ERP Course: Production and MaterialsManagementReading: Chapter 6 from Mary Sumner

Peter Dologdolog [at] cs [dot] aau [dot] dkE2-201Information SystemsSeptember 27, 2006

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Sales

Inventory

InventoryWithdr.

PurchasingOrdersTo Restock

ProductionPlanning

VerifiedOrders, Sales Forecasting

ProductDesign

ProductionExecution

New/customizedProductRequest

Items Costing

Resources forNew Products

DetailedProductDesign

ProductionPlans

SuppliersCustomer

Materials/Machines

FinishedProducts

Finishedand packagedproducts

Materials

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Material Requirements Planning

Identifying stock that planned production calls forDetermine the lead time to get the stock from suppliersCalculate safety stock levelsCalculate the most cost-effective order quantitiesProduce purchase order for needed stock items in the right

ammount

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Inventory

Goods and Material available at stock for useThree kinds (for sales):

• Raw materials• Work in Process Items• Finished Goods

Some companies also fixed assets (not directly used for sales)Stored in warehouses or shops for customersManaged and identified through the stock keeping units (SKUs)

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SKU

Is an identifier used for systematic tracking of products and services offered

It is attached to a billable item:• physical (item, variant, product line, bundle)• service, fee or attachment

Different for each variant or packaging of the same product

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Inventory Costs

Inventory is an asset on the company balance sheetAdditional costs:

• Space to store (e.g. rent)• Insurance• Utilities• Different inventory depriation schemes depending on a

country lawThese costs can be 1/3 – ½ of the priceTradeoff: to stock to little and to muchSome companies store more to inflate their apparent asset value

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Opportunity Costs

Costs connected with lost opportunity to sell itNeed not to be assessed in terms of monetary value

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Inventory Expenditures

When sold, the value of the inventory decreasesUsually value per itemFirst comes first goes for salesLast comes last goes sales

• Lower income, lower taxes

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Inventory in Navision

Item Journal – connection to sales, paurchasesBOM Journal – bills of materialsItem reclassification journal – shifting items between locations

and binsPhysical inventory journal – to maintain real values and physical

locations of itemsRevaluation journal – to change values of items

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Warehouse Activities

Bin contents managementReceiptsShipmentsProduct orders to manufactureRestock/Purchase ordersTransfer ordersItem movements and transfers

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Capacity Planning

To plan personnel, space, machines, and other productionfacilities to meet production goals

Requires precise information about human resources, BOM, goods-in-processs inventories, finished goods, lot sizes, status of raw materials, orders in the plant, lead time for orders

Master production schedule from sales forecastProduct design and development information systems

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Resource Planning

Pricing for unit of workPrice/Profit calculationResource capacitiesAllocation to jobs

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Strategies for Capacity Planning

Basic capacity plan includes number of workers, machines, shifts, utilization, and efficiency

Tries to deal with differences caused by customer demands and under/over utilized resources

Lead strategy (based on new customers)Lag strategy (based on reaching maximum capacity)Match strategy (based on tracking)

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Production

Set of customer orders which require productsThey issue a request for materials, human resources and

machines to perform the productionThe production is based on BOM, resource allocation and work

and machine centers utilizationThe activities in the production results from a product designThe quantities, resource allocation and capacity estimation

results from customer orders and sales forecasts

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Production Planning

Production forecastsPlanning worksheetsOrder planningRequisition worksheetsSubcontracting

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Production Forecasts

How many and which products are planed and in whichquantities?

How much does it cost?Where to get the parts from?

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Further plans

Purcahse ordersSubcontracting ordersDecomposition to capacity, resource and warehouse plansDecomposition into BOMRouting in the production between work centers and

warehousing (production process)

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Bill of Material (BOM)

Describes a product in terms of its parts and assembliesThis includes also packaging and labelsHierarchy with references to other BOMsImportant for parchasing and configurationDifferent types of BOMs (engineering BOM, manufacturing BOM,

ordered BOM, …)Different ways to display it (ident, matrix, modular, …)

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Production execution

Planned vs. real production timeMeasuring and controling activities at the manufacturing floorObserving productivity and qualityObserving consumption and outputFeedback to production and planningAdjustments according to changes in sales

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Sales

Inventory

InventoryWithdr.

PurchasingOrdersTo Restock

ProductionPlanning

VerifiedOrders, Sales Forecasting

ProductDesign

ProductionExecution

New/customizedProductRequest

Items Costing

Resources forNew Products

DetailedProductDesign

ProductionPlans

SuppliersCustomer

Materials/Machines

FinishedProducts

Finishedand packagedproducts

Materials