Chapter 4 Production and Supply Chain Management Information Systems

1. Chapter 4Production and Supply Chain Management Information Systems

2. Motivating Questions • What are the steps in the production planning process? • How can an ERP system help?

3. Production & Materials Management at FS • A production plan answers two questions • How many of each type of snack bars should be produced, and when? • What quantities of raw materials should be ordered, and when?

4. Production • Production planning • To schedule production so that goods can be shipped to customers to meet promised delivery dates • Production approaches • Make-to-stock • Most consumer products • Products made for inventory in anticipation of sales orders • e.g., shoes and bikes • Make-to-order • Products made to meet specific customer orders • Expensive products or products made to customer specifications • e.g., airplanes • Assemble to order • Combination of make-to-stock and make-to-order • Final products assembled for a specific customer order from make-to-stock items • e.g., personal computers

5. Mixer Snack Bar Line Mixer Form Bake Pack Raw Material Warehouse Finished Goods Warehouse Mixer Mixer Fitter Snacker’s Manufacturing Process Dough baked in BAKELINE • Production approach: make-to-stock • Snack bar line (SBL): 200 bars/min = 12,000 bars/hr or 3,000 lb/hr • Each mixer: two 500-pound batches of dough per hour • Four mixers: 500 x 2 x 4 = 4,000 lb/hr  more capacity than SBL • One 8-hour shift per day • How many cases of snack bar per 500 lbs of dough? = 6.944 • How many cases of snack bar per day? = 333.33 4 oz/bar 24 bars/box 12 boxes/case Mixes raw materials to create 500 lb batches of NRG-A /NRG-B dough

6. Starting Inventory Sales Forecasting Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing Current inventory SAP ERP’s Production Planning Process Estimate of sales from previous sales Planning of products & quantities in aggregate (product group, monthly level) Disaggregate Product planning to product, weekly level Determining the raw materials required (planned purchase requisitions), planned production orders Machine wise, day wise production schedule Managing Production, staff requirement Purchase orders & purchasing

7. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing Sales Forecasting • Developing a prediction of future demand for a company’s products • In SAP ERP, sales are automatically recorded when sales are made in the SD module  Accurate historical sales data are available for forecasting

8. Sales Forecasting Exercise Develop a spreadsheet to forecast Fitter Snacker’s sales for Jan through June. Make the sales growth rate of 3% an input value, and calculate the base projection using the previous year’s values shown in the following table. Assume that the special marketing promotion last year resulted in an increase in sales of 300 cases each for May &June, and a special marketing promotion this year will result in an increase in sales for June of 500 cases. • Worksheet

9. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing Sales and Operations Planning • Input: Sales forecast and starting inventory • Evaluate whether the production facilities can produce enough goods to meet the sales forecast • Output: Production plan

10. Sales & Operations Planning Using the sales forecast for Jan through June from In-class Exercise -1, develop a spreadsheet for Sales and Operations Planning. Use the format of the spreadsheet shown in lecture slides, which also reveal that the inventory at the end of Dec is 100 cases. The number of working days for each month is given below: Assume that the production plan for each month is 5906, 5998, 6061, 6318, 6900 and 6700 respectively. • Worksheet

11. Sales and Operations Planning • Sales and Operations Planning screen in SAP ERP • Rough-cut planning: a term in manufacturing for aggregate planning

12. In-class Exercise – 3 Following the format of the spreadsheet shown in lecture slides, develop a spreadsheet to forecast Fitter Snacker’s sales for July through December. Make the sales growth rate of 3% an input value, and calculate the base projection using the previous year’s values shown in the following table. Assume that the special marketing promotion last year resulted in an increase in sales of 200 cases for July, and a special marketing promotion this year will result in an increase in sales for July of 400 cases.

13. In-class Exercise – 4 Using the sales forecast for July through December from In-class Exercise -1, develop a spreadsheet for Sales and Operations Planning. Use the format of the spreadsheet shown in lecture slides, which also reveal that the inventory at the end of June is 96 cases. The number of working days for each month is given below: Assume that the production plan for each month is 7100, 6500, 6400, 6200, 6100, 6000, respectively.

14. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing Demand Management • Input: Production plan • Break down the production plan into smaller time (weekly or even daily) units • Output: Master Production Schedule (MPS)—the production plan for all finished products • MPS is an input to • Detailed Scheduling, which determines what to make • MRP, which determines what to order

15. Weekly Disaggregation • Demand Management involves no user input • Weekly production plan: for purchasing materials From the output of Sales and Operations Planning

16. Daily Disaggregation • Daily production plan: for scheduling the production line

17. Demand Management • Transfer Sales and Operations Plan to Demand Management in SAP R/3

18. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing MRP • Material Requirements Planning (MRP) determines the quantity and timing of raw material orders • MRP • Bill of material • Material’s lead-time • Material’s lot sizing

19. Bill of Material • Bill of material (BOM) — a list of materials (including quantities) needed to make a product • BOM can be used to calculate how much of each material is required to produce a finished product • BOM for a 500-pound batch of Fitter Snacker’s snack bars dough:

20. Lead Time and Lot Sizing • Determining the timing and quantity of purchase orders requires information on lead-time and lot sizing • Lead time • The time that it takes a manufacturer to obtain a raw material from a supplier • Sum of • The time for a supplier to receive and process the order, take the material out of stock, package it, load it on a truck, and ship it to the manufacturer • The time for a manufacturer to receive the material (unload the truck, inspect the material, and move it to a storage location or production line) • Lot sizing • The process of determining production and order quantities

21. MRP Record of Oats From the output of Demand Management • 4 oz/bar * 24 bars/box *12 boxes/case ÷ 16 oz/lb = 72 lb/case • MPS (500 lb. batches): Convert the quantities from cases to 500-pound batches: e.g., 752 cases x 72 lb/case ÷ 500 lb/batch = 108.3 (500-pound batches) 2-week lead-time

22. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing Purchasing • Execute purchase orders for raw materials

23. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing Detailed Scheduling • Input: Production plan from Demand Management • Develop a detailed production schedule

24. Sales Forecasting Starting Inventory Sales and Operations Planning Demand Management MRP Detailed Scheduling Production Purchasing Production • Input: detailed schedule • Use the detailed schedule to determine what products to produce and what staffing is required

25. In-Class Exercise – 5 Using the results of In-Class Exercise-4 develop a weekly and daily master production schedule (MPS) on the basis of the following information:

26. In-Class Exercise – 6 Develop an MRP record, similar to the one in lecture slides, for wheat germ for the five weeks of January. Wheat germ must be ordered in bulk container quantities, so the planned orders must be in multiples of 2,000 pounds. Use a lead-time of one week, an initial on-hand inventory of 1,184 pounds, and assume that an order of 8,000 pounds is scheduled for receipt during week 1. Assume that the Planned Orders for week 1, 2, 3, and 4 are 10,000 pounds, 8,000 pounds, 10,000 pounds, and 10,000 pounds, respectively.