Production and supply
chain process
MIS2101: Management Information
Systems
Based on material developed by C.J. Marselis
At Fitter Snacker, production
manager schedules
production based on
experience, rather than formal
planning techniques
MRP and ERP

What is MRP and what does it have to do with ERP?
Facilitating the production plan

What kind of questions does the production plan
answer?

A successful company must be able to



Develop a good production plan
Execute the plan
Make adjustments when customer demand differs
from the forecast
Production Approaches
Make to
Stock
Make to
Order
Assemble
to order
Produces
200 bars/minute,
3,000 lb/hr
Mixer
Mixer
Snack Bar Line
Form
Bake
Pack
Mixer
Mixer
Operates 1 8-hour shift per day
Changing from NRG-A to NRG-B bars takes 30 minutes
Finished Goods Warehouse
Raw Material Warehouse
Mixes 4,000 lbs/hr
Excess capacity to ensure line doesn’t shutdown
Production Problems in “Unintegrated” systems
Communication
Inventory
Accounting
What are some of these problems?
Production planning process

What are the
major steps in the
production
planning process?
Sales
Forecasting
Starting
Inventory
Sales and Operations Planning
Demand Management
Detailed
Scheduling
MRP
Production
Purchasing
An integrated process
Predicts
future demand
for products
Sales
Forecasting
Starting
Inventory
Sales and Operations Planning
Break production
plan down into
smaller time
increments
Create production
schedule based on
production plan from
demand management
Uses the schedule to
9
determine products
and staffing
Demand Management
Determines what
company should
produce
Requires starting
inventory levels
and sales forecast
based on capacity
Determines
amount and
timing of raw
material orders
Detailed
Scheduling
MRP
Production
Purchasing
Takes quantity and
timing information
from MRP and
creates orders for
suppliers
Sales
Forecasting
Starting
Inventory
Sales and Operations Planning
Demand Management
Detailed
Scheduling
Production
MRP
Purchasing
10
Simple Sales Forecast

In an integrated system, where do I get the
information to support my sales forecast?
Sales Forecasting
Previous Year (cases)
Promotion Sales (cases)
Previous Year base (cases)
Growth:
3.0%
Base Projection (cases)
Promotion (cases)
Sales Forecast (cases)
Jan.
5734
Feb.
5823
March
5884
April
6134
5734
172
5906
5823
175
5998
5884
177
6061
6134
184
6318
May
6587
300
6287
189
6476
5906
5998
6061
6318
6476
June
6735
300
6435
193
6628
500
7128
Sales and operations
planning – SOP or S&OP

What question does S&OP answer?
Sales Forecasting
Previous Year (cases)
Promotion Sales (cases)
Previous Year base (cases)
Growth:
3.0%
Base Projection (cases)
Promotion (cases)
Sales Forecast (cases)
Sales and Operations Planning
1) Sales Forecast
2) Production Plan
3) Inventory
4) Working Days
5) Capacity (Shipping Cases)
6) Utilization
7) NRG-A (cases)
70.0%
8) NRG-B (cases)
30.0%
Jan.
5734
Feb.
5823
March
5884
April
6134
5734
172
5906
5823
175
5998
5884
177
6061
6134
184
6318
May
6587
300
6287
189
6476
5906
5998
6061
6318
6476
Dec.
100
Jan.
5906
5906
100
22
7333
81%
4134
1772
Feb.
5998
5998
100
20
6667
90%
4199
1799
March
6061
6061
100
22
7333
83%
4243
1818
April
6318
6318
100
21
7000
90%
4423
1895
May
6476
6900
524
23
7667
90%
4830
2070
June
6735
300
6435
193
6628
500
7128
June
7128
6700
96
21
7000
96%
4690
2010
Demand Strategies
 If
demand is greater than capacity…
Option
Result
Choose not to meet the
demand
Lost sales
Reduce promotional
expenditures
Potential lost sales
Use overtime to increase
capacity
Increased costs
Build up inventory in earlier
periods
35
30
25
20
Supply
Increased costs and
lost inventory
15
Capacity
10
5
0
Time
Forecasting in an Integrated
System


Accurate historical sales
values available for
forecasting
“Fix” historical sales:
 If production was unable
to meet demand sales
does NOT represent
actual demand
 Unusual conditions like
weather
 The effect of sales
promotions
Sales provided from
SD module
Field where planner can
“correct” the sales value
Sales and Operations Planning
(SOP) Case Study


Kellogg’s achieved significant savings from coordinated sales
and operations planning (SOP)
Changed focus based on how they were evaluated





Marketing and sales: Evaluated on tons of cereal sold
Manufacturing: Evaluated on tons of cereal produced
No one evaluated on profit!
Kellogg’s new sales order process focused on profit
Kellogg’s has reduced capacity, inventory and capital needs
while increasing sales
Sales
Forecasting
Starting
Inventory
Sales and Operations Planning
Demand Management
Detailed
Scheduling
Production
MRP
Purchasing
16
Demand Management

What does “Demand Management” do?
Demand Management
Monthly Demand NRG-A
NRG-B
Working Days in Week
Working Days in Month
MPS
NRG-A
Weekly Demand
NRG-B
Week 1
1/2 - 1/5
4134
1772
4
22
752
322
 4 
4134 
  752
 22 
 4 
1772 
  322
22


4/22
represents
how many
work “weeks”
are in each
month
Sales
Forecasting
Starting
Inventory
Sales and Operations Planning
Demand Management
Detailed
Scheduling
Production
MRP
Purchasing
18
Bill of Material

What is a BOM?
Ingredient
Oats (lb)
Wheat germ (lb)
Cinnamon (lb)
Nutmeg (lb)
Cloves (lb)
Honey (gal)
Canola Oil (gal)
Vit./Min. Powder (lb)
Carob Chips (lb)
Raisins (lb)
Protein Powder (lb)
Hazelnuts (lb)
Dates (lb)
Quantity
NRG-A
NRG-B
300
250
50
50
5
5
2
2
1
1
10
10
7
7
5
5
50
50
50
30
70
Lead Times and Lot Sizing

When it comes to purchasing raw
materials, what are…
“Lead Times”?
 “Lot Sizes”

and why do I care?
Purchasing and ERP

What benefits do I get if my production planning
system is integrated with my procurement
system?
Convert MRP data to
a purchase order
Options to evaluate vendors
Production and Accounting
in an Integrated System

What benefits do
I get when my
production
systems are
integrated with
my accounting
systems?
Material
received (for
MRP) and the
purchase
order
Implications for Supply
Chain Management
How quickly does information flow from the
retailer all the way back to the raw materials
suppliers when demand changes in:

Non-integrated system?
Integrated system?
$
Goods
Goods
Supplier
Information
$
$
Goods
Manufacturer
Information
$
$
Goods
Wholesaler
Information
Information
Goods
Retailer
Information
Customer

Raw Materials

Supply Chain Integration

What kind of benefits do I get when I integrate my
supply chain with my “partners”?
Top Line Versus Bottom Line
Where do Supply Chain Systems add value?
Inventory Control Case
Study – Hoyt Archery

Pre ERP, complete inventory
count two times each year

Closed plant for 3 days at cost of $5000 /day
Post ERP, accurate, real-time inventory
information and ongoing cycle- counting
process: items are counted each day
 Hoyt also simplified customer interaction with
its configure-to-order (CTO) process

SCM with Customer
Collaboration Case Study –
Wal-Mart





POS data from bar code scanners is recorded in a
massive data warehouse at Wal-Mart headquarters
Wal-Mart uses data mining techniques to predict what
customers will buy at different times of the year
Data is shared with Wal-Mart suppliers to plan production
Wal-Mart also allows its 5000 suppliers to directly access
its data warehouse through its Retail Link program
Wal-Mart is leading the effort to leverage RFID technology
SCM Critical Success Factors
Business-driven strategy – Focus on
customer
 Management Commitment – From the
business and IT, not an IT project!
 Supplier/Partner Expectation
Management
 Internal Expectation Management
 Learning Period Acceptance

Summary




An ERP system can improve the efficiency of
production and purchasing processes
Begins with Marketing sharing sales forecast
Production plan is created based on forecast and
shared with Purchasing so raw materials can be
ordered properly.
Production planning can be done without an
integrated system, but integrated system that
allows MRP and Production to be linked to
Purchasing and Accounting