak from Comlabs) implemented Planning, Production & Scheduling IT Infrastructure substantially upgraded (LAN 10Mb to 100Mb, VLAN installed, Pentium 4 Servers and desktops, etc.) Capital Works - Stage 6 of the Terminal completed in 2003 ($115m) taking capacity to 55.5 mtpa First quarter of 2004 saw an unprecedented boom in demand for coal exports. Further expansion was undertaken taking capacity to 60 mtpa more is needed. April 2005 Approval given to increase capacity by 25% over the next 4 years 33 Optimised Production Technology (OPT) - Goldratt s s Theory of Constraints Constraints = anything that limits performance - the weakest links Throughput = the rate at which the system generates money through sales Throughput speed = how long it takes the product to get through the manufacturing process OPTIMUM PRODUCT MIX : focus on constraint(s) 34 17

18 Goldratt s Theory of Constraints Bottlenecks govern both throughput and inventory in the system. Do not balance capacities, balance the flows. Theory of Constraints: Identify the system constraints (bottlenecks). Decide how to eliminate the system constraints. Subordinate everything else to that decision. Eliminate the system constraints. Go back to Step Goldratt s Rules of Production Scheduling 1. Balance material flow rather than the capacity 2. Utilisation of a non-bottleneck is not determined by its own resource, but by some other system constraint 3. Utilisation, and full employment of a resource, are not synonymous 4. An hour lost on a bottleneck resource, is an hour lost on all the system 36 18

19 Goldratt s Rules of Production Scheduling (cont.) 5. An hour saved on a non-bottleneck resource is just a mirage 6. Bottlenecks govern both system throughput and inventory accumulation 7. Transfer batch need not be equal in size to process batch 8. Lot sizes should be variable, not fixed 9. Planning schedules should be established by considering all constraints of the system. Delays are often a function of the scheduling, and cannot necessarily always be predetermined 37 Comments 100% use of all resources? not necessary; only for constraint! Averaging utilisation? not an optimal solution: constraint sets the pace. Performance measures as policy constraints The Drum, Buffer, Rope concept is used to explain the planning & control approach 38 19

20 Information Technology 1. Information flows 2. Information intensity - how much do we need? 3. Information and competitive advantage - M Porter 4. Information and industry structure 39 The Information Flow Control Task D Task E Inputs Raw materials inventory Work in process inventory Task F Finished goods inventory Output Task A Task B Task C goods or service movement Information flow 40 20

21 Information Intensity Matrix high Information content of the product Oil refinery Banking Information intensity of the value chain Cement Software low low high 41 IT s s Relevance in the Value Chain Primary activities Support activities Inbound logistics Operations Outbound logistics Marketing Service Company infrastructure Human resources Systems & technology Procurement 42 21

22 IT Creating Competitive Advantage Lowering costs Product expenses e.g. inventory control Sales expenses e.g. e-commerce Enhancing differentiation e.g. customisation Changing competitive scope e.g. global co-ordination 43 IT s s Impact on Industry Structure Threat of new entrants New entrants Suppliers Bargaining power of suppliers Industry competitors Bargaining power of buyers Buyers Intensity of rivalry Threat of substitutes Substitutes M. Porter 44 22

23 IT s s Impact on Industry Structure How does IT change the balance of power in supplier relationships? How does IT change the balance of power in customer relationships? How does IT impact on barriers to entry? How does IT impact on the rivalry within the industry? 45 Electronic Commerce Electronic Commerce: The use of computer applications communicating over networks to allow buyers and sellers to complete a transaction or part of a transaction E-Operations (e-ops): the application of the Internet and its attendant technologies to the field of operations management 46 23

24 The Internet 47 The Internet million users worldwide Source: Internet World Stats

25 The Context of E-Ops E Business Model How do we make our money? Operations How do we manage production of the product or service? Information System Architecture The set of tools used to support processes. 49 Web-Based Business Models Three broad types: 1. Informational 2. Value-Adding 3. Transactional 50 25

26 Web-Based Business Models Informational The web site provides information about a topic, product or service No fees are charged No restrictions are placed on access Examples: vendors providing product / service information, non-profit organisations, associations, communitybased groups, etc. 51 Web-Based Business Models Value-Adding The web site provides services / information which complements (adds value to) other products and / or services provided by the organisation This could include: Parcel tracking by a courier Order tracking Membership information e.g. Qantas Frequent Flyer Software / hardware support for an IT vendor Access to news & related information Keeping track of investment portfolio Access is usually restricted to paying customers 52 26

27 Web-Based Business Models Transactional Products & services are offered for sale on the web page. They may be delivered by traditional means e.g. overnight delivery Or they could be delivered electronically e.g. software / information download Examples: Qantas & Virgin airline ticket purchase Harvard Business Review Online purchase articles Most Banks banking transactions 53 Web-Based Business Models Model Marketplace Aggregator Alliance Value Chain Example ebay Amazon AOL Distributive Network Dell Computers UPS 54 27

28 To Integrate, or not? B2B trading shopfront (front-end engagement) internal business processes ( silos?) backend systems / processes supply chain or website is this.a bolt-on? how far back does it reach? B2B trading some IT system 55 It s s really about re-engineering engineering the company to take advantage of a new technology Doing old things in new ways Doing away with some old things altogether New routes to market Entirely new markets Entirely new products and services Wider reach Working smarter Better service Mass customisation New alliancesa Shortening supply chains Going direct 56 28

29 The Internet and Competitive Advantage Competitive advantage is the gap between cost and price This gap can be influenced by: 1. Operational effectiveness (focus on cost) 2. Strategic positioning (focus on distinctive competencies) Porter, Michael E.. (2001), Strategy and the Internet, Harvard Business Review,, 79(3), pp The Internet A Strategic View Positive: Negative: Enables reconfiguration of existing industries that have been constrained by high costs of communication, gathering information or making transactions, e.g. distance learning, catalogue retailers Buyers power increased Reduced need for infrastructure Reduced barriers to entry The internet is an open system Easy to switch suppliers using the internet more competition due to expanded geographic market Internet strategies reduce variable costs, leading to price competition. Although sales can be expanded, it is at the expense of profit e.g Car retailing Porter, Michael E.. (2001), Strategy and the Internet, Harvard Business Review,, 79(3), pp

30 The Future The Internet rarely nullifies sources of competitive advantage in an industry, e.g. unique products, proprietary content, superior service etc The Internet itself will be neutralised as a source of advantage Buyers will value a combination of on-line and personal services Procurement will be a combination of traditional channels for customised items and the web for commodities Porter, Michael E.. (2001), Strategy and the Internet, Harvard Business Review,, 79(3), pp The Future (cont.) Successful companies will find creative ways to combine traditional and web technologies The new economy is merely the old economy with access to new technology The established companies and dot-coms will progressively merge The fundamentals of competition remain the same Shift thinking from e-business to business 60 30