ERP AND APPLICATION Lesson 2 By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK.

ERP AND ERP AND APPLICATIONAPPLICATION

Lesson 2Lesson 2

By David Pun, By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHKMPA, MEC, MBA, BSc, ACEA, ATIHK

(c) copyright 2005 By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK 2

INDEPENDENT DEMANDINDEPENDENT DEMAND

• Distribution inventories comprising of Distribution inventories comprising of final or finished productsfinal or finished products– Retails, wholesales finished goods, service & Retails, wholesales finished goods, service &

replacement partsreplacement parts

• Not a function of, or dependent upon, Not a function of, or dependent upon, the demand of any other item or upon the demand of any other item or upon internal production activitiesinternal production activities


INDEPENDENT DEMANDINDEPENDENT DEMAND

• End result of productionsEnd result of productions• External, based on market needsExternal, based on market needs• RandomRandom• Need to be forecastNeed to be forecast• Inventories consideration is a trade-off Inventories consideration is a trade-off

between shipping, warehousing, and between shipping, warehousing, and carrying costcarrying cost


DEPENDENT DEMANDDEPENDENT DEMAND

• Manufacturing inventoriesManufacturing inventories– Sub-assemblies, components or raw Sub-assemblies, components or raw

materialmaterial

• Depends on the demand for another Depends on the demand for another itemitem


DEPENDENT DEMANDDEPENDENT DEMAND

• Satisfy production requirementsSatisfy production requirements• Internal, based on production schedulesInternal, based on production schedules• Depends on how the components are usedDepends on how the components are used• Geared to the quantities of parent itemsGeared to the quantities of parent items• Inventories determined by the Inventories determined by the

manufacturing consideration, setup times manufacturing consideration, setup times and costsand costs


LOT SIZINGLOT SIZING

• A specification of order quantityA specification of order quantity

• Principle of economy of scalePrinciple of economy of scale– Balance of ordering, transportation, Balance of ordering, transportation,

warehousing and carrying costswarehousing and carrying costs

• Due to constraints inherent in the Due to constraints inherent in the production processproduction process


LOT-SIZINGLOT-SIZING

• Fixed order quantity (FOQ)Fixed order quantity (FOQ)

• Lot-for-lot (L4L)Lot-for-lot (L4L)

• Period order quantity (POQ)Period order quantity (POQ)


LOT-SIZINGLOT-SIZING

• L4L planning in MRPL4L planning in MRP– Consistent with just-in-time (JIT) and zero Consistent with just-in-time (JIT) and zero

inventoriesinventories– Emphasizing minimal lot-sizes and minimal Emphasizing minimal lot-sizes and minimal

safety stockssafety stocks– ProblemsProblems

• Optimal lot-sizes for parent items will result in Optimal lot-sizes for parent items will result in non-optimal lot-sizes for components and vice non-optimal lot-sizes for components and vice versaversa

• Need to balance of setup & holding costs with Need to balance of setup & holding costs with other costs (queues of WIP, customers services, other costs (queues of WIP, customers services, handling, etc.)handling, etc.)


Manufacturing CalendarManufacturing Calendar

• Consecutively numbers just for those Consecutively numbers just for those days that production are planneddays that production are planned

• 1000-day scheduling ‘year’1000-day scheduling ‘year’

Order Release Day = Delivery Day – Lead Order Release Day = Delivery Day – Lead timestimes


PLANNING HORIZONPLANNING HORIZON

• The number of future periods for which The number of future periods for which plans are madeplans are made

• Include the total lead time of the Include the total lead time of the product to be producedproduct to be produced


PERIODSPERIODS

Order received

Planning

Forecast Order released Order delivery

ProductionPreparation

Firm plannedtime face

Demandtime face


LEAD TIME & LEAD TIME & BACKWARD SCHEDULINGBACKWARD SCHEDULING

• Lead timeLead time– The elapsed time from release of an order The elapsed time from release of an order

until its receiptuntil its receipt

• Backward schedulingBackward scheduling– Schedule to start as late as possibleSchedule to start as late as possible– Advantages: Reduce WIP, postpone Advantages: Reduce WIP, postpone

commitment of raw materials, reduce the commitment of raw materials, reduce the expendituresexpenditures


LEAD TIMELEAD TIME

Total Lead TimeDevelopment

Setting Up

Purchase

Production Assembly Delivery

DeliveryDate

ReleaseDate

Testing

Cumulative lead time

Manufacturing lead time


MANUFACTURING LEAD MANUFACTURING LEAD TIMETIME

• Queuing (non-value added service)Queuing (non-value added service)• Preparation (value added service)Preparation (value added service)• Assembly (value added service)Assembly (value added service)• Waiting for dispatch (non-value added Waiting for dispatch (non-value added

service)service)• Moving (non-value added service)Moving (non-value added service)


MANUFACTURING LEAD MANUFACTURING LEAD TIMETIMEManufacturing

Lead time

Completion dateStart date

Queuing

Preparation WaitingMovingAssemble

Manufacturing Lead Time

Non value added serviceValue added services

Log size

Industrial engineer Shop floor control


PROBLEMS OF LEAD TIMEPROBLEMS OF LEAD TIME

• Extremely volatileExtremely volatile

• Temptation to intentionally overstateTemptation to intentionally overstate


ROUTINGROUTING

• The path that work follows from work centre to woThe path that work follows from work centre to work centre, a series of works to be completed for an rk centre, a series of works to be completed for an itemitem– Operations to be performedOperations to be performed– Sequence of operationsSequence of operations– Work centres to be passed throughWork centres to be passed through– Possible alternate work centresPossible alternate work centres– Tooling requiredTooling required– Standard items, set up times and run timesStandard items, set up times and run times– Operator skill levelOperator skill level– Inspection and testing requirementsInspection and testing requirements


WORK CENTREWORK CENTRE

• Specific production area, consisting of Specific production area, consisting of one or more people and/or machines one or more people and/or machines with identical capabilities, that can be with identical capabilities, that can be considered as one unit for purposes of considered as one unit for purposes of capacity requirements planning and capacity requirements planning and detailed schedulingdetailed scheduling


COMPUTER PLANNED COMPUTER PLANNED ORDERSORDERS

• Automatically scheduled and controlled Automatically scheduled and controlled by the systemby the system

• Will be recalculated and deleted Will be recalculated and deleted whenever the system is regeneratedwhenever the system is regenerated

• Recommends to releaseRecommends to release


FIRM PLANNED ORDERSFIRM PLANNED ORDERS

• Plans released by plannerPlans released by planner

• Will not be changed when the system is Will not be changed when the system is regeneratedregenerated

• Can only be alter by the planner before Can only be alter by the planner before releaserelease


SCRAP, SHRINKAGE OR SCRAP, SHRINKAGE OR YIELDYIELD

• ScrapScrap– Outside specificationOutside specification– Fixed scrap – lost in setting up and/or Fixed scrap – lost in setting up and/or

startup of equipmentsstartup of equipments

• Scrap ration/factorScrap ration/factor– Percentage factor used to increase gross Percentage factor used to increase gross

requirements to account for anticipated loss requirements to account for anticipated loss within manufacturing of particular productwithin manufacturing of particular product



• ShrinkageShrinkage– Reduction in quantities by theft, deterioration, Reduction in quantities by theft, deterioration,

• Shrinkage rate/factorShrinkage rate/factor– Percentage factor used in compensate for Percentage factor used in compensate for

expected loss during the manufacturing of an expected loss during the manufacturing of an itemitem

– Affect all componentsAffect all components



• YieldYield– Ratio of usable output from a process to its Ratio of usable output from a process to its

inputinput– Inverse to the scrap or shrinkage factorInverse to the scrap or shrinkage factor

• Formulas used for adjusting planned Formulas used for adjusting planned quantityquantityQuantity Planned Quantity Planned = Quantity Needed / Yield Percentage= Quantity Needed / Yield Percentage= Quantity Needed / ( 1 – shrinkage factor)= Quantity Needed / ( 1 – shrinkage factor)


GENERAL USED METHODS GENERAL USED METHODS IN MRPIN MRP

• Apply shrinkage during BOM explosion Apply shrinkage during BOM explosion processprocessExploded requirementExploded requirement= Actual exploded requirements / ( 1 – Scrap factor)= Actual exploded requirements / ( 1 – Scrap factor)

• Applying shrinkage to the planned order Applying shrinkage to the planned order receiptsreceiptsPlanned order releasedPlanned order released= Planned order receipt / (1 – shrinkage factor)= Planned order receipt / (1 – shrinkage factor)


MRP PROGRAM HEALTH MRP PROGRAM HEALTH MONITORSMONITORS

• Data omissions and errorsData omissions and errors

• Transaction errorsTransaction errors

• Record errorsRecord errors


BASIC RESPONSIBILITIES BASIC RESPONSIBILITIES OF PLANNEROF PLANNER

• Making detailed decisions that keep the Making detailed decisions that keep the material moving through the plantmaterial moving through the plant

• Launch (release) purchasing or Launch (release) purchasing or production ordersproduction orders

• Change order or requisition timingsChange order or requisition timings



• Reschedule due dates of open (released) Reschedule due dates of open (released) orders as requiredorders as required

• Solve critical material shortages by Solve critical material shortages by expedition and planningexpedition and planning

• Find key problem areasFind key problem areas



• Coordinate with other planners, shop floor Coordinate with other planners, shop floor control, customers services and purchasing to control, customers services and purchasing to resolve problemsresolve problems

• Approve requests for unplanned stock Approve requests for unplanned stock disbursementsdisbursements

• Use the system to solve problemUse the system to solve problem

• Indicate further system enhancementIndicate further system enhancement


MRP II MODULESMRP II MODULES

ProductionData

MRPResources

Production

Costing

Inventory

MPS

Sales

Purchase

AR

GL

AP

System

FA


BILL OF MATERIAL (BOM)BILL OF MATERIAL (BOM)

• A listing of all the sub-assemblies, A listing of all the sub-assemblies, intermediates, parts, and raw materials intermediates, parts, and raw materials that go into a parent assembly showing that go into a parent assembly showing the quantity of each required to make the quantity of each required to make an assembly an assembly (APICS Dictionary)(APICS Dictionary)

• Show the parent-component relationshipShow the parent-component relationship


BILL OF MATERIAL (BOM)BILL OF MATERIAL (BOM)

• Show the parent-component relationshipShow the parent-component relationship

• Basic framework of the entire material Basic framework of the entire material requirement planrequirement plan

• Master Bill of MaterialMaster Bill of Material– Only real BOMOnly real BOM– Others are build on it, such as Customize Others are build on it, such as Customize

BOM, Working BOMBOM, Working BOM


BILL OF MATERIAL BILL OF MATERIAL STRUCTURINGSTRUCTURING

• Not a part listNot a part list

• Shows the assembly and sub-assembly Shows the assembly and sub-assembly breakdowns of a products; i.e. how the breakdowns of a products; i.e. how the product is builtproduct is built



• Product structureProduct structure– The sequence of operations that components The sequence of operations that components

follow during production or assemblyfollow during production or assembly– Raw material Raw material fabricated components fabricated components sub- sub-

assemblies assemblies assemblies assemblies finished goods finished goods– A product or assembly at one level is referred A product or assembly at one level is referred

to as the parent, with its component parts at to as the parent, with its component parts at the next level down referred to as the children the next level down referred to as the children of that parentof that parent



Product X

Component I (2) Component II Assembly A

Assembly B Component II

Assembly C Component V (3)Component III Component IV

Assembly C (2)

Component VI

Component VI

Level 0

Level -1

Level -2

Level -3

Level -4


LOW LEVEL CODINGLOW LEVEL CODING

• Accumulate the gross requirements down tAccumulate the gross requirements down to the lowest level in any BOM of a particular o the lowest level in any BOM of a particular component in the MPScomponent in the MPS

• It is a number that identifies the lowest level It is a number that identifies the lowest level in any BOM at which a particular componenin any BOM at which a particular component appeart appear


PRODUCT STRUCTUREPRODUCT STRUCTURE

ComponeComponentnt II IIII IIIIII IVIV VV VIVI

LEVEL -1LEVEL -1 22 11 -- -- -- --

LEVEL -2LEVEL -2 -- 11 -- -- -- --

LEVEL -3LEVEL -3 -- -- 11 11 33 2 X 12 X 1

LEVEL -4LEVEL -4 -- -- -- -- -- 11

TotalTotal 22 22 11 11 33 33

Low-Low-levels levels CodeCode

-1-1 -2-2 -3-3 -3-3 -3-3 -4-4


ITEMS OF BOMITEMS OF BOM

• Packaging materialPackaging material• Printed materialPrinted material• Instruction sheetsInstruction sheets• Raw materialsRaw materials• Manufacturing sub-assembliesManufacturing sub-assemblies


ITEMS OF BOMITEMS OF BOM

• HardwareHardware• Semi-finished materialsSemi-finished materials• IntermediatesIntermediates• Expendable toolingExpendable tooling• Reference material and drawingsReference material and drawings


PRINCIPLES OF BOM PRINCIPLES OF BOM STRUCTURINGSTRUCTURING

• Data in the part number and BOM records Data in the part number and BOM records should be complete enough to satisfy the should be complete enough to satisfy the needs of every internal customer in the needs of every internal customer in the companycompany

• Part numbers should be uniquePart numbers should be unique

• BOM should consist of part numbers, not BOM should consist of part numbers, not drawing numberdrawing number



• BOM should identify material, not laborBOM should identify material, not labor

• All parts in the BOM should be additiveAll parts in the BOM should be additive

• The BOM must include all items to be The BOM must include all items to be scheduled and indicate relationships scheduled and indicate relationships between thembetween them



• BOM must indicate levels of manufacture BOM must indicate levels of manufacture to generate Low-level Codes; and the to generate Low-level Codes; and the number of levels in the BOM should be number of levels in the BOM should be minimized – should be as shallow as minimized – should be as shallow as possiblepossible

• Requests to change BOM should be Requests to change BOM should be approved by every user of the BOM; and approved by every user of the BOM; and be control by ECNbe control by ECN


PHANTOM BILLS/ITEMSPHANTOM BILLS/ITEMS

• Item physically built but not stockItem physically built but not stock

• Logical existLogical exist

• A group of similar child componentsA group of similar child components


PHANTOM ITEMPHANTOM ITEM• Products with similar parts (X 、 Y 、 Z) ：

A B C D E F G Q R

X

A B C D E F G U V

Z

A B C D E F G S T

Y

• Use phantom item to simplified structure:

A B C D E F G

P

• After simplified：

X

P Q R

Z

P U V

Y

P S T


PHANTOM BILLS/ITEMSPHANTOM BILLS/ITEMS

• Needs for phantom itemsNeeds for phantom items– Overruns of the assembly or block log at Overruns of the assembly or block log at

downstream productiondownstream production– Disassembled customer returnDisassembled customer return– Services or repair parts manufactureServices or repair parts manufacture


BLOWING THROUGHBLOWING THROUGH

• When the parent is planned, the system When the parent is planned, the system will check the stock of phantom items. If will check the stock of phantom items. If exist, the system will used the phantom exist, the system will used the phantom items. If not exist, the system will skip items. If not exist, the system will skip the phantom items and directly explore the phantom items and directly explore the phantom items’ child components.the phantom items’ child components.


PRODUCT CONFIGURATORPRODUCT CONFIGURATOR

• ATO productionATO production

• Information about all the available optionsInformation about all the available options

• Customer can selected the options of the prCustomer can selected the options of the product through the configuratoroduct through the configurator


FUNCTIONS OF BOMFUNCTIONS OF BOM

• Product definitionProduct definition

• Engineering Chang ControlEngineering Chang Control

• Lends itself to options forecastLends itself to options forecast

• Basis for configuration control during Basis for configuration control during order entryorder entry



• Basis for stating the MPS in fewest numbersBasis for stating the MPS in fewest numbers

• Basis for MRP explosion logicBasis for MRP explosion logic

• Used for material availabilities checkingUsed for material availabilities checking

• Basis for preparing routing and capacity Basis for preparing routing and capacity planningplanning



• Basis for product costingBasis for product costing

• Used for planning and scheduleUsed for planning and schedule

• Facilitates efficient computer file storage Facilitates efficient computer file storage and file maintenanceand file maintenance



• Facilitates spare parts planningFacilitates spare parts planning

• Forms part of documentation for reviewForms part of documentation for review

• Can be used to trace significant Can be used to trace significant escalation of reduction in warranty escalation of reduction in warranty claims to a particular engineering changeclaims to a particular engineering change


BOM ERRORBOM ERROR

• Incorrect componentsIncorrect components

• Incorrect quantity and unit of measureIncorrect quantity and unit of measure

• Incorrect structureIncorrect structure

BOM Accuracy BOM Accuracy = (No. of single level BOMs correct / No. of single level = (No. of single level BOMs correct / No. of single level

BOMs checked) x 100%BOMs checked) x 100%


CHECKING BOM ACCURACYCHECKING BOM ACCURACY

• Review a simple BOMReview a simple BOM

• Pay attention to feedback from the plant Pay attention to feedback from the plant floor on the picking and issuing of floor on the picking and issuing of componentscomponents

• Monitor any unplanned issuesMonitor any unplanned issues


CHECKING BOM ACCURACYCHECKING BOM ACCURACY

• Monitor the product line excessesMonitor the product line excesses

• Breakdown a product or component to Breakdown a product or component to check the parts against the BOMcheck the parts against the BOM

• Cost roll-up using the bill and compare Cost roll-up using the bill and compare with actualwith actual


PART NUMBERSPART NUMBERS

• SimpleSimple

• Unique and unambiguousUnique and unambiguous

• Separate part numbers for commonly Separate part numbers for commonly used sub-assemblies used sub-assemblies

• Easy to assign and controlEasy to assign and control



• Minimum number of charactersMinimum number of characters

• Require a minimum number of Require a minimum number of documentationdocumentation



• Easy to understandEasy to understand

• New part number for major changesNew part number for major changes

• Represent stage of process/completionRepresent stage of process/completion

ERP AND APPLICATION Lesson 2 By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK.

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