Production Logistics and ERP

1
Production Logistics and ERP

• Chapter 6

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Production Logistics

• Increased competitive pressures on production
  processes due to
• Shorter product development times
• Focus on product quality
• Shorter product life cycles
• Production Logistics is SAP approach to
  production planning and control
• Integrated with other Value chains in R/3 such as
  procurement and warehousing and SD.

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Production Logistics (cont.)

• Builds upon the integration of MRP II
• Provides specific support for TQM and Kanban
  material management processes
• More customer centric than MRP II with
  integration of sales information

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Production Logistics (cont)

• R/3 Org. Elements
• Plant
• Storage Location
• Work center
• MRP area

• R/3 Business Objects
• Material master
• Production order
• BOM
• Sales Operations plan
• Master recipe

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Production Logistics Scenarios

• Sales-order related production
• Production by lot size
• Sales-order related repetitive manufacturing
• Project-oriented make-to-order production
• Production replenishment

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Production Logistics VC
Production Order Prelim Costing
Production Order Execution
Quality Inspection After production
Production Order Creation
Inspection Check by lot
Capacity Planning
Defects Recording
Inspection Point Related to process
Material Staging
Sales Support
Capacity Planning
Information System
QM cost input
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Production by Lot Size Scenario

• Processing of Sales Plan
• Determining quantities and dates
• Purchase requisitions created
• Single Item MPS
• Creation, release and execution of production
  order

• 5. Goods issue
• 6. Completions of PO confirmation
• 7. Goods receipt
• 8. Settlement of PO

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Production By Lot Size Plan Processing
Profitability Analysis w/static Standard cost
Sales quantity Copied from CO-PA
Processing of Sales and operation planning
Demand Program is to Be created
Production Plan is created
Sales plan Is created
Demand Management
Demand Program edited
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Production By Lot Size Demand Management
Single Item MPS
Purchase Requisition created
Planned Orders created
Planned Order conversion
Requests for quotation sent to vendors
Internal procurement With stock support
Management Of consignment stocks
Processing Stock Material
Order arrived
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Production By Lot Size Creating Production Order
Con. Of plan Order to prod. Order is started
Creation of Production order
Production Order is created
Release of Production order
Quality Management In production
Prod. Order Is released
Trans. Req. generated
Inspection lot Created for Prod order
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Production By Lot Size Execute Production Order
Execution of Production order
Material is produced
Goods receipt To be posted
Production order to Be confirmed
Material issue for Production order Is to be
posted
Goods issue For production orders
Completion Confirmation of Prod. order
Goods receipt processing
Prod. Order Is completely confirmed
Prod. Order Status is Fully delivered
Actual costs Updated in Prod. order
Goods issue is Posted for Prod. order
Time management processing
Settlement of Production order
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Other Production Scenarios

• Repetitive manufacturing
• Make-to-order production
• Process manufacturing

• Project-related Engineer to order
• Quality management for goods receipt from
  production

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Autodesk Inc. Case

• 400M Company, growing at 20/year
• Ten sales offices in US and 5 development centers
  in US and Switzerland with 1900 people
• Sells famous CAD and MM software
• Goal was to maintain growth rate and ship
  products within 1 hour of receiving customer
  order
• existing system was stretched by global growth
  and couldnt handle multiple order codes
  operating info was not available to executives
  for decision making
• Used R/3 to redesign business model and 25 major
  business processes, including 240 subprocesses
• Re-engineered order process for automatic
  pricing reduced number of order codes
• Can track sales in real time along with new
  product evaluation copies and manufacturing costs
  around the world
• Future plans were to extend the software to
  Europe and Asia regions, remote access, allow for
  product downloading

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A Normal Companys Systems

• Fitter Snacker, Inc.
• Founded in the 50s
• A small manufacturer of healthy snack bars
• NRG-A and NRB-B bars
• Two divisions Wholesale and Direct Sales

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Problems with Fitter Snackers Systems

• Sources
• Three unintegrated systems
• Sales Order System
• Warehouse System
• Accounting System
• Manual handling of transactions
• Information not available in real time

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Fitter Snackers Systems
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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

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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

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Fitter Snacker Manufacturing Process
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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

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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

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SAP R/3 Approach to Production Planning
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Sales Forecasting
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Sales and Operations Planning
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Sales and Operations Planning
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Sales and Operations Planning
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Sales and Operations Planning
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Sales and Operations Planning
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Demand Management
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Demand Management

• Calculation for Week 5

4,134 cases in Jan. x 3 days in week 5 22
working days in Jan. 563.7 cases
4,1984 cases in Feb. x 3 days in week 5 20
working days in Feb. 419.8 cases
Total 983.5 cases
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MRP

• Bill of Material

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MRP

• MRP Record

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MRP List in SAP R/3
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Stock Requirements List in SAP R/3
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Detailed Production Scheduling

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

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Detailed Production Scheduling

• Length of production runs
• Longer runs reduces cost of setups
• Longer runs increase capacity utilization
• Shorter runs reduces cost of inventory

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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

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ERP in Supply Chain Management





Goods
Goods
Goods
Goods
Goods
Raw Materials
Customer
Supplier
Manufacturer
Wholesaler
Retailer
Information
Information
Information
Information
Information
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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

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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

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Supply Chain Metrics

• Buyer-Supplier
• Initial fill rate
• Initial-order lead-time
• On-time performance

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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

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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 companys overall
  efficiency

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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.