Transcript Production - Temple Fox MIS

Week 8:
Production and Supply
Chain Process
MIS2101: Management
Information Systems
1
Agenda

Introduction

Production

Problems due to lack of communication

Integrated Production Process

Supply Chain Management
2
The supply chain



In the sales process, the organization is the supplier
In the purchasing process, the organization is the buyer
The movement of goods from supplier to the end customer is
the “supply chain”
Supplier  Organization  Customer
Oat/Wheat Farmer  Fitter Snacker  Customer

Components of a supply chain


People, Technology, Information, Goods, Processes
Supply Chain Management looks at the entire supply system
from raw materials to finished goods on the retail shelf
3
Supply Chains
4
Production

A production plan answers:




Quantity of product to make?
When to make product?
How much raw materials to procure and when?
A successful company must be able to



Develop a good production plan
Execute the plan
Make adjustments when customer demand differs from
the forecast
5
Production Approaches
Make to
Stock



Make to
Order


Assemble
to order

Products are made for
inventory in anticipation
of orders
Most consumer products
Products are made to
fulfill specific orders
Expensive products or
high-customization
products
Combination of make-tostock and make-to-order
Final product assembled
from stock for a customer
(Dell!)
6
Production Problems in “Unintegrated” systems


Hard to know how much and when to
produce
Problems arise in:
Communication
Inventory
Accounting
7
Communication Issues External

“Bullwhip Effect” in Forecast
Driven Distribution Channels

Small fluctuation is
downstream channels result in
large fluctuations in
manufacturer’s predictions
8
Communication issues Internal

If production isn’t integrated with marketing:

Production doesn’t know about sales promotions
or unexpected planned orders


Results: depleted inventory, overtime, expedited
shipments, and material shortages
Marketing doesn’t know about planned
maintenance

Results: unexpected reduction in production and
unmet demand
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Inventory Problems

Production manager schedules production based
on experience, rather than formal planning
techniques

Primarily compares current warehouse inventory levels
with “normal” values

Inventory information is not available in real-time, and
does not recognize inventory that has been sold but not
shipped
 Inventory available to commit to future orders is not
known
10
Inventory Problems

Inventory shortages may mean unplanned production
changeovers, resulting in:
 Lost production capacity
 Potential shortages of other products

Actual sales data is not available on a timely basis,
because:
 Lack of organizational trust
11
Accounting Problems

Most companies use standard costs to account
for manufacturing costs

Standard costs are based on historical costs for
materials, labor and factory overhead

Manufacturing costs are estimated by multiplying
production quantities by standard costs

Actual production costs invariably deviate from
estimates using standard costs, and adjustments must
be made regularly
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Sales and Operations Planning (SOP)
Case Study

Kellogg’s achieved significant savings from coordinated
sales and operations planning (SOP)

Changed focus based on how they were evaluated



Marketing and sales: Evaluated on tons of cereal sold
Manufacturing: Evaluated on tons of cereal produced
No one evaluated on profit!

Kellogg’s new sales order process focused on profit

Kellogg’s has reduced capacity, inventory and capital
needs while increasing sales
13
Production planning process

Develop aggregate production plan for groups
of products

Break down aggregate plan into product
specific plans for smaller time periods

Determine raw material requirements based
on plan
14
An integrated process
Predicts
future demand
for products
Sales
Forecasting
Starting
Inventory
Sales and Operations Planning
Break production
plan down into
smaller time
increments
Create production
schedule based on
production plan from
demand management
Uses the schedule to
determine products
and staffing
Determines what
company should
produce
Requires starting
inventory levels
and sales forecast
based on capacity
Demand Management
Determines
amount and
timing of raw
material orders
Detailed
Scheduling
MRP
Production
Purchasing
Takes quantity and
timing information
from MRP and
creates orders
15 for
suppliers
Forecasting in an Integrated
System

Accurate historical sales values
available for forecasting

“Fix” historical sales:



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If production was unable to meet
demand sales does NOT represent
actual demand
Unusual conditions like weather
The effect of sales promotions
This is essentially data
warehousing and data mining!
Sales provided from
SD module
Field where planner can
“correct” the sales value
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MRP

Materials Requirements Planning (MRP) is a process
to determine the quantity of a material to manufacture
or purchase and the time when the
production/purchase order should be released.

The three key concepts in MRP are:
 Bill of Materials
 Lead Time
 Lot Sizing

The output of the MRP process is a set of planned
orders.
17
Lead Times and Lot Sizing

To determine timing and quantity of purchases

Lead time includes:

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

Time for supplier to receive and process order
Time to take material out of stock, package it, load it on
a truck and deliver it to the manufacturer
Time required at manufacturer to receive the material:
 Unload the truck, inspect the materials, move to storage
location or production line
Lot sizing: determining production or order
quantities

In many cases, lot sizes for purchased items are
constrained by packaging and transportation
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Purchasing and ERP


Provides way to convert Requirements to
Purchase Order automatically
Help the purchasing specialist select the
best vendor (best price)
Convert MRP data to
a purchase order
Options to evaluate vendors
19
Production and Accounting in
an Integrated System

Information
entered for
material
movement
automatically
updates
accounting
records

Info can be
entered through
data entry,
barcode, RFID,
etc.
Material
received (for
MRP) and the
purchase
order
20
Implications for Supply Chain
Management
$
Goods
Goods
Supplier
Information
$
$
Goods
Manufacturer
Information
$
$
Goods
Wholesaler
Information
Information
Goods
Retailer
Information
Customer

Supply chain participants often use
competitive bidding to reach a “winning”
prices by reacting
Creates adversarial relationship among
participants
Raw Materials

21
Supply Chain with ERP
(Integration)

Production plans can be shared along the supply
chain in real time

Managers can evaluate impact of plans on total
cost across the supply chain

Collaboration among participants leads to:



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Improved product quality
Reduced paperwork
Reduced inventories
Increased customer responsiveness
22
Measures of Success

Cash to Cash Cycle Time
 Time between paying for raw materials to collecting money from
customers
 From 100 days to one month (with SCM)

Supply Chain Costs
 Buying and handling inventory, processing orders, information
systems support
 Reduces from 12% to 5% with SCM

Other Metrics (used by Staples)
 On-Time Performance: meeting delivery dates
 Initial Order Lead Time: time needed to fill the order
23
Why supply chains are
important

Cost Efficiency

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Agility


(Walmart)
Need for innovation


(Gap)
Complexity


(Walmart)
(iPhone APIs)
Blurred organizational boundaries

(Cisco)
New Technologies in Supply
Chain Management
RFID


Attached to items that RFID is intended to track
Consists of
 Electronic Integrated Circuit
 Miniature Antenna
 Substrate
Benefits on RFID in Supply
Chain
RFID
 Innovate ways to identify, locate and monitor goods as they
travel through supply chain of many industries.

Increased accuracy of orders

Reduce inventory handling cost

Improve Inventory handling

Fewer misplaced items(in warehouse)

Reduce losses from theft
RFID in Supply Chain
Management (Contd)
Check out the video on use of RFID in Inventory Management.
http://www.youtube.com/watch?v=4Zj7txoDxbE&NR=1
SCM with Customer Collaboration
Case Study – Wal-Mart

POS data from bar code scanners is recorded in a massive
data warehouse at Wal-Mart headquarters

Wal-Mart uses data mining techniques to predict what
customers will buy at different times of the year

Data is shared with Wal-Mart suppliers to plan production

Wal-Mart also allows its 5000 suppliers to directly access its
data warehouse through its Retail Link program

Wal-Mart is leading the effort to leverage RFID technology
28
Summary

An ERP system can improve the efficiency of production and
purchasing processes

Begins with Marketing sharing sales forecast

Production plan is created based on forecast and shared with
Purchasing so raw materials can be ordered properly.

Production planning can be done without an integrated system,
but integrated system that allows MRP and Production to be
linked to Purchasing and Accounting
29
Key Learnings

Production Process


Production Plan
Production Approaches

Problems in Un-integrated Systems
 Communication, Inventory, Accounting
 Bull Whip Effect, Standard Costs

Integrated Production Process
 Sales Forecast
 Sales and Operations Plan
 Demand Management
 Production
 Purchasing
30
Key Learnings

Key Terms


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ERP and Supply Chain

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Lead Time
Lot Size
Why do we need to calculate optimal lot sizes?
Success Metrics
Case Studies
31