ERP Systems

 

1. ERP implementation is push oriented, as ERP forces organization to accept standard integrated business processes. ERP serves as a bottom-up approach since its implementation starts from elemental business process. Individuals within the organization cannot select their own business processes for use in new system, but are instead required to accept proposed standard business processes from ERP. This push orientation can be expected to generate resistance from members of organization.
2. Basic concept of EAI is mainly in its externality of enterprise integration with lower costs and less programming using existing applications. EAI, is pull-oriented in that existing applications and business processes are used to map and integrate separate functionalities of an enterprise into a form that is more acceptable to members of organization. EAI is designed as top-down, due to its business-mapping procedure.

Both approaches consume huge amount of time to build integrated systems but ERP seems to takes longer to implement. While ERP forces adoption of standard business processes, EAI enables enterprise integration over business object levels. ERP thereby supports centralized business strategy while EAI accommodates decentralized processes.

ERP implementation requires re-engineering of business process prior to adoption of ERP, however, EAI implementation enforces business-mapping processes to EAI architecture.

http://searchsap.techtarget.com/tip/EAI-primer-for-SAP-XI-and-middleware-technologies

After studying about material requirements planning (MRP) and how critical this process is to the overall performance of a company. I spent some time trying to search articles about how to make a reliable MRP. I found an interesting article about how to make MPR process successful. I am formalizing it on 6 key steps which will help companies increase on time shipments, additional satisfied customers, lower inventory carrying costs and less inventory shortages.

Inventory Accuracy  

If you have incorrect quantity on hand, your MRP is going to plan around those inaccurate amounts. The one saving grace is that at a minimum, your MRP should be able to provide you a summary of the material requirements.

Forecasting 

MRP systems will use open sales orders or forecast to calculate the demand. the forecast can be a sales forecast or production forecast. In both way, MRP system will utilize this information to generate requirements. Therefore, we can approximate material needs beyond the time needed to get all sales orders. Also, forecast helps us in scheduling production process and staffing requirements.

Lead Times 

Date accuracy for sales order and purchase orders is a necessity. However, we need to know how long it generally takes for materials to arrive from the moment we order or how long it takes to make our finished product. ERP systems will have a series of fields where we can enter this information and use in to suggest when to place that PO depending on the lead time.

Safety Stock vs. Reorder Point 

Reorder point is commonly used as the level of an item signaling the need for action. Safety stock can be treated as a hard number that we can’t go below, or as a soft number, suggesting a quantity we don’t want to go below with a certain buffer or flexibility.

Blanket Orders 

In MPR, blanket order is a great tool to have a purchasing flexibility. For example, we ask our vendor for a certain quantity of raw materials over the next 12 months and proceed to enter that into our system. However, we won’t have a definitive date for each shipment. Therefore, we only enter one date in the system and enjoy a flexible supply chain.

Capacity Limits 

Capacity limits is about knowing the production limitations of our work centers. Most MRP systems will create a suggested production schedule and must take all the capacity requirements into account for planning.

source: http://www.sikich.com/blog/post/Top-Ten-Tips-for-Successful-Material-Requirements-Planning#.WCllXfkrLIU

Nintendo has done it again. A few days ago, Nintendo released the NES Classic Edition to much anticipation, only to have units sold out within minutes from stores across the country. This certainly hasn’t been the first time the company seemingly fall short in terms of meeting demand with sufficient supply. The Wii console was notoriously difficult to obtain for nearly years after its début, and more recently, Nintendo’s amiibo (a near field communication device in the shape of popular Nintendo characters that lets players store personal gaming information) also experienced supply shortages.

Since Nintendo has always been pretty hush about any internal manufacturing problems, this has lead to a lot of speculation about whether the company’s supply issues have been intentional or if they’re just really bad at demand forecasting. Purposely keeping supply way below demand might seem counter productive when it comes to selling products, but it’s actually a technique that could drive up sales in the long run. For instance, when lots of customers are hoping to buy a product but cannot, then these stories tend to quickly generate quite a bit of hype and attention. It gets more people interested in the product, which usually means more sales once units arrive back in stores.

So what does this mean for Nintendo’s material planning process? Nintendo would need to determine how many units of the console it hopes to sell and over what period of time. Generally, forecasting is done on past sales data coupled with some market analysis, but for new products, this is not always a sure thing. I would imagine that they have a pretty high sales target in mind and have planned out the materials for an initial production plus future production after the first release. The extra public hype generated from the early storages is supposed to bring actual sales closer to the targeted sales goals.

However, there is a risk to releasing a limited number of units during the first round. Nintendo has other competitors in the gaming console market (Xbox, PlayStation) and making customers wait could lead to those customers losing interest and buying another console altogether. If they don’t end up selling as many units of the Classic Edition as planned, then the unsold units means lost sales and a loss write-off.

Increasing number of ERP vendors are growing service options to the consumers but ERP solutions are no one-size-fits-all. Therefore, ERP vendor solution is generally classified into: Tier I, Tier II or Tier III vendor. Selecting appropriate tier solution as the business grows and matures is very crucial.

Tier I: (SAP, Oracle, IFS North America, Infor., Microsoft Dynamics)

These solutions are generally for- large and complex businesses with many departments and global locations having revenues in billions.  They are built to handle large enterprise complexities. Whereas this is necessary for a billion dollar company, a smaller company would be overwhelmed by the general complexity.

Tier II: (IBS, NetSuite, QAD, Sage, Microsoft Dynamics NAV)

These offers a step down in complexity and cost from Tier 1 and fit well with mid-size companies. Need for complexity in this group may vary quite a bit, hence, there are several vertical market vendors that have focus on the complexity of just one specialized industry.

Tier III: (Quickbooks, Cincom, Deacom)

Tier III have very limited feature and complexity, hence are cheapest. Generally you get basic accounting abilities, therefore, small businesses having less demanding needs or businesses running a vertical line of business application with weak accounting benefits using a Tier 3 solution.

Image by innotiimi

As described in the text book, the MRP Process is meant to find out how many materials is needed in a given time while keeping the inventory level the lowest. The MRP process was firstly built by Joseph Orlicky in 1964 on the basis of the Toyota Production System (TPS), which was called the origin of the Lean Manufacturing by Jim Womack in the late 1980s.

In the 1930s, Kiichiro Toyoda found out a way to solve the problems aroused from Ford’s assembly line, which was throughput time and inventory was increased considerably. It was also hard to produce customized products while the market needs turned to a variety of products at that time. Instead of focusing on the utilization of machines in each step, the TPS emphasized on the product flow through the production process. Toyoda’s idea was to produce product with high variety and high quality with rapid throughput time and low cost. He later summarized five methods to address this issue; predict the actual volume needed for machines, adapt self-monitoring machines for quality assurance, arrange the machines in process sequence, make sure that each process report the needs for materials to the previous one, and introduce quick setups so that machines can make small volumes of many part numbers [1].
The Lean Thinking now is not only restricted to manufacturing process but applied in the broad management world. The fundamental ideal of Lean is all about bringing more customer value while decreasing its cost. While there are thousands of lean methods and tools out there, the most important task to initiate a lean transformation is to review the Purpose, Process and People within the business. [2]

Reference
[1] A Brief History of Lean
[2] What is Lean

An MRP system is used to typically answer what items are required? how many are required? and when are they required?. It answers these questions by taking inputs from Master Production Schedule Bill of Material Inventory Status Records. MRP was commercialized in the 80’s but it hasn’t adapted much to the meet current needs. For example, product lifecycle has reduced drastically, there is more customization, customer tolerance time has reduced, there is more product variety. Also, an MRP system is highly dependent on different business processes and changes in any process usually affect other processes. Due to this, MRP has been facing problems such as an error in forecasting, which results in having more/less inventory or having the wrong inventory.

These problems can be overcome by using a Demand Driven MRP(DDMRP). In DDMRP, only qualified sales orders within a short range horizon qualify as demand allocations, sales orders give a near perfect demand signal in terms of what will be sold and when it will be sold. This means there are fewer variations and additional costs such as the need to expedite a process can be reduced. Also inventory size would be ideal, neither too less nor too much.

 

http://demanddrivenworld.com/wp-content/uploads/2014/06/Lunch-and-Learn-Supply-Chain-5.22.14.pdf

http://blog.primeadvantage.com/precisely-wrong-all-the-time-the-real-story-behind-the-bullwhip-effect

http://www.beyondmrp.com/demand-driven-mrp-benefits/

https://visiepartners.nl/NL/opleidingen/ddmrp-demand-driven-mrp

The material planning process is the process of appropriately planning the demand versus the supply of materials, to ensure that the business can optimize the availability of materials when they are needed. It is important to have efficient material planning processes to ensure that materials are available when they are needed. For example, in the case of properly estimating the demand of a good, if the respective raw materials are not available when a customer places an order, then the production of the good will be delayed, which could potentially cause the customer to stop doing the business with the company. On the flip side, it is important that the purchase/production of materials is properly planned so that there isn’t an excess of inventory. Having an excess of inventory can be harmful because the material can decrease in value over time or even become obsolete. This is also harmful because the company could have instead spent the same money on other materials that were in demand. There are also additional storage that will incur as a result of excess inventory.

In the text book, there is an example of how in 2001, Cisco placed large orders of networking equipment and materials to keep up with the high demand for its products during the dot-com boom. However, when the dot com boom later crashed, demand for its products decreased, and Cisco was stuck with an excess of raw materials, leading to a loss of 2.5 billion dollars.

Source: Integrated Business Processes with ERP Systems  – Ch.8 Page 270

When comparing ERP and MRP, usually an ERP integrate and share the different types of data it collects among different company departments. While MRP solutions are usually standalone programs dedicated to that purpose, so they are not designed to integrate with types of data not used in materials requirements planning.

ERP covers areas such as Accounting (nominal ledger, fixed assets, accounts sales/purchase ledger etc); Human resources (payroll, time sheets, training etc); Manufacturing (bill of materials, QC, managing the manufacturing process etc); Supply chain (stock control, purchasing, scheduling) ; CRM (sales and marketing, support and customer service); Project management (managing costs, time and activities); Data warehousing (document management)

While MRP systems focus on the processes from quote, sales, raising works orders, stock control, purchasing and all stages of manufacturing through to invoicing, but traditionally tend to exclude processes such as CRM and accounting.

Any system – MRP or ERP – needs to also provide security at user level to ensure that the right employees have access to the right information. Each and every section mentioned above needs the ability to either block access or provide read-only access.

 

Reference:

MRP Versus ERP    http://sheetmetalworld.com/sheet-metal-news/17-it-for-manufacturing-management-and-production/11086-mrp-versus-erp

MRP vs. MRP II: What’s the Difference?   http://www.softwareadvice.com/resources/mrp-vs-mrp-ii/

MRP integrates data from a variety of sources including inventory, production scheduling and bills of materials to calculate the most efficient and effective purchasing and shipping schedules for parts, components and subassemblies required to manufacture a product.

To ensure that an MRP system runs smoothly, it is important to avoid five major material requirements planning pitfalls:

1. Inadequate Bill Of Materials

All production planning starts with a bill of materials – if that is wrong, virtually everything else affecting production will be wrong as well. The BOM drives operations, purchasing, manufacturing, and logistics – the data from a manufacturing BOM is used to inform ERP, MRP, and the manufacturing execution system (MES). The more complete and accurate a BOM, the better the decisions made regarding inventory levels, operational efficiency, and the most cost-effective and profitable way to get products to customers.

2. Lack of understanding of planning fundamentals

Proper material requirements planning is a complex process that requires good analytical skills and strategic thinking. What is important to understand is that planning is a strategy and purchasing is a task. The individual in the planning role may not be familiar with the principles of supply and demand or know how to interpret the information coming out of the MRP system. This can be a major stumbling block for effective material requirements planning.

3. Absence of Forecasting

An MRP planner must anticipate what the company will need to successfully manufacture and deliver products. The only way to do that is to have a forecasting mechanism and model. Without proper forecasting there is no planning. Material requirements planning becomes reactive instead of proactive – that’s not an MRP strategy, that’s simply purchasing.

4. Treating suppliers as vendors, not partners

Our main suppliers are the initial key to effective material requirements planning. Without their cooperation, we will have no materials to make your products. It’s critical to involve our key suppliers in your MRP beyond simply sending them purchase orders. By developing a close relationship with them, we can have a better view of the supply chain and create supplier agreements that work well for both parties to ensure a ready supply of raw materials for production.

All these material requirements planning pitfalls highlight the need to establish good metrics and business analytics. Metrics enable you to measure planning accuracy and facilitate the continuous improvement critical to optimizing ERP and streamlining manufacturing operations.

 

MRP is a predominant methodology in organizing inventory, production planning and manufacturing management. It has its own benefits and drawbacks.

Advantages:

• On time availability of right materials required for production.
• Increase in timely delivery of manufactured goods to customers.
• Decrease in capital costs due to decreased inventory levels and optimal use of production resources.
• Utilizing business data for analysis and better planning.
• Optimal use of manufacturing resources.

Considerations to avoid failure:

• MRP give benefits when applied under appropriate circumstances and is mostly suitable for make-to-stock manufacturers. Make-to-order and mixed mode manufacturers also benefit from MRP, but only to extent that their production lots are medium to large and products don’t vary much. In case of project based manufacturer, it may be enough to use the approach of ordering and manufacturing what is needed and MRP gives just a framework of how to not miss important pieces.
• With MRP, we need to keep stock and store production records. For production planning to be correct, it’s important to record finished operations and manufacturing orders as soon as production gets completed.

Alternatives:

• Theory of Constraints
• Lean/Six Sigma.

Both address same problem from different angles and do not change basic requirement of keeping records.

Refrence : http://www.erpnews.com/importance-choosing-erp-wisely/