OPERATION & QUALITY MANAGEMENT 2

MBALN-670 Operations Management

Title of the topic 6 Resource Planning and Scheduling

Topic’s learning objectives

1. Identify and critique the strategic frameworks of operations and quality

management within a global business environment. 2. Comprehensive knowledge of the main concept and methods related to

designing and managing operations and supply chains. 3. Systematic application of a range of fundamental operational improvement

concepts. 4. Critically evaluate the role of operations within different business models /

functions..

Introduction

Learning Material

Start by flicking through the presentations, this will provide you with a quick overview

of the topics. Pay particular attention to Resource Planning.

You will find these in the folder “presentations”.

There are various ways in defining an Enterprise resource Planning System. This is how it has been defined by American Inventory and Production Control System (APICS) dictionary:

“Enterprise Resource Planning: An accounting oriented information system for identifying and planning the enterprise-wide resources to make ship and account for customer orders.”

Again in Internet encyclopedia, it has defined as: “An enterprise planning system is an integrated computer based application used to manage internal and external resources, including tangible assets, financial resources, material and human resources”.

Basically, an ERP combines several traditional management functions into a logical integrated system and facilitate flow of information across these functions. It is designed to model and automate basic processes across the organization over a

centralized database and eliminates the need of disparate systems maintained by various units of the organization.

Figure below shows how information is integrated in a typical organization using a ERP system.

ERP system is thus a mirror image of the major business processes of an organization.

Need for Enterprise Resource Planning - Why ERP?

Separate systems were being maintained during 1960/70 for traditional business functions like Sales & Marketing, Finance, Human Resources, Manufacturing, and Supply Chain Management. These systems were often incongruent, hosted in different databases and required batch updates. It was difficult to manage business processes across business functions e.g. procurement to pay and sales to cash functions. ERP system grew to replace the islands of information by integrating these traditional business functions.

The successful implementation of an ERP system will have many advantages, as indicated below:

 Business integration and Improved Data Accuracy: ERP system is

composed of various modules/ sub modules where a module represents a particular business component. If data is entered in one module such as

receiving, it automatically updates other related modules such as accounts payable and inventory. This updating occurs at real time i.e. at the time a transaction occurs. Since, data needs to be entered only once at the origin of transaction, the need of multiple entries of the same data is eliminated. Likelihood of duplicate/ erroneous data is, therefore, minimized. The centralized structure of the data base also enable better administration and security provisions, which minimizes loss of sensitive data.

 Planning and MIS: The various decision support tools like planning engines and simulations functions, form integral part of an ERP system which helps in proper utilization of resources like materials, human resources and tools. Constrained based planning help in drawing appropriate production schedules, thereby improving operation of plant and equipment. As a part of MIS, an ERP system, contains many inbuilt standard reports and also a report writer which produce ad hoc reports, as and when needed.

 Improved Efficiency and Productivity: In addition to provision of improved planning, ERP system provides a tremendous boost to the efficiency of day to day and routine transactions such as order fulfillment, on time shipment, vendor performance, quality management, invoice reconciliation, sales realization, and cash management. Cycle time is reduced for sales to cash and procurement to pay sequences.

 Establishment of Standardized Procedures: ERP system is based on processes of international best practices, which are adopted by the organizations during implementation. Department silos are purged and maverick practices are done away with. Because of top down view available to management, chances of theft, fraud and obsolescence are minimized.

 Flexibility and technology: Due to globalized environment, where production units, distribution centers and corporate offices reside in different countries, organizations need multi currency, multi language and multi accounting modes, in an integrated manner. These provisions are available in most of the ERP systems, particularly in products offered by tier 1 and tier 2 vendors. ERP vendors are also quick to adopt latest technologies, from mainframe to client server to internet. Unlike a bespoke system, Upgrading to latest technology for a running ERP system is uncomplicated, involving mostly adoption of service packs and patches.

Conclusion

Although ERP provides many advantages; its implementation is a strategic decision, involving significant resources (both financial and human), proper evaluation and business process re-engineering. There must be commitment from all levels. A failed implementation may lead to bankruptcy of an organization.

http://www.managementstudyguide.com/enterprise-resource-planning.htm

Video 10

Click on this link (also found on the VLE) http://www.youtube.com/watch?v=PVRgIXLWDHs

Discussion Question 4

1. Describe enterprise resource planning and its role in an organization. 2. Describe the basic modules of an ERP system.

3. Describe the evolution of ERP systems.

Resource Planning Within OM: How it all Fits Together

Enterprise resource planning provides a common database for use by an

organization, its suppliers, and its customers. Second-generation ERP systems are

designed to support supply chain management and e-commerce. These systems

automate routine transactions and provide real-time information to all members of

the enterprise. ERP systems typically have a production and materials module (MRP

– materials resource planning) to determine what is needed, how much is needed,

and when it is needed.

MRP reports are used by the production and inventory planners to

(1) generate purchasing requisitions and

(2) develop schedules of different activities to be done on the manufacturing floor.

Even though rough-cut capacity planning (RCCP) using MPS data was done to

check for feasibility, it is still important to do capacity requirements planning (CRP)

for any critical work centers (bottlenecks or potential bottlenecks). CRP operates at a

greater level of detail than does RCCP, using information generated by the MRP

system. Production planners do this to make sure the detailed schedule of

production is feasible.

Resource planning is designed to ensure that the right materials, in the right

quantities, are available at the right time. And to ensure that the right job is being

done on the right equipment.

Resource Planning Across the Organization

Since MRP determines the quantity and timing of materials needed, it affects several functional areas in the company. Let's first look at how each functional area is affected by MRP and then consider the effects of ERP.

Accounting calculates future material commitments based on MRP output. Accounting then develops cash flow budgets and the inventory investment to support the current MPS. With a common database, accounting should be able to determine the exact status of outstanding orders, including cost, quantity, and delivery date. Since there is a common database, discrepancies between supplier and manufacturer should be reduced.

Marketing is primarily concerned with the MPS, which identifies when finished goods will be completed. MRP reveals potential material shortages that directly affect marketing since the shortages may delay product completion. Marketing can also use MRP for allocating scarce materials to maximize customer service. One major advantage of ERP is that marketing can track actual sales at the final product level (using POS) to determine what actions, if any, need to be taken to maximize customer service.

Information systems maintains MRP, which is a large database that includes the BOM, the inventory records, and the MPS. Minimizing errors in the database is essential to producing useful reports. ERP will help IS by using a single integrated database for both internal and external members of the supply chain.

Purchasing uses the planned orders generated by MRP to evaluate the feasibility of long-term or blanket contracts and to determine delivery need. The lead times that are input into MRP often come directly from purchasing. ERP will facilitate supplier- managed inventory approaches and reduce transaction costs for purchasing.

Manufacturing uses the output generated by MRP to develop daily manufacturing schedules. MRP ensures that the right materials in the right quantity are available to support the MPS. Manufacturing also uses MRP to allocate scarce materials. ERP will provide manufacturing with improved insight into actual customer demand. It should increase the probability that manufacturing is working on products actually needed to satisfy customer demand.

In most manufacturing operations, production or inventory control planners are responsible for working with MRP. Planners are typically responsible for certain inventory items, including end items, subassemblies, and components. Planners check the MRP output for action notices related to the items for which they are responsible. Planners schedule, reschedule, and expedite materials to support the MPS. A planning position is often an entry-level job in the materials field.

As companies continue to move toward ERP, all functional areas will work from a central database. The database gives all areas in the company access to the same information simultaneously and improves organizational effectiveness.

Activity ERP Providers – found on the VLE as last item

Assist in creating a glossary of ERP providers with a brief description of

the product(s) they offer. What unique selling point do they have?

Scheduling

A company's overall strategy provides the framework for making decisions in many

operational areas. Companies differentiate themselves based on product volume

and product variety. This differentiation affects how the company organizes its

operations. A company providing a high-volume, standardized, consistent-quality,

lower-margin product or service such as a commercial bakery or a fast-food

restaurant focuses on product and layout. This type of operation needs dedicated

equipment, less-skilled employees, and a continuous or repetitive process flow.

Companies providing low-volume, customized, higher-margin products or services,

such as a custom furniture maker or an upscale restaurant, focus on process. They

need general-purpose equipment, more highly skilled employees, and flexible

process flows. Each kind of operation needs a different scheduling technique. Let's

look at high-volume operations first.

Discussion Question 5

1. Compare and contrast high-volume and low-volume scheduling operations.

2. Describe a high-volume service operation and how scheduling should be

done.

3. Describe a low-volume service operation and how scheduling should be

done.

The Supply Chain Link

Enterprise resource planning provides the structure for common databases across the organization, its suppliers, and its customers. Suppliers can access the master production schedule (MPS) to see projected build dates for products that use materials supplied by them. The current trend is to integrate e-commerce and ERP systems. Tangible benefits of an ERP system include reduced inventory levels, reduced staffing, improved order launching, reduced IT and purchasing costs, improved cash flow, and increased profits. Intangible benefits include improved visibility of system demand, improved customer responsiveness, and improved flexibility. Enterprise resource planning systems provide the structure needed for effective supply chain management.

Further Reading

1. What are the inputs of operations scheduling

http://www.mbaofficial.com/mba-courses/operations-management/what-are-

the-inputs-of-the-operations-scheduling/

2. Reid R., Operations Management, 4 th

Edition, 2011, Wiley Publishers

Topic’s summary

Enterprise resource planning (ERP) is software designed for organizing and

managing business processes by sharing information across functional areas using

a common database and a single computer system. ERP systems typically have

modules for finance and accounting, sales and marketing, production and materials

management, and human resources.

First-generation ERP systems provide a single interface for managing routine

activities performed in manufacturing. Second-generation ERP systems or SCM

software is designed to improve decision making in the supply chain. The current

trend is integrating e-commerce and ERP systems.

Tangible benefits from ERP systems include reductions in inventory and staffing,

increased productivity, improved order management, quicker closing of financial

cycles, reduced IT and purchasing costs, improved cash flow management, and

increased revenue and profits. Intangible benefits include improved visibility of

corporate data, improved customer responsiveness, and improved flexibility. The

cost of ERP systems ranges from hundreds of thousands of dollars to several million

dollars.

Material requirements planning (MRP) systems are designed to calculate material

requirements for items with dependent demand. MRP systems use backward

scheduling to determine when each activity starts so that the finished product or

service is completed on time.

Independent demand is the demand for finished products, whereas dependent

demand is demand that is derived from finished products. MRP systems use

dependent demand.

The objectives of MRP are to determine the quantity and timing of material

requirements and to keep schedule priorities updated and valid. MRP determines

what to order, how much to order, when to place the order, and when to schedule

the order's arrival. It maintains priorities by recognizing changes in the operations

environment and making the necessary adjustments.

MRP needs three inputs: the authorized MPS, the BOM file, and the inventory

records file. The MPS is the planned build schedule, the BOM file shows the

materials needed to build an item, and the inventory records file shows the inventory

on hand.

Once the MPS has been input, MRP checks the inventory records to determine if

enough end-item inventory is available. If sufficient end item inventory is not on

hand, MRP checks the end item's BOM file to determine what materials are needed

and in what quantities. The MRP system then generates planned replenishment

orders.

Action notices show when to release planned orders, reschedule orders, or adjust

due dates. They allow the planner to use the MRP output information effectively.

Different lot size rules are used with MRP systems to generate different order

quantities and order frequencies. The lot-for-lot (L4L) rule always minimizes

inventory investment but maximizes ordering costs. A cost comparison shows the

effect of using different lot sizing rules.

Planned orders generated by MRP, plus any open shop orders, are inputs to

capacity requirements planning (CRP). CRP checks to see if available capacity is

sufficient to complete the orders scheduled in a particular work center during a

specific time period.

Different kinds of environments need different scheduling techniques. Scheduling in

the high-volume environment is typically done through line design and balancing.

Scheduling in a low-volume environment typically involves the use of priority rules. In

this environment, Gantt charts are often used to view the workload and jobs in

process.

Shop loading techniques include infinite and finite loading. Infinite loading schedules

include jobs without capacity constraints. Finite loading loads jobs up to a

predetermined capacity level. Loading can be done using forward or backward

scheduling. Forward scheduling starts the job as soon as possible, whereas

backward scheduling works back from the due date.

Priority rules are used to make scheduling decisions. SPT always minimizes mean

job flow time, mean job lateness, and average number of jobs in the system. FCFS is

considered one of the fairest priority rules. Rules related to due dates tend to

minimize the maximum tardiness of the jobs. Priority rules need to support

organizational objectives.

Performance measurements reflect the priorities of the organization. Mean job flow

time, mean job lateness, mean job tardiness, makespan, and the average number of

jobs in the system measure the effectiveness of schedules.

Johnson's rule is an effective technique for minimizing makespan when two

successive workstations are needed to complete the process.

When scheduling bottleneck systems, the basic principles of OPT apply. The theory

of constraints expands OPT into a managerial philosophy of continuous

improvement.

Service organizations use different scheduling techniques such as appointments,

reservations, and posted schedules for effective use of service capacity.

A method developed by Tibrewala, Phillippe, and Brown constructs workforce

schedules when a company uses full-time employees, operates seven days each

week, and gives its employees two consecutive days off.