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  1. 1. Anicet Yalaho Maria-J. Echeverria Seppo Selk ä l ä Presented by: E. R. P SYSTEMS
  2. 2. A Book Review <ul><li>ERP- The dynamics of Operations Management, Avraham Shtub (1999) </li></ul>
  3. 3. 1. BPR & ERP 2. Introduction to the book 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning 7. Managing the process using ERP 8. Teaching and Training IPOM
  4. 4. BPR & ERP What is ERP Relationship: BPR/ERP
  5. 5. Enterprise Resource Planning <ul><li>ERP is a software solution , with all the organisation’s records managed from one large database. An integrated IS. </li></ul><ul><li>It takes the process view of an organisation to meet the organisational goals tightly integrating all functions of an enterprise. </li></ul>
  6. 6. Relationship BPR - ERP <ul><li>A BPR study </li></ul><ul><ul><li>brings out deficiencies of the existing system </li></ul></ul><ul><ul><li>attempts to maximize productivity through </li></ul></ul><ul><ul><ul><li>re-structuring and </li></ul></ul></ul><ul><ul><ul><li>re-organising the human resources as well as the divisions and departments in the organisation </li></ul></ul></ul><ul><li>BPR will initially question the value-add of the particular process </li></ul><ul><li>Then it will go on to put some systems and procedures in place -> ERP is a key enabler in any BPR effort </li></ul>
  7. 7. Relationship BPR – ERP (2) <ul><li>You can </li></ul><ul><ul><li>do BPR without buying an ERP solution, </li></ul></ul><ul><ul><ul><li>unusual </li></ul></ul></ul><ul><ul><li>buy an ERP solution without doing any BPR </li></ul></ul><ul><ul><ul><li>wasteful investment ... </li></ul></ul></ul><ul><li>The question is not whether ERP functions or not without BPR </li></ul><ul><li>Key question: whether every company that implements ERP has to reengineer its processes </li></ul>
  8. 8. ERP <ul><li>ERP doesn’t blindly automate- it takes into account </li></ul><ul><ul><li>company’s internal issues, </li></ul></ul><ul><ul><li>but also factors in the external imperatives in terms of competition, time-to-market,... </li></ul></ul>
  9. 9. ERP (2) <ul><li>ERP is the planning of the 4Ms of the enterprise resources– Man, Money, Materials, Machines. </li></ul><ul><li>ERP helps in addressing needs like reduced cycle time, customer focus, sharing information seamlessly across the enterprise and JIT management </li></ul>
  10. 10. 1. BPR & ERP 2. Introduction to the book 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning 7. Managing the process using ERP 8. Teaching and Training IPOM
  11. 11. An Introduction to: ’ ERP- The dynamics of Operations Management’, Avraham Shtub (1999)
  12. 12. ’ERP- Dynamics of Operations Management’ <ul><li>Scope of the book: </li></ul><ul><ul><li>’ to help and support the development of teams to implement the Integrated Production and Order Management (IPOM) approach’ </li></ul></ul><ul><li>The Four cornerstones for success: Flexibility, Time, Quality, Cost </li></ul><ul><li>Four main functional activities: Marketing, Purchasing, Production, Finance </li></ul>
  13. 13. ’ ERP- Dynamics of OM’ (2) <ul><li>A book delivered with a software: </li></ul><ul><ul><li>the Operations Trainer </li></ul></ul><ul><ul><li>” a dynamic-integrated environment for students and executives to experiment with IPOM and to learn the ERP concepts” </li></ul></ul>
  14. 14. Operations Management <ul><li>Several approaches to Operations Management: </li></ul><ul><ul><li>operations research oriented </li></ul></ul><ul><ul><li>case studies oriented </li></ul></ul><ul><li>A new approach proposed by Hammer and Champy (1993): the reengineering of business processes to inflect changes on organisations </li></ul>
  15. 15. I ntegrated P roduction and O rder M anagement A pproach <ul><li>New managerial approaches </li></ul><ul><ul><li>Concurrent Engineering: </li></ul></ul><ul><ul><ul><li>an integrated, dynamic approach to new product development. New product development teams composed of experts from different functions. Share the same goals. </li></ul></ul></ul><ul><ul><li>Group Technology: </li></ul></ul><ul><ul><ul><li>focused “cells” specialising in a small number of similar products. </li></ul></ul></ul>
  16. 16. IPOM approach (2) <ul><li>Development of IS: </li></ul><ul><ul><li>MRP- Material Requirement Planning </li></ul></ul><ul><ul><ul><li>not good enough on its own... </li></ul></ul></ul><ul><ul><li>Integration of modern DBMS, DSS and MIS </li></ul></ul><ul><ul><ul><li>-> the new generation of ERP systems was borne </li></ul></ul></ul><ul><li>An essential process- The order fulfilment </li></ul><ul><ul><li>-> Integrated Production and Order Management </li></ul></ul>
  17. 17. IPOM approach (3) <ul><li>Process-based </li></ul><ul><ul><li>Process: order fulfilment- from the reception of a customer order to the supply of the right goods on time, the required quantities and at a competitive cost </li></ul></ul><ul><li>ERP supported </li></ul><ul><ul><li>3 types of IS support Order fulfilment process: </li></ul></ul><ul><ul><ul><li>Transaction Processing System (any transaction can be ordered/analysed via the software) </li></ul></ul></ul><ul><ul><ul><li>MIS (a unique database) </li></ul></ul></ul><ul><ul><ul><li>DSS (decisions’ consequences can be analysed, ...) </li></ul></ul></ul>
  18. 18. IPOM (4) <ul><li>An Integrated IS </li></ul><ul><ul><li>finance, marketing, production, purchasing </li></ul></ul><ul><li>that supports order fulfilment process: </li></ul><ul><ul><li>Transaction processing systems / MIS / DSS </li></ul></ul><ul><li>A single DB </li></ul><ul><li>A model base (for well-structured/routine processes, for non-structured/-routine problems, or for process control)- used when a problem is too difficult to analyse and solve. </li></ul>
  19. 19. 1. BPR & ERP 2. Introduction to the book 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning 7. Managing the process using ERP 8. Teaching and Training IPOM
  20. 20. Marketing Considerations
  21. 21. Production and order policies <ul><li>O rder fulfil l ment process p rocess triggered by customer orders </li></ul><ul><li>Orders entered into Master Production Schedule </li></ul><ul><li>Purchasing and or der fulfil l ment process es are based on: </li></ul><ul><ul><li>firm customer orders </li></ul></ul><ul><ul><li>demand forecasts </li></ul></ul>
  22. 22. Three types of order policies <ul><li>Make to stock </li></ul><ul><ul><li>new production triggered by forecasts </li></ul></ul><ul><ul><li>Minimizes the promised lead-time at the cost of carrying inventories </li></ul></ul><ul><li>Make to order </li></ul><ul><ul><li>No stocks carried </li></ul></ul><ul><ul><li>Only customer order triggers production </li></ul></ul><ul><li>Assemble to order </li></ul><ul><ul><li>Raw materials and parts stocked but final assembly triggered by customer order </li></ul></ul>
  23. 23. Master Production Schedule (MPS) <ul><li>Statement of planned future, gross requirements of end products </li></ul><ul><li>MPS is triggered by the market demand </li></ul><ul><ul><li>combination of orders and forecasts </li></ul></ul><ul><li>Management of MPS: </li></ul><ul><ul><li>introduction of new requirements </li></ul></ul><ul><ul><li>updating existing requirements </li></ul></ul><ul><ul><li>monitoring and control of actual performance compared to goals </li></ul></ul>
  24. 24. Time based competition <ul><li>Lead time: time from order to delivery </li></ul><ul><li>Importance of time in order fulfil l ment </li></ul><ul><ul><li>shorter lead-time </li></ul></ul><ul><ul><ul><li>competitiveness and ability to get new business </li></ul></ul></ul><ul><ul><li>delivery on right time </li></ul></ul><ul><ul><li>promised vs. actual lead-time </li></ul></ul><ul><li>Lead-time is affected by : </li></ul><ul><ul><li>data processing, decision making, production </li></ul></ul><ul><li>Each operation affects lead-time </li></ul><ul><ul><li>should be studied and optimised </li></ul></ul><ul><ul><ul><li>minimízation, elimination </li></ul></ul></ul>
  25. 25. Q uality based competition <ul><li>Success dependent on customer satisfaction </li></ul><ul><li>Eight dimensions in quality based competition: </li></ul><ul><ul><li>performance, features, reliability,conformance, durability, serviceability, aesthetics, and perceived quality </li></ul></ul><ul><li>Quality in o rder fulfilment process refers mainly to : </li></ul><ul><ul><li>DDP Due Date Performance </li></ul></ul>
  26. 26. C ost based competition <ul><li>Profit = selling - buying price </li></ul><ul><li>Higher profit: reduce the cost of products </li></ul><ul><li>Problem of measuring costs of a unit </li></ul><ul><ul><li>direct, indirect costs </li></ul></ul><ul><ul><li>fixed, variable costs </li></ul></ul><ul><li>Solution: </li></ul><ul><ul><li>Look at the throughput </li></ul></ul>
  27. 27. Summary of Marketing Considerations <ul><li>Order fulfillment process triggered by </li></ul><ul><ul><li>actual order or forecasts </li></ul></ul><ul><li>3 types of order policies </li></ul><ul><ul><li>make to stock, make to order, assemble to order </li></ul></ul><ul><li>Dimensions of competition </li></ul><ul><ul><li>time, cost, (flexibility), and quality </li></ul></ul>
  28. 28. 1. BPR & ERP 2. INTRODUCTION OF THE BOOK 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning
  29. 29. Purchasing and Inventory Management
  30. 30. The Need for Outsourcing <ul><li>Outsourcing: purchase some materials, parts, and services from outside services </li></ul><ul><ul><li>increase your effective capacity without capital requirements </li></ul></ul><ul><ul><li>enhance the organizations competitive edge </li></ul></ul><ul><li>Points to be carefully evaluated: </li></ul><ul><ul><li>Make or buy decision </li></ul></ul><ul><ul><li>supplier management </li></ul></ul><ul><ul><li>inventory management </li></ul></ul>
  31. 31. Outsourcing: Make or Buy Decisions <ul><li>Factors to be taken into consideration: </li></ul><ul><ul><li>Capacity, Know-how, Cost-Volume, Demand pattern, Time, Quality, Control and Feasibility </li></ul></ul><ul><li>Decision making levels: </li></ul><ul><ul><li>Strategic level </li></ul></ul><ul><ul><ul><li>what part of production kept in house </li></ul></ul></ul><ul><ul><li>Operational level </li></ul></ul><ul><ul><ul><li>capacity considerations </li></ul></ul></ul>
  32. 32. Outsourcing: Supplier management <ul><li>Importance of order fulfilment process: </li></ul><ul><ul><li>purchases constitute 30-50% of sales </li></ul></ul><ul><li>Sub-activities of supplier management : </li></ul><ul><ul><li>specifications of requirements </li></ul></ul><ul><ul><li>selection of suppliers </li></ul></ul><ul><ul><li>contract management </li></ul></ul>
  33. 33. Supplier Management: Specifications of Requirements <ul><li>Definition of the required product or service including functional, physical and technical specifications </li></ul><ul><li>Definition of the order fulfilment process requirements , including required lead time, size and number of shipments, shipping arrangements and frequency of deliveries </li></ul><ul><li>Definition of quality system the supplier should employ and quality requirements applied to the product or service </li></ul>
  34. 34. Supplier Management: Selection of Suppliers <ul><li>Different approaches: single vs. m ultiple </li></ul><ul><li>Supplier evaluation considerations: </li></ul><ul><ul><li>Process capabilit y </li></ul></ul><ul><ul><li>Quality assurance </li></ul></ul><ul><ul><li>Financial capability </li></ul></ul><ul><ul><li>Cost structure </li></ul></ul><ul><ul><li>Track record </li></ul></ul><ul><ul><li>Production planning and control system </li></ul></ul>
  35. 35. Supplier Management: Contract management <ul><li>The ongoing relationship with supplier </li></ul><ul><li>Three categories of relationships: </li></ul><ul><ul><li>Inspection </li></ul></ul><ul><ul><ul><li>focusing on product inspection to eliminate defects </li></ul></ul></ul><ul><ul><li>Prevention </li></ul></ul><ul><ul><ul><li>purchaser helps to build quality into the product and process </li></ul></ul></ul><ul><ul><li>Partnership </li></ul></ul><ul><ul><ul><li>long term relationship </li></ul></ul></ul><ul><ul><ul><li>e.g. Joint design, delivery directly to the point of use </li></ul></ul></ul><ul><ul><ul><li>JIT-approach </li></ul></ul></ul>
  36. 36. Inventory Management <ul><li>Inventory management: </li></ul><ul><ul><li>policies, decisions, actions and the monitoring and control of stock </li></ul></ul><ul><li>Stock types: </li></ul><ul><ul><li>Raw materials, parts and components, work in process, finished goods, supplies </li></ul></ul>
  37. 37. Inventory Management: Benefit s and cost s <ul><li>The benefits of using stocks: </li></ul><ul><ul><li>Time based competition </li></ul></ul><ul><ul><ul><li>reduce lead time </li></ul></ul></ul><ul><ul><li>Coping with uncertainty </li></ul></ul><ul><ul><ul><li>buffer inventories </li></ul></ul></ul><ul><ul><li>Cost based competition </li></ul></ul><ul><ul><ul><li>order in large quantities </li></ul></ul></ul><ul><li>Inventory costs </li></ul><ul><ul><li>capital costs , operating costs , r isk related costs </li></ul></ul><ul><li>Many benefits, but still inventories are expensive and create waste </li></ul><ul><ul><li>search for trade off btw. benefits and costs </li></ul></ul>
  38. 38. Inventory Management: Models – Pareto Model <ul><li>ABC or Pareto Analysis: </li></ul><ul><ul><li>type A 20% of items, count for 80% of costs </li></ul></ul><ul><ul><li>type B 30% of items, count for 15% of costs </li></ul></ul><ul><ul><li>type C 50% of items, count for 5% of costs </li></ul></ul>
  39. 39. Inventory Management: Models – EOQ Model <ul><li>Help: when to place order and what quantity to order ? </li></ul><ul><li>the economic order quantity (EOQ) model </li></ul><ul><ul><li>Problems: </li></ul></ul><ul><ul><li>assumes demand constant </li></ul></ul><ul><ul><li>stable inventory costs </li></ul></ul><ul><ul><li>lead time constant </li></ul></ul><ul><ul><li>constant parameters </li></ul></ul>
  40. 40. Inventory Management: Models – (s,S) Model <ul><li>(s,S) Model </li></ul><ul><ul><li>whenever the current inventory level drops below predetermined value (s), and order is placed to bring the inventory level to the higher predetermined value (S) </li></ul></ul><ul><ul><li>Advantage: not based on simplifying assumptions like EOQ model </li></ul></ul><ul><ul><li>Intuition and expertise driven </li></ul></ul>
  41. 41. Summary of Inventory Management <ul><li>Outsourcing (Make or buy decision): </li></ul><ul><ul><li>what to keep in house? (strategic decision) </li></ul></ul><ul><ul><li>capacity constraints (operational decision) </li></ul></ul><ul><li>Inventories </li></ul><ul><ul><li>trade off btw. costs and benefits of carrying inventories </li></ul></ul><ul><ul><ul><li>coping with uncertainty of demand and capacity constraints </li></ul></ul></ul><ul><ul><ul><li>expensive </li></ul></ul></ul>
  42. 42. 1. BPR & ERP 2. INTRODUCTION OF THE BOOK 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning
  43. 43. Scheduling Job Shop Flow Shop JIT approach Dynamic Shop DrumBufferRope approach
  44. 44. Scheduling <ul><li>Scheduling is concerned with allocation of limited resources to tasks over time </li></ul><ul><ul><li>the driver: Master Production Schedule (MPS) </li></ul></ul><ul><li>Variety of scheduling models have been developed and implemented </li></ul>
  45. 45. Job Shop: Implementing Priority Rules 1 <ul><li>Machines performing the same function grouped </li></ul><ul><li>Scheduling objectives: </li></ul><ul><ul><li>on time completion of each part according to MPS </li></ul></ul><ul><ul><li>the completion of all jobs as early as possible </li></ul></ul><ul><ul><li>minimization of the time that parts spend in the shop (min. process inventory) </li></ul></ul><ul><ul><li>maximization of the utilization of resources by minimizing their idle time </li></ul></ul><ul><ul><li>minimization of costs by using less expensive materials </li></ul></ul>
  46. 46. Job Shop: Implementing Priority Rules 2 <ul><li>When set-up time is significant and machine capacity limited --> batch processing </li></ul><ul><li>Several models exist to provide optimum </li></ul><ul><ul><ul><li>only for very small problems </li></ul></ul></ul><ul><ul><ul><li>based local view of a larger situation </li></ul></ul></ul><ul><li>How to assign priority (simple methods): </li></ul><ul><ul><ul><li>FIFO (First In First Out) </li></ul></ul></ul><ul><ul><ul><li>EDD (Early Due Date) </li></ul></ul></ul><ul><ul><ul><li>Current job (to save set up time) </li></ul></ul></ul><ul><ul><ul><li>SPT (Shortest Processing Time) </li></ul></ul></ul>
  47. 47. Job Shop: Implementing Priority Rules 3 <ul><li>How to assign priority (complex methods): </li></ul><ul><ul><li>Critical ratio (CR) </li></ul></ul><ul><ul><ul><li>difference between due date and current date divided by time required to complete the remaining work. </li></ul></ul></ul><ul><ul><li>Slack Time Remaining (STR) </li></ul></ul><ul><ul><ul><li>difference between the time remaining before the due date and the time required for processing the remaining jobs. </li></ul></ul></ul><ul><ul><li>Slack Time Remaining per Operation (STR/OP) </li></ul></ul><ul><ul><ul><li>average slack time per remaining operation. </li></ul></ul></ul><ul><ul><li>Smaller values have higher priority (for the 3 methods) </li></ul></ul>
  48. 48. Job Shop: Implementing Priority Rules 4 <ul><li>By monitoring the situation on the shop floor and selecting the right priority rules for the situation, the management can improve performances on the delivery schedule </li></ul><ul><li>Also scheduling manually is possible when job is late </li></ul>
  49. 49. Job Shop: Implementing Priority Rules 5 <ul><li>The selection of most appropriate priority rule as well as decision to expedite a job, is based on the Shop floor control system </li></ul><ul><ul><li>current information on the jobs waiting for processing in front of each machine </li></ul></ul><ul><li>Priority rules based on single machine </li></ul><ul><ul><li>starvation --> monitor continuously inventory levels in front of each machine </li></ul></ul><ul><ul><li>control by input-output analysis </li></ul></ul><ul><ul><ul><li>identify bottlenecks </li></ul></ul></ul>
  50. 50. Flow Shop: Scheduling <ul><li>In the flow job all product types are processed in the same order </li></ul><ul><ul><li>problems: starvation and blocking </li></ul></ul><ul><ul><ul><li>especially when product units are large and in-process inventory is limited (JIT) </li></ul></ul></ul><ul><li>Flexible flow job </li></ul><ul><ul><li>many similar machines operate in parallel </li></ul></ul>
  51. 51. Flow Shop: Scheduling (2) <ul><li>Johnson´s rule </li></ul><ul><ul><li>for simple cases (2 types of machines) </li></ul></ul><ul><ul><li>objective to minimize make span </li></ul></ul><ul><ul><li>Based on simplifying assumptions </li></ul></ul><ul><ul><li>--> direct implementation of their results may lead to poor performance of the order fulfilment process </li></ul></ul>
  52. 52. The Just In Time (JIT) Approach <ul><li>Profit = revenue - costs </li></ul><ul><li>to increase profit: </li></ul><ul><ul><li>increase revenue </li></ul></ul><ul><ul><li>reduce costs </li></ul></ul><ul><li>Focus on cost (waste) reduction </li></ul>
  53. 53. JIT Approach (2) <ul><li>Potential forms of waste according to JIT </li></ul><ul><ul><li>Quality related waste </li></ul></ul><ul><ul><li>Inventory related waste </li></ul></ul><ul><ul><li>Waste of space </li></ul></ul><ul><ul><li>Material handling waste </li></ul></ul><ul><li>Distinction between value-added and non value-added operations </li></ul><ul><ul><li>eliminate (if not possible minimize) non value-added operations, such as material handling </li></ul></ul>
  54. 54. JIT Approach (3) <ul><li>Impacts of JIT in scheduling </li></ul><ul><ul><li>minimize process inventories </li></ul></ul><ul><ul><ul><li>use small batch size (ideal batch size 1) </li></ul></ul></ul><ul><ul><ul><li>promote faster set ups </li></ul></ul></ul><ul><ul><ul><li>use of scheduling systems </li></ul></ul></ul><ul><ul><ul><li>limit space available for inventories in process </li></ul></ul></ul><ul><ul><ul><li>preventive maintenance efforts </li></ul></ul></ul><ul><ul><ul><li>quality at the source </li></ul></ul></ul><ul><ul><li>long term, close relationships with suppliers to ensure quality and delivery when needed </li></ul></ul>
  55. 55. JIT Approach (4) <ul><li>T he order fulfilment process in the JIT system is synchronized and controlled by a special system </li></ul><ul><ul><li>KANBAN cards </li></ul></ul><ul><ul><ul><li>Contains information: production order, purchase order, inventory control device </li></ul></ul></ul><ul><ul><li>Integrated (all work centers are connected) </li></ul></ul><ul><ul><li>Dynamic (inventories limited by # of Kanbans) </li></ul></ul>
  56. 56. Approaches for Expediting and Changing Priorities <ul><li>Demand fluctuates over time, solutions: </li></ul><ul><ul><li>manufacturing to stock </li></ul></ul><ul><ul><ul><li>buffer inventories </li></ul></ul></ul><ul><ul><li>freeze MPS (master production schedule) </li></ul></ul><ul><ul><ul><li>stabilize demand over the freeze period </li></ul></ul></ul><ul><ul><li>monitor each job as it moves </li></ul></ul><ul><ul><ul><li>ERP systems: analyse data and support decision making </li></ul></ul></ul><ul><ul><li>focus on problematic work centres </li></ul></ul><ul><ul><ul><li>derive the schedule according to bottlenecks </li></ul></ul></ul>
  57. 57. The Drum, Buffer, Rope (DBR) Approach <ul><li>In this scheduling technique the schedule of all work centres is driven by the schedule of critical work centres (insufficient capacity) </li></ul><ul><li>Three performance measures: </li></ul><ul><ul><li>MAX: Throughput (T) = Sales - Expenses </li></ul></ul><ul><ul><li>MIN: Inventory (I) </li></ul></ul><ul><ul><li>MIN: Operating expenses (OE) </li></ul></ul><ul><ul><ul><li>avoid production to stock </li></ul></ul></ul>
  58. 58. The Drum, Buffer, Rope (DBR) Approach (2) <ul><li>Focus should be on the constraint as it is the weakest link in the chain of the order fulfilment process </li></ul>
  59. 59. Summary of Scheduling <ul><li>Job shop </li></ul><ul><ul><li>limited applicability: need for shop floor control system to monitor + management intuition </li></ul></ul><ul><li>Flow shop </li></ul><ul><ul><li>Johnson´s rule (limited applicability) </li></ul></ul><ul><li>JIT </li></ul><ul><ul><li>kanban cards and shop floor control system </li></ul></ul><ul><li>Dynamic shop </li></ul><ul><ul><li>approaches for demand fluctuations </li></ul></ul><ul><li>DrumBufferRope approach </li></ul><ul><ul><li>driven by critical work centers (bottlenecks) </li></ul></ul>
  60. 60. 1. BPR & ERP 2. INTRODUCTION OF THE BOOK 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning
  61. 61. Material Requirement Planning
  62. 62. Material Requirement Planning (MRP) <ul><li>Is an early attempt to develop an integrated MIS for the order fulfilment process </li></ul><ul><ul><li>By combining information ... </li></ul></ul><ul><ul><li>By integrating the inventory management information </li></ul></ul>
  63. 63. MRP (2) <ul><ul><li>By introducing lead time information for purchased items and for manufactured items manufacturing and purchasing orders can be time phased to ensure delivery exactly when needed </li></ul></ul><ul><li>The original MRP System ( MRP I ) combined </li></ul><ul><ul><li>Marketing information in the Master Production </li></ul></ul><ul><ul><li>Technological information about the structure of each product and its manufacturing process </li></ul></ul><ul><li>New capabilities were added to these systems including: </li></ul><ul><ul><li>Planning module that reveal capacity shortage </li></ul></ul><ul><ul><li>Shop floor control modules that utilise limited capacity efficiently </li></ul></ul><ul><li>MRP II (Manufacturing resource Planning).Systems that deal with resource capacities were born </li></ul>
  64. 64. MRP (3) <ul><li>MRP II Systems deal with resource </li></ul><ul><li>recent development in this area produced ERP ( Enterprise Resource Planning) Systems designed to support the order fulfilment process of an enterprise operating several factories warehouses and integrated logistic system a complex known as the supply chain </li></ul>
  65. 65. The typical data file: the Master Production Schedule(MPS), the Bill of Material(BOM)& inventory data Firm Customers Orders Demand Forecasts Master Production Schedule (MPS) Bill of Material BOM Material Requirements Planning (MRP) Work Orders Report Purchase Orders Inventory Records Basic MRP System
  66. 66. The typical data file (2) <ul><li>Many MRP installations did not fulfil the expectations to improve the order fulfilment process. There are several reasons for the failure of MRP System: </li></ul><ul><ul><li>Quality of input data </li></ul></ul><ul><ul><li>Team mutual understanding on how to use MRP </li></ul></ul><ul><li>The early MRP System dedicated files were used to store the data, as database technology were not available. </li></ul>
  67. 67. The typical data file (3) <ul><li>The important data files in the early MRP applications were the following: </li></ul><ul><ul><li>The Master Production Schedule (MPS) </li></ul></ul><ul><ul><li>Marketing information on actual customer orders and forecasts of future demand. </li></ul></ul><ul><ul><li>Manufacturing information </li></ul></ul>
  68. 68. The typical data file (4) <ul><ul><li>Purchasing information on supplier’s lead-time and the availability of purchased parts and materials in inventory and in the pipelines </li></ul></ul><ul><ul><li>Cost information on the cost of manufacturing each independent demand item. </li></ul></ul><ul><li>Master Production Scheduling is an excellent example for the need to integrate the different aspects of the order fulfilment process </li></ul>
  69. 69. The typical data file (5) <ul><li>The time frame used for the MPS is important.The minimum planning time period known as time buckets specifies the accuracy of the planning process, a time bucket of one week is typical </li></ul><ul><ul><li>The minimum length of the planning </li></ul></ul>
  70. 70. The typical data file (6) <ul><li>Change management is an important part of the order fulfilment process </li></ul><ul><ul><li>Change in the MPS create changes in the production and purchasing plans </li></ul></ul><ul><ul><ul><li>The MPS´is updated continuously </li></ul></ul></ul><ul><ul><li>When current time is over, the next period becomes the current one and a new period enters the planning horizon </li></ul></ul>
  71. 71. The typical data file (7) <ul><li>Key issue´s to consider are who should mange the MPS and How </li></ul><ul><ul><li>The Bill of Material </li></ul></ul><ul><ul><li>The Inventory Record </li></ul></ul>
  72. 72. Gross to net and time phasing: The MRP logic <ul><li>MRP systems are designed to support the material management function in the order fulfilment process </li></ul><ul><li>The Basic idea is that the same logic can be used for ordering purchased materials or parts, manufactured components and assembled products </li></ul><ul><li>The MPS is the source of information on gross requirements for independent demand items </li></ul><ul><li>Basic MRP logic makes use of this information as input and translates it into time phased net requirements </li></ul>
  73. 73. Gross to net and time phasing: The MRP logic The Basic MRP record for product A 8 Planned order release Projected available balance Scheduled receipts 6 8 10 7 3 Gross Requirement 9 7 6 5 4 3 2 1 0 Week
  74. 74. Gross to net and time phasing: The MRP logic Projected available balance (t+1)= Projected available balance +Scheduled receipt (t+1) -Gross requirement (t+1) <ul><li>Based on the calculed projected available balance a decision to issue work orders or purchase orders is made </li></ul><ul><li>A simple decision rule known as : LOT FOR LOT (LFL) </li></ul>
  75. 75. Modification of: The MRP logic <ul><li>MPS is used as the resource of Gross requirements for independent demand items. </li></ul><ul><li>Basic MRP logic is modified to accommodate special situations. a common modification is in the lot sizing policy </li></ul><ul><li>The Economic Order quantity (EOQ) logic discussed early, is frequently used to calculate this minimum size. The same logic applies parts when economy to scale is available </li></ul><ul><ul><li>Ex: The cost per unit decrease as the order size increases </li></ul></ul>
  76. 76. Modification of: The MRP logic <ul><li>Other modifications in the lot sizing policy are based on the idea that each order should cover a minimum period of demand </li></ul><ul><ul><li>That is know as the Periodic Order quantity </li></ul></ul><ul><li>Unlike LFL logic both EOQ and POQ generate inventories </li></ul><ul><li>Another modification of the MRP logic is to buffer against uncertainty </li></ul>
  77. 77. Modification of: The MRP logic <ul><li>Two types of buffers </li></ul><ul><ul><li>Buffer stock - in this case the minimum inventory level target is set. </li></ul></ul><ul><ul><li>Buffer lead time -this method is designed to protect the system from fluctuations in supply lead-time. It is based on increasing the lead time of part number by a predetermined amount to protect the system against uncertainty in the actual delivery dates </li></ul></ul>
  78. 78. Capacity considerations <ul><li>MRP logic of gross to Net and Time Phasing derives the requirements for material from the MPS </li></ul><ul><li>Early applications of MRP logic focused on material requirements </li></ul><ul><li>To coordinate resource availability with resource requirements, capacity considerations had to be added to the basic MRP system </li></ul><ul><li>One way of doing that is known as Rough cut Capacity Planning (RCCP) </li></ul><ul><li>Another approach is known as Capacity Requirement Planning (CRP) </li></ul>
  79. 79. Capacity considerations : Rough cut Capacity Planning (RCCP) <ul><li>Rough cut Capacity Planning (RCCP) is performed at the MPS level. Its major inputs are the MPS and Information about the processing time per unit product on each machine or work centre </li></ul><ul><li>The logic used for Rough cut Capacity Planning varies in its complexity and in the accuracy of the capacity requirements forecasts generated </li></ul>
  80. 80. Capacity considerations : Rough cut Capacity Planning (RCCP) <ul><li>Rough cut Capacity Planning is an important tool for the management of the MPS </li></ul><ul><li>Rough cut Capacity Planning is also the basis for setting priorities in monitoring and controlling the shop floor </li></ul><ul><li>This is logic is the basis of the work of Goldratt and Fox (1986) which an effort to identify the few resources that are short of capacity and to schedule the whole operation in such a way that these resources will be used efficiently and effectively </li></ul>
  81. 81. Capacity considerations : Rough cut Capacity Planning (RCCP) <ul><li>Goldratt’s logic is translated into the following step: </li></ul><ul><ul><ul><li>Identity the system’s constraints ( the bottlenecks) </li></ul></ul></ul><ul><ul><ul><li>Develop a detailed schedule for the bottlenecks </li></ul></ul></ul><ul><ul><ul><li>Derive the schedule for all non-bottleneck resources from the schedule developed for the bottlenecks. </li></ul></ul></ul><ul><ul><ul><li>Repeat the process </li></ul></ul></ul>
  82. 82. Capacity considerations : Rough cut Capacity Planning (RCCP) <ul><li>The use of the MPS as a basis for rough cut capacity planning may lead to substantial errors in estimating the resource requirements </li></ul><ul><li>To overcome these difficulties a more detailed approach for capacity planning is used </li></ul>
  83. 83. Capacity considerations : Capacity Requirement Planning (CRP) <ul><li>Capacity Requirement Planning (CRP) is based on an effort to treat the requirements for resources by logic similar to the logic used for material planning </li></ul><ul><li>Logic based on the output of the MRP-work orders generated by the gross to Net and the Time Phasing logic </li></ul><ul><li>Based on the orders released by MRP logic, the required periodical capacity of each resource is calculated </li></ul><ul><li>The MRP logic that generates work orders takes existing in process inventories into account in its gross to net analysis the capacity requirements are more accurate </li></ul>
  84. 84. Capacity considerations : CRP Vs. RCCP <ul><li>Both CRP and RCCP are tools for testing the feasibility of the plans developed by the MIS </li></ul><ul><li>The RCCP test the feasibility of the MPS while the CRP tests the feasibility of the MRP plans </li></ul><ul><li>Both tools are based on estimates of available capacity and forecasts of expected loads and therefore do not provide perfect accuracy </li></ul><ul><li>A module called shop Floor Control is added to support the order fulfilment team in its resource management tasks </li></ul>
  85. 85. Capacity considerations : Shop Floor Control (SFC) <ul><li>The module implement logic known as Input-Output analysis </li></ul><ul><li>The logic is based on monitoring the actual queue of work orders in front of each work centre </li></ul><ul><li>The name Input Output analysis comes from the analogy between the queue in front of a work centre and reservoir </li></ul><ul><li>The complete MRP II system consist of the basic MRP I module plus the RCCP,CRP and SFC modules (see Schema next) </li></ul>
  87. 87. Managing the Integrated Order Fulfilment Process Using ERP : Setting goals, Establishing performance, Measures developing policies and Taking actions
  88. 88. The role of management in the integrated order fulfilment process <ul><li>Organization structures establish clear relationships and communication lines between managers and subordinates </li></ul><ul><li>The traditional functional organizational structure may not provide adequate support for the management of the order fulfilment process due t the following problems: </li></ul>
  89. 89. The role of management in the integrated order fulfilment process (1) <ul><li>Problems: </li></ul><ul><ul><li>Each functional organizational unit tends to focus on its local goals and objectives </li></ul></ul><ul><ul><li>In a functional organization the order fulfilment does not have a clear owner responsible for its performances from start-getting a customer order, to finish-supplying the order efficiency and on time </li></ul></ul>
  90. 90. The role of management in the integrated order fulfilment process (2) <ul><li>Concurrent Engineering -is based on a team of experts in the areas of product development, manufacturing and logistics support </li></ul><ul><li>Application of this new approach improved the communication between the participants in the development process and resulted in a shorted development cycle </li></ul><ul><li>Team building is a challenging managerial task and it is a process of organizing, staffing, motivating and leading people </li></ul>
  91. 91. The role of management in the integrated order fulfilment process (3) <ul><li>Responsibility of the order fulfilment team: to plan, direct and control the activities of the resources used to perform the order fulfilment process </li></ul><ul><li>Information acquired by marketing, purchasing and operations management represents the common Knowledge that should be shared by all the members of the order fulfilment team </li></ul><ul><li>This common knowledge provides the ability to communicate, to set common goals and to develop an integrated plan that can be controlled and directed efficiently by the team </li></ul>
  92. 92. The role of management in the integrated order fulfilment process (4) <ul><li>The common knowledge and the understanding that the whole team shares the responsibility for the entire order fulfilment process is the cornerstone of a successful ERP implementation </li></ul><ul><li>Planning starts with the definition of the goals for the whole order fulfilment process and the agreement on the frame to reach the goals </li></ul>
  93. 93. <ul><li>A combination of long term and short-term gaols is needed </li></ul><ul><ul><li>A short term goal </li></ul></ul><ul><ul><li>a long term goal </li></ul></ul>The role of management in the integrated order fulfilment process (5)
  94. 94. The role of management in the integrated order fulfilment process (6) <ul><li>The plan provides each team member with exact information on what he is supposed to do and when </li></ul><ul><li>The plan integrates and coordinates the efforts of individuals involved in the process and facilitate teamwork.It serves like: </li></ul><ul><ul><li>A note (in an orchestra) </li></ul></ul><ul><ul><li>A Compass </li></ul></ul><ul><li>Deviations from the original plan are likely due to: </li></ul><ul><ul><li>Uncertainty </li></ul></ul><ul><ul><li>Late delivery </li></ul></ul>
  95. 95. <ul><li>Special action as opposed to long lasting policies are needed when deviations are detected </li></ul><ul><li>The ERP concept of a single information system that supports all the processes in the organisation by providing an integrated data base and a comprehensive model base is therefore essential for successful implementation </li></ul><ul><li>Learning how to use the ERP, how to work in a team, and how to lead in a dynamic, integrate environment is equally important </li></ul>
  96. 96. The Hierarchy of Goals Should with turn right or left? Where do you want to go? It does not matter! In that case you can go either way Alice Alice in Wonderland
  97. 97. <ul><li>This global goal is translated into several lower level goals such as: </li></ul><ul><ul><li>Time related Goal </li></ul></ul><ul><ul><ul><li>Deliver in a short lead-time </li></ul></ul></ul><ul><ul><ul><li>Deliver on time to the customers </li></ul></ul></ul><ul><ul><li>Cost related goals </li></ul></ul><ul><ul><ul><li>Deliver at the minimum cost possible </li></ul></ul></ul><ul><ul><ul><li>Minimize the operating cost of the process </li></ul></ul></ul><ul><ul><ul><li>Minimize inventories to minimize the inventory-related costs </li></ul></ul></ul>
  98. 98. Developing a plan-The road map to the goal <ul><li>A plan that coordinates the efforts of the team members </li></ul><ul><li>Coordination is easier in a repetitive environment where the same hierarchy of goals is valid over a long period of time and the same plan may be applied rapidly to reach these goals </li></ul><ul><li>As long as the goal does not change, the MRP logic is implemented correctly and uncertainty does not intervene, the automatic planning process should yield the desired results </li></ul>
  99. 99. Establishing Control-Identifying Problem <ul><li>To reduce the effect of uncertainty, management tries to establish s ystems that identify problems in implementing its plans as early as possible </li></ul><ul><li>Control systems are common in many engineering and organizational applications </li></ul><ul><ul><li>Ex:The control of the room’s temperature </li></ul></ul><ul><li>The control of the order fulfilment process is based on the same principles, but more human decision making is required when the process is not repetitive </li></ul>
  100. 100. <ul><li>First approach, Monitoring the value of the performance measures is one way to go </li></ul><ul><ul><li>Ex: If due date performance is an important measure it is preferable to detect problems on the shop floor that might cause delay in a customer order or to detect late deliveries from suppliers and fix these problems before due date performance level is affected </li></ul></ul><ul><li>The Three aspects of the order fulfilment should be monitored continuously </li></ul><ul><ul><li>The interface with customers </li></ul></ul><ul><ul><li>The interface with suppliers </li></ul></ul><ul><ul><li>The performance of the shop floor </li></ul></ul><ul><li>The second approach, fits generative MRP systems where translations are collected and processed as a batch to update the mater files of the MRP systems </li></ul>
  101. 101. <ul><li>A combination of continuous and periodic control is essential for a successful, flexible order fulfilment process </li></ul><ul><li>the design of the control system is an important part of any ERP implementation </li></ul>
  102. 102. Taking Action-Solving Problem <ul><li>To analyse the source of problems and decide whether there is a need to change the current policy in order to avoid the occurrence of similar problems in the future </li></ul><ul><li>Problem solving is tricky due to the integrate, dynamic nature of the process and the uncertain environment </li></ul><ul><li>System behaviours can be difficult to grasp and even more difficult to predict </li></ul>
  103. 103. <ul><li>First step in solving problems is to recognize that there is a problem and to define it clearly </li></ul><ul><li>Next step, is to define it in clear terms. The performance measures used to evaluate the process are the basis for problem definition </li></ul><ul><li>Then-problem analysis </li></ul><ul><li>The third step-is to generate alternative solutions to the problem. Two types of solution are needed: </li></ul><ul><ul><li>Ad-hoc solution </li></ul></ul><ul><ul><li>Long term solution </li></ul></ul><ul><li>the alternatives expected to yield the best results are selected and implemented in the process </li></ul>
  104. 104. <ul><ul><li>Problem solving approach can be summarized as follows </li></ul></ul><ul><ul><ul><li>Identify the problem </li></ul></ul></ul><ul><ul><ul><li>Define the problem in term of the process performance measures </li></ul></ul></ul><ul><ul><ul><li>Analyse the problem to find its roots </li></ul></ul></ul><ul><ul><ul><li>Generate alternative long and short range solutions </li></ul></ul></ul><ul><ul><ul><li>Evaluate the solutions with respect to their effect on the performance measures </li></ul></ul></ul><ul><ul><ul><li>Select the best solutions </li></ul></ul></ul><ul><ul><ul><li>Implement the selected solutions </li></ul></ul></ul>
  105. 105. Policies Control Systems and Actions in the Operations <ul><li>The integrated dynamic management concept is based on management’s ability to: </li></ul><ul><ul><li>Understand the whole order fulfilment process and the interactions between its different aspects </li></ul></ul><ul><ul><li>Establish goals and performance measures </li></ul></ul><ul><ul><li>Develop adequate policies based on the understanding of the whole process, its goals, its performance measures, its different aspects and the dynamic interactions among these aspects </li></ul></ul><ul><ul><li>Design a monitoring system and use its signals to control the whole process </li></ul></ul><ul><ul><li>Develop problem-solving skills as individuals and as a group </li></ul></ul><ul><ul><li>Implement the policies, controls and solutions to problems </li></ul></ul>
  106. 106. <ul><li>The selection of policies </li></ul><ul><ul><li>Marketing policies </li></ul></ul><ul><ul><ul><li>Make-to-stock </li></ul></ul></ul><ul><ul><ul><li>Make-to-order </li></ul></ul></ul><ul><li>Production policies </li></ul><ul><ul><li>Dispatching policy </li></ul></ul><ul><li>Purchasing action </li></ul>
  107. 107. Teaching and Training Integrated Production and Order Management
  108. 108. Individual Learning and Organisational Learning <ul><li>The essence of Integrated Production order order Management is teamwork. A process based organization is responsible for each process. </li></ul><ul><li>In the functional organization people are grouped according to the function they perform and are trained to focus on their part of the order fulfilment process. </li></ul>
  109. 109. <ul><li>IPOM is based on an integrated approach to the order fulfilment process (integration as the opposite of de coupling). </li></ul><ul><li>IPOM environment each member of the team have to understand the whole process including the role of every other team member. all team members participate in the decision making process </li></ul><ul><li>The teaching of IPOM at the individual level starts with the basic concepts of information and its use </li></ul>
  110. 110. <ul><li>Building the team and training it to play together as a team is very important. Each player has to understand his role and to excel in it. Coordination between the players is also an important part of training a basketball or a football team </li></ul><ul><li>The high degree of dependency among the players and the dynamic, stochastic environment requires team building and team learning </li></ul>
  111. 111. Individual Learning Curve <ul><li>if each individual is an expert in his task the integration of individual expertise by well planned organizational structure provides the organization's competitive edge </li></ul><ul><li>Individual learning can take many forms including the learning of verbal knowledge, intellectual skills,cognitive strategies and attitude </li></ul><ul><ul><li>Learning by imitation </li></ul></ul><ul><ul><li>Learning by repetition </li></ul></ul>
  112. 112. Learning curve model 30 Unit Number Direct Production time
  113. 113. <ul><li>Group learning in its simplest form is an aggregation of individual learning </li></ul><ul><li>Three problems with the extension of individual learning curve to group learning </li></ul><ul><ul><li>First, the learning coefficients of individuals in a group are not necessary the same </li></ul></ul><ul><ul><li>Second, Absenteeism turnover and job rotation makes the organizational learning curve difficult to predict ... </li></ul></ul><ul><ul><li>Third, problem related to synergy in team </li></ul></ul>
  114. 114. Teambuilding and the Team Performance Curve <ul><li>Katzenbach and smith (1993) relates the types of group and its performance </li></ul>Performance impact Team effectiveness Working group Potential team Pseudo team Real team High-performing team In this model five types of groups are defined
  115. 115. <ul><li>The Katzentbach and smith (1993) model explains how important it is to combine individual learning with team building in order to succeed in implementing integrated Production and Order Management </li></ul><ul><li>There are several barriers that a new team must overcome (Thamhain and Wilemon (1979)) </li></ul><ul><ul><li>Unclear objectives </li></ul></ul><ul><ul><li>Differing outlook </li></ul></ul><ul><ul><li>Role conflicts </li></ul></ul><ul><ul><li>Personnel selection </li></ul></ul>
  116. 116. <ul><li>Katzenbach and smith (1993) list several hints that can help in the process of team building: </li></ul><ul><ul><li>Establish urgency and direction-All team members need to believe the team has urgent and worthwhile purposes </li></ul></ul><ul><ul><li>Select members based on skill and their potential. not personalities </li></ul></ul><ul><ul><li>Pay particular attention to first meetings and actions. Initial impressions always mean a great deal. </li></ul></ul><ul><ul><li>Set some clear rules of behaviour. Rules regarding attendance, discussion confidentiality and contributions are very important and help the team perform its tasks in the early stages </li></ul></ul>
  117. 117. <ul><ul><li>5 . Set and seize upon a few immediate performance. By establishing a few challenging yet achievable goals members of the team can start working together right a way a process that forge them together. </li></ul></ul><ul><ul><li>6 . Challenge the group regularly with fresh facts and information. New information helps the team shape a common purpose and set clearer goals. </li></ul></ul><ul><ul><li>7 . Spend lots of time together. Creative insights as well as personal bonding are created early on if the team members spend time together. </li></ul></ul><ul><ul><li>8. Exploit the power of positive feedback, recognition and reward. Positive or reinforcing feedback helps the process of team building and accelerates it </li></ul></ul>
  118. 118. <ul><li>The Operations Trainer is designed to Support team building </li></ul><ul><li>Promoting and nurturing individual learning, team building and organizational learning are key elements in the implementation of IPOM </li></ul>
  119. 119. Organizational Learning in the IPOM environment <ul><li>Individual learning and team building are necessary steps in the implementation of IPOM </li></ul><ul><li>The players must learn how to coordinate effort in an uncertain environment were &quot;division of labour&quot; is important but the process is far from being completely repeatable, players are dependent on each other as the situation changes rapidly in an unpredictable way </li></ul><ul><li>Individual leaning is the basis. but it is not sufficient in a highly competitive, dynamic, uncertainty environment were the coordinated effort of many individuals is required </li></ul>
  120. 120. <ul><li>Tasks are not independent and the process is not completely repeatable </li></ul><ul><li>Organizational or group learning is the process of developing the ability of a group of individuals to improve its performances working as a team to achieve a common goal </li></ul><ul><li>Argyris and Schon (1978) define two levels of organization learning </li></ul><ul><ul><li>Organization learning involves the detection and correction </li></ul></ul><ul><ul><li>Double loop learning </li></ul></ul>
  121. 121. <ul><li>Successful implementation of IPOM depends on the ability of the organization to create an environment that encourages single loop and double loop learning </li></ul><ul><li>Group learning is based on several mechanism one of which is repetition </li></ul><ul><li>Other mechanisms are: </li></ul><ul><ul><li>1. The ability to collect and share knowledge so that members of the group can learn from each other's experience. </li></ul></ul><ul><ul><li>2. The ability to learn from the experience of other groups or organizations </li></ul></ul><ul><ul><li> 3. The development of an efficient group decisions making process </li></ul></ul><ul><ul><li>4. The ability to share and use information real time. </li></ul></ul>
  122. 122. Teaching IPOM - the Operations Trainer <ul><li>The Operations Trainer is designed to provide the teaching environment for IPOM.To achieve this goal´the trainer is an integration of tree different systems: </li></ul><ul><ul><li>A simulation system that can simulate a variety of scenarios in great detail. </li></ul></ul><ul><ul><li>An information system that handles the traditional tasks of transactions processing, management information and DSS </li></ul></ul><ul><ul><li>An ERP like system composed of an integrated database and a model base </li></ul></ul>
  123. 123. <ul><li>The operation trainer supports individual and organization learning in tree ways </li></ul><ul><ul><li>As a tool for teaching individuals the concepts of information and it use </li></ul></ul><ul><ul><li>As a tool for practicing traditional Operations Management by assigning a group of students or managers to manage the simulated plan </li></ul></ul><ul><ul><li>As tool for teaching IPOM and ERP concept by assigning a group of manager or students to manage a simulated plant were the whole group serve as a team responsible for the integrated process and sharing information </li></ul></ul>
  124. 124. ERP/ERM <ul><li>Barry Wilderman </li></ul><ul><li>Vice President, Application Delivery Strategies </li></ul>Dale Kutnick Contributing Analyst, Executive Directions CEO & Co-Research Director, Officers Chairman, Board of Directors
  125. 125. THANK YOU FOR LISTENING Seppo Anicet Maria