Enterprise Resource
Planning and
Application
Lesson 1
By David Pun,
MPA, MEC, MBA, BSc, ACEA, ATIHK
INTEGRATED INFORMATION
SYSTEM
• Sharing data effectively and efficiently
between and within functional areas leads to
more efficient business processes.
• Information systems can be designed so that
accurate and timely data are shared between
functional ares.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
2
BUSINESS PROCESSES
• A collection of activities that takes one or
more kinds of input and creates an output
that is of value to the customer.
Inputs
(c) copyright 2005
Process
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
Outputs
3
THREE MODES OF
PRODUCTION
• Primary Industries (Extraction)
• Secondary Industries (Construction and
Manufacturing)
– Refinement, Conversion, Fabrication and Assembly
• Tertiary Industries (Services)
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By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
4
CLASSIFICATION OF
BASIC INDUSTRIES
Basic
Industries
Production
Industries
Process
Industries
(c) copyright 2005
Project
Industries
Services
Industries
Discrete-Item
Manufacturing
Industries
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
5
PRODUCTION INDUSTRIES
• Process Industries (Flow-production or
Continuous-Process)
– Adds value by mixing, separating, forming, and/or
performing chemical reactions.
– May be done in either batch or continuous mode
• Discrete-Item Manufacturing Industries
– Characterized by discrete, countable products and
component parts
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
6
PROJECT INDUSTRIES
• An endeavor with a specific objective to be
met within the prescribed time and cost
limitations and that has been assigned for
definition or execution (APICS Dictionary).
– Single product
– Working for months or even years
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
7
SERVICES AND OTHER
• Do not produce goods
• Provide certain services
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By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
8
CLASSSIFICATION OF
PRODUCTION INDUSTRIES
Raw
Material
Resources
Basic
Producer
Industrial
Product
Converter
Fabricator
Consumer
Goods
Consumer
Items
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
9
CLASSIFICATION OF
PRODUCTION (Volume)
• Job Shop
• Batch or Intermittent Production
• Mass Production (Flow or Repetitive)
• Cellular Production
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
10
JOB SHOP PRODUCTION
• Low volume
• Engineered-to-order and/or made-to-order
• Manufacturing process is intrinsically variable
and cannot be optimized once and for all
• Functional or process layout
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
11
INTERMITTENT PRODUCTION
(Job-lot or Batch)
• A form of manufacturing in which the jobs
pass through the functional departments in
lots, and each lot may have different routing
(APICS Dictionary).
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
12
MASS PRODUCTION
(Flow or Repetitive)
• Flow production
– Non-discrete products using a continuous process
• Repetitive production
– Assemblies using a continuous process
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
13
CELLULAR PRODUCTION
• A family of parts that have similar processing
requirements.
• Including equipments and human skills
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By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
14
MANUFACTURING
ENVIRONMENTS
• Make to Stock (MTS)
• Assemble to Order (ATO)
• Make to Order (MTO)
• Engineer to Order (ETO)
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
15
MAKE TO STOCK (MTS)
• Immediate delivery of goods
• Based on a predicable demand pattern
• Customer orders cannot be identified in the
production process
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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MAKE TO STOCK (MTS)
Customer
Order
Design
Procure
Assemble
Stock as
Inventory
Pack and ship
Customer
Lead Time
Total Production Required = Total Forecast + Back Order
+ Ending Inventory – Opening Inventory
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
17
ASSEMBLE TO ORDER (AT0)
• Produce and stock standard component
• Assemble the finished goods according to the
component selected by the customer
• Modular design
– Independent units which integrate as a whole
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
18
ASSEMBLE TO ORDER (AT0)
• Product family
– Generic Bill of Material
– Forecast the basic product
– Apply historic faction of demand to the option
features
• Slightly over-planned
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
19
ASSEMBLE TO ORDER (AT0)
• Master Production Schedule (MPS) for stand
components
– Based on forecast
• Final Assembly Scheduling (FAS) for finished
goods
– Based on customer order
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
20
ASSEMBLE TO STOCK (ATO )
Customer Order
Decoupling Point (CODP)
Design
Procure
Assemble
Stock
standard
components
as inventory
Final
assemble
Pack and ship
<--- Customer Lead Time --->
Total Production Required
= Sales plan for each components + Planned reduction in backlog of the
components + Planned increase in the components inventory
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
21
CUSTOMER ORDER
DECOUPLING POINT
• From forecast driven to backlog driven
• Push to pull
• Point of interface of requirement planning to
project planning
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
22
MAKE TO ORDER (MTO)
• Product start after order is received from customer
–
–
–
–
Produced to customer specifications
Customer is willing to wait
Product is expensive to make and store
Options of product
• Invest in capacity
– Capacity requirement plan (CRP)
– Shop floor control (SFC)
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
23
MAKE TO ORDER (MTO)
Customer Order
Decoupling Point (CODP)
Design
Stock
standard
parts as
inventory
Procure
Assemble
Final
Assemble
<----------------------- Customer Lead Time
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
Pack and ship
------------------>
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ENGINEER TO ORDER (ETO)
• Customer’s specifications unique
• Other characteristics common to MTO
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
25
ENGINEER TO ORDER (ETO)
Customer Order
Decoupling Point (CODP)
Design
Procure
<----------------------------
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Assemble
Final Assemble
Customer Lead Time
Pack and ship
------------------------->
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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MANUFACTURING
ENVIRONMENTS
Engineer to Order，ETO
Order
Delivery
Make to Order，MTO
Order
Assemble to Order，ATO
Order
Make to Stock，MTS
Order
Design
(c) copyright 2005
Procure
Assemble
Final
Assemble
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
Pack and
ship
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MATERIAL REQUIREMENTS
PLANNING (MRP I)
• The material requirements planning (MRP I) is a
computerized inventory control and production
planning system. It is responsible for scheduling the
production of all items beneath the end item level.
It recommends the release of work orders and
purchase orders and issues scheduling notices when
necessary.
(Russell, Roberta S and Bernard W Taylor III, Operations Management: Focusing on
Quality and Competitiveness 2nd Ed., Prentice-Hall International, Inc, New Jersey,
1998)
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
28
MATERIAL REQUIREMENTS
PLANNING (MRP I)
• By Joseph Orlicky at 1961
• Initially called “bill of materials processing
(BOMP)”
• “What do we need, and when do we need it?”
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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OBJECTIVES OF MRP I
• Determine requirements to support MPS
– What to order; How much to order; When to order;
When to schedule delivery
• Maintaining the Lowest Possible Inventory
– Components should be delivery no earlier and no
later; zero safety stock and zero safety lead time
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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OBJECTIVES OF MRP I
• Scheduling the Production
– Including purchasing, manufacturing and delivery
activities
– Components requirement are dependent of the
requirement of parent items
• Keeping Schedules Valid and Up-to-date
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
31
MATERIAL REQUIREMENTS
PLANNING (MRP I)
• Bills of Material (BOM)
• BOM keep updated by Engineering Change
Numbers (ECN)
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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BASIC MRP
MPS
Inventory
Information
MRP
Purchasing
schedule
(c) copyright 2005
BOM
Assembly schedule
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
33
CLOSED-LOOP MRP
• MRP I is a dynamic priority setting technique
for scheduling and executing shop floor and
vendor operations.
• A feedback is need for updating, re-planning
and improving the schedule.
• Include capacity checking to generate a more
feasible schedules
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
34
CLOSED-LOOP MRP
Production requirements
Amend
Amend
MPS
RCCP
N
Y/N
Y
Amend
MRP
Amend Capacities
CRP
N
Y/N
Y
Procure and Assemble
Input / Output Control
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
35
MANUFACTURING RESOURSE
PLAN (MPR II)
• Introduced by Oliver Wight at 1977.
• Includes financial planning and stimulate
capabilities.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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MRP I & MRP II
• MRP I
– Basic material requirements calculations
• MRP II
– Boarder concept for the integration of data,
computations and policies that extend materials
and capacity planning into comprehensive
manufacturing resources and control.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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MANUFACTURING RESOURSE
PLAN (MPR II)
•
•
•
•
•
•
•
•
•
•
Resource Requirements Planning (RRP)
Demand Management
Product Configurator
Sales and Operations Planning (S&OP)
MPS & FAS
Rough-Cut Capacity Planning (RCCP)
Engineering Chang Control
Material Requirements Planning (MRP I)
Capacity Requirements Planning (CRP)
Plant and Supplier Scheduling
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
38
RESOURCE REQUIREMENTS
PLANNING (RRP)
• Long term planning of the production capacity
driven by high level business plan.
• Related to resources that take long periods of
time to acquire.
• In short term, these are the constraints of the
production plan.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
39
DEMAND MANAGEMENT
• Recognizing and managing all the demands of
products
– Advertising & promotion
– Forecasting of business
– Distribution Requirements Planning
– Customer contact related activities
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
40
SALES AND OPERATIONS
PLANNING (S&OP)
• A process that provides management the
ability to strategically direct its business to
achieve competitive advantage on a
continuous basis by integrating customerfocused marketing plans for new and existing
products with the management of supply
chain (APICS Dictionary)
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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MPS & FAS
• Master Production Schedule, MPS, shows
which products should be produced, how
many and when.
• Final Assemble Schedule, FAS, is a schedule of
end products to be produced for customers.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
42
ROUGH-CUT CAPACITY
PLANNING (RCCP)
• A reality check of the S&OP.
• Simple and quick to assess the feasibility.
• Critical resources; load profiles
• CRP is overall or representative factors.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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ENGINEERING CHANGE
CONTROL
• Products change and evolve from time to time
to serve the customers’ need.
• The changes will be communicated by
Engineering Change Notes (ECN).
• Control by:
– Dates; Serial Number; Lot Number; Batch Number;
Work Order
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
44
CAPACITY REQUIREMENTS
PLANNING (CRP)
• Evaluate the availabilities of the resources
(equipments and/or manpower) required
determined by the MRP.
• It might be identical to the RCCP. RCCP based
on MPS and CRP based on MPR, detail work
schedules of individual work centre.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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CAPACITY REQUIREMENTS
PLANNING (CRP)
• Overloads and underloads are identified for
the planners to resolve.
• Production Smoothing
– Redistribute load
– Increase capacity
– Reduce capacity
– Increase load
– Decrease load
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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PLANT AND SUPPLIER
SCHEDULING
• The schedules must be communicated to the
shop floor and supplies efficiently and
effectively.
• Executing the factory plan by Shop Floor
Control (SFC) system.
– Factory Coordination (FC)
– Production Activity Control (PAC)
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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PLANT AND SUPPLIER
SCHEDULING
• Supplier schedules monitor by a Supplier
Scheduling and Control (SSC) System
– Procurement, order and follow up activities are
separate
– Blanket Order
– Buyer
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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MPR II Implementation
Problems
•
•
•
•
•
•
•
Lack of top management commitment
Lack of MRP II education for the users of the system
Inaccurate data
Poorly managed MPS
Over-sophistication/Addition of fancy options
Lack of user control
Time consuming implementation process delayed
payback
• Behavioral problems
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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BENEFITS OF MRP II
•
•
•
•
Excellent Planning Capabilities
Centralization and Coordination
Simulation Capability
Standard Requirements for Manufacturing
Systems Provided
• Greater Discipline
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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BENEFITS OF MRP II
•
•
•
•
•
Greater Transparency
Better Cash Flow Planning
Increase Responsiveness to Customers Needs
Improved Communication with Customers
Reduction in Cost of Money Investment and
Space
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
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ENTERPRISE RESOURCES
PLAN (ERP)
Material Inflow
Information Flow
Material Outflow
Material Flow
Suppliers
Procure
Assemble
Sales
Customers
Fund Flow
Fund Outflow
(c) copyright 2005
Information Flow
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
Fund Inflow
52
ENTERPRISE RESOURCES
PLAN (ERP)
• An accounting-oriented information system for
identifying and planning the enterprisewide
resources needed to take, make, ship, and
account for customer orders (APICS Dictionary).
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
53
ENTERPRISE RESOURCES
PLAN (ERP)
• Technical requirements
– GUI; Relational database; 4GL and Computer
Assisted Software Engineering (CASE) tools;
Client/server architecture; Portable open system.
• Derive competitive advantage in the
production, distribution, and financial areas
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
54
ENTERPRISE RESOURCES
PLAN (ERP)
• Include function of finance, distribution, and
human resource management
• Handle global business needs of an integrated
and networked enterprise
• ERP is not confined within the corporation. It
communicate with suppliers and customers.
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
55
ENTERPRISE RESOURCES
PLAN (ERP)
• Enabler of
– Quickly access internal information and to
integrate different functions
– Achieve improved business performance
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
56
ERP II (2004)
Collaboration
ERP
Gartner
(1990)
Supply Chain
MRP II (1980)
Internal
APICS
MRP (1965)
Integration of
Information
Material / Finance
Supply / Manufacturing / Demand
Information
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
57
Reference
• Term of References
– APICS – American Production and Inventory
Control Society, provider of information and
services in production and inventory management
– Gartner – Gartner Group Inc, provider of research
and analysis on global IT
(c) copyright 2005
By David Pun, MPA, MEC, MBA, BSc, ACEA, ATIHK
58