qERP01

8/8/2019 qERP01

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Enterprise ResourceEnterprise ResourcePlanning andPlanning and

Application ApplicationLesson 1Lesson 1

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

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

INTEGRATED INFORMATION INTEGRATED INFORMATION

SYSTEMSYSTEM Sharing data effectively and efficientlySharing data effectively and efficiently

between and wit hin functional areas leads tobetween and wit hin functional areas leads to

more efficient business processes.more efficient business processes.

Information systems can be designed so t hat Information systems can be designed so t hat accurate and timely data are shared betweenaccurate and timely data are shared between

functional ares.functional ares.

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BUSINESS PROCESSESBUSINESS PROCESSES

A collection of activities t hat takes one or A collection of activities t hat takes one ormore kinds of input and creates an output more kinds of input and creates an output

t hat is of value to t he customer.t hat is of value to t he customer.

Inputs OutputsProcess

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THREE MODES OF THREE MODES OF

PRODUCTIONPRODUCTION

Primary Industries (Extraction)Primary Industries (Extraction)

Secondary Industries (Construction andSecondary Industries (Construction andManufacturing)Manufacturing)

Refinement, Conversion, Fabrication and AssemblyRefinement, Conversion, Fabrication and Assembly

Tertiary Industries (Services)Tertiary Industries (Services)

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CL ASSIFIC ATION OF CL ASSIFIC ATION OF B ASIC INDUSTRIESB ASIC INDUSTRIES

Basic

Industries

Production

Industries

Services

Industries

Process

Industries

Project

Industries

Discrete-Item

Manuf acturingIndustries

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PRODUCTION INDUSTRIESPRODUCTION INDUSTRIES

Process Industries (FlowProcess Industries (Flow--production orproduction orContinuousContinuous--Process)Process)

Adds value by mixing, separating, forming, and/or Adds value by mixing, separating, forming, and/orperforming c hemical reactions.performing c hemical reactions.

May be done in eit her batc h or continuous modeMay be done in eit her batc h or continuous mode

DiscreteDiscrete--Item Manufacturing IndustriesItem Manufacturing Industries C haracterized by discrete, countable products andC haracterized by discrete, countable products and

component partscomponent parts

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PROJECT INDUSTRIESPROJECT INDUSTRIES

An endeavor wit h a specific objective to be An endeavor wit h a specific objective to be

met wit hin t he prescribed time and cost met wit hin t he prescribed time and cost limitations and t hat has been assigned forlimitations and t hat has been assigned fordefinition or executiondefinition or execution ( APICS Dictionary)( APICS Dictionary)..

Single product Single product

Working for mont hs or even yearsWorking for mont hs or even years

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SERVICES AND OTHERSERVICES AND OTHER

Do not produce goodsDo not produce goods

Provide certain servicesProvide certain services

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CL ASSSIFIC ATION OF CL ASSSIFIC ATION OF

PRODUCTION INDUSTRIESPRODUCTION INDUSTRIES

ResourcesBasic

Producer Converter Fabricator

Consumer

Goods

Raw

Material

Industrial

Product

Consumer

Items

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CL ASSIFIC ATION OF CL ASSIFIC ATION OF

PRODUCTION (Volume)PRODUCTION (Volume)

Job ShopJob Shop

Batc h or Intermittent ProductionBatc h or Intermittent Production

Mass Production (Flow or Repetitive)Mass Production (Flow or Repetitive)

Cellular ProductionCellular Production

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JOB SHOP PRODUCTIONJOB SHOP PRODUCTION

Low volumeLow volume

EngineeredEngineered--toto--order and/or madeorder and/or made--toto--orderorder

Manufacturing process is intrinsically variableManufacturing process is intrinsically variable

and cannot be optimized once and for alland cannot be optimized once and for all

Functional or process layout Functional or process layout

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INTERMITTENT PRODUCTION INTERMITTENT PRODUCTION

(Job(Job--lot or Batch)lot or Batch)

A form of manufacturing in whic h t he jobs A form of manufacturing in whic h t he jobs

pass t hrough t he functional departments inpass t hrough t he functional departments inlots, and eac h lot may have different routinglots, and eac h lot may have different routing( APICS Dictionary)( APICS Dictionary)..

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MASS PRODUCTION MASS PRODUCTION

(Flow or Repetitive)(Flow or Repetitive)

Flow productionFlow production

NonNon--discrete products using a continuous processdiscrete products using a continuous process

Repetitive productionRepetitive production

Assemblies using a continuous process Assemblies using a continuous process

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CELLUL AR PRODUCTIONCELLUL AR PRODUCTION

A family of parts t hat have similar processing A family of parts t hat have similar processing

requirements.requirements.

Including equipments and human skillsIncluding equipments and human skills

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MANUF ACTURINGMANUF ACTURING

EN VIRONMENTSEN VIRONMENTS

Make to Stock (MTS)Make to Stock (MTS)

Assemble to Order ( ATO) Assemble to Order ( ATO)

Make to Order (MTO)Make to Order (MTO)

Engineer to Order (ETO)Engineer to Order (ETO)

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MAKE TO STOCK (MTS)MAKE TO STOCK (MTS)

Immediate delivery of goodsImmediate delivery of goods

Based on a predicable demand patternBased on a predicable demand pattern

Customer orders cannot be identified in t heCustomer orders cannot be identified in t heproduction processproduction process

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MAKE TO STOCK (MTS)MAKE TO STOCK (MTS)

DesignDesign ProcureProcure Assemble AssembleStock asStock asInventoryInventory

Pack and shipPack and ship

Customer

Order

Total Production Required = Total Forecast + Back Order

+ Ending Inventory ± Opening Inventory

CustomerCustomer

Lead TimeLead Time

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ASSEMBLE TO ORDER (AT0) ASSEMBLE TO ORDER (AT0)

Produce and stock standard component Produce and stock standard component

Assemble t he finished goods according to t he Assemble t he finished goods according to t hecomponent selected by t he customercomponent selected by t he customer

Modular designModular design Independent units whic h integrate as a wholeIndependent units whic h integrate as a whole

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Product familyProduct family

Generic Bill of MaterialGeneric Bill of Material

Forecast t he basic product Forecast t he basic product

Apply historic faction of demand to t he option Apply historic faction of demand to t he optionfeaturesfeatures

Slightly overSlightly over--plannedplanned

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Master Production Schedule (MPS) for standMaster Production Schedule (MPS) for stand

componentscomponents Based on forecast Based on forecast

Final Assembly Scheduling (F AS) for finishedFinal Assembly Scheduling (F AS) for finishedgoodsgoods

Based on customer orderBased on customer order

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ASSEMBLE TO STOCK (ATO ) ASSEMBLE TO STOCK (ATO )

DesignDesign ProcureProcure Assemble Assemble

StockStockstandardstandard

componentscomponentsas inventoryas inventory

FinalFinalassembleassemble

Pack and shipPack and ship

Customer Order

Decoupling Point (CODP)

Total Production Required

= Sales plan for each components + Planned reduction in backlog of the

components + Planned increase in the components inventory

<<------ Customer Lead TimeCustomer Lead Time ------>>

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CUSTOMER ORDERCUSTOMER ORDER

DECOUPLING POINTDECOUPLING POINT

From forecast driven to backlog drivenFrom forecast driven to backlog driven

Push to pullPush to pull

Point of interface of requirement planning toPoint of interface of requirement planning toproject planningproject planning

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MAKE TO ORDER (MTO)MAKE TO ORDER (MTO)

Product start after order is received from customerProduct start after order is received from customer

Produced to customer specificationsProduced to customer specifications

Customer is willing to wait Customer is willing to wait Product is expensive to make and storeProduct is expensive to make and store

Options of product Options of product

Invest in capacityInvest in capacity Capacity requirement plan (CRP)Capacity requirement plan (CRP)

Shop floor control (SFC)Shop floor control (SFC)

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MAKE TO ORDER (MTO)MAKE TO ORDER (MTO)

DesignDesign

StockStockstandardstandardparts asparts as

inventoryinventory

ProcureProcure Assemble AssembleFinalFinal

Assemble AssemblePack and shipPack and ship

Customer Order


<<---------------------------------------------- Customer Lead TimeCustomer Lead Time ------------------------------------>>

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ENGINEER TO ORDER (ETO)ENGINEER TO ORDER (ETO)

Customers specifications uniqueCustomers specifications unique

Ot her characteristics common to MTOOt her characteristics common to MTO

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ENGINEER TO ORDER (ETO)ENGINEER TO ORDER (ETO)

DesignDesign ProcureProcure Assemble Assemble Final AssembleFinal Assemble Pack and shipPack and ship

<<-------------------------------------------------------- Customer Lead TimeCustomer Lead Time -------------------------------------------------->>

Customer Order


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MANUF ACTURINGMANUF ACTURING

EN VIRONMENTSEN VIRONMENTS

DeliveryEngineer to OrderETOOrder

Make to StockMTS

Order

Assemble to Order ATOOrder

Make to Order

MTOOrder

DesignDesign ProcureProcure Assemble AssembleFinalFinal

Assemble AssemblePack andPack and

shipship

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MATERI AL REQUIREMENTSMATERI AL REQUIREMENTS

PL ANNING (MRP I)PL ANNING (MRP I)

The material requirements planning (MRP I) is aThe material requirements planning (MRP I) is a

computerized inventory control and productioncomputerized inventory control and productionplanning system. It is responsible for scheduling t heplanning system. It is responsible for scheduling t heproduction of all items beneat h t he end item level.production of all items beneat h t he end item level.It recommends t he release of work orders andIt recommends t he release of work orders andpurchase orders and issues scheduling notices whenpurchase orders and issues scheduling notices when

necessary.necessary.(Russell, Roberta S and Bernard W Taylor III,(Russell, Roberta S and Bernard W Taylor III, Operations Management: Focusing onOperations Management: Focusing on

Quality and CompetitivenessQuality and Competitiveness 22ndnd Ed., PrenticeEd., Prentice--Hall International, Inc, New Jersey,Hall International, Inc, New Jersey,1998)1998)

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By Joseph Orlicky at 1961By Joseph Orlicky at 1961

Initially called bill of materials processingInitially called bill of materials processing(BOMP)(BOMP)

What do we need, and when do we need it? What do we need, and when do we need it?

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OBJECTI VES OF MRP IOBJECTI VES OF MRP I

Determine requirements to support MPSDetermine requirements to support MPS

What to order; How much to order; When to order;What to order; How much to order; When to order;When to schedule deliveryWhen to schedule delivery

Maintaining t he Lowest Possible InventoryMaintaining t he Lowest Possible Inventory

Components should be delivery no earlier and noComponents should be delivery no earlier and nolater; zero safety stock and zero safety lead timelater; zero safety stock and zero safety lead time

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OBJECTI VES OF MRP IOBJECTI VES OF MRP I

Scheduling t he ProductionScheduling t he Production

Including purchasing, manufacturing and deliveryIncluding purchasing, manufacturing and deliveryactivitiesactivities

Components requirement are dependent of t heComponents requirement are dependent of t herequirement of parent itemsrequirement of parent items

K eeping Schedules Valid and UpK eeping Schedules Valid and Up--toto--datedate

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Bills of Material (BOM)Bills of Material (BOM)

BOM keep updated by Engineering ChangeBOM keep updated by Engineering ChangeNumbers (ECN)Numbers (ECN)

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B ASIC MRPB ASIC MRP

MPS

MRP BOMInventoryInformation

Purchasingschedule

Assembly schedule

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CLOSEDCLOSED--LOOP MRPLOOP MRP

MRP I is a dynamic priority setting techniqueMRP I is a dynamic priority setting techniquefor scheduling and executing shop floor andfor scheduling and executing shop floor and

vendor operations.vendor operations.

A feedback is need for updating, re A feedback is need for updating, re--planningplanningand improving t he schedule.and improving t he schedule.

Include capacity checking to generate a moreInclude capacity checking to generate a morefeasible schedulesfeasible schedules

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CLOSEDCLOSED--LOOP MRPLOOP MRP

MRP

MPS

Production requirements

RCCP

CRP

Procure and Assemble

Input / Output Control

Y/N

Y/N

Amend

Amend

Amend

Y

N

Y N

Amend Capacities

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MANUF ACTURING RESOURSEMANUF ACTURING RESOURSE

PL AN (MPR II)PL AN (MPR II)

Introduced by Oliver Wight at 1977.Introduced by Oliver Wight at 1977.

Includes financial planning and stimulateIncludes financial planning and stimulatecapabilities.capabilities.

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MRP I & MRP IIMRP I & MRP II

MRP IMRP I

Basic material requirements calculationsBasic material requirements calculations

MRP IIMRP II

Boarder concept for t he integration of data,Boarder concept for t he integration of data,

computations and policies t hat extend materialscomputations and policies t hat extend materialsand capacity planning into comprehensiveand capacity planning into comprehensivemanufacturing resources and control.manufacturing resources and control.

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MANUF ACTURING RESOURSEMANUF ACTURING RESOURSE

PL AN (MPR II)PL AN (MPR II) Resource Requirements Planning (RRP)Resource Requirements Planning (RRP)

Demand Management Demand Management

Product ConfiguratorProduct Configurator

Sales and Operations Planning (S&OP)Sales and Operations Planning (S&OP) MPS & F ASMPS & F AS

RoughRough--Cut Capacity Planning (RCCP)Cut Capacity Planning (RCCP)

Engineering Chang ControlEngineering Chang Control

Material Requirements Planning (MRP I)Material Requirements Planning (MRP I)

Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)

Plant and Supplier SchedulingPlant and Supplier Scheduling

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RESOURCE REQUIREMENTSRESOURCE REQUIREMENTS

PL ANNING (RRP)PL ANNING (RRP) Long term planning of t he production capacityLong term planning of t he production capacity

driven by high level business plan.driven by high level business plan.

Related to resources t hat take long periods of Related to resources t hat take long periods of time to acquire.time to acquire.

In short term, t hese are t he constraints of t heIn short term, t hese are t he constraints of t heproduction plan.production plan.

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DEMAND MAN AGEMENTDEMAND MAN AGEMENT

Recognizing and managing all t he demands of Recognizing and managing all t he demands of

productsproducts Advertising & promotion Advertising & promotion

Forecasting of businessForecasting of business

Distribution Requirements PlanningDistribution Requirements Planning

Customer contact related activitiesCustomer contact related activities

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SALES AND OPERATIONSSALES AND OPERATIONS

PL ANNING (S&OP)PL ANNING (S&OP)

A process t hat provides management t he A process t hat provides management t he

ability to strategically dire

ct its business toability to strategi

cally dire

ct its business toachieve competitive advantage on aachieve competitive advantage on a

continuous basis by integrating customercontinuous basis by integrating customer--focused marketing plans for new and existingfocused marketing plans for new and existing

products wit h t he management of supplyproducts wit h t he management of supplychainchain ( APICS Dictionary)( APICS Dictionary)

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MPS & F ASMPS & F AS

Master Production Schedule, MPS, showsMaster Production Schedule, MPS, showswhich products should be produced, howwhich products should be produced, howmany and when.many and when.

Final Assemble Schedule, F AS, is a schedule of Final Assemble Schedule, F AS, is a schedule of

end products to be produced for customers.end products to be produced for customers.

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ROUGHROUGH--CUT C APACIT YCUT C APACIT Y

PL ANNING (RCCP)PL ANNING (RCCP)

A reality check of t he S&OP. A reality check of t he S&OP.

Simple and quick to assess t he feasibility.Simple and quick to assess t he feasibility.

Critical resources; load profilesCritical resources; load profiles

CRP is overall or representative factors.CRP is overall or representative factors.

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ENGINEERING CH ANGEENGINEERING CH ANGE

CONTROLCONTROL Products change and evolve from time to timeProducts change and evolve from time to time

to serve t he customers need.to serve t he customers need.

The changes will be communicated byThe changes will be communicated byEngineering Change Notes (ECN).Engineering Change Notes (ECN).

Control by:Control by: Dates; Serial Number; Lot Number; Bat ch Number;Dates; Serial Number; Lot Number; Bat ch Number;

Work OrderWork Order

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C APACIT Y REQUIREMENTSC APACIT Y REQUIREMENTS

PL ANNING (CRP)PL ANNING (CRP)

Evaluate t he availabilities of t he resourcesEvaluate t he availabilities of t he resources(equipments and/or manpower) required(equipments and/or manpower) requireddetermined by t he MRP.determined by t he MRP.

It might be identical to t he RCCP. RCCPIt might be identical to t he RCCP. RCCP

based on MPS and CRP based on MPR, detailbased on MPS and CRP based on MPR, detailwork schedules of individual work centre.work schedules of individual work centre.

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C APACIT Y REQUIREMENTSC APACIT Y REQUIREMENTS

PL ANNING (CRP)PL ANNING (CRP) Overloads and underloads are identified forOverloads and underloads are identified for

t he planners to resolve.t he planners to resolve.

Production Smoot hingProduction Smoot hing Redistribute loadRedistribute load

Increase capacityIncrease capacity

Reduce capacityReduce capacity Increase loadIncrease load

Decrease loadDecrease load

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PL ANT AND SUPPLIERPL ANT AND SUPPLIER

SCHEDULINGSCHEDULING The schedules must be communicated to t heThe schedules must be communicated to t he

shop floor and supplies efficiently andshop floor and supplies efficiently and

effectively.effectively.

Executing t he factory plan by Shop FloorExecuting t he factory plan by Shop Floor

Control (SFC) system.Control (SFC) system. Factory Coordination (FC)Factory Coordination (FC)

Production Activity Control (P AC)Production Activity Control (P AC)

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PL ANT AND SUPPLIERPL ANT AND SUPPLIER

SCHEDULINGSCHEDULING Supplier schedules monitor by a SupplierSupplier schedules monitor by a SupplierScheduling and Control (SSC) SystemScheduling and Control (SSC) System

Procurement, order and follow up activities areProcurement, order and follow up activities areseparateseparate

Blanket OrderBlanket Order

BuyerBuyer

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MPR II ImplementationMPR II Implementation

ProblemsProblems Lack of top management commitment Lack of top management commitment

Lack of MRP II education for t he users of t he systemLack of MRP II education for t he users of t he system

Inaccurate dataInaccurate data Poorly managed MPSPoorly managed MPS

OverOver--sophistication/ Addition of fancy optionssophistication/ Addition of fancy options

Lack of user controlLack of user control

Time consuming implementation process delayedTime consuming implementation process delayedpaybackpayback

Behavioral problemsBehavioral problems

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BENEFITS OF MRP IIBENEFITS OF MRP II

Excellent Planning CapabilitiesExcellent Planning Capabilities

Centralization and CoordinationCentralization and Coordination

Simulation CapabilitySimulation Capability

Standard Requirements for ManufacturingStandard Requirements for ManufacturingSystems ProvidedSystems Provided

Greater DisciplineGreater Discipline

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BENEFITS OF MRP IIBENEFITS OF MRP II

Greater TransparencyGreater Transparency

Better Cash Flow PlanningBetter Cash Flow Planning

Increase Responsiveness to Customers NeedsIncrease Responsiveness to Customers Needs

Improved Communication wit h CustomersImproved Communication wit h Customers

Reduction in Cost of Money Investment andReduction in Cost of Money Investment andSpaceSpace

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Suppliers Procure Assemble Sales Customers

Material Flow

Fund Flow

Fund Outf low Information Flow Fund Inf low

Material Inf low Information Flow Material Outf low

ENTERPRISE RESOURCESENTERPRISE RESOURCES

PL AN (ERP)PL AN (ERP)

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An accounting An accounting--oriented information system fororiented information system for

identifying and planning t he enterprisewideidentifying and planning t he enterprisewideresources needed to take, make, ship, andresources needed to take, make, ship, andaccount for customer ordersaccount for customer orders ( APICS Dictionary)( APICS Dictionary)..

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Technical requirementsTechnical requirements

GUI; Relational database; 4GL and ComputerGUI; Relational database; 4GL and Computer Assisted Software Engineering (CASE) tools; Assisted Software Engineering (CASE) tools;Client/server architecture; Portable open system.Client/server architecture; Portable open system.

Derive competitive advantage in t heDerive competitive advantage in t heproduction, distribution, and financial areasproduction, distribution, and financial areas

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PL AN (ERP)PL AN (ERP) Include function of finance, distribution, andInclude function of finance, distribution, andhuman resource management human resource management

Handle global business needs of an integratedHandle global business needs of an integratedand networked enterpriseand networked enterprise

ERP is not confined wit hin t he corporation. It ERP is not confined wit hin t he corporation. It communicate wit h suppliers and customers.communicate wit h suppliers and customers.

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Enabler of Enabler of

Quickly access internal information and toQuickly access internal information and tointegrate different functionsintegrate different functions

Achieve improved business performance Achieve improved business performance

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ERP IICollaboration Gartner

MRP

Integration of

Information

Material / Finance

MRP II

Internal

Supply /Manufacturing / Demand

Information

ERPSupply Chain

APICS(1965)

(1980)

(1990)

(2004)

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ReferenceReference

Term of ReferencesTerm of References

APICS APICS American Production and Inventory American Production and InventoryControl Society, provider of information andControl Society, provider of information andservices in production and inventory management services in production and inventory management

GartnerGartner Gartner Group Inc, provider of research Gartner Group Inc, provider of research and analysis on global ITand analysis on global IT

qERP01

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