Production module in erp
- 1. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-1 Enterprise Resource Planning, 1st Edition by Mary Sumner Chapter 6: ERP Systems: Production and Materials Management
- 2. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-2 Objectives • Examine the production management system in ERP • Understand the materials management system • Acknowledge the interrelationships among business processes supporting production and materials management
- 3. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-3 Case: Atlantic Manufacturing • Materials and manufacturing are dealing with inconsistent levels of raw materials and finished products • Change specifications are not made timely • Sequential design produces long lead times • Inadequate information from other divisions • Lost purchasing requisitions
- 4. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-4 Manufacturing Systems Background • Designed to re-order inventory using re-order point – Adapts production to customer orders – Increased flexibility, responsiveness, integration • 60s, 70s, 80s: High-volume production of few products – Mainframe-based databases • Late 80s: Production of new products to meet customers’ needs – Changeable and flexible – Manufacturing Execution Systems provided continuous feedback and control • 90s: Integration of processes and data produce operational efficiency – ERP systems gave total integration, including supply chain
- 5. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-5 Problems with Traditional Production Systems • Lack of integration between divisions in organization – Production must be linked to sales to maintain proper inventory levels • Inaccurate production forecast will create incorrect purchasing decisions – Producing either a shortage of or extra raw materials – Creating an excess of finished products or shortage • Excess inventories – Impact cash flow and profitability in accounting
- 6. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-6 Production Systems • Objectives – Create production plan – Acquire raw materials – Schedule equipment, facilities, human resources – Design products – Produce appropriate quantities and expected quality level
- 7. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-7 Production Planning and Manufacturing Processes • Operational-level processes – Daily activities • Purchasing – Acquire correct quantity of raw materials and supplies • Receiving – Inspection of delivered products and processing • Quality control – Monitoring of receivables and identification of unacceptable deliveries – Monitoring quality of production goods • Inventory management – Maintains appropriate levels
- 8. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-8 Information Systems Support • Production planning and manufacturing processes – Supported by information systems • Data collection systems • Material management systems • BOM systems • Inventory management systems • Cost accounting systems
- 9. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-9 Material Resource Planning • Processes: – Identify stock needed – Calculate lead time for stock – Determine safety stock levels – Assign most cost-effective order quantities – Produce accurate purchase orders • MRP takes inputs from the MPS • MPS employs sales forecasts to identify products needed
- 10. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-10
- 11. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-11 Just-in-Time Systems • Ideal production and manufacturing situation – Only maintain necessary inventory levels; no excess – Requires supplies to be delivered only as needed to meet production schedule • EDI or Internet used to place orders • Continuous replenishments of raw materials – Reduces storage cost and space both pre- and post- production – Improved supply chain and value chain management
- 12. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-12 Capacity Planning • Evaluation of production capacity against production goals – Requires specific information – Creates time-phased plans for product and production area • Production scheduling – Allocation of specific facilities – Estimates human resource needed • Product design and development is integrated with cost information – Allows comparison of alternatives to decrease expenses
- 13. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-13 Production Planning and Materials Management Modules • ERP extends information distribution – Supports materials requirement planning, inventory management, capacity planning • Allows for merging of multiple databases – Eliminates paperwork and bottlenecks – Decreases design costs, lead time, personnel costs – Increases productivity • Sales forecasts employed to develop production plans • MPS created through demand management – Determines quantities and dates for finished products • MRP creates efficient, detailed material plan – Determines what needs to be ordered and when – Creates work orders sent to production • ERP systems provides integration
- 14. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-14 Materials Management Modules • MES – Factory floor information and communication systems – Provide feedback on real-time basis – Can be front-end combined with back-end applications • APS systems – Business analysis and support – Leverage data for decision support • Data collection – Real-time data gathered with mobile phone or Internet- enabled devices – Automated data collection
- 15. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-15 eBusiness Strategies • Facilitates communication along supply chain • B2B – Many suppliers available – Internet enables quick and easy exchange of information • Planning forecasts – eMarketplaces allow for aggregation of buyers to improve purchasing power • Reduces costs • Communities – Eliminate traditional supply chains and problems – RFPs handled more efficiently
- 16. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-16 Featured Article: What ERP Can Offer ABC • What manufacturing data is used by the managerial accounting module within ERP? • How is this information used to control costs, to maximize productivity, and to streamline operations? • How does this data integration support managerial decision making?
- 17. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-17 Featured Article: What ERP Can Offer ABC, continued • Activity-based costing systems – Need correct activity cost driver • Nonfinancial measures difficult to find in accounting systems • Usually not controlled by accounting system – Lack process controls • Often derived from “back-of-an-envelope” information systems – ERP systems and activity cost-driver information • Increase availability • Increased reliability • Allows for integration of multiple systems
- 18. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-18 Featured Article: What ERP Can Offer ABC, continued • SAP’s R/3 system – Links production planning with materials management • Allows establishment of standards • Materials handling as process – Activity cost driver – “number of pallet moves” – Materials handling process attributed to specific product – Direct costs can be calculated instead of being considered overhead – Bill of services created
- 19. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-19 Featured Article: What ERP Can Offer ABC, continued – Activity-based budgeting • Anticipates demand on process • Estimates practical capacity • Estimates quantity of direct materials and direct costs • Can be used to improve processes, determine adjustments – Collects nonfinancial measures for use as drivers • Formal process • Built-in controls for reliability • High degree of integrity
- 20. © Prentice Hall, 2005: Enterprise Resource Planning, 1st Edition 6-20 Summary • Traditional production systems offered no integration within the organization • Most production planning lacks coordination with the organization’s manufacturing , particularly at the operational level • Organizations want material resource planning, JIT systems, and capacity planning • ERP systems offer both production planning and materials management – Facilitating communications along the supply chain – Improving e-Business opportunities