ERP AND APPLICATION Lesson 4 By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK.

ERP AND ERP AND APPLICATIONAPPLICATION

Lesson 4Lesson 4

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

SALES & OPERATION SALES & OPERATION PLANNINGPLANNING

• A process that provides management A process that provides management the ability to strategically direct its the ability to strategically direct its business to achieve competitive business to achieve competitive advantage on a continuous basis by advantage on a continuous basis by integrating customer-focused marketing integrating customer-focused marketing plans for new and existing products with plans for new and existing products with the management of supply chain.the management of supply chain.

• Perform at least once a monthPerform at least once a month


SALES & OPERATION SALES & OPERATION PLANNINGPLANNING

• Brings together all the plans for the Brings together all the plans for the business into one integrated set of plansbusiness into one integrated set of plans– Sales, marketing, development, manufacturing, Sales, marketing, development, manufacturing,

sourcing, human resource and financialsourcing, human resource and financial

• Reconcile all supply, demand, and new-Reconcile all supply, demand, and new-product plan at both the detail and product plan at both the detail and aggregate level and tie to the business aggregate level and tie to the business planplan


OBJECTIVE OF S&OPOBJECTIVE OF S&OP

• Develop and agree uponDevelop and agree upon– Sales plan; and rate of productionSales plan; and rate of production

• Ensure the plans are realistic and validEnsure the plans are realistic and valid

• Integrate manufacturing with other Integrate manufacturing with other business activitiesbusiness activities


FACTORS AFFECTING S&OPFACTORS AFFECTING S&OP

• Management perception of the businessManagement perception of the business

• Market conditionsMarket conditions

• Financial and budgetary planningFinancial and budgetary planning


ISSUES TO BE ADDRESSED ISSUES TO BE ADDRESSED BY S&OPBY S&OP

• VarianceVariance• Market conditionsMarket conditions• New productsNew products• Alternate plansAlternate plans• ConflictConflict• Contingency plansContingency plans• Accountability Accountability


KEYS TO SUCCESS S&OPKEYS TO SUCCESS S&OP

• Participation of all partiesParticipation of all parties

• Premeeting preparation – meaningful inforPremeeting preparation – meaningful information and time savingmation and time saving

• Decision making and change managementDecision making and change management


KEYS TO SUCCESS S&OPKEYS TO SUCCESS S&OP

• Conflict resolution and consensus developConflict resolution and consensus development – team buildingment – team building

• Operation under controlOperation under control

• Continuous realistic improvementContinuous realistic improvement


BENEFITS OF S&OPBENEFITS OF S&OP

• Better control of operationBetter control of operation

• Enhances the flexibility to respond to Enhances the flexibility to respond to customer needscustomer needs

• Changes in production rates can be Changes in production rates can be made less radicallymade less radically


BENEFITS OF S&OPBENEFITS OF S&OP

• Inventory and backlogs can be Inventory and backlogs can be proactively managedproactively managed

• Provides a more holistic view of the Provides a more holistic view of the operationoperation

• Enhance team workEnhance team work


DEMAND MANAGEMENTDEMAND MANAGEMENT

• The function of recognizing all demands for The function of recognizing all demands for goods and services to support the markerplgoods and services to support the markerplace.ace.

• Doing what is required to help make the deDoing what is required to help make the demand happen and prioritizing demand whemand happen and prioritizing demand when supply is lackingn supply is lacking


DEMAND MANAGEMENTDEMAND MANAGEMENT

• Facilitates the planning and use of Facilitates the planning and use of resources for profitable business results.resources for profitable business results.

• Includes the activities of forecasting, Includes the activities of forecasting, order entry, order promising and order entry, order promising and determining branch warehouse determining branch warehouse requirements, interplant orders and requirements, interplant orders and service parts requirementsservice parts requirements


REQUIREMENTS OF REQUIREMENTS OF DEMAND MANAGEMENTDEMAND MANAGEMENT

• PredictionPrediction

• CommunicationsCommunications

• InfluenceInfluence

• Prioritization and allocationPrioritization and allocation


FUNCTIONS OF DEMAND FUNCTIONS OF DEMAND MANAGEMENTMANAGEMENT

• Advertising, promotion, pricing, adding and Advertising, promotion, pricing, adding and deleting productsdeleting products

• Forecasting anticipated businessForecasting anticipated business

• Customer Order ServicingCustomer Order Servicing– receiving and responding to customer inquires;receiving and responding to customer inquires;– interacting with the master scheduler on interacting with the master scheduler on

availability of productsavailability of products


FUNCTIONS OF DEMAND FUNCTIONS OF DEMAND MANAGEMENTMANAGEMENT

• Order delivery date promisingOrder delivery date promising

• Customer order entryCustomer order entry

• Distributing Requirement PlanningDistributing Requirement Planning

• Other customer contact related Other customer contact related activitiesactivities


OTHER FUNCTIONSOTHER FUNCTIONS

• Intra-company requirementsIntra-company requirements

• Pipeline StockPipeline Stock– Inventory in the transportation network and Inventory in the transportation network and

distribution systemdistribution system


PURCHASE MANAGEMENTPURCHASE MANAGEMENT

ReplenishmentReceivingIQC

Requirement

MRP

Inventory Management

Quality Management

Other Modules Accounts payable

Purchase Management

Requirement

Cost Management

Financial Management

Material Master

Vendor and order information



• Approved suppliersApproved suppliers

• Approved suppliers for a standard itemApproved suppliers for a standard item

• Approved suppliers for non-stock itemsApproved suppliers for non-stock items

• Preferred suppliersPreferred suppliers



• Price quotesPrice quotes

• Price quotes for standard itemsPrice quotes for standard items

• Price quotes for non-stock itemsPrice quotes for non-stock items

• Standard priceStandard price



• Purchase ordersPurchase orders

• Sub-contract ordersSub-contract orders


INVENTORY MANAGEMENTINVENTORY MANAGEMENT

QA/QC

Material issue and return

Financial data

MRP

Inventory Management

Purchase Management

Financial Management

Production Management

Demand and receiving

Quality Management

Current balance



• Why hold inventory?Why hold inventory?– To protect the firm from unexpected To protect the firm from unexpected

changes in customer demandchanges in customer demand• Short life cycleShort life cycle• Presence of many competing productsPresence of many competing products

– Presence of significant uncertainty in the Presence of significant uncertainty in the quantity and quality of the supplyquantity and quality of the supply

– Economics of scale offered by transportationEconomics of scale offered by transportation



• Two important issuesTwo important issues– Demand forecastDemand forecast– Order quantity calculationOrder quantity calculation

• Key factors to be consideredKey factors to be considered– Replenishment lead timesReplenishment lead times– Length of the planning horizonLength of the planning horizon– Cost, order and holdingCost, order and holding– Service level requirementService level requirement



• Safety stockSafety stock– Additional inventory and/or capacity Additional inventory and/or capacity

planned as protection against forecast planned as protection against forecast errors and/or short-term changes in the errors and/or short-term changes in the backlogbacklog

– A cushion of inventory in excess of planned A cushion of inventory in excess of planned requirements to help meet unplanned needsrequirements to help meet unplanned needs

• Safety lead timeSafety lead time– Used to schedule orders earlier than Used to schedule orders earlier than

otherwise requiredotherwise required



• ABC approachABC approach– Class A: high value items, account for 80% Class A: high value items, account for 80%

of inventory amount and represent about of inventory amount and represent about 20% of SKUs20% of SKUs

– Class B: high value items, account for 15% Class B: high value items, account for 15% of inventory amount of inventory amount

– Class C: high value items, account for 5% of Class C: high value items, account for 5% of inventory amountinventory amount


CYCLE COUNTINGCYCLE COUNTING

• Identify the source of inventory errors Identify the source of inventory errors and then take corrective action to avoid and then take corrective action to avoid future errorsfuture errors

• Provide valid financial reporting of Provide valid financial reporting of inventory valueinventory value


SUPPLY CHAIN SUPPLY CHAIN MANAGEMENTMANAGEMENT

• A set of approaches utilized to efficiently intA set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouseegrate suppliers, manufacturers, warehouses, and stores, so that mechandise is produces, and stores, so that mechandise is produced and distributed at the right quantities, to td and distributed at the right quantities, to the right locations, and at the right time, in ohe right locations, and at the right time, in order to minimize systemwide costs while satrder to minimize systemwide costs while satisfying service level requiremens.isfying service level requiremens.Simchi-levi, D. Kaminsky, P. and Simchi-levi, E. (2000) Simchi-levi, D. Kaminsky, P. and Simchi-levi, E. (2000) Designing and Managing the SupplDesigning and Managing the Supply Chain: Concepts, Strategies, and Case Studiesy Chain: Concepts, Strategies, and Case Studies McGraw-Hill: Singapore McGraw-Hill: Singapore


FLOWS OF SUPPLY CHAINFLOWS OF SUPPLY CHAIN

Suppliers Procure Assemble Sales Customers

Material Flow

Fund Flow

Fund Outflow Information Flow Fund Inflow

Material Inflow Information Flow Material Outflow


FLOWS OF SUPPLY CHAINFLOWS OF SUPPLY CHAIN

• Material flowMaterial flow– Movement of goods from suppliers to Movement of goods from suppliers to

customerscustomers• Fund flowFund flow

– Credit terms, payment schedules, and Credit terms, payment schedules, and consignment and title ownership arrangementconsignment and title ownership arrangement

• Information flowInformation flow– Demand forecasts, order communication, Demand forecasts, order communication,

production plans, inventory status, and production plans, inventory status, and delivery & shipment statusdelivery & shipment status


PRE-IMPLEMENTATION PRE-IMPLEMENTATION STAGESTAGE

Feasibility Study

Set up Steering Committee

ERP Training

Requirement Analysis

Prepare Testing Data

Selection of System

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE• The implementation of an enterprise The implementation of an enterprise

resource planning system was an resource planning system was an expensive, difficult and time taken task.expensive, difficult and time taken task.

• In-house/outsource development.In-house/outsource development.

• Adaptation of standardize package.Adaptation of standardize package.

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE• Set up Steering CommitteeSet up Steering Committee

– Representative from Senior ManagementRepresentative from Senior Management– Department ManagersDepartment Managers– Information System ManagerInformation System Manager– ConsultantConsultant

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE• ERP TrainingERP Training

– For the relevant personnel to understand integrFor the relevant personnel to understand integrated computer systemated computer system

– For the relevant personnel to understand ERP aFor the relevant personnel to understand ERP and its advantage and disadvantagend its advantage and disadvantage

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE• Feasibility StudyFeasibility Study

– DriversDrivers• transaction cost reductiontransaction cost reduction• quicker response timequicker response time• improve the accuracy of the informationimprove the accuracy of the information• improve the efficiency of the supply chainimprove the efficiency of the supply chain• improve productionimprove production• improve supplier relationship and reliabilityimprove supplier relationship and reliability• bargaining power of trading partnersbargaining power of trading partners

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE• Feasibility StudyFeasibility Study

– InhibitorsInhibitors• lack of industry standardlack of industry standard• benefit cannot be easily identifybenefit cannot be easily identify• large amount of investmentlarge amount of investment

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE• Requirement AnalysisRequirement Analysis

– Operation requirement of individual departmenOperation requirement of individual departmentt 。。

– Computer access and control of individual staff Computer access and control of individual staff within different departmentwithin different department

– ReportsReports– Data exchange between individual department Data exchange between individual department

as well as outside partiesas well as outside parties– Physical layout of computer equipmentsPhysical layout of computer equipments

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE

• Preparation of Testing DataPreparation of Testing Data– Extract the critical and/or representative data frExtract the critical and/or representative data fr

om the major operation (department)om the major operation (department)– Required for the selection of standardize packagRequired for the selection of standardize packag

ee

PRE-IMPLEMENTATION STAGEPRE-IMPLEMENTATION STAGE• Development of the system or selection of sDevelopment of the system or selection of s

tandardize packagetandardize package– Functions and features should capable for the fuFunctions and features should capable for the fu

ture development (at least can lasted for three yture development (at least can lasted for three years) of the organizationsears) of the organizations

– Ability of the solution provider on future develoAbility of the solution provider on future development and maintenancepment and maintenance

– Data and procedures set up and standardizationData and procedures set up and standardization– Implementation methods and qualitiesImplementation methods and qualities


IMPLEMENTATION STAGE IMPLEMENTATION STAGE

Set up Master Information

Set up Implementation Committee

ERP and System Training

Prepare Testing Data

Pilot Test

Parallel Run

Document and finalize the operation procedu

res

ERP and System Training

System online

Post implementation review


CHANGE MANAGEMENTCHANGE MANAGEMENT

• Who are the resistance individuals Who are the resistance individuals and/or groups?and/or groups?

• What are their needs?What are their needs?

• What beliefs and values do they have?What beliefs and values do they have?

• What are their interest?What are their interest?


CHANGE MANAGMENTCHANGE MANAGMENT

• Effective communicationEffective communication

• Project managementProject management

• Project championProject champion

• Monitoring and evaluation of Monitoring and evaluation of performanceperformance


SUCCESSFUL FECTORS OF SUCCESSFUL FECTORS OF IMPLEMENTATIONIMPLEMENTATION

• Clear understanding of strategic goalsClear understanding of strategic goals

• Commitment by top managementCommitment by top management

• Business process reengineering (BPR) Business process reengineering (BPR) and minimum customizationand minimum customization


SUCCESSFUL FECTORS OF SUCCESSFUL FECTORS OF IMPLEMENTATIONIMPLEMENTATION

• Data accuracyData accuracy

• Extensive education and trainingExtensive education and training

• Focused performance measuresFocused performance measures

• Use of consultantsUse of consultants

ERP AND APPLICATION Lesson 4 By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK.

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