IS 3315: Manufacturing Systems

1
IS 3315 Manufacturing Systems

• Part 1 The organisation of Manufacturing firms
• Understand the basic business processes
• understand the basic flows of information
• know the basic systems / sub systems implemented
• understand their linkages

2
Basic business processes
Designing
Building
Selling
Buying
Processing orders
Getting paid
Paying
1 Arrange these in sequence 2 name proper
departments
3
Basic flows of information

• Organisations are organised in a number of
  functional areas
• They collect and organise data to support their
  complementary missions
• they interact and collaborate in managing the
  organisation

4
Examples

• Finance managing the cash flows, providing
  resources to the firm
• Marketing promoting the firm and its products
• Sales selling the products dealing with
  customers
• Production manufacture goods
• These are broken down further into sub areas
• Name some of these sub areas

5
Collaboration / Conflict between areas

• All areas of the firm must exchange info with the
  others (just like organisations must interact
  with the outside)
• divergence of viewpoints means there are
  opportunities for conflict
• managing same resources / using the same assets
  but with radically different goals
• Describe situations involving these conflicts

6
Examples

• Quality control versus production
• Procurement versus production
• Dealing with customer returns
• Sales and accounting
• Explain the underlying cause of these conflicts

7
Manufacturing Organisations

• Business Processes more complex
• Lead time must be built into process of planning
  for demand
• Scheduling of resource use is more complex
• productivity is a composite indicator which
  measures many operators work together
• the definition of productivity / the way it is
  measured affects the results

8
Illustration
9
Collaboration and Information

• Functional areas cannot collaborate if no
  information circulates
• first stage people talk to one another
• then exchange of documents
• then develop integrated systems shared by several
  functional areas / the whole firm
• This requires the existence of common definitions
  and reliable / undisputed sources of data
• Also people must have incentives to collaborate

10
Reliable Common Grammar Examples

• Sales statistics
• as per customer orders?
• Goods sent?
• what feed back time?
• Production figures
• after rejects
• adjusted for loss / destruction in finished goods
  storage
• business analysts must talk to everyone to ensure
  existence of reliable common methods

11
Reliable / Undisputed sources of data

• Reliable mechanisms for data collection
• No room for controversy RE basic figures of the
  business
• Robust externally oriented systems for invoicing
  / paying
• Robust measures of individual / area performance
  for the purpose of assessment and rewarding
• Reliable systems for storage / processing /
  retrieval of data
• Archiving

12
Corresponding Information Systems

• The basic sub-systems are (see diagram)
• payroll
• order entry
• inventory (goods for sales, raw material...)
• shipping
• accounts receivable
• purchasing
• receiving
• accounts payable
• general ledger
• Describe each sub-systems missions

13
Part 2 Resources and constraints in
Manufacturing environments

• Goods are manufactured, not purchased
• Demand must be counted or planned
• Need RECIPES
• activity must be planned for in advance
• Resources must be allocated in advance
• raw materials
• Machine time
• competent personnel (shift work)

limiting / constraining factors
14
Organisational Model

• Driven by sales?
• Driven by production?
• Driven by marketing?
• History of organisation and power structure
  determine which model is used
• Plan dictates what volumes must be produced
• Everything else follows from there

Product matrix
15
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)

16
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
17
Solution
Desk
Top (1)
Adjustable legs (4)
Screw Kit (1)
Frame (1)
Painted metal legs (4)
Painted tubing (4)
3 way junctions (4)
Leg Tubes (4)
Paint (0.6 dl)
Long Tubes (2)
Paint (1 dl)
Short Tubes (2)
18
Capacity

• Have limited capacity
• Each unit of product requires a set time for each
  operation
• Planning for capacity means analysing the
  requirement of all production runs for all
  products on all machines
• Also, machines must be manned by operators
• and machines have down time

19
Scheduling Manufacturing Tasks

• Based on desired production
• determine quantities of RM to commit
• schedule production runs (including
  sub-assemblies)
• line up workers to operate the machines
• Purchase required supplies
• This is called the Master Schedule

20
Master schedule

• Issue for each week / day of production
• aims at meeting the plan or the customers orders
• allocate resources to all required activities
• meeting of the key production people (end of week
  or Monday mornings).
• Also review the problems with previous runs
• Some computer systems are required for these tasks

21
Part 3 Data collection in the Factory

• Computer Integrated Manufacturing (CIM)
  environments requires that companies
• Know what they are doing
• availability of data and quality of that data are
  key elements
• many different types of data must be collected
• procedures must be put in place
• reliable
• but not intrusive

22
Types of data

• Volume data (production)
• consumption data (raw material, packaging)
• personnel data
• maintenance data
• time related measurements
• productivity data
• All form the basis of the calculations used to
  monitor manufacturing activities

23
Type of data (2)

• Primary data
• Secondary data or calculated data
• High level data

24
Data for monitoring activities

• Norm or budget is put together
• the more complete the model the more complete the
  monitoring
• measurement methods and procedures are also put
  together
• the structure of the budget tells you what data
  to collect

25
Data acquisition

• Manual recording in a docket or other form (e.g.
  down time)
• Sampling / testing of RM or products
• collection and count of key part (e.g. shoulder
  blade)
• scales for weight measurement- computerised or
  not
• direct data entry in computer with infra-red beam
  (scanning) device (e.g. Dell)
• remote electronic tracking
• All these involve a trade-off between cost and
  accuracy and intrusiveness

26
Bad data recording

• No data!
• Too costly - e.g. in equipment or time
• not timely feed back too slow
• inaccurate (e.g. procedure not well designed)
• Lack of operator training / understanding
• wrong incentive / instructions given
• lack of control - open to dishonesty

27
Data storage

• Series of ad-hoc systems manual and
  computer-based (spreadsheet, filed forms)
• Dedicated databases for manufacturing data (QC,
  shipping etc)
• Process Control Systems (technical parameters)
• Other specialised proprietary systems
• Entreprise Resource Planning (ERP) system

28
Using Manufacturing data

• Operational data
• volumes - schedule / re-schedule runs
• labour report - line up workers for next days
• quality of output
• Tactical data
• defect rates
• productivity
• Quality of RM
• Strategic data
• product mix information
• Market research
• turnover of staff

Some soft information is also required
29
Soft information

• Data collection -
• Grapevine
• factory tours (talking and observing)
• Data storage -
• managers minds
• special reports
• Data usage
• ad-hoc basis
• decision making

30
Part 4 Developing the Dashboard of information

• Information cost
• Information overload
• Not all data can be / should be provided
• Push versus pull model
• For operational data gt dashboard approach
• Concept of control room
• Analogy with process control or driving a car
• Focus on most important factors

31
CSF - Theory

• Definition
• Limited number of areas where satisfactory
  results will ensure successful competitive
  performance for the individual, the department or
  the firm
• Monitored on the basis of a set of measures -
  specific standards that allow the calibration of
  performance
• Measures can be soft or hard - ie objective or
  subjective

32
CSF method diagram

• Identification of a hierarchy of performance
  measures that lead to identification of Critical
  Factors and Issues that will determine a
  business success

The business mission statement
The business vision statement
multiple business goals
multiple business objectives for each goal
multiple CSFs for each objective
33
Implications for IS
multiple business objectives for each goal
multiple CSFs for each objective
Central Database - Data Warehouse
Monitoring and Control Systems
Common Interface
Dashboard
Indicators
IS 2
IS 4
IS 3
IS 1
34
Sources of CSFs

• Industry
• Competitive strategy and industry position
  (leader / follower big / small)
• Environmental factors (eg economic fluctuations
  and national government policies)
• Temporal factors (temporary CSFs)
• Managerial position (more specific to one
  manager)

35
Classification of CSFs

• Internal versus external
• Monitoring versus Building / Adapting (eg
  implementing of major corporate plan)
• Evolution over time - eg motor industry

36
/ - of the CSF technique

• Small number of CSFs
• Managers normally aware of them - make them
  explicit is possible
• Specific to firm / dept / manager
• But not all CSFs are measurable at all (access
  to data)
• Known CSFs may be trivial
• Time consuming to go beyond the obvious
• Will managers make time for CSF analysis?

37
Dashboards of information

• A CSF analysis can be turned into a dashboard of
  info
• indication in real time of what is happening
• Concentration on the most important visual
  impact (e.g. colour coding)
• But data has to be very reliable and design of
  interface must be good
• three mile island

38
Some Problems with 3 mile Island

• Layout of control not consistent with use of
  indicators
• no consistency on where associated controls are
  situated or how they operated
• layout of controls did not reflect layout of
  plant
• indicators and alarms were not sorted by degree
  of importance
• no consistency in use of colour
• Cl the layout of the dashboard and what
  indicators represent ( how they do it) requires
  much attention

39
About dashboard development

• Developing IS with decision making relevance is
  tricky
• Nature of management work means difficult to
  imagine generic features
• 1970 1980 focus on complex models borrowed
  from OR
• Managers need simple systems that save them time

40
The Control Room

• Monitoring complex processes through technology
  mediated systems
• Controlling without seeing directly
• Not directly applicable to management (human
  interaction component missing)
• But useful anyway to measure performance in a
  more complete fashion

41
Key issues for dashboard development

• Limited attention - selection of indicators
  (CSF)
• Accurate performance measurement - methods used
• Operator / user training - consensus /
  awareness
• Dashboard layout - avoid confusion / be
  consistent

42
Framework for dashboard development
Question 1 Who will use this indicator? Question
2 Can it be mapped out to a specific objective
at a higher level? Question 3 How frequently
will managers need to monitor it? Question 4
What calculation methods? What unit of
measurement? Question 5 What data source exists?
What should be created? Question 6 How detailed
should the analysis be? How can the indicators be
broken down? Question 7 What threshold values
should be used to differentiate between adequate
and inadequate performance? What comparisons can
be made to assess the companys
performance? Question 8 How can it be
represented for maximum visual impact? Question
9 What action must be taken when good or bad
performance is measured? Question 10 How will it
be monitored / archived in the long term Question
11 Is there any potential bias with the methods
and data used for calculations? What incentives
may be given to organizational actors?
See handout
43
Example 1 Monitoring Maintenance

• Imagine down time is increasing
• dont know enough to fix the problem
• (1) collect appropriate data on accidents
• maintenance staff time sheets
• accident report for each problem - documented by
  operators
• match both sources of data
• (2) store it in a suitable DB
• (3) analyse based on a number of CSF
• (4) present analysis in computer dashboard

44
CSF analysis for the maintenance

• Number of accidents per run (per unit / product)
• Nature of accident (several categories to be
  found)
• Location of accidents
• Average duration of repair (for each assembly
  line)
• Average duration of repair for each staff?
• Average duration of repair for each type of
  accident
• Mapping of when accidents happen
• establish thresholds

45
Location ( of all accidents)
5
al
1
10
W3
W3
Shipping
10
al
2
8
al
1
WP2
W2
W2
35
storage
Stocks
al
2
Main Corridor
Finished
3
Goods
al
1
WP1
W1
W1
6
cooling
al
2
Changing
3 - 3 - 15
Other Areas 2
Stocks
Rooms
Preparation ovens
RM
and Related
Quality
Facilities
Control
46
Time spent ( of down time)
5
al
1
5
W3
W3
Shipping
20
al
2
41
al
1
WP2
W2
W2
8
storage
Stocks
al
2
Finished
Main Corridor
3
Goods
al
1
WP1
W1
W1
4
cooling
al
2
Changing
3 - 3 - 8
Other Areas 2
Stocks
Rooms
Preparation ovens
RM
and Related
Quality
Facilities
Control
47
When accidents happen
48
Who does what?
49
Analysing the types of accidents
50
Conclusion on Maintenance

• Cant show everything
• Data should be collected, but choices must be
  made for dashboard
• Choices can be made based on
• scope for improvement
• development VS monitoring (hierarchy of CSFs)
• preferences of managers
• Archives will show whether targets are achieved
  gt new threshold values can be set

51
Example 2 sales figures

• Sales dashboard is a key tool
• Allocate responsibility for poor performance with
  more accuracy
• Break down per product / market
• Present both volumes, gross revenues and
  contribution figures
• Use colour coding to indicate where results are
  good or bad
• Use sales maps for visual impact
• Comparison with
• Budget figures (e.g. weekly figures)
• Competitors
• Previous period
• Same period previous year in case of seasonality

52
Electronic Products Ltd.

• Overall goal Develop the dashboard for staff and
  management
• Follow the guidelines spelt out in the paper
• Carry out a CSF analysis based on the case notes
• Use the framework in table 1 to verify that you
  have all angles covered

53
Computer-based dashboard

• Select design targets based on the case and your
  own preferences
• Develop a small data structure containing the
  data required for your dashboard (MS Access)
• Design the interface in VB
• Package you prototype including a small sample of
  dummy data
• Submit your project on disk
• Be economical with the size of the components
• Be careful that you give me all the files

54
Reading the case

• Common goals of company (page 3)
• Customers are essential to the success of the
  business
• Survival of the business is paramount
• Keeping the pioneering spirit alive

55
Critical success factors

• Price, quality, delivery and flexibility (page
  3)
• longer-term survival and success (page 3)
• customer is king can visit premices at any time
  (page 4)
• everybody was responsible for his or her own work
  (page 4)
• Reliance on Self-directed teams (page 4)
• planned their own work, set production and
  performance goals, and assumed complete
  responsibility for their tasks
• Reliance on free issuing of material to the
  company (page 4)
• Responsiveness /flexibility in responding to
  customers queries (page5)

56
Critical success factors (2)

• Profitability target 10 (page 6)
• Turnover growth target 32 per annum (page 6)
• Product mix (page 7)
• sourcing jobs (pages 6 and 7)
• Move back to profitable position (page 7)

57
Example Profitability

• Question 1 Who?
• Question 2 Can it be mapped out ?
• Question 3 How frequently
• Question 4 What calculation methods? What unit
  of measurement?
• Question 5 What data source exists? What should
  be created?
• Question 6 How detailed should the analysis be?
• Question 7 What threshold values
• Question 8 How can it be represented
• Question 9 What action must be taken when good
  or bad performance is measured?
• Question 10 How will it be monitored / archived
  in the long term
• Question 11 Is there any potential bias with the
  methods and data used for calculations? What
  incentives may be given?

58
Profitability

• Q1 everyone but MD and key managers in priority
• Q2 High level objective
• Q3 2 types quarterly / annual per job
• Q4 revenues costs percentage of revenues
• Q5 accounting systems have everything, but is
  there job accounting?
• Q6 see Q2
• Q7 case says 10 overall, but 30 50 per job
• Q8 line overall and bar chart for jobs pie
  chart for breakdown of costs (cost structure)
• Q9 not an easy one selection of jobs is key
  (see page 6)
• Q10 Try to stick to target / review each job
  overheads
• Q11 tendency to eliminate marginal jobs gt
  reduce turnover too much gt overheads no absorbed
  potential loss of customer good will?

59
Other CSFs

• Empowering work teams
• Measuring marketing efficiency (number of
  customers approached VS contracts executed)
• Monitoring the issue / use of goods
• Measuring the speed and accuracy of response
  (quotes VS actual job costings)
• Quality
• Customer satisfaction
• ..

60
Problems in the case

• RM consumption at various stages
• price of RM
• comparison with budget recipe
• labour cost on factory floor
• where do they actually work?
• What are the tasks where productivity is lost?
• Packaging cost
• Quality of products
• why are volumes not growing as fast anymore?
• Maintenance is not working

61
Overall method

• More rigorous procedures for reporting and
  monitoring
• Set up a complete Budget framework
• Budget broken down per responsibility - e.g.
  buyers give prices, production gives productivity
• once a year gt budget put together
• expected levels are put proposed by each area
• full report compiled (p/l for the year ahead)
• negotiated with top management
• final budget
• used to measure up everything that happens

62
General Indicators - monitoring the business

• Focus on three key indicators in comparison with
  budget to make it easier to analyse
  responsibilities
• volume V (Vb for budget and Va for actuals)
• price P
• formula F
• total variance Va Pa Fa - Vb Pb Fb
• volume variance Va Pb Fb - Vb Pb Fb
• (Va-Vb) Pb Fb
• Price variance Va Pa Fa - Va Pb Fa
• (Pa - Pb) Va Fa
• Formula variance Va Pb Fa - Va Pb Fb
• (Fa - Fb) Va
  Pb

Applies to the cost side E.g. Pb Fb note that
total tot var
63
Analysing the general indicators

• Volume variance
• breakdown per product / market / week
• also per rep?
• source budget / weekly sales
• who? Sales Director and reps regional
  supervisors MD
• colour maps showing areas / markets
• threshold values determine colour
• volume and figure

64
Analysing the general indicators

• Price variance
• breakdown per RM / component labour (for each
  category) focus on most expensive
• buyers / production director supervisors
  personnel director
• source budget figures account payable /
  payroll
• Monthly probably enough (changes dont occur that
  often)
• tables for detail exception reporting using
  shape of RM that is causing the variance to be
  negative

65
Analysing the general indicators

• Formula variance
• per product / per RM labout
• source stock out sheets production sheets
  (sales too late) personnel hours
• some figures cannot be known exactly gt use
  surrogate or estimate
• target foremen, production staff and director
• gauges, colour map of the factory, colour coded
  signs

66
Specific indicators

• Read in the case
• do the same job as on the previous slides
• try to find indicators of specific interest to
  some of the managers described in the case
• e.g. maintenance problem
• collect data on all accidents (foremen)
• store in db
• provide statistics on how long it takes to
  re-start, how often certain accidents occur,
  where...
• ask maintenance staff to fill out time sheets
• compare the two data sets
• how would you present this?

67
Example 1 Monitoring Maintenance

• Imagine down time is increasing
• dont know enough to fix the problem
• (1) collect appropriate data on accidents
• maintenance staff time sheets
• accident report for each problem - documented by
  operators
• match both sources of data
• (2) store it in a suitable DB
• (3) analyse based on a number of CSF
• (4) present analysis in computer dashboard

68
CSF analysis for the maintenance

• Number of accidents per run (per unit / product)
• Nature of accident (several categories to be
  found)
• Location of accidents
• Average duration of repair (for each assembly
  line)
• Average duration of repair for each staff?
• Average duration of repair for each type of
  accident
• Mapping of when accidents happen
• establish thresholds

69
Location ( of all accidents)
5
al
1
10
W3
W3
Shipping
10
al
2
8
al
1
WP2
W2
W2
35
storage
Stocks
al
2
Main Corridor
Finished
3
Goods
al
1
WP1
W1
W1
6
cooling
al
2
Changing
3 - 3 - 15
Other Areas 2
Stocks
Rooms
Preparation ovens
RM
and Related
Quality
Facilities
Control
70
Time spent ( of down time)
5
al
1
5
W3
W3
Shipping
20
al
2
41
al
1
WP2
W2
W2
8
storage
Stocks
al
2
Finished
Main Corridor
3
Goods
al
1
WP1
W1
W1
4
cooling
al
2
Changing
3 - 3 - 8
Other Areas 2
Stocks
Rooms
Preparation ovens
RM
and Related
Quality
Facilities
Control
71
When accidents happen
72
Who does what?
73
Analysing the types of accidents
74
Conclusion on Maintenance

• Cant show everything
• Data should be collected, but choices must be
  made for dashboard
• Choices can be made based on
• scope for improvement
• development VS monitoring (hierarchy of CSFs)
• preferences of managers
• Archives will show whether targets are achieved
  gt new threshold values can be set

75
Other specific indicators

• Fat content in paste (line graph per hour)
• Fat content in paste (same)
• average weight of goods VS target
• loss at various stages of production
• Appearance of the product
• taste of the product
• physical resistance of product
• returns

76
Assignment

• Report on the CSF analysis that we have done in
  class your analysis
• your report on the three general indicators
• your analysis of specific needs (based on the
  list on previous slide)
• develop a small dashboard using Access VB
  concentrating on two indicators of your choice

77
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78
Load the new control
Create the graph object
79
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80
Guidelines

• for each indicator document
• who will use it?
• How frequently will they need it?
• How detailed should it be?
• What unit of measure will be used?
• What data source exists? What should be created?
• How can it be broken down to be more meaningful?
• How can it be represented for maximum visual
  impact?
• How will it be monitored in the long term?
• Be creative
• add details to the case if they are not there
• design methods to collect the required data
• answer the questions above
• come up with a nice, simple dashboard that works
• reports to be brief (bullet points)

81
Computer Integrated Manufacturing (CIM)

• Overall computerisation process which started a
  long time ago
• Encompasses many different types of applications
• basis was the application of the Materials
  Requirements Planning (MRP) principles (early
  70s)
• APICS (American Production/Inventory Control
  Society)
• All major software houses developed and marketed
  MRP systems

See handout
82
Proven benefits of CIM

• Reduction in design costs 15 - 30
• reduction of in-shop time of parts 30 - 60
• increase in productivity 40 - 70
• better product quality 20 - 50
• Improved product design up to 30 times more
  design variants investigated

83
Different Applications of CIM

• Increased flexibility in design / production in
  order to serve niche markets (focus on small
  output) - more Europe
• Better organisation of mass production - more
  Japan
• Better utilisation of the capacity, optimisation
  of performance - more US

84
Materials Requirement Planning (MRP)

• Snowball effect as companies moving to MRP
  imposed business changes to their partners
• MRP logic was always around, but switching costs
  in manufacturing made it worthwhile
• data processing costs decreasing
• inventory costs rising
• Sophisticated CIM systems easier to justify
• Other external pressures mean that tighter
  control is required

85
Where does MRP work best?

• Universally applicable principles butworks best
  if there is a need for
• stronger linkage between purchasing,
  manufacturing and distribution
• better shop floor control
• sorting out buffer stocks and work centre
  priorities (e.g. fabrication and assembly)

86
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

See diagram
87
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 handout
88
Integration of design and manufacturing

• integration of operations with upstream design
  activities and downstream sales activity
• downstream e.g. by integrating CAD with Bill of
  Material
• new designs go on-line immediately
• no production of obsolete products / assemblies
• shorter time to market for new pdts

89
Core of MRP Inventory Control

• Recording of all flows in and out of stock
• comparison with physical count (once in a while)
• Quantities of items on hand, on order (based on
  delivery date) and committed to production
• Requirements for parts and material as in BOM
• Management of location and bin numbers (e.g.
  Musgrave)

90
Inventory Control - Key factors

• Lead times (purchasing, manufacturing)
• Cost of components and material (valuation)
• Carrying costs
• Order costs
• Economic Order Quantity (EOQ)
• Lot tracking

91
Conclusion Determining the value of MRP

• Difficult to establish off-hand Depends on many
  organisational factors
• Degree of preparedness depends on
• human relations on factory floor and with other
  areas
• tightness of current procedures
• availability of accurate data
• formalised process / recipe
• level of skills available
• quality of existing support systems
• Proper expectation should be that benefits can be
  significant, but road can be long as well

92
Enterprise Resource Planning (ERP)

• Large applications geared towards integrating the
  essential internal processes of an organisation
• A k a enterprise-wide systems
• e.g. SAP R/3, MFG/PRO, Baan, JD Edwards, Oracle
• 70 of fortune 500 companies have or are
  implementing ERP systems
• SAP and Oracle have become the second largest
  software producers in the world

Extended enterprise
93
Enterprise Resource Planning Systems (ERP)

• Support for key areas of the firm operational
  excellence
• Very dynamic market worldwide ( 40 per year)
• SAP 30,000 implementations, 10 million users and
  more than 1000 partners
• Software typically bought from a vendor
• Difficulties in selecting and implementing ERP

94
ERP stories

• Whirlpool hundreds of distributors receive no
  deliveries after the update of the SAP software.
• Hershey Despite 112 million spent on SAP R/3
  all shops empty on Halloween week.
• Allied Waste Industries ERP project stopped
  after 130 million investment
• Waste Management Inc. same after 45 million
  investment
• Unisource Worldwide and Dell also cancelled their
  projects
• Foxmeyer after three years of unsuccessful
  implementation, company sues SAP and AA before
  going bankrupt

95
Case for ERP

• Managerial goals of standardising / integrating
  systems
• ERP common grammar and common pool of data
• Also supposed to reflect best practice (optimised
  business processes)
• Intense vendor / consultant push
• Microsoft case (18 millions saved annually)

96
The case against ERP

• High risk projects
• Full implementation means 80 of existing systems
  must go
• Some re-engineering may also be needed
• Political pressure gt managerial rationale?
• Low success rates reported

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Managerial rationale

• Search for operational excellence using best
  practice models
• cost cutting / rationalisation
• standardisation / compatibility of disparate IT
  infrastructures (e.g. mergers)
• Year 2000?
• By extension, platform for ECommerce
• e.g. Ericsson reported following improvements
• SOP 1 hour to 10 minutes
• PO 4 hours to 5 minutes
• production scheduling 18 hours to 30 minutes
• 98 of orders delivered on time

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Reality of ERP

• Too many times reported that ERP implemented
  under instruction from HQ
• No business case ever built at local level at
  least
• Some stories of sites having to implement 3
  different ERP software within a few years
• Cost justification / disruption to everyday
  business not sufficiently taken into account

99
Content of ERP systems

• ERPs are not single systems series of modules
  supporting specific areas
• admin functions
• HR
• manufacturing / MRP
• order processing etc
• single point of entry for each item of data sits
  on top of a single database of shared data
• data is released from one module into the
  relevant modules once it has been checked
• ERPs have the potential to solve many back end
  headaches
• Build upon earlier generation of CIM systems
  e.g. MRP

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E.g. DELL

• three plants are located close to their suppliers
  and operate in JIT
• Orders follow machines across the floor
• Automated customer requests mean operators are
  shown by flashing colours what type of PC to
  assemble)
• no finished goods inventory (cost,
  obsolescence)
• outsourcing of non-critical components (e.g.
  screen)
• acceleration of payment cycle (goods paid for
  before they are built!)

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Introduction to MFG/PRO

• Each student get their own version of the
  training database Quality Pencil company
• Create a new product and sell it Packaged Pen
• Not so easy to go around the menus
• Codes are used to help users find their way
  e.g. 1.2.1 is product line maintenance
• Users must learn which screens to use to do things

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Reasons for ERP systems

• Search for operational excellence using best
  practice models
• cost cutting / rationalisation
• standardisation / compatibility of disparate IT
  infrastructures (e.g. mergers)
• Year 2000?
• e.g. Ericsson reported following improvements
• SOP 1 hour to 10 minutes
• PO 4 hours to 5 minutes
• production scheduling 18 hours to 30 minutes
• 98 of orders delivered on time

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Example (2) Dell case study

• No stocks (RM not paid for until in the factory)
• Tracking of WIP on the floor
• Testing fully automated
• Impressive AGV for temporary storage of large
  orders
• 95 fully automated loading bays
• main sorting point of output for shipping
• scanner operated
• straight from assembly line to trucks

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Example Colgate Palmolive

• Large corporation with many products
• Goal streamlining the business while offering
  increasing flexibility to customers
• SAP R/3 to address manufacturing / logistical
  complexity
• 1996 - 2001 to equip the whole corporation
• 75 data centres 2
  centres with 40 staff
• 1 to 5 days for orders acquisition combined
  acquisition
• 1 or 2 days to process them and processing
  in 4 hours!
• on-time deliveries 91.5 97.5
• Also accounts payable and HRM
  consolidated in one location

Before
After
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How to get an ERP

• No real build or buy decision
• try to minimise the high levels of risk
• Foxmeyer (5 billion pharmaceutical comp.) went
  bankrupt in 1996
• sued SAPs US subsidiary and Andersen Consult.
  for a combined 1 billion
• 3 years of implementation destroyed the company
• bought by McKesson Drugs - 1997
• Try to get best fit between ERP functionalities
  and business model

109
Critical issues in ERP implementation

• High cost and high stakes
• Misguided belief that there is an ERP that does
  it all
• difficulty in making a transition from an old
  model to an ERP model
• overestimation of the pace of change of some
  stakeholders (technical change is not sufficient)
• difficulty in obtaining any direct ROI

110
Buying ERPs

• Many suppliers SAP / Baan / JD Edwards / QAD
• always implemented through a distributor
• advantages are numerous (as against building)
• integrate best practice
• insurance against obsolescence
• cheaper !!??
• Software development is not core competency for
  most firms
• but, selection process is difficult at best
• site visits
• presentation
• discussion groups
• Magazines and newspapers

111
Alternative The Application Service Provider
model

• Over the last two years - Pressure from Y2K?
• "An ASP manages and delivers application
  capabilities to multiple entities from a data
  centre across a wide area network.
• different types of ASP
• horizontal enterprise / volume or regional ASP
• vertical model task-specific or
  industry-specific ASP
• solution offered through a Best-of-breed or
  One-stop-shopping model

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ERP and ASP

• As with all ecom systems, service has two parts
• interface (web) or client
• back end functionality on a server
• opportunity to differentiate service for ASP
  offer additional software in the package
• opportunity for customer to pay far less and to
  implement far quicker (c.f. SMEs)
• Also, traditional ERP market is contracting
• expertise is in short supply

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Mechanics of ERP / ASP Services

• 24 to 36 months contracts
• 400-500 euros per workstation per month
  subscription fee at start
• service includes technical setup /
  implementation software licences on-going
  support upgrade
• some ASPs offer differentiated services for
  different industries
• others develop interfaces that allow some degree
  of customisation without touching the software
• SAP claim the same margins can be obtain

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Critical Success Factors in ASP model

• Security of the data and application
• performance and reliability of application
• at least 98 uptime
• flexibility of the service offered
• adaptation of the software
• relationship between supplier and customer / user

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Potential partners

• Pure play ASPs - 100 new
• ISP and Telecom companies - own the
  infrastructure
• Software vendors - own the licences
• Hardware vendors - own the platform
• Distributors - own the customers
• No one has all the required competence

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ERP Capabilities - SAP

• Accounting / finance
• Asset management, cash management, product cost
  accounting, A/R and A/P
• Production planning and materials planning
• purchasing, inventory management, MRP, production
  planning
• HR management
• travel expenses, payroll, personnel planning
• sales and distribution
• sales planning, order management, quality
  management
• e.g. Microsoft spent 10 months and 25 ms
  replacing 33 different systems in 26 sites with
  SAP

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ERP capability - MFG/PRO

• meant to deal with requirements throughout the
  entire product supply chain
• multi-location / multi-factory / multi-products
  etc
• Includes Inventory control Distribution /
  Manufacturing / Financial / Field services
  support / Planning
• Based on a large Progress relational database
  and developed in 4th GL

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Future trends

• A bit of a jungle - needs for standards
• Risk element is great for all partners involves -
  especially customers
• Application Service Provider Industry Consortium
  created end of 1999
• Code of good practice ready in January 2000
• creation of a certification that guarantees
  service and gives protection to customer (Ernst /
  Young and Deloite / Touche)

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Next steps on this market

• Inclusion of Customer Relationship Management
• Platform provider for ASP solutions
• e.g. Prologue Microsoft biz_at_large
• HP willing to enter into the capital of any
  venture if they provide the hardware
• Business Process Outsourcing (BPO)
• eXtended Resource Planning (XRP) - support
  decision making as well
• e.g. business intelligence
• e.g. balanced scorecard

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Computer Integrated Manufacturing (CIM)

• Overall computerisation process which started a
  long time ago
• Encompasses many different types of applications
• basis was the application of the Materials
  Requirements Planning (MRP) principles (early
  70s)
• APICS (American Production/Inventory Control
  Society)
• All major software houses developed and marketed
  MRP systems

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Reasons for MRP

• Snowball effect as companies moving to MRP
  imposed business changes to their partners
• MRP logic was always around, but switching costs
  in manufacturing made it worthwhile
• data processing costs decreasing
• inventory costs rising
• Sophisticated CIM systems easier to justify
• Other external pressures (eg financial / legal)
  mean that tighter control is required

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Where does MRP work best?

• Universally applicable principles butworks best
  if there is a need for
• stronger linkage between purchasing,
  manufacturing and distribution
• better shop floor control
• sorting out buffer stocks and work centre
  priorities (e.g. fabrication and assembly)

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Core of MRP Inventory Control

• Recording of all flows in and out of stock
• comparison with physical count
• Quantities of items on hand, on order (based on
  delivery date) and committed to production
• Requirements for parts and material as per BOM
• Management of location and bin numbers (e.g.
  Musgrave)

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Conclusion on ERP

• Whether traditional or ASP - matching the
  business processes to the functionality
• obtain agreement from all organisational actors
• be ready for fundamental change
• dont lose sight of the specificity of the firm
• try an incremental implementation rather than a
  culture shock
• leave the door open for change after the ERP
  implementation

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Case Study of SAP implementation

• Vandelay Industries Inc. (95 - 97)
• SAP R/3 ERP
• Goals
• end the fragmentation of systems
• allow process standardisation
• give more visibility on data across entire
  corporation
• give competitive advantage
• much enthusiasm especially amongst plant managers
• high expectations / low level of understanding
  what ERPs are

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Company background

• Manufacture and distribute industrial process
  equipment
• 8 billion turnover
• rapid expansion from 1945 to 1985 by opening new
  sites and buying smaller firms
• 30,000 staff on four continents
• find themselves too expensive and too slow
• three plant closures and 10,000 staff lost
• return to profitability but fear that it may not
  be enough

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Information Systems

• Each plant had own systems (MRP, planning,
  scheduling)
• corporate finance IS only integrated one
• problems resulting
• integration often impossible
• scheduling incompatible gt no end-to-end vision
  of processes as soon as more than 1 plant
  involved
• no overall planning
• order acquisition entirely manual (faxes and
  phones)
• no integration of key functions - e.g. HR
• also, processes complex on factory floors

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The Team and the Project

• SAP - the market leader at the time (6000 sites
  400,000 users in 1995)
• Deloitte and Touche / ICS subsidiary - favourite
  SAP implementer
• general management consultants
• SAP specialists
• 18 months planned with 50 f/t staff
• budget 20 million
• 50/50 split designing to be processes /
  implementing SAP
• target sites
• 8 manufacturing
• 4 order entry
• headquarters

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Key issues in the project

• Steering committee made up of high level, highly
  committed managers - monthly meetings
• Pluridisciplinary project team - IS key
  functional areas - full time
• centralisation vs autonomy (involvement of users)
• standardisation of practices (e.g. part numbers)
• Suitability of SAP
• change business to match SAP
• interface SAP with other system
• extent SAP system to match current practices
• Persuading key change agents

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Customer Relationship Management

• Cost of selling to a new customer is six times as
  high as to existing customer
• Each dissatisfied customer tells 8 to 10 people
• 1 extra of customer retention can boost
  turnover by as much as 15
• Odds of selling to a new customer 1/7 to an
  existing customer 1/2
• 70 of dissatisfied customers will do business
  again if they feel their complains are handled
  well
• Many companies dont have proper customer support

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Why CRM?

• Customers dont care about their suppliers
  internal difficulties
• They want to be able to access product and
  services at the least cost
• They want a single point of entry
• Existing loyalty programmes dont go far enough

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The 3 phases of CRM

• Acquiring new customers
• by promotion
• leading edge product backed by superior service
• Enhancing profitability of existing customers
• cross-selling and up-selling (one stop shopping)
• additional services
• Retaining most profitable customers
• best customer list
• customer profitability analysis
• make best offer to best customer

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Supply Chain Management

• Increasingly common type of application
• e.g. Bergen Brunswig (pharmaceutical medical
  product distributor)
• no longer see themselves as a distribution
  company but as managing the medical supply
  channel on behalf of others
• not merely moving products but also managing
  information and the ultimate efficiency of the
  channel
• e.g. Dell
• anti e.g. Boeing wrote off 2.6 billion in Oct.
  1997
• raw material and internal assembly shortages
• unhappy customers

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Definition

• Complex network of relationships that
  organisations maintain with trading partners to
  source, manufacture and deliver its products
• includes material, information and financial
  flows as shown below

Information Flows
Supplier
Manufacturing
Distribution
Retailer
Consumer
Payment Flows
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Goal of SCM

• Delivering the best value proposition what the
  customer want, how and when its wanted, at the
  lowest possible price
• to achieve this companies need rapid, cost
  effective and flawless demand fulfilment
• Involves taking responsibility for what happens
  outside the walls of the organisation
• linkage with suppliers
• minimising the cost of order delivery process by
  trading off cost of inventory, transport,
  handling etc...

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Obstacles to good SCM

• No player has enough info to synchronise the
  entire channel
• most SCc contain more than double the required
  inventory
• products are handled too many times (5/6 average)
• Physical carriers struggle to maintain costly
  equipment on slim margins

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Novelty in SCM - eSCM

• Better techniques and software e.g. SAPs
  Advanced Planning and Optimisation
• Supply Chain planning gt for the entire channel
• Web-based applications shared by all partners
  involved including consumers help both planning
  and execution provide greater visibility
• e.g. complex product with fragmented supply in
  many different countries

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Supply Chain Trends

• Increased worldwide dispersion of manufacturing
  and distribution facilities
• increased channel unpredictability
• responsiveness before efficiency need to be
  quick and flexible disrupts existing paradigms
• Market share before profit margin (.com)

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Key Areas of Investment in SCM

• Inter-enterprise co-ordination of design,
  manufacturing and business process
• Effective distribution and channel partnership
• customer responsiveness and accountability

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Different stages in SCM

• Enterprise focus - traditional model
• characterised by fragmentation
• sometimes semi-conflict between links in the
  chain
• Partner focus - modern vision
• characterised by collaborative idea
• Direct focus (e.g. Dell) - emerging vision
• characterised by customer-direct capability
• near zero inventories

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Service through SCM integration

• Inferior integration of SCM results in
• erratic level of service
• no vision of future demand
• bad/inefficient production planning and
  scheduling
• rising inventory costs
• Good SCM leads to
• Responsive SC (quick and accurate)
• Enterprising SC (adaptable)
• Intelligent SC (dynamic and visionary)

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Elements of SCM

• Two key elements are
• planning
• forecast of demand,
• inventory simulation
• manufacturing planning...
• Execution
• procurement
• manufacturing
• distribution...
• Specific software exist to enable those

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SC Planning

• Two types of software
• Order commitment (available-to-promise)
• Advanced scheduling and manufacturing planning
• Demand planning
• Distribution planning
• Transportation planning
• Understanding the impact of taking additional
  orders / changing current orders
• Integration with ERP required

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SC Execution

• Key differentiator in todays markets
• Planning can help to cut costs, be more efficient
• Execution is what truly satisfies customers
  needs
• key stages
• order acquisition
• production / purchase of goods
• replenishment
• distribution
• reverse logistics (dealing with returns - up to
  14)

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Problems with SC

• Lack of knowledge of the end-to-end demand
  function
• inconsistent / out-of-date data about SC (poor
  decision making)
• lack of process integration with partners
• need for fundamental structural changes

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Solutions

• Enable information sharing
• robust communication process
• create joint performance measurement systems
• create joint collaborative planning processes
• exchange responsibilities / redesign across firms
• redesign products and services to facilitate work
  and satisfaction of customers
• All these are stages of the total solution

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Key Questions in sorting out the SCM

• SCM is a business design issue
• What is the right e-chain structure?
• Does the chain enable us to differentiate
  ourselves?
• Does it facilitate effective order fulfilment?
• Is it matched by proper infrastructure / internal
  processes?

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Amazon.com key facts

• Begin July 1995
• Revenues 150 m in 1997 up to 2.8 b in 2000
• Customer accounts 1.5 m in 1997 to 17 m in 2000
• Repeat customers 65 in 1998 to 78 in 2000
• Truly global business 150 countries
• 200,000 associates signed up
• Not successful in all areas of activity
• Unprofitable overall

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Traditional business model

• Concentration at all levels of supply chain
• But no dominant force on the retail side (very
  small companies)
• Return policy with approx 30 return rate across
  the board
• Characterised with huge fluctuations very few
  titles really successful e.g. academic titles
• But publishers bear all the costs
• Display costs are enormous in view of value of
  products

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New business model

• New way of selling books means return rate down
  to 3 (potential saving 50 of industry margin)
• Quicker turnaround of stock (stock only big
  titles)
• 15 days of inventory credit card payments
  huge positive cash flow
• Reduction in costs are shared with customers
  lowest prices
• Elimination of critical mass principle in
  industry

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Key to competitive advantage

• Trade real estate for technology
• Keyword in business location, location,
  location
• Real estate gets expensive / technology gests
  cheaper
• Large volumes of transactions / items main
  problem of customer is classification / search
  problem means computer is the winner
• Initial product tailor made for Internet sales
• Someone else does the hard work of creating the
  material
• Easy to ship
• Low value low risk
• Informational gt easy to demonstrate sell
  on-line
• E.g. sample chapters, revues etc
• Not all products are like that!!

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In the case of Amazon

• Move away from duplicating physical buying
  experience
• 3D walk
• Computing concept database etc
• Introduce switching costs by adding features not
  replicable (e.g. customer history)
• 1-click technology patent!
• Reviews
• Purchasing circles (Meta-information)
• Email alerts
• Etc.

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competition

• Traditional competitors not in same dimension
  (largest stores 175,000 titles in stock against
  4.5 m)
• Barnes and Nobles failed despite size and
  expertise
• Booksense.com and booksite.com have failed to
  make a impact at the same level as Amazon
• In CD market elimination of CDNow.com in one
  quarter (means that trust can be migrated to
  other activities)
• It seems that the main expertise carried by
  Amazon is SELLING on the NET, not what they sell

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Types of SCM

• Integrated Make-to-stock
• smoothing demand in mass production industries
• linked to postponement in distribution channel
• Continuous replenishment
• customer-demand pull system across firms
• ECR, QR
• Build-to-order
• efficient SCM allows return to BTO model
• inventory substituted with information (Dell)

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Example CVS-McKesson SCM

• McKes