Supply Chain Management Section 3

Advantages of ERP Systems

Added visibility leads to reduced supply chain inventories, Helps to standardize manufacturing processes, Measure performance & communicate via a standardized method.

Bill of Materials (BOM)

Document that shows an inclusive listing of all component parts & assemblies making up the final product.

Super Bill of Materials

Enables the firm to forecast the total demand end products.

Closed-loop Materials Requirements Planning (MRP)

Incorporates the aggregate production plan, the master production schedule, material requirements plan, & the capacity requirements plan.

Manufacturing Resource Planning (MRP II)

Incorporates the business & sales plans with the closed-loop MRP system.

Long-Range Operations Planning

Involves planning for actions such as the construction of facilities & major equipment purchase (ref., Aggregate Production Plan - APP).

Parent

Item generating demand for lower-level components.

ERP System Implementation Problems

Lack of top management commitment, Lack of adequate resources, Lack of proper training, Lack of communication, Incompatible system environment.

Disadvantage of MRP

Loss of visibility (especially acute for products with a deep BOM), ignores capacity and ignores shop floor conditions.

Major ERP Providers

SAP, Oracle, Microsoft

Disadvantages of ERP Systems

Substantial time & capital investment, Complexity, Firms adapt processes to meet ERP system.

Time Bucket

Time period used on the MRP. Days, weeks or months.

Basic Production Strategies

Chase, Level, Mixed

Independent Demand

Demand for final products affected by trends, seasonal patterns, & general market conditions.

MRP requires

i) The independent demand information, i.e., finished product forecast. ii) Parent-component relationships from the BOM. iii) Inventory status of final product & each of the components and materials. iv) Planned order releases (the output of the MRP system).

Scheduled Receipt

A committed order awaiting delivery for a specific period.

Material Requirements Planning (MRP)

A computer-based materials management system that calculates the exact quantities, need dates, & planned order releases for subassemblies.

Master Production Schedule (MPS)

A detailed disaggregation of the aggregate production plan, listing the exact end items to be produced by a specific period. More detailed than APP & easier to plan under stable demand. Planning horizon is shorter than APP, but longer than the lead time to produce the item.

Resource Requirement Planning (RRP)

A long-range capacity planning module, checks whether aggregate resources are capable of satisfying the Aggregate Production Plan. Resources considered include gross labor hours & machine hours.

Time Fence

A method of dealing with nervousness by separating a planning horizon into a firmed segment and a tentative segment.

Firmed Planned Order

A planned order that the MRP computer logic cannot automatically change when conditions change. Established by the Planner or Supply Chain Manager to prevent system nervousness.

Capacity Requirement Planning (CRP)

A short-range capacity planning technique that is used to check the feasibility of the Material Requirements Plan (MRP).

Distribution Requirements Planning (DRP)

A time-phased finished good inventory replenishment plan in a distribution network. A logical extension of the MRP system & ties physical distribution to manufacturing planning and control system.

Gross Requirement

A time-phased requirement prior to netting out on-hand inventory & lead-time.

Major ERP Applications

Accounting and Finance, Customer Relationship Management, Human Resource Management, Manufacturing, Supplier Relationship Management, Supply Chain Management.

Chase Production Strategy

Adjusts capacity to match demand. Firm hires & lays off workers to match finished output to demand. Finished goods inventory remains constant. Works well for make-to-order firms. (ex. Airplane companies do this since training takes time. Union employees are sent back to the union hall, waiting to be recalled. They collect unemployment. Another example are workers that harvest crops).

ERP System Implementation Styles

Best-of-Breed, Single Integrator Solution

Computer-based "Push" Resource Systems

Closed-loop Materials Requirement Planning (MRP), Manufacturing Resource Planning (MRP II), Enterprise Requirements Planning (ERP), Distribution Requirements Planning (DRP)

Types of Bill of Material

Dependent Demand, Independent Demand, Multilevel, Super.

Short-Range Operations Planning

Detailed planning process for components & parts to support the master production schedule (ref., Materials Requirement Planning - MRP)

Methods of Calculating Available-to-Promise Quantities

Discrete, Cumulative w/o Look Ahead, Cumulative w/ Look Ahead.

Firmed Segment (Demand Time Fence)

From current period to several weeks into future. Can only be altered by senior management.

Tentative Segment (Planning Time Fence)

From end of firmed segment to several weeks into the future.

Aggregate Production Plan (APP)

Hierarchical planning process that translates annual business & marketing plans & demand forecasts into a production plan for a product family in a plant or facility. Planning horizon is at least one year & is usually rolled forward by three months every quarter. Includes those costs relevant to aggregate planning decisions (i.e., inventory, setup, machine operation, hiring, firing, training, & overtime costs).

Enterprise Resource Planning Systems (ERP)

Information system connecting all functional areas & operations of an organization and in some cases, suppliers and customers via common software infrastructure and database. Provides means for supply chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing supply chain inventories.

Operations Planning Categories

Long-Range, Intermediate, Short-Range

Mixed Production Strategy

Maintains stable core workforce while using other short-term means, such as overtime, subcontracting & part time helpers to manage short-term demand (ex. Construction co., retail stores at holiday season).

Rough-Cut Capacity Plan (RCCP)

Medium-range capacity planning, is used to check the feasibility of MPS. Converts MPS from the production needed to the capacity required, then compares it to capacity available.

Lot Size

Order size for MRP logic.

Components

Parts demanded by a parent.

Single Integrator Solution

Pick all the desired applications from a single vendor.

Best-of-Breed

Pick the best application for each individual function. Disadvantage - software may not integrate well but this may not be a major issue in future

Discrete Available-to-Promise

Planned - Ordered = ATP for each time period. (1) Add the Beginning Inventory to the MPS for Period 1, subtracting the Committed Customer Orders (CCO's) from Period 1 up to but not including the period of the next scheduled MPS. (2) For all subsequent periods, there are two possibilities - (a) If no MPS has been scheduled for the period, the ATP is zero. (b) If an MPS has been scheduled for the period, the ATP is the MPS minus the sum of all the CCOs from that period up to the period of the next scheduled MPS. (3) If an ATP for any period is negative, the deficit must be subtracted from the most recent positive ATP, and the ATP quantities must then be revised to reflect these changes.

Explosion

Process of converting a parent item's planned order releases into component gross requirements.

Product Family

Products that share similar characteristics.

Projected On-Hand Inventory

Projected closing inventory at end of period. Beginning inventory minus gross requirements, plus scheduled receipts plus planned receipts from planned order releases.

Advantage of MRP

Provides planning information.

Pegging

Relates gross requirements for a component part to the planned order releases of the parent item.

Level Production Strategy

Relies on a constant output rate while varying inventory & backlog according to fluctuating demand. Firm relies on fluctuating finished goods & backlogs to meet demand. Works well for make-to-stock firms (ex. Plywood, steel, light bulbs, razors are examples. Maybe the changeover is long, or its inefficient to stop/ start).

Capacity Planning Tools

Resource Requirement Planning (RRP), Rough-Cut Capacity Plan (RCCP), Capacity Requirement Planning (CRP)

Multilevel Bill of Materials

Shows the parent-component relationships & the specific units of components known as the planning factor. Often presented indented.

Intermediate Operations Planning

Shows the quantity & timing of end items (ref., Master Production Schedule - MPS)

System Nervousness

Small changes in the upper-level-production plan cause major changes in the lower-level production plan (bullwhip effect).

Planned Order Release

Specific order to be released to the shop or to the supplier.

Available-to-Promise (ATP) Quantity

The difference between confirmed customer orders & the quantity that the firm planned to produce, i.e., what we planned to make verses what our customers have actually ordered. Represents the remaining open slots that customers can still order.

Dependent Demand

The internal demand for parts (i.e., the items that are assembled or combined to make up the final product) based on the demand of the final product in which the parts are used (e.g., raw materials, component parts, packaging materials, subassemblies, etc.),

Planning Factor

The number of each component or material needed to produce a unit of the parent item.

Net Requirement

The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.