Anicet Yalaho Maria-J. Echeverria Seppo Selk ä l ä

1. E. R. P SYSTEMS Anicet Yalaho Maria-J. Echeverria Seppo Selkälä Presented by:

2. A Book Review • ERP- The dynamics of Operations Management, Avraham Shtub (1999)

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. BPR & ERPWhat is ERPRelationship: BPR/ERP

5. Enterprise Resource Planning • ERP is a software solution, with all the organisation’s records managed from one large database. An integrated IS. • It takes the process view of an organisation to meet the organisational goals tightly integrating all functions of an enterprise.

6. Relationship BPR - ERP • A BPR study • brings out deficiencies of the existing system • attempts to maximize productivity through • re-structuring and • re-organising the human resources as well as the divisions and departments in the organisation • BPR will initially question the value-add of the particular process • Then it will go on to put some systems and procedures in place -> ERP is a key enabler in any BPR effort

7. Relationship BPR – ERP (2) • You can • do BPR without buying an ERP solution, • unusual • buy an ERP solution without doing any BPR • wasteful investment... • The question is not whether ERP functions or not without BPR • Key question: whether every company that implements ERP has to reengineer its processes

8. ERP • ERP doesn’t blindly automate- it takes into account • company’s internal issues, • but also factors in the external imperatives in terms of competition, time-to-market,...

9. ERP (2) • ERP is the planning of the 4Ms of the enterprise resources– Man, Money, Materials, Machines. • ERP helps in addressing needs like reduced cycle time, customer focus, sharing information seamlessly across the enterprise and JIT management

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. An Introduction to: ’ERP- The dynamics of Operations Management’, Avraham Shtub (1999)

12. ’ERP- Dynamics of Operations Management’ • Scope of the book: • ’to help and support the development of teams to implement the Integrated Production and Order Management (IPOM) approach’ • The Four cornerstones for success: Flexibility, Time, Quality, Cost • Four main functional activities: Marketing, Purchasing, Production, Finance

13. ’ERP- Dynamics of OM’ (2) • A book delivered with a software: • the Operations Trainer • ”a dynamic-integrated environment for students and executives to experiment with IPOM and to learn the ERP concepts”

14. Operations Management • Several approaches to Operations Management: • operations research oriented • case studies oriented • A new approach proposed by Hammer and Champy (1993): the reengineering of business processes to inflect changes on organisations

15. Integrated Production and Order ManagementApproach • New managerial approaches • Concurrent Engineering: • an integrated, dynamic approach to new product development. New product development teams composed of experts from different functions. Share the same goals. • Group Technology: • focused “cells” specialising in a small number of similar products.

16. IPOM approach (2) • Development of IS: • MRP- Material Requirement Planning • not good enough on its own... • Integration of modern DBMS, DSS and MIS • -> the new generation of ERP systems was borne • An essential process- The order fulfilment • -> Integrated Production and Order Management

17. IPOM approach (3) • Process-based • 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 • ERP supported • 3 types of IS support Order fulfilment process: • Transaction Processing System (any transaction can be ordered/analysed via the software) • MIS (a unique database) • DSS (decisions’ consequences can be analysed, ...)

18. IPOM (4) • An Integrated IS • finance, marketing, production, purchasing • that supports order fulfilment process: • Transaction processing systems / MIS / DSS • A single DB • 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.

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. Marketing Considerations

21. Production and order policies • Order fulfillment process process triggeredby customer orders • Orders entered into Master Production Schedule • Purchasing and order fulfillment processes are based on: • firm customer orders • demand forecasts

22. Three types of order policies • Make to stock • new production triggered by forecasts • Minimizes the promised lead-time at the cost of carrying inventories • Make to order • No stocks carried • Only customer order triggers production • Assemble to order • Raw materials and parts stocked but final assembly triggered by customer order

23. Master Production Schedule (MPS) • Statement of planned future, gross requirements of end products • MPS is triggered by the market demand • combination of orders and forecasts • Management of MPS: • introduction of new requirements • updating existing requirements • monitoring and control of actual performance compared to goals

24. Time based competition • Lead time: time from order to delivery • Importance of time in order fulfillment • shorter lead-time • competitiveness and ability to get new business • delivery on right time • promised vs. actual lead-time • Lead-time is affected by: • data processing, decision making, production • Each operation affects lead-time • should be studied and optimised • minimízation, elimination

25. Quality based competition • Success dependent on customer satisfaction • Eight dimensions in quality based competition: • performance, features, reliability,conformance, durability, serviceability, aesthetics, and perceived quality • Quality in order fulfilment process refers mainly to: • DDP Due Date Performance

26. Cost based competition • Profit = selling - buying price • Higher profit: reduce the cost of products • Problem of measuring costs of a unit • direct, indirect costs • fixed, variable costs • Solution: • Look at the throughput

27. Summary of Marketing Considerations • Order fulfillment process triggered by • actual order or forecasts • 3 types of order policies • make to stock, make to order, assemble to order • Dimensions of competition • time, cost, (flexibility), and quality

28. 1. BPR & ERP 2. INTRODUCTION OF THE BOOK 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning

29. Purchasing and Inventory Management

30. The Need for Outsourcing • Outsourcing: purchase some materials, parts, and services from outside services • increase your effective capacity without capital requirements • enhance the organizations competitive edge • Points to be carefully evaluated: • Make or buy decision • supplier management • inventory management

31. Outsourcing:Make or Buy Decisions • Factors to be taken into consideration: • Capacity, Know-how, Cost-Volume, Demand pattern, Time, Quality, Control and Feasibility • Decision making levels: • Strategic level • what part of production kept in house • Operational level • capacity considerations

32. Outsourcing:Supplier management • Importance of order fulfilment process: • purchases constitute 30-50% of sales • Sub-activities of supplier management: • specifications of requirements • selection of suppliers • contract management

33. Supplier Management:Specifications of Requirements • Definition of the required product or service including functional, physical and technical specifications • Definition of the order fulfilment process requirements, including required lead time, size and number of shipments, shipping arrangements and frequency of deliveries • Definition of quality system the supplier should employ and quality requirements applied to the product or service

34. Supplier Management: Selection of Suppliers • Different approaches: single vs. multiple • Supplier evaluation considerations: • Process capability • Quality assurance • Financial capability • Cost structure • Track record • Production planning and control system

35. Supplier Management: Contract management • The ongoing relationship with supplier • Three categories of relationships: • Inspection • focusing on product inspection to eliminate defects • Prevention • purchaser helps to build quality into the product and process • Partnership • long term relationship • e.g. Joint design, delivery directly to the point of use • JIT-approach

36. Inventory Management • Inventory management: • policies, decisions, actions and the monitoring and control of stock • Stock types: • Raw materials, parts and components, work in process, finished goods, supplies

37. Inventory Management:Benefits and costs • The benefits of using stocks: • Time based competition • reduce lead time • Coping with uncertainty • buffer inventories • Cost based competition • order in large quantities • Inventory costs • capital costs, operating costs, risk related costs • Many benefits, but still inventories are expensive and create waste • search for trade off btw. benefits and costs

38. Inventory Management:Models – Pareto Model • ABC or Pareto Analysis: • type A 20% of items, count for 80% of costs • type B 30% of items, count for 15% of costs • type C 50% of items, count for 5% of costs

39. Inventory Management:Models – EOQ Model • Help: when to place order and what quantity to order? • the economic order quantity (EOQ) model • Problems: • assumes demand constant • stable inventory costs • lead time constant • constant parameters

40. Inventory Management:Models – (s,S) Model • (s,S) Model • 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) • Advantage: not based on simplifying assumptions like EOQ model • Intuition and expertise driven

41. Summary of Inventory Management • Outsourcing (Make or buy decision): • what to keep in house? (strategic decision) • capacity constraints (operational decision) • Inventories • trade off btw. costs and benefits of carrying inventories • coping with uncertainty of demand and capacity constraints • expensive

42. 1. BPR & ERP 2. INTRODUCTION OF THE BOOK 3. Marketing Considerations 4. Purchasing and Inventory Management 5. Scheduling 6. Material Requirement Planning

43. SchedulingJob ShopFlow ShopJIT approachDynamic ShopDrumBufferRope approach

44. Scheduling • Scheduling is concerned with allocation of limited resources to tasks over time • the driver: Master Production Schedule (MPS) • Variety of scheduling models have been developed and implemented

45. Job Shop:Implementing Priority Rules 1 • Machines performing the same function grouped • Scheduling objectives: • on time completion of each part according to MPS • the completion of all jobs as early as possible • minimization of the time that parts spend in the shop (min. process inventory) • maximization of the utilization of resources by minimizing their idle time • minimization of costs by using less expensive materials

46. Job Shop:Implementing Priority Rules 2 • When set-up time is significant and machine capacity limited --> batch processing • Several models exist to provide optimum • only for very small problems • based local view of a larger situation • How to assign priority (simple methods): • FIFO (First In First Out) • EDD (Early Due Date) • Current job (to save setup time) • SPT (Shortest Processing Time)

47. Job Shop:Implementing Priority Rules 3 • How to assign priority (complex methods): • Critical ratio (CR) • difference between due date and current date divided by time required to complete the remaining work. • Slack Time Remaining (STR) • difference between the time remaining before the due date and the time required for processing the remaining jobs. • Slack Time Remaining per Operation (STR/OP) • average slack time per remaining operation. • Smaller values have higher priority (for the 3 methods)

48. Job Shop:Implementing Priority Rules 4 • 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 • Also scheduling manually is possible when job is late

49. Job Shop:Implementing Priority Rules 5 • The selection of most appropriate priority rule as well as decision to expedite a job, is based on the Shop floor control system • current information on the jobs waiting for processing in front of each machine • Priority rules based on single machine • starvation --> monitor continuously inventory levels in front of each machine • control by input-output analysis • identify bottlenecks

50. Flow Shop:Scheduling • In the flow job all product types are processed in the same order • problems: starvation and blocking • especially when product units are large and in-process inventory is limited (JIT) • Flexible flow job • many similar machines operate in parallel