lecture 5. enterprise resource planning systems

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Lecture 5. Enterprise Resource Planning Systems

Lecturer:

Prof. Anatoly Sachenko

Informatics in Logistics Management

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Lecture OverviewMain Definitions and ApproachesMRP ConceptCIM and CALSEnterprise Resource PlanningKANBAN SystemOptimized Production TechnologyLean Production Concept

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Main Definitions and Approaches

Logistics, for a long time, was confined to the execution of tasks such as :

transport, storage, handling, conditioning, have moved upstairs over the last twenty years and now represents

a strategic function. Logistics & strategic feasibility:

IndustrialPurchasingCommercial

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De facto, no current corporate strategy must be undertaken without having consulted Logistics:whether upstream with industrial strategies or

purchasing strategiesWhether downstream with distribution strategies

which are now, under the impulsion of the OMC, one a global scale.

These new strategies indeed require logistics at a more complex level in terms of customer techniques and transport.

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Logistics in constant rebuilding

Upstream logistics rebuilding downstream logistics rebuilding

Production unit specializationProduction delocalization Postponement cross docking «worldwide» OEM localization

Reduction of products life cycle PromotionsCross dockingE-commerce et « last mile »Global tradingLogistics & Marketing

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Consumption and production are more and more Consumption and production are more and more geographically separated (delocalization)geographically separated (delocalization)

Regions are specialized in the commodities they Regions are specialized in the commodities they can produce more efficiently (specialization)can produce more efficiently (specialization)

Logistics activities provide the bridge between Logistics activities provide the bridge between production and market locationsproduction and market locations

Permanent changing business logistics practices Permanent changing business logistics practices due to:due to:

Growing internationalization and globalizationGrowing internationalization and globalization Shifting toward more service-oriented economiesShifting toward more service-oriented economies Computer software available to assist in solving Computer software available to assist in solving

practical-size problemspractical-size problems

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Manufacturing Resource Planning Definition and Goal

Manufacturing Resource Planning (MRP II) is defined by APICS (American Production and Inventory Control Society) as a method for the effective planning of all resources of a manufacturing company

It is a total company management concept for using human resources more productively

The goal of MRPII is to provide consistent data to all players in the manufacturing process as the product moves through the production line

This is not exclusively a SW function, but a marriage of people skills, dedication to data base accuracy, and computer resources

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Manufacturing Resource Planning – 16 Group Functions

Sales and Operation Planning Demand Management Master Productiol1 Scheduling Material Requirement Planning and Вill of Materials Inventory Transaction Subsystem Scheduled Receipts Subsystem Shop Flow Control Capacity Requirement Planning Input/output control Purchasing Distribution Resource Planning Tooling P1anning and Control Financial Planning Simulation Performance Measurement

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Manufacturing Resource Planning – Traits

MRP II systems have been implemented in most manufacturing industries

Some industries need specialized functions e.g. lot traceability in regulated manufacturing such as pharmaceutics or food

Other industries can afford to disregard facilities required by others

Capacity planning is the key to success in this as in many industries, and

it is in those that MRP II is less appropriate.

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MRP and MRPII: History & Comparison

MRPII systems begin with MRP, Material Requirements Planning – the end of 1960’s

Manufacturing Resource Planning (MRPII) – the end of 70’s-begin of 80’s and MRP are both incremental info integration business process strategies

that are implemented using HW and modular SW applications linked to a central database that stores and delivers business data and information

MRP is dealing primarily with manufacturing materials purchasing,

while MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human relations

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MRP and MRPII

MRP allows for the input of sales forecasts from sales and marketing

MRP and MRPII systems draw on a Master Production Schedule, the break down of specific plans for each product on a line

An MRPII output is a final labor and machine schedule

Data about the cost of production, machine time, labor time and materials used, as well as final production numbers, is provided from the MRPII system to accounting and finance

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Manufacturing Resource Planning Frame

Materialrequirements

planning

Planned order

releases

Work orders

Purchase orders

Rescheduling notices

Itemmaster

file

Productstructure

file

Master production schedule

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Manufacturing Resource Planning Algorithm

Forecast Aggregate production plan Customer orders

Feasible?


Material requirements planning

Capacity requirements planning

Feasible?

Purchase orders Work orders

Inventory Shop floor control

Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYes

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Forecast Aggregate production

plan

Customer orders

Feasible?




Feasible?

Purchase orders

Work orders


Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYesForecast Aggregate

production plan

Customer orders

Feasible?


NoNo

YesYes

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Forecast Aggregate production

plan

Customer orders

Feasible?




Feasible?

Purchase orders

Work orders


Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYes




Feasible?

YesYes

NoNo

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Forecast Aggregate productio

n plan

Customer orders

Feasible?



Capacity requirements

planning

Feasible?

Purchase orders

Work orders


Manufacture

NoNo

YesYesFeedbackFeedback

NoNo

YesYes


Manufacture

Purchase orders

Work orders

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Manufacturing Resource Planning -Benefit

MRP II systems can provide: Better control of inventories Improved scheduling Productive relationships with suppliers

For Design / Engineering: Improved design control Better quality and quality control

For Financial and Costing: Reduced working capital for inventory Improved cash flow through quicker deliveries Accurate inventory records

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Manufacturing Resource Planning – Criticism

Some authors argue that MRP and MRP II are actually sets of heuristics

Better production plans could be obtained by optimization over more powerful mathematical SW models, usually integer programming models

While they acknowledge that the use of heuristics, like those prescribed by MRP and MRP II,were necessary in the past due to lack of

computational power to solve complex optimization models, this is no longer true

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CIM

Computer Integrated Manufacturing – CIM appeared in the beginning of 1980’s

CIM is the manufacturing approach of using computers to control the entire production process

This integration allows individual processes to exchange info with each other and initiate actions

Through the integration of computers, manufacturing can be faster and less error-prone, although the main advantage is the ability to create automated manufacturing processes

Typically CIM relies on closed-loop control processes, based on real-time input from sensors

It is also known as flexible design and manufacturing

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CALS

CALS - Continuous Acquisition and Life-cycle Support is a DOD initiative for electronically capturing military documentation and linking related info

The initiative has developed a number of standards for the exchange of e-data with commercial suppliers

It was often referred to as simply "CALS” which have been adopted by several other allied nations

CALS includes standards for electronic data interchange, electronic technical documentation, and guidelines for process improvement

CALS was known formerly as Computer-aided Acquisition and Logistic Support

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Enterprise Resource Planning - Definitions Enterprise Resource Planning (ERP) is an integrated

computer-based system used to manage internal and external resources, including tangible assets, financial resources, materials, and human resources

Its purpose is to facilitate the flow of information between all business processes and functions inside the organization and provide its optimization in sense of time and resources

Built on a centralized database and normally utilizing a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise-wide system environment

An ERP system can either reside on a centralized server or be distributed across modular HW & SW units that provide "services" and communicate on a local area network

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Enterprise Resource Planning – Evolution The initialize ERP was first employed by research and analysis

firm Gartner Group in 1990 as an extension of MRP (Material Requirements Planning-later Manufacturing Resource Planning and CIM (Computer Integrated Manufacturing)

While not supplanting these terms, it has come to represent a larger whole

It came into use as makers of MRP software started to develop software applications beyond the manufacturing arena

ERP systems now attempt to cover all core functions of an enterprise, regardless of the organization's business or charter

These systems can now be found in non-manufacturing businesses, non-profit organizations and governments

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Enterprise Management System within ERP Concept – Processes

Supply Chain Management-SCMAdvanced Planning and Scheduling - APSSale Force Automation – SFAStand Alone Configuration Engine – SACEFinite Resource Planning – EFPOLAP TechnologiesE-CommerceProduct Data Management - PDMDecision Support System

Main Task-to provide an optimization of those processes above

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ERP System - Software Package To be considered an ERP system, a software package

should have the following traits: Should be integrated and operate in real time with

no periodic batch updates. All applications should access one database to

prevent redundant data and multiple data definitions.

All modules should have the same look and feel. Users should be able to access any information in

the system without needing integration work on the part of the IS department.

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Enterprise Resource PlanningOrganizes and manages a company’s business

processes by sharing information across functional areas, andGiving the company an integrated real-time

view of its core processes, such as production, order processing, and inventory management

Connects with supply-chain and customer management applications

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ERP System Functional Structure

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ERP General Structure

Finance & Accounting

Sales & Marketing

Human Resources

Production & Materials

ManagementERP Data

Repository

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Enterprise Resource Planning - Implementation

Businesses have a wide scope of applications and processes throughout their functional units;

Producing ERP software systems that are typically complex and usually impose significant changes on staff work practices

Implementing ERP software is typically too complex for "in-house" skill, so it is desirable and highly advised to hire outside consultants who are professionally trained to implement these systems

This is typically the most cost effective wayThere are three types of services that may be

employed for - Consulting, Customization, Support

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Enterprise Resource Planning - Data Migration

Data migration is one of the most important activities in determining the success of an ERP implementation

The following are steps of a data migration strategy that can help with the success of an ERP implementation:Identifying the data to be migratedDetermining the timing of data migrationGenerating the data templatesFreezing the tools for data migrationDeciding on migration related setupsDeciding on data archiving

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Enterprise Resource Planning – ERP Systems Benefits

Centralize the data in one place Eliminates the problem of synchronizing changes between

multiple systems - consolidation of finance, marketing and sales, human resource, and manufacturing applications

Permits control of business processes that cross functional boundaries

Provides top-down view of the enterprise, real time information is available to management

anywhere, anytime to make proper decisions Reduces the risk of loss of sensitive data by consolidating

multiple permissions and security models into a single structure

Shorten production lead-time and delivery time Facilitating business learning, empowering, and building

common visions

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Enterprise Resource Planning - Disadvantages Customization of the ERP software is limited Re-engineering of business processes to fit the "industry

standard" prescribed by the ERP system may lead to a loss of competitive advantage.

ERP systems can be very expensive ERPs are often seen as too rigid and too difficult to adapt to

the specific workflow and business process of some companies. Many of the integrated links need high accuracy in other

applications to work effectively. Once a system is established, switching costs are very high for

any one of the partners. Resistance in sharing sensitive internal information between

departments can reduce the effectiveness of the software.

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ERP - in Market

ERP Systems: SAP (BPS, CRM, ERP, APS etc) Oracle (CRM, ERP, DBMS, SCM etc) Microsoft Dynamics (Nav и Ax) IFS Application JD Edwards Enterprise One BAAN Epicor/Scala

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KANBAN System - DefinitionKanban (or kamban in Hepburn Romanization -

kanji 看板 , katakana カンバン , meaning "signboard" or "billboard") is a concept related to Lean and Just-in-Time (JIT) production

According to Taiichi Ohno, the man credited with developing JIT, kanban is one means through which JIT is achieved

Kanban is not an inventory control systemRather, it is a scheduling system that tells you

what to produce, when to produce it, and how much to produce

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KANBAN and JIT - HistoryThe term kanban describes an embellished wooden or

metal sign often representing a trademark or sealKanban became an important part of the Japanese

mercantile scene in the 17th centuryIn the late 1940s, Toyota began studying supermarkets

with a view to applying store and shelf-stocking techniques to the factory floor

In 1950s the JIT-Just in time -is a production strategy that strives to improve a business return on investment by reducing in-process inventory and associated carrying costsJust-in-time production method is also called the

Toyota Production System1972-Kanban was firstly applied by corporation Toyota

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KANBAN System – Traits An important determinant of the success of production

scheduling based on "pushing" the demand is the quality of the demand forecast that can receive such "push"

Kanban, by contrast, is part of an approach of receiving the "pull" from the demandTherefore, the supply or production is determined

according to the actual demand of the customersIn contexts where supply time is lengthy and demand is

difficult to forecast, the best one can do is to respond quickly to observed demandThis is exactly what a kanban system can help with: It

is used as a demand signal that immediately propagates through the supply chain

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KANBAN System – Toyota’s Six Rules Do not send defective products to the

subsequent process The subsequent process comes to withdraw

only what is needed Produce only the exact quantity withdrawn

by the subsequent process Equalize production Kanban is a means to fine tuning Stabilize and rationalize the process

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KANBAN System – Three-bin SystemA simple example of the kanban system

implementation might be a "three-bin system" for the supplied parts (where there is no in-house manufacturing):one bin on the factory floor (demand point),one bin in the factory store, andone bin at the suppliers' store

The bins usually have a removable card that contains the product details and other relevant information — the kanban card

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KANBAN System

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KANBAN – E-kanban systemsMany manufacturers have implemented electronic

kanban systems or E-Kanban systemsE-Kanban systems help to eliminate common

problems such as manual entry errors and lost cardsE-Kanban systems can be integrated into ERPsystems

It allows for real-time demand signaling across the supply chain and improved visibility

There is implemented a TQM –Total Quality Management

Data pulled from E-Kanban systems can be used to optimize inventory levels Inventories cost per one produced car in 2000:

Toyota-$77, U.S. companies-about $500

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Optimized Production Technology - Definitions

Optimized production technology (OPT) is a planning and scheduling software It was developed by U.S. and Israel together, and

it’s known also as Israeli KANBAN The OPT philosophy and SW aim to achieve the stated goal of

manufacturing, which is to make money now and in the future Some expert consider the OPT as a computerized Kanban

which prevents bottlenecks in a chain “supply-manufacturing-sale”, and

in contrast Kanban itself allows to delete the existing already bottlenecks

The philosophy of OPT was first expounded by Dr Eliyahu Goldratt in his book The Goal (1984) Goldratt introduced three new measures that he claimed

are needed to assist in decision‐making at the operational level in a manufacturing company

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OPT Technology - Three Measures The three measures are in a form that can be used as a

guide to operational decision‐makingIt is reasonable to ask a foreman to consider whether

running overtime, which will certainly increase operating expenses, will also increase throughput

These three measures can be shown to have direct impacts on the traditional measures of business performance, namely, profit, return on investment, and cash flow

Ideal situation would therefore be to schedule a factory in such a way that throughput is increased while, simultaneously, operating expenses and inventory are reduced

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OPT Technology - DataModels in the OPT system have two major

components: dynamic and static dataThe dynamic data include orders, inventories, and

open purchase ordersThe static data include the bill of materials,

routings, and resource listingsAll these data are usually to be found on the

database of a manufacturing resources planning (MRPII) system

The OPT modeling language is flexible enough to permit quite complicated operations to be represented

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Lean Production ConceptLean manufacturing, lean enterprise, or lean production,

often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful

Working from the perspective of the customer who consumes a product or service, "value" is defined as any action that a customer would be willing to pay for

Essentially, Lean is centered on preserving value with less work

Lean manufacturing is a management philosophy derived mostly from the Toyota - Toyota Production System (TPS) identified as "Lean" only in the 1990s

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Lean Goals Improve quality: To stay competitive in today's marketplace, a

company must understand its customers' wants and needs and design processes to meet their expectations and requirements

Eliminate waste: Waste is any activity that consumes time, resources, or space but does not add any value to the product or service

Reduce time: Reducing the time it takes to finish an activity from start to finish is one of the most effective ways to eliminate waste and lower costs

Reduce total costs: To minimize cost, a company must produce only to customer demand Overproduction increases a company’s inventory costs

because of storage needs.

45Lean Strategy and Steps to Achieve Lean Systems

The strategic elements of LeanLean as a fixed state or goal (Being Lean)Lean as a continuous change process (Becoming Lean)Lean as a set of tools or methods (Doing Lean/Toolbox

Lean)Lean as a philosophy (Lean thinking)

The following steps to achieve lean systemsDesign a simple manufacturing systemRecognize that there is always room for improvementContinuously improve the lean manufacturing system

design

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Design a Simple Manufacturing System

A fundamental principle of lean manufacturing is demand-based flow manufacturing

In this type of production setting, inventory is only pulled through each production center when it is needed to meet a customer's order

The benefits of this goal include:decreased cycle timeless inventoryincreased productivityincreased capital equipment utilization

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Chronology of ERP’s Concepts

lecture 5. enterprise resource planning systems

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