After reading the material in this chapter, you should be able to: Describe the hierarchical operations planning process in terms of materials planning (APP, MPS, MRP) and capacity planning (RRP, RCCP, CRP); describe MRP, closed-loop MRP, MRP-II, DRP, ERP, and their relationships; understand the terms used in MRP computations;…
1 Advances in Supply Chain Management Chapter 4 : Advanced Planning (Cont….) Lec 8 : Learning Objectives n Describe the hierarchical operations planning process in terms of materials planning (APP, MPS, MRP) and capacity planning (RRP, RCCP, CRP) n Describe MRP, closedloop MRP, MRPII, DRP, ERP, and their relationships n Understand the terms used in MRP computations n Know how to compute availabletopromise quantities, MRP explosions, and DRP implosions n Understand the limitations of legacy MRP systems Describe an ERP system, and understand its advantages and disadvantages Understand why manufacturers and service firms are migrating from legacy MRP systems to integrated ERP systems Describe the various modules of an integrated ERP system, and have a general knowledge of the ERP market Understand bestofbreed versus single integrator ERP implementations Understand why many ERP implementations fail Understand how an integrated ERP system works n n n n n n SUMMARY of Last Lecture n n The last lecture has described the role of APS in supply chain management . Hierarchy of planning tasks and supply chain planning matrix were also explained in detail. The supply chain planning matrix has explained in detail the long term, medium tem and short term planning task. Planning modules in HPS are need to be connected through horizontal and vertical information flow The present lecture will elaborate the advance planning processes in supply chain management. It will focus on operations planning, aggregate production plan, production scheduling, bill of material, material requirement planning, capacity planning, distribution requirement planning, development and implementation of enterprise resource planning, ERP software applications and providers LAYOUT n n n n n n n n n n n n Operations Planning The Aggregate Production Plan Master Production Scheduling The Bill of Materials Material Requirements Planning Capacity Planning Distribution Requirements Planning The Legacy Material Requirements Planning Systems The development of the Enterprise Resource Planning Systems (ERP) Implementing ERP Systems ERP Software Applications ERP Software Providers Operations Planning Operations planning is usually hierarchical & can be divided into three broad categories: n Longrange – Aggregate Production Plan (APP) also called strategic plans are designed with the entire organization in mind and begin with an organization's mission. Toplevel managers, such as CEOs or presidents, will design and execute strategic plans to paint a picture of the desired future and longterm goals of the organization. Essentially, strategic plans look ahead to where the organization wants to be in three, five, even ten years. Strategic plans, provided by toplevel managers, serve as the framework for lowerlevel planning. They involves the construction of facilities & major equipment purchase n Intermediate – Shows the quantity & timing of end items (i.e., master production schedule – MPS) also called Tactical plans support strategic plans by translating them into specific plans relevant to a distinct area of the organization. Tactical plans are concerned Cont’d… with the responsibility and functionality of lowerlevel departments to fulfill their parts of the strategic plan. n Shortrange detailed planning process for components & parts to support the master production schedule (i.e., materials requirement planning – MRP); they are the plans that are made by frontline, or lowlevel, managers. All operational plans are focused on the specific procedures and processes that occur within the lowest levels of the organization. Managers must plan the routine tasks of the department using a high level of detail. Cont… Computer based “push” resource systems: Closedloop MRP A system used for production planning and inventory control, with an information feedback feature that enables plans to be checked and adjusted. Closed Loop MRPs synchronize the purchasing or materials procurement plans with the master production schedule. The system feeds back information about completed manufacture and materials on hand into the MRP system, so that these plans can be adjusted according to capacity and other requirements. The system is called a closed loop MRP because of its feedback feature, which is also referred to as closing the loop Manufacturing resource planning (MRP II) incorporates the business & sales plans with the closedloop MRP system. It is defined as a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning, and has a simulation capability to answer "whatif" questions and extension of closed loop MRP. This is not exclusively a software function, but the management of people skills, requiring a dedication to database accuracy, and sufficient computer resources. It is a total company management concept for using human and company resources more productively n Enterprise requirements planning (ERP) is an extension of MRPII. It is a process by which a company (often a manufacturer) manages and integrates the important parts of its business. An ERP management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance, human resources, etc. ERP is most frequently used in the context of software. As the methodology has become more popular, large software applications have been developed to help companies implement ERP in their organization. Think of ERP as the glue that binds the different computer systems for a large organization. Typically each department would have their own system optimized for that division's particular tasks. With ERP, each department still has their own system, but they can communicate and share information easier with the rest of the company. n Distribution requirement planning (DRP) describes the timephased net requirements from warehouses & distribution centers customer demand minus any on hand intransit inventories. It is a method used in business administration for planning orders within a supply chain. DRP enables the user to set certain inventory control parameters (like a safety stock) and calculate the timephased inventory requirements. DRP uses several variables: n the required quantity of product needed at the beginning of a period n the constrained quantity of product available at the beginning of a period n the recommended order quantity at the beginning of a period n the backordered demand at the end of a period n the onhand inventory at the end of a period DRP needs the following information: n the demand in a future period n the scheduled receipts at the beginning of a period n the onhand inventory at the beginning of a period n 10 Cont’d… MRP is a tool to deal with these problems. It provides answers for several questions: n What items are required? n How many are required? n When are they required? MRP can be applied both to items that are purchased from outside suppliers and to subassemblies, produced internally, that are components of more complex items Data The data that must be considered include: n The end item (or items) being created. This is sometimes called Independent Demand, or Level "0" on BOM n How much is required at a time 26 Cont’d… n n n n n When the quantities are required to meet demand Shelf life of stored materials Inventory status records. Records of net materials available for use already in stock (on hand) and materials on order from suppliers Bills of materials. Details of the materials, components and sub assemblies required to make each product Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routing, Labor and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i.e. Fixed Lot Size, LotForLot, Economic Order Quantity), Scrap Percentages, and other inputs 27 Cont’d… Outputs There are two outputs and a variety of messages/reports: n Output 1 is the "Recommended Production Schedule" which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the Master Production Schedule (MPS) n Output 2 is the "Recommended Purchasing Schedule". This lays out both the dates that the purchased items should be received into the facility AND the dates that the Purchase orders, or Blanket Order Release should occur to match the production schedules 28 Cont… n n n n n n n Terms used in MRP: Parent Item generating demand for lowerlevel components Components parts demanded by a parent Gross requirement A timephased requirement prior to netting out onhand inventory & leadtime Net requirement The unsatisfied item requirement for a specific time period. Gross requirement for period minus current onhand inventory Scheduled receipt A committed order awaiting delivery for a specific period Projected onhand inventory Projected closing inventory at end of period. Beginning inventory minus gross requirement, plus scheduled receipt & planned receipt & planned receipt from planned order releases Planned order release Specific order to be released to the shop or to the supplier 29 Cont… § § § § § § § § Time bucket Time period used on the MRP. Days or weeks Explosion Process of converting a parent item’s planned order releases into component gross requirements Planning factor Number of components needed to produce a unit of the parent item Firmed planned order Planned order that the MRP computer logic system does not automatically change when conditions change to prevent system nervousness Pegging Relates gross requirements for a part to the planned order releases Lowlevel coding assigns the lowest level on BOM to all common components to avoid duplicate MRP computations Lot size order size for MRP logic Safety Stock Protects against uncertainties in demand supply, quality, & lead time 30 Development of ERP System Enterprise Resource Planning Systems (ERP) information system connecting all functional areas & operations of an organization &, in some cases, suppliers and customers via common software infrastructure and database n ERP provides means for supply chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing supply chain inventories (ERP) is business management software—typically a suite of integrated applications—that a company can use to collect, store, manage and interpret data from many business activities, including: n Production planning, cost n Manufacturing or service delivery n Marketing and sales n Inventory Management n Shipping and payment 31 ERP provides an integrated view of core business processes, often in real time, using common database maintained by a database management sysytem. ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across the various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions, and manages connections to outside stakeholders The ERP system is considered a vital organizational tool because it integrates varied organizational systems and facilitates errorfree transactions and production. However, ERP system development is different from traditional systems development. ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository 32 Operat ions Logist ics and Warehouse Engineering Central Database and Servers Supplier Relat ionship Management Human Resources Headquart ers and Branches Sales and Market ing Cust omer Relat ionship Management Dat a Support Syst em Finance and Account ing 33 Implementing ERP System Two types of ERP implementation Bestofbreed pick the best application for each individual function. Disadvantage software may not integrate well but this may not be a major issue in future Single integrator solution pick all the desired applications from a single vendor Implementation Problems: § Lack of top management commitment § Lack of adequate resources § Lack of proper training § Lack of communication § Incompatible system environment 34 Advantages and Disadvantages of ERP System Advantages n n n The fundamental advantage of ERP is that integrated myriad businesses processes saves time and expense. Management can make decisions faster and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include: Sales forecasting, which allows inventory optimization Chronological history of every transaction through relevant data compilation in every area of operation n Order tracking, from acceptance through fulfillment n Revenue tracking, from invoice through cash receipt n n Matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced) ERP systems centralize business data, which: 35 n Eliminates the need to synchronize changes between multiple systems— consolidation of finance, marketing, sales, human resource, and manufacturing applications n Brings legitimacy and transparency to each bit of statistical data n Facilitates standard product naming/coding n n Provides a comprehensive enterprise view (no "islands of information"), making real–time information available to management anywhere, any time to make proper decisions Protects sensitive data by consolidating multiple security systems into a single structure Disadvantages n Customization can be problematic. Compared to the bestofbreed approach, ERP can be seen as meeting an organization’s lowest common denominator needs, forcing the organization to find workarounds to meet 36 unique demands n n n n n n n n Reengineering business processes to fit the ERP system may damage competitiveness or divert focus from other critical activities ERP can cost more than less integrated or less comprehensive solutions High ERP switching costs can increase the ERP vendor's negotiating power, which can increase support, maintenance, and upgrade expenses Overcoming resistance to sharing sensitive information between departments can divert management attention Integration of truly independent businesses can create unnecessary dependencies Extensive training requirements take resources from daily operations Due to ERP's architecture (OLTP) ERP systems are not well suited for production planning and SCM Harmonization of ERP systems can be a mammoth task (especially for big companies) and requires a lot of time, planning, and money 37 ERP Software Applications Major ERP applications include – n n n n n n Accounting and finance Customer relationship management Human resource management Manufacturing Supplier relationship management Supply chain management 38 ERP Software Providers The 3 major ERP providers are now – n n n Oracle SAP Microsoft Other small software firms provide applications (e.g., Sage’s MAS 90) as well as full ERP solutions but lack applistructure the merger of enterprise application and infrastructure technology 39 SUMMARY The present lecture has elaborated the advance planning processes in supply chain management. It has focused on operations planning, aggregate production plan, production scheduling, bill of material, material requirement planning, capacity planning, distribution requirement planning, development and implementation of enterprise resource planning, ERP software applications and providers 40 ... The last? ?lecture? ?has described the role of APS? ?in? ?supply? ?chain? ? management? ?. Hierarchy of planning tasks and? ?supply? ?chain? ?planning matrix were also explained? ?in? ?detail. The? ?supply? ?chain? ?planning matrix has explained? ?in? ?detail the long term, medium tem and short term .. .Advances? ?in? ?Supply? ?Chain? ? Management Chapter? ?4 : Advanced Planning (Cont….) Lec? ?8? ?: Learning Objectives n Describe the hierarchical operations planning process? ?in? ?terms of materials planning (APP, MPS, MRP) and capacity planning (RRP, RCCP, CRP)... net requirements from warehouses & distribution centers customer demand minus any on hand? ?in? ?transit inventories. It is a method used? ?in? ?business administration for planning orders within a? ?supply? ?chain. DRP enables the user to set certain inventory control parameters (like a safety stock) and