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IS 3315: Manufacturing Systems. Part 1: The organisation of Manufacturing firms Understand the basic business processes understand the basic flows of information know the basic systems / sub systems implemented understand their linkages. Basic business processes. Designing. Building.

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is 3315 manufacturing systems
IS 3315: Manufacturing Systems

Part 1: The organisation of Manufacturing firms

  • Understand the basic business processes
  • understand the basic flows of information
  • know the basic systems / sub systems implemented
  • understand their linkages
basic business processes
Basic business processes

Designing

Building

Selling

Buying

Processing orders

Getting paid

Paying

1 – Arrange these in sequence 2 – name proper departments

basic flows of information
Basic flows of information
  • Organisations are organised in a number of functional areas
  • They collect and organise data to support their complementary missions
  • they interact and collaborate in managing the organisation
examples
Examples
  • Finance: managing the cash flows, providing resources to the firm
  • Marketing: promoting the firm and its products
  • Sales: selling the products; dealing with customers
  • Production: manufacture goods
  • These are broken down further into sub areas

Name some of these sub areas

collaboration conflict between areas
Collaboration / Conflict between areas
  • All areas of the firm must exchange info with the others (just like organisations must interact with the outside)
  • divergence of viewpoints means there are opportunities for conflict
  • managing same resources / using the same assets but with radically different goals

Describe situations involving these conflicts

examples6
Examples:
  • Quality control versus production
  • Procurement versus production
  • Dealing with customer returns
  • Sales and accounting

Explain the underlying cause of these conflicts

manufacturing organisations
Manufacturing Organisations
  • Business Processes more complex
  • Lead time must be built into process of planning for demand
  • Scheduling of resource use is more complex
  • productivity is a composite indicator which measures many operators’ work together
  • the definition of productivity / the way it is measured affects the results
illustration
al 1

W3

Shipping

al 2

al 1

WP2

storage

W2

Stocks

Finished

Goods

al 2

Main Corridor

al 1

WP1

cooling

W1

al 2

Changing

Rooms

and Related

Facilities

Stocks

RM

Preparation ovens

Quality

Control

Illustration
collaboration and information
Collaboration and Information
  • Functional areas cannot collaborate if no information circulates
  • first stage: people talk to one another
  • then exchange of documents
  • then develop integrated systems shared by several functional areas / the whole firm
  • This requires the existence of common definitions and reliable / undisputed sources of data
  • Also people must have incentives to collaborate
reliable common grammar examples
Reliable Common Grammar: Examples
  • Sales statistics:
    • as per customer orders?
    • Goods sent?
    • what feed back time?
  • Production figures:
    • after rejects
    • adjusted for loss / destruction in finished goods storage
  • business analysts must talk to everyone to ensure existence of reliable common methods
reliable undisputed sources of data
Reliable / Undisputed sources of data
  • Reliable mechanisms for data collection
  • No room for controversy RE basic figures of the business
  • Robust externally oriented systems for invoicing / paying
  • Robust measures of individual / area performance for the purpose of assessment and rewarding
  • Reliable systems for storage / processing / retrieval of data
  • Archiving
corresponding information systems
Corresponding Information Systems
  • The basic sub-systems are (see diagram):
    • payroll
    • order entry
    • inventory (goods for sales, raw material...)
    • shipping
    • accounts receivable
    • purchasing
    • receiving
    • accounts payable
    • general ledger

Describe each sub-system’s missions

part 2 resources and constraints in manufacturing environments
Part 2: Resources and constraints in Manufacturing environments
  • Goods are manufactured, not purchased
  • Demand must be counted or planned
  • Need RECIPES
  • activity must be planned for in advance
  • Resources must be allocated in advance
    • raw materials
    • Machine time
    • competent personnel (shift work)

}

limiting / constraining

factors

organisational model
Organisational Model
  • Driven by sales?
  • Driven by production?
  • Driven by marketing?
  • History of organisation and power structure determine which model is used
  • Plan dictates what volumes must be produced
  • Everything else follows from there

Product matrix

recipe or formula
Recipe or formula
  • How to produce our products
  • List of components including possible substitutes
  • How much of each
  • Special conditions of operation
  • Expected yields and labour productivity (i.e. standards)
  • Extrapolate a cost per unit
  • Stored in a Bill of Material (BOM)
example bill of material for desk
Example: Bill of Material for desk

1 – List out the components

2 – describe the steps required for assembly

3 – arrange them in a possible manufacturing

sequence

slide17
Solution

Desk

Top (1)

Adjustable legs (4)

Screw Kit (1)

Frame (1)

3 way junctions (4)

Painted tubing (4)

Painted metal legs (4)

Leg Tubes (4)

Paint (0.6 dl)

Long Tubes (2)

Short Tubes (2)

Paint (1 dl)

capacity
Capacity
  • Have limited capacity
  • Each unit of product requires a set time for each operation
  • Planning for capacity means analysing the requirement of all production runs for all products on all machines
  • Also, machines must be manned by operators
  • and machines have down time
scheduling manufacturing tasks
Scheduling Manufacturing Tasks

Based on desired production

  • determine quantities of RM to commit
  • schedule production runs (including sub-assemblies)
  • line up workers to operate the machines
  • Purchase required supplies

This is called the Master Schedule

master schedule
Master schedule
  • Issue for each week / day of production
  • aims at meeting the plan or the customers’ orders
  • allocate resources to all required activities
  • meeting of the key production people (end of week or Monday mornings).
  • Also review the problems with previous runs
  • Some computer systems are required for these tasks
part 3 data collection in the factory
Part 3: Data collection in the Factory
  • Computer Integrated Manufacturing (CIM) environments requires that companies:

Know what they are doing

  • availability of data and quality of that data are key elements
  • many different types of data must be collected
  • procedures must be put in place
    • reliable
    • but not intrusive
types of data
Types of data
  • Volume data (production)
  • consumption data (raw material, packaging…)
  • personnel data
  • maintenance data
  • time related measurements
  • productivity data
  • All form the basis of the calculations used to monitor manufacturing activities
type of data 2
Type of data (2)
  • Primary data:
  • Secondary data or calculated data:
  • High level data:
data for monitoring activities
Data for monitoring activities
  • Norm or budget is put together:
  • the more complete the model the more complete the monitoring
  • measurement methods and procedures are also put together
  • the structure of the budget tells you what data to collect
data acquisition
Data acquisition
  • Manual recording in a docket or other form (e.g. down time)
  • Sampling / testing of RM or products
  • collection and count of key part (e.g. shoulder blade)
  • scales for weight measurement- computerised or not
  • direct data entry in computer with infra-red beam (scanning) device (e.g. Dell)
  • remote electronic tracking
  • All these involve a trade-off between cost and accuracy and intrusiveness
bad data recording
Bad data recording
  • No data!
  • Too costly - e.g. in equipment or time
  • not timely – feed back too slow
  • inaccurate (e.g. procedure not well designed)
  • Lack of operator training / understanding
  • wrong incentive / instructions given
  • lack of control - open to dishonesty
data storage
Data storage
  • Series of ad-hoc systems manual and computer-based (spreadsheet, filed forms…)
  • Dedicated databases for manufacturing data (QC, shipping etc…)
  • Process Control Systems (technical parameters)
  • Other specialised proprietary systems
  • Entreprise Resource Planning (ERP) system
using manufacturing data
Using Manufacturing data
  • Operational data:
    • volumes - schedule / re-schedule runs
    • labour report - line up workers for next days
    • quality of output
  • Tactical data:
    • defect rates
    • productivity
    • Quality of RM
  • Strategic data:
    • product mix information
    • Market research
    • turnover of staff

Some soft information

is also required

soft information
Soft information
  • Data collection -
    • Grapevine
    • factory tours (talking and observing)
  • Data storage -
    • managers’ minds
    • special reports
  • Data usage:
    • ad-hoc basis
    • decision making
part 4 developing the dashboard of information
Part 4: Developing the Dashboard of information
  • Information cost
  • Information overload
  • Not all data can be / should be provided
  • Push versus pull model
  • For operational data => dashboard approach
    • Concept of control room
    • Analogy with process control or driving a car
    • Focus on most important factors
csf theory
CSF - Theory
  • Definition:

Limited number of areas where satisfactory results will ensure successful competitive performance for the individual, the department or the firm

  • Monitored on the basis of a set of measures - specific standards that allow the calibration of performance
  • Measures can be soft or hard - ie: objective or subjective
slide32
CSF method diagram
  • Identification of a hierarchy of performance measures that lead to identification of Critical Factors and Issues that will determine a business’ success

The business mission statement

The business vision statement

multiple business goals

multiple business objectives for each goal

multiple CSFs for each objective

implications for is
Implications for IS:

multiple business objectives for each goal

multiple CSFs for each objective

Central Database - Data Warehouse

Monitoring and Control Systems

Dashboard

Common Interface

Indicators

IS #1

IS #2

IS #3

IS #4

sources of csfs
Sources of CSFs
  • Industry
  • Competitive strategy and industry position (leader / follower; big / small…)
  • Environmental factors (eg: economic fluctuations and national government policies)
  • Temporal factors (temporary CSFs)
  • Managerial position (more specific to one manager)
classification of csfs
Classification of CSFs
  • Internal versus external
  • Monitoring versus Building / Adapting (eg: implementing of major corporate plan)
  • Evolution over time - eg: motor industry
of the csf technique
+ / - of the CSF technique
  • Small number of CSFs
  • Managers normally aware of them - make them explicit is possible
  • Specific to firm / dept / manager
  • But; not all CSFs are measurable at all (access to data)
  • Known CSFs may be trivial
  • Time consuming to go beyond the obvious
  • Will managers make time for CSF analysis?
dashboards of information
Dashboards of information
  • A CSF analysis can be turned into a dashboard of info
  • indication in real time of what is happening
  • Concentration on the most important + visual impact (e.g. colour coding)
  • But data has to be very reliable and design of interface must be good :
    • three mile island
some problems with 3 mile island
Some Problems with 3 mile Island
  • Layout of control not consistent with use of indicators
  • no consistency on where associated controls are situated or how they operated
  • layout of controls did not reflect layout of plant
  • indicators and alarms were not sorted by degree of importance
  • no consistency in use of colour
  • Cl: the layout of the dashboard and what indicators represent (+ how they do it) requires much attention
about dashboard development
About dashboard development
  • Developing IS with decision making relevance is tricky
  • Nature of management work means difficult to imagine generic features
  • 1970 – 1980: focus on complex models borrowed from OR
  • Managers need simple systems that save them time
the control room
The Control Room
  • Monitoring complex processes through technology mediated systems
  • Controlling without seeing directly
  • Not directly applicable to management (human interaction component missing)
  • But useful anyway to measure performance in a more complete fashion
key issues for dashboard development
Key issues for dashboard development
  • Limited attention - selection of indicators (CSF)
  • Accurate performance measurement - methods used
  • Operator / user training - consensus / awareness
  • Dashboard layout - avoid confusion / be consistent
framework for dashboard development
Framework for dashboard development

Question 1: Who will use this indicator?

Question 2: Can it be mapped out to a specific objective at a higher level?

Question 3: How frequently will managers need to monitor it?

Question 4: What calculation methods? What unit of measurement?

Question 5: What data source exists? What should be created?

Question 6: How detailed should the analysis be? How can the indicators be broken down?

Question 7: What threshold values should be used to differentiate between adequate and inadequate performance? What comparisons can be made to assess the company’s performance?

Question 8: How can it be represented for maximum visual impact?

Question 9: What action must be taken when good or bad performance is measured? Question 10: How will it be monitored / archived in the long term

Question 11: Is there any potential bias with the methods and data used for calculations?

What incentives may be given to organizational actors?

See handout

example 1 monitoring maintenance
Example 1: Monitoring Maintenance
  • Imagine down time is increasing
  • don’t know enough to fix the problem

(1) collect appropriate data on accidents:

    • maintenance staff time sheets
    • accident report for each problem - documented by operators
    • match both sources of data

(2) store it in a suitable DB

(3) analyse based on a number of CSF

(4) present analysis in computer dashboard

csf analysis for the maintenance
CSF analysis for the maintenance
  • Number of accidents per run (per unit / product)
  • Nature of accident (several categories to be found)
  • Location of accidents
  • Average duration of repair (for each assembly line)
  • Average duration of repair for each staff?
  • Average duration of repair for each type of accident
  • Mapping of when accidents happen
  • establish thresholds
location of all accidents
Location (% of all accidents)

5%

al

1

10%

W3

W3

Shipping

10%

al

2

8%

al

1

WP2

W2

W2

35%

Stocks

storage

al

2

Main Corridor

Finished

3%

Goods

al

1

WP1

W1

W1

6%

cooling

al

2

Changing

3 - 3 - 15%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control

time spent of down time
Time spent (% of down time)

5%

al

1

5%

W3

W3

Shipping

20%

al

2

41%

al

1

WP2

W2

W2

8%

Stocks

storage

al

2

Finished

Main Corridor

3%

Goods

al

1

WP1

W1

W1

4%

cooling

al

2

Changing

3 - 3 - 8%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control

conclusion on maintenance
Conclusion on Maintenance
  • Can’t show everything
  • Data should be collected, but choices must be made for dashboard
  • Choices can be made based on:
    • scope for improvement
    • development VS monitoring (hierarchy of CSFs)
    • preferences of managers
  • Archives will show whether targets are achieved => new threshold values can be set
example 2 sales figures
Example 2: sales figures
  • Sales dashboard is a key tool:
    • Allocate responsibility for poor performance with more accuracy
    • Break down per product / market
    • Present both volumes, gross revenues and contribution figures
  • Use colour coding to indicate where results are good or bad
  • Use sales maps for visual impact
  • Comparison with:
    • Budget figures (e.g. weekly figures)
    • Competitors
    • Previous period
    • Same period previous year in case of seasonality
electronic products ltd
Electronic Products Ltd.
  • Overall goal: Develop the dashboard for staff and management
  • Follow the guidelines spelt out in the paper
  • Carry out a CSF analysis based on the case notes
  • Use the framework in table 1 to verify that you have all angles covered
computer based dashboard
Computer-based dashboard
  • Select design targets based on the case and your own preferences
  • Develop a small data structure containing the data required for your dashboard (MS Access)
  • Design the interface in VB
  • Package you prototype including a small sample of dummy data
  • Submit your project on disk
    • Be economical with the size of the components
    • Be careful that you give me all the files
reading the case
Reading the case

Common goals of company (page 3):

  • Customers are essential to the success of the business
  • Survival of the business is paramount

Keeping the pioneering spirit alive

critical success factors
Critical success factors
  • Price, quality, delivery and flexibility (page 3)
  • longer-term survival and success(page 3)
  • customer is king= can visit premices at any time (page 4)
  • everybody was responsible for his or her own work(page 4)
  • Reliance on Self-directed teams(page 4)
    • planned their own work, set production and performance goals, and assumed complete responsibility for their tasks
  • Reliance on free issuing’ of material to the company(page 4)
  • Responsiveness /flexibility in responding to customers queries (page5)
critical success factors 2
Critical success factors (2)
  • Profitability target = 10% (page 6)
  • Turnover growth target = 32% per annum (page 6)
  • Product mix (page 7)
  • sourcing jobs (pages 6 and 7)
  • Move back to profitable position (page 7)
example profitability
Example: Profitability

Question 1: Who?

Question 2: Can it be mapped out ?

Question 3: How frequently

Question 4: What calculation methods? What unit of measurement?

Question 5: What data source exists? What should be created?

Question 6: How detailed should the analysis be?

Question 7: What threshold values

Question 8: How can it be represented

Question 9: What action must be taken when good or bad performance is measured?

Question 10: How will it be monitored / archived in the long term

Question 11: Is there any potential bias with the methods and data used for calculations? What incentives may be given?

profitability
Profitability
  • Q1: everyone but MD and key managers in priority
  • Q2: High level objective
  • Q3: 2 types – quarterly / annual – per job
  • Q4: revenues – costs : percentage of revenues
  • Q5: accounting systems have everything, but is there job accounting?
  • Q6: see Q2
  • Q7: case says 10% overall, but 30 – 50% per job
  • Q8: line overall and bar chart for jobs + pie chart for breakdown of costs (cost structure)
  • Q9: not an easy one – selection of jobs is key (see page 6)
  • Q10: Try to stick to target / review each job + overheads
  • Q11: tendency to eliminate marginal jobs => reduce turnover too much => overheads no absorbed + potential loss of customer good will?
other csfs
Other CSFs
  • Empowering work teams
  • Measuring marketing efficiency (number of customers approached VS contracts executed)
  • Monitoring the issue / use of goods
  • Measuring the speed and accuracy of response (quotes VS actual job costings)
  • Quality
  • Customer satisfaction
  • ……..
problems in the case
Problems in the case
  • RM consumption at various stages
    • price of RM
    • comparison with budget = recipe
  • labour cost on factory floor
    • where do they actually work?
    • What are the tasks where productivity is lost?
  • Packaging cost
  • Quality of products
    • why are volumes not growing as fast anymore?
  • Maintenance is not working
overall method
Overall method
  • More rigorous procedures for reporting and monitoring
  • Set up a complete Budget framework
  • Budget broken down per responsibility - e.g. buyers give prices, production gives productivity
  • once a year = > budget put together
    • expected levels are put proposed by each area
    • full report compiled (p/l for the year ahead)
    • negotiated with top management
    • final budget
    • used to measure up everything that happens
general indicators monitoring the business
General Indicators - monitoring the business
  • Focus on three key indicators in comparison with budget to make it easier to analyse responsibilities:
    • volume V (Vb for budget and Va for actuals)
    • price P
    • formula F
  • total variance = Va Pa Fa - Vb Pb Fb
  • volume variance = Va Pb Fb - Vb Pb Fb

= (Va-Vb) Pb Fb

  • Price variance = Va Pa Fa - Va Pb Fa

= (Pa - Pb) Va Fa

  • Formula variance = Va Pb Fa - Va Pb Fb

= (Fa - Fb) Va Pb

Applies to the cost side

E.g. Pb Fb

note that total = tot var

analysing the general indicators
Analysing the general indicators
  • Volume variance :
    • breakdown per product / market / week
    • also per rep?
    • source: budget / weekly sales
    • who? Sales Director and reps + regional supervisors + MD
    • colour maps showing areas / markets
    • threshold values determine colour
    • volume and £ figure
analysing the general indicators64
Analysing the general indicators
  • Price variance:
    • breakdown per RM / component + labour (for each category) [focus on most expensive]
    • buyers / production director + supervisors +personnel director
    • source: budget figures + account payable / payroll
    • Monthly probably enough (changes don’t occur that often)
    • tables for detail + exception reporting using shape of RM that is causing the variance to be negative
analysing the general indicators65
Analysing the general indicators
  • Formula variance:
    • per product / per RM + labout
    • source: stock out sheets + production sheets (sales too late) + personnel hours
    • some figures cannot be known exactly => use surrogate or estimate
    • target: foremen, production staff and director
    • gauges, colour map of the factory, colour coded £ signs
specific indicators
Specific indicators
  • Read in the case
  • do the same job as on the previous slides
  • try to find indicators of specific interest to some of the managers described in the case
  • e.g. maintenance problem:
    • collect data on all accidents (foremen)
    • store in db
    • provide statistics on how long it takes to re-start, how often certain accidents occur, where...
    • ask maintenance staff to fill out time sheets
    • compare the two data sets
    • how would you present this?
example 1 monitoring maintenance67
Example 1: Monitoring Maintenance
  • Imagine down time is increasing
  • don’t know enough to fix the problem

(1) collect appropriate data on accidents:

    • maintenance staff time sheets
    • accident report for each problem - documented by operators
    • match both sources of data

(2) store it in a suitable DB

(3) analyse based on a number of CSF

(4) present analysis in computer dashboard

csf analysis for the maintenance68
CSF analysis for the maintenance
  • Number of accidents per run (per unit / product)
  • Nature of accident (several categories to be found)
  • Location of accidents
  • Average duration of repair (for each assembly line)
  • Average duration of repair for each staff?
  • Average duration of repair for each type of accident
  • Mapping of when accidents happen
  • establish thresholds
location of all accidents69
Location (% of all accidents)

5%

al

1

10%

W3

W3

Shipping

10%

al

2

8%

al

1

WP2

W2

W2

35%

Stocks

storage

al

2

Main Corridor

Finished

3%

Goods

al

1

WP1

W1

W1

6%

cooling

al

2

Changing

3 - 3 - 15%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control

time spent of down time70
Time spent (% of down time)

5%

al

1

5%

W3

W3

Shipping

20%

al

2

41%

al

1

WP2

W2

W2

8%

Stocks

storage

al

2

Finished

Main Corridor

3%

Goods

al

1

WP1

W1

W1

4%

cooling

al

2

Changing

3 - 3 - 8%

Other

Areas:

2 %

Rooms

Stocks

Preparation ovens

and Related

RM

Quality

Facilities

Control

conclusion on maintenance74
Conclusion on Maintenance
  • Can’t show everything
  • Data should be collected, but choices must be made for dashboard
  • Choices can be made based on:
    • scope for improvement
    • development VS monitoring (hierarchy of CSFs)
    • preferences of managers
  • Archives will show whether targets are achieved => new threshold values can be set
other specific indicators
Other specific indicators
  • Fat content in paste (line graph per hour)
  • Fat content in paste (same)
  • average weight of goods VS target
  • loss at various stages of production
  • Appearance of the product
  • taste of the product
  • physical resistance of product
  • returns
assignment
Assignment
  • Report on the CSF analysis that we have done in class + your analysis
  • your report on the three general indicators
  • your analysis of specific needs (based on the list on previous slide)
  • develop a small dashboard using Access + VB concentrating on two indicators of your choice
slide78
Load the new control

Create the graph object

guidelines
Guidelines
  • for each indicator document:
    • who will use it?
    • How frequently will they need it?
    • How detailed should it be?
    • What unit of measure will be used?
    • What data source exists? What should be created?
    • How can it be broken down to be more meaningful?
    • How can it be represented for maximum visual impact?
    • How will it be monitored in the long term?
  • Be creative:
    • add details to the case if they are not there
    • design methods to collect the required data
    • answer the questions above
    • come up with a nice, simple dashboard that works
    • reports to be brief (bullet points)
computer integrated manufacturing cim
Computer Integrated Manufacturing (CIM)
  • Overall computerisation process which started a long time ago
  • Encompasses many different types of applications
  • basis was the application of the Materials Requirements Planning (MRP) principles (early 70s)
  • APICS (American Production/Inventory Control Society)
  • All major software houses developed and marketed MRP systems

See handout

proven benefits of cim
Proven benefits of CIM
  • Reduction in design costs: 15 - 30 %
  • reduction of in-shop time of parts: 30 - 60 %
  • increase in productivity: 40 - 70 %
  • better product quality: 20 - 50 %
  • Improved product design: up to 30 times more design variants investigated
different applications of cim
Different Applications of CIM
  • Increased flexibility in design / production in order to serve niche markets (focus on small output) - more Europe
  • Better organisation of mass production - more Japan
  • Better utilisation of the capacity, optimisation of performance - more US
materials requirement planning mrp
Materials Requirement Planning (MRP)
  • Snowball effect as companies moving to MRP imposed business changes to their partners
  • MRP logic was always around, but switching costs in manufacturing made it worthwhile:
    • data processing costs decreasing
    • inventory costs rising
  • Sophisticated CIM systems easier to justify
  • Other external pressures mean that tighter control is required
where does mrp work best
Where does MRP work best?
  • Universally applicable principles but…works best if there is a need for:
  • stronger linkage between purchasing, manufacturing and distribution
  • better shop floor control
  • sorting out buffer stocks and work centre priorities (e.g. fabrication and assembly)
principles of mrp
Principles of MRP
  • System to plan and control production and material flows
  • core principle:

demand for material, parts and components depends upon the demand for finished product

  • Chain of causality from finished goods back to inventories:
    • possible to reduce inventory to the minimum
    • plan for procurement based on actual needs
    • able to cater for “lumpy” (i.e. dependent) demand

See diagram

how mrp works
How MRP works
  • Master production schedule: drives the system based on customer orders
  • Bill of material (dependent demand)
  • Inventory status file
  • MRP package - contains the logic

See handout

integration of design and manufacturing
Integration of design and manufacturing
  • integration of operations with upstream design activities and downstream sales activity
  • downstream: e.g. by integrating CAD with Bill of Material
  • new designs go on-line immediately
  • no production of obsolete products / assemblies
  • shorter time to market for new pdts
core of mrp inventory control
Core of MRP: Inventory Control
  • Recording of all flows in and out of stock
  • comparison with physical count (once in a while)
  • Quantities of items on hand, on order (based on delivery date) and committed to production
  • Requirements for parts and material as in BOM
  • Management of location and bin numbers (e.g. Musgrave)
inventory control key factors
Inventory Control - Key factors
  • Lead times (purchasing, manufacturing)
  • Cost of components and material (valuation)
  • Carrying costs
  • Order costs
  • Economic Order Quantity (EOQ)
  • Lot tracking
conclusion determining the value of mrp
Conclusion: Determining the value of MRP
  • Difficult to establish off-hand = Depends on many organisational factors
  • Degree of preparedness depends on:
    • human relations on factory floor and with other areas
    • tightness of current procedures
    • availability of accurate data
    • formalised process / recipe
    • level of skills available
    • quality of existing support systems
  • Proper expectation should be that benefits can be significant, but road can be long as well
enterprise resource planning erp
Enterprise Resource Planning (ERP)
  • Large applications geared towards integrating the essential internal processes of an organisation
  • A k a enterprise-wide systems
  • e.g. SAP R/3, MFG/PRO, Baan, JD Edwards, Oracle
  • 70% of fortune 500 companies have or are implementing ERP systems
  • SAP and Oracle have become the second largest software producers in the world

Extended enterprise

enterprise resource planning systems erp
Enterprise Resource Planning Systems (ERP)
  • Support for key areas of the firm – operational excellence
  • Very dynamic market worldwide (+ 40% per year)
  • SAP: 30,000 implementations, 10 million users and more than 1000 partners
  • Software typically bought from a vendor
  • Difficulties in selecting and implementing ERP
erp stories
ERP stories
  • Whirlpool: hundreds of distributors receive no deliveries after the update of the SAP software.
  • Hershey: Despite $112 million spent on SAP R/3 all shops empty on Halloween week.
  • Allied Waste Industries: ERP project stopped after $130 million investment
  • Waste Management Inc.: same after $45 million investment
  • Unisource Worldwide and Dell also cancelled their projects
  • Foxmeyer: after three years of unsuccessful implementation, company sues SAP and AA before going bankrupt……………
case for erp
Case for ERP
  • Managerial goals of standardising / integrating systems
  • ERP = common grammar and common pool of data
  • Also supposed to reflect best practice (optimised business processes)
  • Intense vendor / consultant push
  • Microsoft case ($18 millions saved annually)
the case against erp
The case against ERP
  • High risk projects
  • Full implementation means 80% of existing systems must go
  • Some re-engineering may also be needed
  • Political pressure > managerial rationale?
  • Low success rates reported
managerial rationale
Managerial rationale
  • Search for operational excellence using “best practice” models
  • cost cutting / rationalisation
  • standardisation / compatibility of disparate IT infrastructures (e.g. mergers)
  • Year 2000?
  • By extension, platform for ECommerce
  • e.g. Ericsson reported following improvements:
    • SOP 1 hour to 10 minutes
    • PO 4 hours to 5 minutes
    • production scheduling: 18 hours to 30 minutes
    • 98% of orders delivered on time
reality of erp
Reality of ERP
  • Too many times reported that ERP implemented under instruction from HQ
  • No business case ever built at local level at least
  • Some stories of sites having to implement 3 different ERP software within a few years
  • Cost justification / disruption to everyday business not sufficiently taken into account
content of erp systems
Content of ERP systems
  • ERPs are not single systems: series of modules supporting specific areas
    • admin functions
    • HR
    • manufacturing / MRP
    • order processing etc…
  • single point of entry for each item of data: sits on top of a single database of shared data
  • data is released from one module into the relevant modules once it has been checked
  • ERPs have the potential to solve many back end headaches
  • Build upon earlier generation of CIM systems – e.g. MRP
e g dell
E.g. DELL
  • three plants are located close to their suppliers and operate in JIT
  • Orders follow machines across the floor
  • Automated customer requests mean operators are shown by flashing colours what type of PC to assemble)
  • no finished goods inventory (cost, obsolescence)
  • outsourcing of non-critical components (e.g. screen)
  • acceleration of payment cycle (goods paid for before they are built!)
introduction to mfg pro
Introduction to MFG/PRO
  • Each student get their own version of the training database – Quality Pencil company
  • Create a new product and sell it: Packaged Pen
  • Not so easy to go around the menus:
    • Codes are used to help users find their way – e.g.: 1.2.1 is product line maintenance
    • Users must learn which screens to use to do things
reasons for erp systems
Reasons for ERP systems
  • Search for operational excellence using “best practice” models
  • cost cutting / rationalisation
  • standardisation / compatibility of disparate IT infrastructures (e.g. mergers)
  • Year 2000?
  • e.g. Ericsson reported following improvements:
    • SOP 1 hour to 10 minutes
    • PO 4 hours to 5 minutes
    • production scheduling: 18 hours to 30 minutes
    • 98% of orders delivered on time
example 2 dell case study
Example (2) Dell case study
  • No stocks (RM not paid for until in the factory)
  • Tracking of WIP on the floor
  • Testing fully automated
  • Impressive AGV for temporary storage of large orders
  • 95 fully automated loading bays:
    • main sorting point of output for shipping
    • scanner operated
    • straight from assembly line to trucks
example colgate palmolive
Example: Colgate Palmolive
  • Large corporation with many products:

Goal: streamlining the business while offering increasing flexibility to customers

  • SAP R/3 to address manufacturing / logistical complexity
  • 1996 - 2001 to equip the whole corporation

75 data centres 2 centres with 40 staff

1 to 5 days for orders acquisition combined acquisition

+ 1 or 2 days to process them and processing in 4 hours!

on-time deliveries = 91.5% = 97.5%

Also accounts payable and HRM consolidated in one location

Before:

After:

how to get an erp
How to get an ERP
  • No real build or buy decision
  • try to minimise the high levels of risk:
    • Foxmeyer ($5 billion pharmaceutical comp.) went bankrupt in 1996
    • sued SAP’s US subsidiary and Andersen Consult. for a combined $1 billion
    • 3 years of implementation destroyed the company
    • bought by McKesson Drugs - 1997
  • Try to get best fit between ERP functionalities and business model
critical issues in erp implementation
Critical issues in ERP implementation
  • High cost and high stakes
  • Misguided belief that there is an ERP that “does it all”
  • difficulty in making a transition from an old model to an ERP model
  • overestimation of the pace of change of some stakeholders (technical change is not sufficient)
  • difficulty in obtaining any direct ROI
buying erps
Buying ERPs
  • Many suppliers: SAP / Baan / JD Edwards / QAD
  • always implemented through a distributor
  • advantages are numerous (as against building)
    • integrate best practice
    • insurance against obsolescence
    • cheaper !!??
    • Software development is not core competency for most firms
  • but, selection process is difficult at best:
    • site visits
    • presentation
    • discussion groups
    • Magazines and newspapers
alternative the application service provider model
Alternative: The Application Service Provider model
  • Over the last two years - Pressure from Y2K?
  • "An ASP manages and delivers application capabilities to multiple entities from a data centre across a wide area network.”
  • different types of ASP:
    • horizontal: enterprise / volume or regional ASP
    • vertical model: task-specific or industry-specific ASP
  • solution offered through a Best-of-breed or One-stop-shopping model
erp and asp
ERP and ASP
  • As with all ecom systems, service has two parts:
    • interface (web) or client
    • back end functionality on a server
  • opportunity to differentiate service for ASP + offer additional software in the package
  • opportunity for customer to pay far less and to implement far quicker (c.f. SMEs)
  • Also, traditional ERP market is contracting
  • expertise is in short supply
mechanics of erp asp services
Mechanics of ERP / ASP Services
  • 24 to 36 months contracts
  • 400-500 euros per workstation per month + subscription fee at start
  • service includes: technical setup / implementation + software licences + on-going support + upgrade
  • some ASPs offer differentiated services for different industries
  • others develop interfaces that allow some degree of customisation without touching the software
  • SAP claim the same margins can be obtain
critical success factors in asp model
Critical Success Factors in ASP model
  • Security of the data and application
  • performance and reliability of application
    • at least 98% uptime
  • flexibility of the service offered
  • adaptation of the software
  • relationship between supplier and customer / user
potential partners
Potential partners
  • Pure play ASPs - 100% new
  • ISP and Telecom companies - own the infrastructure
  • Software vendors - own the licences
  • Hardware vendors - own the platform
  • Distributors - own the customers
  • No one has all the required competence
erp capabilities sap
ERP Capabilities - SAP
  • Accounting / finance:
    • Asset management, cash management, product cost accounting, A/R and A/P…
  • Production planning and materials planning
    • purchasing, inventory management, MRP, production planning
  • HR management
    • travel expenses, payroll, personnel planning
  • sales and distribution
    • sales planning, order management, quality management
  • e.g. Microsoft spent 10 months and $25 ms replacing 33 different systems in 26 sites with SAP
erp capability mfg pro
ERP capability - MFG/PRO
  • meant to deal with requirements throughout the entire product supply chain
  • multi-location / multi-factory / multi-products etc…
  • Includes Inventory control Distribution / Manufacturing / Financial / Field services support / Planning
  • Based on a large Progress® relational database and developed in 4th GL
future trends
Future trends
  • A bit of a jungle - needs for standards
  • Risk element is great for all partners involves - especially customers
  • Application Service Provider Industry Consortium created end of 1999
  • Code of good practice ready in January 2000
  • creation of a certification that guarantees service and gives protection to customer (Ernst / Young and Deloite / Touche)
next steps on this market
Next steps on this market
  • Inclusion of Customer Relationship Management
  • Platform provider for ASP solutions
  • HP willing to enter into the capital of any venture if they provide the hardware
  • Business Process Outsourcing (BPO)
  • eXtended Resource Planning (XRP) - support decision making as well
    • e.g. business intelligence
    • e.g. balanced scorecard
computer integrated manufacturing cim121
Computer Integrated Manufacturing (CIM)
  • Overall computerisation process which started a long time ago
  • Encompasses many different types of applications
  • basis was the application of the Materials Requirements Planning (MRP) principles (early 70s)
  • APICS (American Production/Inventory Control Society)
  • All major software houses developed and marketed MRP systems
reasons for mrp
Reasons for MRP
  • Snowball effect as companies moving to MRP imposed business changes to their partners
  • MRP logic was always around, but switching costs in manufacturing made it worthwhile:
    • data processing costs decreasing
    • inventory costs rising
  • Sophisticated CIM systems easier to justify
  • Other external pressures (eg financial / legal) mean that tighter control is required
where does mrp work best123
Where does MRP work best?
  • Universally applicable principles but…works best if there is a need for:
  • stronger linkage between purchasing, manufacturing and distribution
  • better shop floor control
  • sorting out buffer stocks and work centre priorities (e.g. fabrication and assembly)
core of mrp inventory control124
Core of MRP: Inventory Control
  • Recording of all flows in and out of stock
  • comparison with physical count
  • Quantities of items on hand, on order (based on delivery date) and committed to production
  • Requirements for parts and material as per BOM
  • Management of location and bin numbers (e.g. Musgrave)
conclusion on erp
Conclusion on ERP
  • Whether traditional or ASP - matching the business processes to the functionality
  • obtain agreement from all organisational actors
  • be ready for fundamental change
  • don’t lose sight of the specificity of the firm
  • try an incremental implementation rather than a culture shock
  • leave the door open for change after the ERP implementation
case study of sap implementation
Case Study of SAP implementation
  • Vandelay Industries Inc. (95 - 97)
  • SAP R/3 ERP
  • Goals:
    • end the fragmentation of systems
    • allow process standardisation
    • give more visibility on data across entire corporation
    • give competitive advantage
  • much enthusiasm especially amongst plant managers
  • high expectations / low level of understanding what ERPs are
company background
Company background
  • Manufacture and distribute industrial process equipment
  • $8 billion turnover
  • rapid expansion from 1945 to 1985 by opening new sites and buying smaller firms
  • 30,000 staff on four continents
  • find themselves too expensive and too slow
  • three plant closures and 10,000 staff lost
  • return to profitability but fear that it may not be enough
information systems
Information Systems
  • Each plant had own systems (MRP, planning, scheduling…)
  • corporate finance IS only integrated one
  • problems resulting:
    • integration often impossible
    • scheduling incompatible => no end-to-end vision of processes as soon as more than 1 plant involved
    • no overall planning
    • order acquisition entirely manual (faxes and phones)
    • no integration of key functions - e.g. HR
    • also, processes complex on factory floors
the team and the project
The Team and the Project
  • SAP - the market leader at the time (6000 sites 400,000 users in 1995)
  • Deloitte and Touche / ICS subsidiary - favourite SAP implementer
    • general management consultants
    • SAP specialists
  • 18 months planned with 50 f/t staff
  • budget $20 million
  • 50/50 split: designing “to be” processes / implementing SAP
  • target sites:
    • 8 manufacturing
    • 4 order entry
    • headquarters
key issues in the project
Key issues in the project
  • Steering committee made up of high level, highly committed managers - monthly meetings
  • Pluridisciplinary project team - IS + key functional areas - full time
  • centralisation vs autonomy (involvement of users)
  • standardisation of practices (e.g. part numbers)
  • Suitability of SAP
    • change business to match SAP
    • interface SAP with other system
    • extent SAP system to match current practices
  • Persuading key change agents
customer relationship management
Customer Relationship Management
  • Cost of selling to a new customer is six times as high as to existing customer
  • Each dissatisfied customer tells 8 to 10 people
  • 1 extra % of customer retention can boost turnover by as much as 15%
  • Odds of selling to a new customer = 1/7 to an existing customer = 1/2
  • 70% of dissatisfied customers will do business again if they feel their complains are handled well
  • Many companies don’t have proper customer support
why crm
Why CRM?
  • Customers don’t care about their suppliers’ internal difficulties
  • They want to be able to access product and services at the least cost
  • They want a single point of entry
  • Existing loyalty programmes don’t go far enough
the 3 phases of crm
The 3 phases of CRM
  • Acquiring new customers
    • by promotion
    • leading edge product backed by superior service
  • Enhancing profitability of existing customers
    • cross-selling and up-selling (one stop shopping)
    • additional services
  • Retaining most profitable customers
    • best customer list
    • customer profitability analysis
    • make best offer to best customer
supply chain management
Supply Chain Management
  • Increasingly common type of application
  • e.g. Bergen Brunswig (pharmaceutical medical product distributor):
    • no longer see themselves as a distribution company but as managing the medical supply channel on behalf of others
    • not merely moving products but also managing information and the ultimate efficiency of the channel
  • e.g. Dell
  • anti e.g.: Boeing wrote off $2.6 billion in Oct. 1997:
    • raw material and internal assembly shortages
    • unhappy customers
definition
Product

Flow

Product

Flow

Product

Flow

Product

Flow

Definition

Complex network of relationships that organisations maintain with trading partners to source, manufacture and deliver its products

  • includes material, information and financial flows as shown below

Information Flows

Distribution

Retailer

Consumer

Supplier

Manufacturing

Payment Flows

goal of scm
Goal of SCM

Delivering the best value proposition: what the customer want, how and when it’s wanted, at the lowest possible price

  • to achieve this companies need rapid, cost effective and flawless demand fulfilment
  • Involves taking responsibility for what happens outside the walls of the organisation
  • linkage with suppliers
  • minimising the cost of order delivery process by trading off cost of inventory, transport, handling etc...
obstacles to good scm
Obstacles to good SCM
  • No player has enough info to synchronise the entire channel
  • most SCc contain more than double the required inventory
  • products are handled too many times (5/6 average)
  • Physical carriers struggle to maintain costly equipment on slim margins
novelty in scm escm
Novelty in SCM - eSCM
  • Better techniques and software: e.g. SAP’s Advanced Planning and Optimisation
  • Supply Chain planning => for the entire channel
  • Web-based applications shared by all partners involved including consumers help both planning and execution + provide greater visibility
  • e.g. complex product with fragmented supply in many different countries
supply chain trends
Supply Chain Trends
  • Increased worldwide dispersion of manufacturing and distribution facilities
  • increased channel unpredictability
  • responsiveness before efficiency: need to be quick and flexible disrupts existing paradigms
  • Market share before profit margin (.com)
key areas of investment in scm
Key Areas of Investment in SCM
  • Inter-enterprise co-ordination of design, manufacturing and business process
  • Effective distribution and channel partnership
  • customer responsiveness and accountability
different stages in scm
Different stages in SCM
  • Enterprise focus - traditional model
    • characterised by fragmentation
    • sometimes semi-conflict between links in the chain
  • Partner focus - modern vision
    • characterised by collaborative idea
  • Direct focus (e.g. Dell) - emerging vision
    • characterised by customer-direct capability
    • near zero inventories
service through scm integration
Service through SCM integration

Inferior integration of SCM results in:

    • erratic level of service
    • no vision of future demand
    • bad/inefficient production planning and scheduling
    • rising inventory costs
  • Good SCM leads to:
    • Responsive SC (quick and accurate)
    • Enterprising SC (adaptable)
    • Intelligent SC (dynamic and visionary)
elements of scm
Elements of SCM

Two key elements are

  • planning
    • forecast of demand,
    • inventory simulation
    • manufacturing planning...
  • Execution
    • procurement
    • manufacturing
    • distribution...
  • Specific software exist to enable those
sc planning
SC Planning
  • Two types of software:
    • Order commitment (available-to-promise)
    • Advanced scheduling and manufacturing planning
    • Demand planning
    • Distribution planning
    • Transportation planning
  • Understanding the impact of taking additional orders / changing current orders
  • Integration with ERP required
sc execution
SC Execution
  • Key differentiator in today’s markets
  • Planning can help to cut costs, be more efficient
  • Execution is what truly satisfies customers’ needs
  • key stages:
    • order acquisition
    • production / purchase of goods
    • replenishment
    • distribution
    • reverse logistics (dealing with returns - up to 14%)
problems with sc
Problems with SC
  • Lack of knowledge of the end-to-end demand function
  • inconsistent / out-of-date data about SC (poor decision making)
  • lack of process integration with partners
  • need for fundamental structural changes
solutions
Solutions
  • Enable information sharing
    • robust communication process
  • create joint performance measurement systems
  • create joint collaborative planning processes
  • exchange responsibilities / redesign across firms
  • redesign products and services to facilitate work and satisfaction of customers
  • All these are stages of the total solution
key questions in sorting out the scm
Key Questions in sorting out the SCM
  • SCM is a business design issue

What is the right e-chain structure?

Does the chain enable us to differentiate ourselves?

Does it facilitate effective order fulfilment?

Is it matched by proper infrastructure / internal processes?

amazon com key facts
Amazon.com – key facts
  • Begin July 1995
  • Revenues: 150 m in 1997 up to 2.8 b in 2000
  • Customer accounts: 1.5 m in 1997 to 17 m in 2000
  • Repeat customers: 65% in 1998 to 78% in 2000
  • Truly global business: 150 countries
  • 200,000 associates signed up
  • Not successful in all areas of activity
  • Unprofitable overall
traditional business model
Traditional business model
  • Concentration at all levels of supply chain
  • But no dominant force on the retail side (very small companies)
  • Return policy with approx 30% return rate across the board
  • Characterised with huge fluctuations – very few titles really successful – e.g. academic titles
  • But publishers bear all the costs
  • Display costs are enormous in view of value of products
new business model
New business model
  • New way of selling books means return rate down to 3% (potential saving = 50% of industry margin)
  • Quicker turnaround of stock (stock only big titles)
  • 15 days of inventory + credit card payments = huge positive cash flow
  • Reduction in costs are shared with customers = lowest prices
  • Elimination of “critical mass principle” in industry
key to competitive advantage
Key to competitive advantage
  • Trade real estate for technology
  • Keyword in business = location, location, location
  • Real estate gets expensive / technology gests cheaper
  • Large volumes of transactions / items + main problem of customer is classification / search problem means computer is the winner
  • Initial product tailor made for Internet sales
    • Someone else does the hard work of creating the material
    • Easy to ship
    • Low value = low risk
    • Informational => easy to demonstrate + sell on-line
    • E.g. sample chapters, revues etc…
  • Not all products are like that!!
in the case of amazon
In the case of Amazon
  • Move away from duplicating physical buying experience
    • 3D walk
    • Computing concept – database etc…
  • Introduce switching costs by adding features not replicable (e.g. customer history)
  • 1-click technology patent!
  • Reviews
  • Purchasing circles (Meta-information)
  • Email alerts
  • Etc….
competition
competition
  • Traditional competitors not in same dimension (largest stores 175,000 titles in stock against 4.5 m)
  • Barnes and Nobles failed despite size and expertise
  • Booksense.com and booksite.com have failed to make a impact at the same level as Amazon
  • In CD market – elimination of CDNow.com in one quarter (means that trust can be migrated to other activities)
  • It seems that the main expertise carried by Amazon is SELLING on the NET, not what they sell
types of scm
Types of SCM
  • Integrated Make-to-stock
    • smoothing demand in mass production industries
    • linked to postponement in distribution channel
  • Continuous replenishment
    • customer-demand pull system across firms
    • ECR, QR
  • Build-to-order
    • efficient SCM allows return to BTO model
    • inventory substituted with information (Dell)
example cvs mckesson scm
Example: CVS-McKesson SCM
  • McKesson occupied key position
    • 35000 customers / 60000 orders (1.6 m lines) daily
    • all orders in electronic forms
    • target: become the world leader
  • CVS has acquired many prime locations on the market
    • US drug wholesalers down from 180 to 45
    • top 5 = 57% of market and growing
  • Market evolution
    • market is growing
    • wholesalers are best distribution channel
    • manufacturers can concentrate on R&D
    • wholesalers are transforming their offering into information-based services
  • Moves to greater integration between CVS & McKesson
    • McKesson takes over responsibility for stock levels
    • measures consumption / plan for demand
    • replenishes stocks to meet agreed upon levels
    • High level of inter-firm integration

Continuous replenishment

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