Chapter 10: Manufacturing Systems

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• Chapter 10 Manufacturing Systems Supply Chain

MODERN ERP SELECT, IMPLEMENT USE TODAYS
ADVANCED BUSINESS SYSTEMS
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Evolution of Manufacturing Systems

• Economic Order Quantity
• Material Requirements Planning
• Capacity Planning
• Manufacturing Resource Planning (MRPII)
• ERP Systems for Manufacturing

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Economic Order Quantity

• Economic Order Quantity (EOQ) method is where
  each raw material stock item is analyzed for its
  ordering lead time and carrying costs.
• EOQ formula determines the optimum order quantity
  that a company should hold in its inventory given
  a set cost of production, demand rate and other
  variables. This is done to minimize variable
  inventory costs. 

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Materials Requirements Planning

• Materials requirements planning uses bill of
  material (BOM) and explodes it to determine
  materials requirements.
• A BOM shows the component parts, subassemblies
  etc that are used to build one unit of finished
  goods. Materials are then ordered.
• MRP processes include
• Identify stock needed.
• Calculate lead time for stock.
• Determine safety stock levels.
• Assign most cost-effective order quantities.
• Produce accurate purchase orders
• Determines quantities and timing of raw materials
  to support the Master Production Schedule.
• Master production schedule production plan for
  finished goods. Employs sales forecasts to
  identify products needed.
• MPS created through Demand Management, which
  links forecast to MRP and MPS.

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Capacity Requirements Planning

• Capacity planning is the process of determining
  the production capacity needed by an organization
  to meet changing demands for its products.
• Uses planned manufacturing schedule to analyze
  the requirements that will be placed upon
  manufacturing centers.
• In the context of capacity planning "capacity" is
  the maximum amount of work that an organization
  is capable of completing in a given period of
  time.

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Manufacturing Resource Planning (MRPII)

• MRP II is a method for the effective planning of
  all resources of a manufacturing company.
  Addresses operational planning in units,
  financial planning in dollars, and a simulation
  capability to conduct sensitivity analysis
  (what-if questions).
• Basic modules in an MRP II system are
• Master Production Scheduling (MPS) ,
• Item Master Data (Technical Data),
• Bill of Materials
• Inventories Orders (Inventory Control)
• Purchasing Management
• Material Requirements Planning (MRP)
• Shop Floor Control (SFC)
• Capacity Planning or Capacity Requirements
  Planning (CRP)
• Standard Costing (Cost Control)
• Cost Reporting / Management (Cost Control)
• Distribution Resource Planning (DRP)

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ERP Systems for Manufacturing

• Tasks needed to interface with one another in
  manufacturing
• Engineering design
• Order tracking from acceptance through
  fulfillment
• Purchasing raw materials and services
• Inventory receipts including quality control,
  inspection of delivered products, and processing
  receipts by matching receipt with purchase order
• Managing interdependencies of complex BOMs
• Cost accounting including tracking the revenue,
  cost, and profit at a detailed level.

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ERP Manufacturing Modules (SAP)

• Production Planning (PP)
• Inventory Management (IM)
• Quality Management (QM)
• Plant Maintenance (PM)
• Service Management (SM)
• Warehouse Management (WM)
• Lean Manufacturing (LM)

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Production Planning (PP)

• Uses MRP techniques to create production plans in
  form of production orders or planned orders.
• Incorporates a multiplicity of production
  elements, ranging from the everyday activities of
  staff to the ability to realize accurate delivery
  times for the customer.
• With an effective production planning operation
  at its nucleus, any form of manufacturing process
  has the capability to exploit its full potential.
• For repetitive manufacturing or process
  manufacturing
• Can integrate Kanban and JIT

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Inventory Management

• Proactive manner of inventory management.
  Explodes the end product demand obtained from the
  Master Production Schedule (MPS) for a specified
  product.
• The Bill of Material is used for the recipe.
• MRP then creates a detailed schedule of purchase
  orders or production orders taking into account
  the inventory on hand.
• MRP is a simple logic, but the magnitude of data
  involved in a realistic situation makes it
  computationally cumbersome.
• If undertaken manually, the entire process is
  highly time consuming. It therefore becomes
  essential to use software to carry out the
  exercise.

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Inventory Management (IM)

• Procurement functions
• Determine requirements
• Sourcing
• Selecting vendor
• PO processing/status
• Receiving
• Invoice verification--tracking the 3-way match
  between purchase orders (what was ordered),
  inventory receipts (what arrived), and invoice
  (what the vendor invoiced)

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Quality Management (QM)

• Helps to plan and record quality-control
  activities such as product inspections and
  material certifications.
• Monitors status of supplier relationships.
• Evaluates vendor on basis of quality.
• Prevents the receipt of defective goods.

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Plant Maintenance (PM)

• Plant Maintenance (PM) component provides a
  comprehensive software solution for all
  maintenance activities that are performed within
  a company.
• Also, preventive maintenance of plant machinery
  and managing maintenance resources so equipment
  doesnt break down.

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Service Management (SM)

• Service Management gives an integrated approach
  to manage activities of various service
  providers. The services may be internal like
  providing maintenance support to external like
  servicing of an equipment at clients site.
• SAP R/3 Service Management (SM) Module handles
  Call Management very efficiently. The process
  flow from call logging to call processing,
  call monitoring, call closing and billing is
  handled in very systematic way. Call Logging
  function is very effective and can be used for
  the Front Office. Various default tasks like
  Call back to customers in specified time are
  taken care.

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Warehouse Management (WM)

• Controls the activities of movements into, out
  of, and through a warehouse by using real time
  information about the status of inventory supply
  and demand.
• At a bare minimum, a WMS should
• Have a flexible location system.
• Utilize user-defined parameters to direct
  warehouse tasks and use live documents to execute
  these tasks.
• Have some built-in level of integration with data
  collection devices.

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Lean Manufacturing (LM)

• Production approach that focuses on producing
  only what is required by the customer, at high
  qualities with no waste.
• Costs that add no value include
• Overproduction
• Wait time
• Transportation
• Inventory
• Excess motion
• Inappropriate processing
• Defects

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Cost Accounting for Manufacturing

• Move orders and raw materials (standard) to the
  plant and updates WIP.
• Must record standard costs.
• Compute raw material and direct labor variances.
• Once the product is manufactured, close the cost
  record and transfer Cost of Goods to Finished
  Goods.
• Compute manufacturing overhead and its variances.
  

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Technologies for Manufacturing/ Warehouse/Supply
Chain

• EDI
• VMI
• RFID

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Electronic Data Interchange

• EDI is the use of computerized communication to
  exchange business data electronically in order to
  process transactions.
• Used for high volume transactions running mainly
  in batch mode.
• EDI allows a company to create electronic
  documents, transmit them over private networks or
  the Internet to their customers and suppliers
  computers and receive electronic responses in
  return.
• EDIINT EDI over the Internet
• Can outsource EDI transmission and management to
  another company that will provide the security
  and infrastructure for transmission.
• EDI uses common formats ANSI X12

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EDI Benefits

• EDI saves a company money by providing an
  alternative to, or replacing information flows
  that require a great deal of human interaction
  and materials such as paper documents, meetings,
  faxes, email, etc.
• EDI and similar technologies allow a company to
  take advantage of the benefits of storing and
  manipulating data electronically without the cost
  of manual entry or scanning.

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Vendor Managed Inventory

• A mechanism where the supplier creates the PO
  based on the demand information exchanged by the
  retailer/customer. It is a backward replenishment
  model where the supplier does the demand creation
  and demand fulfillment.
• First applied in grocery industry between
  companies like Procter and Gamble (supplier) and
  Wal-Mart (distributor)
• Puts the responsibility of inventory management
  on the supplier (outsource the inventory
  management function).

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Benefits of VMI for Customer

• Reduced inventory lowers safety stock and
  supplier can control lead time better than
  customer.
• Reduced stock-outs supplier keeps track of
  inventory movement and takes over responsibility
  for product availability. Increased customer
  satisfaction.
• Reduced forecasting and purchasing activities by
  customer because supplier is taking on that
  function they forecast based on sales info and
  create the POS.
• Increased sales- due to less stock outs.

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Benefits of VMI for Supplier

• They can better forecast due to having more info
  available to them. They can also keep less
  inventory around because now they arent
  concerned about how much and when customer is
  going to buy.
• Reduced PO errors and returns by customer- less
  mistakes
• Improvements in SLA vendor knows now the need
  for item and thus orders right product and right
  time this encourage supply chain cooperation.

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RFID

• Computer chips embedded in products and packaging
  that allows them to be tracked by wireless
  networks.
• Enables products to be tracked from suppliers
  factory floor to retailers store shelves.
• Maintain and control optimum product levels to
  save costs and ensure better customer service.

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Supply Chain
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Supply Chain

• The Supply Chain describes the succession of
  suppliers, manufacturers, storage facilities,
  distributors and customers that allow products to
  be ordered, produced and delivered.
• Each level of the supply chain is described as a
  tier. There can be several tiers beneath the
  final supplier some of these may also be
  suppliers to other companies operating in other
  supply chains.

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Supply Chain Management

• Supply Chain Management administers the flow of
  supplies, logistics, services and information
  through the supply-chain, from suppliers,
  manufacturers, sub-contractors, stores and
  distributors to customers and end-users.
• It involves business strategy, information flow
  and systems compatibility.
• Benefits include
• Improved visibility of information between
  suppliers and customers quicker response to
  changes in demand.
• Shared knowledge reducing waste and inventories,
  improving product quality and services throughout
  the chain.
• Development of a longer term learning network
  for the benefit of customers, suppliers and
  individuals.

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Supply Chain Management

• The environment in which SCM can be applied is
  changing. For many years manufacturing companies
  have been striving to improve their efficiency to
  remain competitive. These improvements are
  characterized by
• A move to Make to Order production.
• Sub-contracting non-core activities.
• Smaller manufacturing batches caused by an
  increase in product variants.
• Lower inventories.
• The net effect of these changes has been to
  oblige companies within informal supply chains to
  become more dependent on one another.