Production Planning & Scheduling - the Usefulness of ERP Systems in Manufacturing - Case Study Example

Production Planning & Scheduling The Usefulness of ERP Systems in Manufacturing Table of Contents Page PART A 1 Introduction 3 2 ERP for Manufacturing Companies 5 3 Lean System for Assembly Lines 11 4 Conclusion 14 PART B 5 Introduction 14 5.1 Current State Map 15 5.2 Future State Map 16 5.3 MRP Calculations 17 5.4 Recommendations 18 6 Conclusion 18 7 References 20 1 Introduction In the business environment systems play the most important role. No business can survive for long unless it follows a plan and the execution of that plan requires a systematic way of functioning. In a manufacturing environment this requirement is even more acute. The manufacturing environment comprises of the production facility together with purchase, inventory and the human resources departments. Absence of connectivity within them will lead to chaos and ultimate collapse of the manufacturing capabilities. Therefore a system is required to connect these activities to each other. Often a Production Plan is mistaken for a System. These two are distinct where a Production Plan refers to the details of the processes following which the product will take shape; the System refers to the linkages that are needed to achieve these objectives. To explain further the Production Plan designs the path or process which has to be followed to make or manufacture a product. Following the Plan correctly will result in producing the final product in the least time and at the lowest price. However this is a simplistic approach and defines only a straight line internal process of manufacturing the product. This is influenced by external factors like purchase division that will order for materials required, supply chain that will provide the various material inputs, the inventory department that will stock the materials procured for production, the human resource department who will recruit skilled or unskilled labour will be used in manufacturing. This means that the Production Plan will be useful only when it is linked to other departments. There will be other parallel Plans like the Material Resource Planning (MRP) that will plan for material requirement based on sales forecast or order in hand. In this quotations will be called and finalized with suitable suppliers. Quality plays a very important role here and often will decide the supplier for a particular material. The delivery schedule of the final product to the customer will determine delivery schedules of input raw materials and logistics will have to be planned accordingly. Inventory controls will be required to plan on what the minimum and reorder levels for each item required for production and this again will depend on the quantities of orders and the frequency at which the suppliers can deliver goods. Skilled or non-skilled workers are required to carry out production and their number and skill set will have to be determined and allocated to the production line as required under the Production Plan. All these separate Plans are influence by each other and together they form the overall Plan or strategy for manufacturing a product. Production is the central activity in a manufacturing company but unless it is supported by other functional areas it will fail to be purposeful. Therefore it cannot be conceived, planned or executed in isolation. Even in cases where the company is working as a sub-division or as an independent sub-contractor, where purchase and sales are predetermined, unless all activities are coordinated the Production department cannot function in segregation. The Production Plan too will not work as a stand alone Plan. Unless it is linked to all other Plans, the effort will result in chaos. Because other Plans are directly or indirectly responsible for the success or failure of the Production Plan it will require more than just linking them together. To be cohesive and workable they must all match each other in their different areas for the common objective to produce the product. A comprehensive flow of materials required has to be designed and integrated with the planning process. In conclusion the success of a Production Plan depends on proper and supportive linkage with all other plans within the manufacturing environment. 2 ERP for Manufacturing Companies There are generally two types of manufacturing processes. One is the Piece rate Process and the other is the Assembly Line Process. In the first case each product is manufactured in a manner that all sub-processes are identifiable as being part of the same process. For example when a shirt is being made it may consist of say 7 parts. Each part like the sleeve or the cuff or the collar etc come from the same original piece of cloth from which they were cut and then put together through the sewing process for final production of that shirt. In this case it is possible to identify the persons who cut the parts and who stitched the parts. These people are also paid by the number of pieces they cut or stitched in a given time frame which is usually a shift of 8 hours. As against this under the Assembly Line method all these parts are cut together and sent to the assembly line to different machines by the hundreds or even thousands. There each part goes to a separate machine and stitching takes place by a process flow which is designed to produce the shirt at the end of the line. Here the machine operators are handling only the parts and any one shirt cannot be said to have been stitched or produced by any one person. The individual parts too come from a lot of fabric and cannot be assigned to one piece of fabric. Production Planning and control of both these systems will be quite different and hence the solutions will also differ in their process and flow. For all manufacturing that takes place on the Piece Rate System1 a normal ERP is more suitable as it takes care of Production in a more general way. In this case the inventory management is usually more supplier oriented. This means that this activity gives more importance to suppliers and their delivery capabilities. It can and does result in overstocking rather than under stocking the materials required for production. All Manufacturing companies require and ERP to monitor the activities of their organization. The company’s activities begin from marketing of their products, receiving of orders, purchasing of materials for production, organization of production in house and outsourcing of job work, organizing the human resources for all departments and financial transactions that will be needed to put all this together. Parameters have to be set for all activities and procedures are to be laid down for the actual flow of transactions. When all these ingredients of business resources are put together, there is a need to monitor them to obtain closely controlled results. All resources are known, the procedures are defined, the process is in place and all that is required is a mechanism that will ensure that the system will not only work but achieve the desired objective. This is the time when the Enterprise Resource Planning (ERP) solution is called for. ERP has been defined in many ways. “An amalgamation of a company's information systems designed to bind more closely a variety of company functions including human resources, inventories and financials while simultaneously linking the company to customers and vendors”. (investorwords.com)2 “An integrated information system that serves all departments within an enterprise. Evolving out of the manufacturing industry, ERP implies the use of packaged software rather than proprietary software written by or for one customer. ERP modules may be able to interface with an organization's own software with varying degrees of effort, and, depending on the software, ERP modules may be alterable via the vendor's proprietary tools as well as proprietary or standard programming languages”. (PC Magazine)3 There are many more complex definitions to choose from but the simplest one is that the ERP is an integrated software solution that will help you take care of customer relationships as well as internal resources. The software supports point of sales, distribution, inventory, accounting, e-commerce as well as production planning. Through the use of ERP it becomes possible to put in place a system that will chart the course of the entire business process from marketing to sales, plotting in between purchases, inventory, production, finance, human resource management and quality controls. This software covers all threshold of the business and from entry to exit all items used in a business are controlled through it. It also manages the entire finances and workers. It is an end to end solution and nothing can be done without first recording it into this ERP database. The Enterprise Resource Planning system is must for any kind of Manufacturing Organization. There are so many activities that are carried out in any manufacturing unit that it will be impossible to retain the information that is available. Further this information should be available wherever it is needed and accessible to whoever needs it. It calls for designing a flow chart to show how the information should flow within the system that has been planned. Having chosen an ERP system the next most important step is the Implementation. Without a properly laid out plan an implementation can fail as it is a cultural change for both management and workers. A total commitment is required, starting with the management at the top. All difficulties that may and will arise during the implementation should not be considered as roadblocks but as test of endurance and have to be patiently ironed out. A well designed implementation process will ensure that the whole organization is oriented in the new solution and uses it as a tool to enhance performance at each level. The plan has to be spread out over the entire organization over a fairly long period of time to give time to both workers and management to get acclimatized to it and to use it as an everyday tool of convenience. Proper training is required to be given to all concerned and the process and flow has to be explained so that they understand why they are required to perform what they are doing. A monitoring committee comprising of the company management and the implementation team must monitor the progress and solve problems at short intervals to keep the momentum going. A successful Implementation will give enormous befits to the company. On the company level the management will have all information on each activity as it happens. This means that it have complete information of actual production as it takes place. The enormous benefit of this is that firstly it will be able to know of a problem as it occurs and will be able to take action to solve or rectify it. This will automatically raise quality and result in customer satisfaction. Secondly it will help identify weak areas and positive steps can be taken to strengthen them. Thirdly since all activities will have a plan, reports will show deviations from it. This will identify productivity problems and will also help to check the veracity of the plan and with improvement in planning productivity will go up. The quantities and areas of waste occurrence will be identified and steps can be taken to reduce or eliminate them. On individual level the benefit of a successful implementation will be as under. CEO—Goal: Increased sales & Control of all activities: Increasing global competition, particularly from companies manufacturing in other low-cost countries, creates downward pressures on costs. Therefore, the CEO knows the importance of increasing customer value, and that retaining existing customers is less expensive than winning new ones. He realizes some of the company’s operations are still non-value adding and they do not contribute directly to customer value. The main reason is that true value is not flowing through the factory. A successful implementation will ensure minimize of non-value-adding activities in order to eliminate unnecessary costs and develop the ability to react quickly to cus­tomer demand. With introduction of ERP, the manufacturing process becomes more efficient and, as a result, sales increase. Again since all activities are visible through planned reports and time and activity status, the CEO is able to exercise complete control over all events. Production Manager—Goal: Increase bottom-line profitability A Production Manager strives to minimize capital employed throughout the business. He needs to minimize stock and work in progress (WIP), and vitally, increase throughput that can be invoiced quickly. Therefore, waste needs to be eliminated through minimizing re-work. In addition, the movement of stock with no resultant added value around the factory has to be reduced. The answer is deployment of ERP and its successful implementation will ensure the above. Logistics Manager: Goal, On-time Dispatches As all activities from Purchase to Productions are pre-planned through the ERP and with implementation it becomes possible to plan and execute dispatches and bring efficiencies in this department. Financial Adviser: Goal, Budgeting & Forecasting Since all transactions are integrated, all payments are controlled by debit and credit notes which are automatically generated with every movement of raw materials and semi-finished products to and from suppliers and processors. This secures the transactions and saves your valuable time for your core activities of forecasting and budgeting. This part of the implementation will result in savings by way of eliminating malpractices in this area. This will also earn suppliers goodwill as they will know that their payment will not be held up for want of information. This goodwill can be encashed in shape of both loyalty and better rates. Managers at all levels: Goals; To meet deadlines. All activities are planned through a pre-designed and approved system, and with proper implementation, output increases as per plan and offers great job satisfaction. Manager stress level is thus reduced and they get more organized and are able to meet deadlines. Ordinary worker: Goal, To achieve targets. His/Her productivity increases as their activities are preplanned and evaluated. The incentives are then based on recorded performance and this increases their appetite to perform better to advance in their chosen careers. 3 Lean System for Assembly Lines While a normal ERP will work quite well for the general manufacturing company that is engaged in piece rate production methods, the solution required for the companies employing the Assembly Line system will be different. This difference is due to the fact that in Assembly Line systems the emphasis is more on the material required by the Production Department. Here the Inventory management has to concentrate on supplying the materials as per requirement for production and the idea is to carry less stocks. This inventory management system is called Just in Time or JIT. This is production centric and believes in keeping minimum stocks of inventory which could be a slow as seven days only. The reliance on Material Requirement Planning (MRP) is driven by Purchase and is supplier-centric. Not only this must be Production Oriented, but it should integrate the entire company into a cohesive unit where the data should flow freely to wherever it is required. This is the primary stage. In the secondary stage the company’s supply chain management has to be secured online as well. Only by bringing all its suppliers onto a common fold the company can have effective control on its inventory. MRP uses fixed lead times to calculate the Bill of Material, often resulting in surplus stock of raw materials. Essentially it plays safe ensuring that raw material is always available to Production. But this is both wasteful and ties up huge quantity of working capital in raw material inventory. On the other hand JIT works on the basis of PULL and this means that the material is pulled into production according to its demand which is in turn pulled by customer demand. . The strength of pull-based, Just-in-Time techniques lies in control and execution. All industries that work on Assembly Line systems need ERP that is based on Lean Designs which incorporates the PULL and JIT concepts. An ARC Groups’ strategy report authored by Simon Bragg (2004) suggests that today 36% of US manufacturers and 70% UK manufacturers “are today using Lean as their primary improvement methodology”.3 Essentially all companies that produce products that are more standardized are fit for adoption of Pull methods and Lean Technologies. The Lean Design fits auto companies and other similar production units where batch sizes and With their experience, a number of companies have converted to this method (JIT) with some degree of variation, and the outcome has been the Lean Design concept on which many types of software have been developed and implemented. Lean Design has also been adopted due to its advantages such as: • The overriding focus of its activity is value addition for customer • By systematic and planned reduction and elimination of wastes in production process, it aims at production of quality goods resulting in higher customer satisfaction, • Under the Lean Design method the objective is to shorten product life cycle time. The ability to respond quickly and with flexibility to changes also becomes a habit rather than a task. •The greatest and the most outstanding feature of Lean Designs is that they do not just set a standard and then sit back and applaud themselves. This system demands constant control to raise the standards. Continuous improvement ensures competitiveness which is fundamental to the ultimate survival of the company. Implementation plays a vital role in the success of Lean manufacturing setup. Nothing will be gained by just designing a superb system and by laying down rules and parameters. A well-understood, well-defined and easy to follow implementation plan must be prepared. This is to be done with active assistance from the solution providers. A successful implementation will result in: Identification of activities that add value and those that do not. Focus on the flow through the value chain in the factory and elimination of non- value-adding activities. Continuous quality checks will ensure lower wastages. Total quality management. This plays an important role in JIT as errors slow down production and reduces dependability on the previous operation’s ability to supply materials on demand. Total Productive Maintenance will ensure minimum downtime Speed of production will be improved with Pull based system in place. Timely Dispatches to customers 4 Conclusion Production Planning is the heart of the manufacturing activity of a company, but it cannot be isolated. Its functionality is dependant upon and correlated to other functions like purchase, inventory and human resources. All plans of each of them are required to be matched and integrated for any meaningful results. Therefore a proper and considered linkage between them is essential. ERP is recommended for all manufacturing companies but for units using the Assembly Line of production it is recommended that the Lean Design with Pull based JIT be used. This will bring in efficiency besides ensuring better utilization of working capital. PART B 5 Introduction Brockhurst Barrows is a small manufacturer of Wheel Barrows. Normally it produces two sizes and they are Shallow Box and Deep Box types. It is manufactured out of following materials. 1 Sheet Metal – used for making the Box 2 Metal Tube – used for making Handles and Stand 3 Tyre, Disk and Bearing – together they form the Wheel Assembly. The sheet metal is blanked and pressed, the tube is cut, bent and drilled for a hole, and the wheel assembly is assembled and all is welded together to manufacture the Wheelbarrow. In addition rubber grips are added to handles after a coat of paint. Small items required for manufacturing are fasteners. There are short lead times of 1 to 2 weeks time for about 21 different materials as required for both Shallow and Deep Designs but apparently the supply is a constraint as can be seen in the high inventory levels. There is a sizable difference in reorder levels and actual quantity on hand for most items. The figures indicate that either the suppliers are irregular in offering supplies or the orders are erratic and not based on forecast or customer demand. It appears that the company is working on Material Requirement Planning and being conservative believes in high inventory as safety factor. But this must be straining its finances. A customer has ordered some quantities of wheelbarrows for supply between weeks 6 to 9 from now. He has also decided to give regular orders, possibly in same lots, and MRP is required to be calculated for these. 5.1 Current Status Map The value added time calculations are as under. For manufacturing one Shallow Wheelbarrow SX1 For making Box 94 secs For making Handle 42 secs For making Stand 4 secs For making Handle Assembly 28 secs For Painting 3600 secs For final Assembly 43 secs Total 63 mins 31 secs For manufacturing one Deep Wheelbarrow DX1 Total 63 mins 51 secs There is no information on wastage and idle times during manufacture nor any given for the number of workers so it is not possible to assess number of pieces that can be manufactured during one shift or during a 5 day week working on 7.30 hrs of effective working hours. Except for the fact that Sheet Metal is pressed at 3000 pieces in a batch and that the Press is a shared resource there is no information on available resources for manufacture hence time between transfers is also not quantifiable. 5.2 Future Status Map Based on the scant information it can be said that the new order of Deep Wheelbarrows DX1 between 75 to 200 Pieces in a week and Shallow Wheelbarrows of 200 to 300 a week is feasible. It is mentioned that the customer can guarantee to purchase 100 Deep Wheelbarrows DX1 and 200 Shallow Wheelbarrows SX1 daily. Since daily production capacity is not indicated it is difficult to assess the possibility. In absence of relevant data is assumed that these quantities will be manufactured only as per the order as indicated in the preceding paragraph and the MRP is being calculated for that only. It is also assumed that the repeat orders will also be in the same ratio in the future. The value addition time is also taken to be fixed as no variable or idle time or wastages are indicated in data. The only variation is the colour which can be different everyday. Another possible variation may be in the product range itself. Here the material will change to aluminum or poly besides steel. Similarly the use of heavy Bearings and Oak in place of Steel or Aluminum for making Handles will change the value added time. But this too is being recorded for future consideration and calculation. 5.3 Material Requirement Planning – Calculations A B C D E F G Item Code Description Unit Quantity Reqd In hand Week 3 Safety Stock Lead Time week Order for Week 6 Order for Week 7 Order for Week 8 Order for Week 9 X1421 DISC EA 775 100 50 2 25 200 200 300 X1422 TYRE EA 775 120 50 1 5 200 200 300 X1423 BEARING EA 775 600 100 2 275 X141 AXLE EA 775 65 25 1 35 200 200 300 X133 GRIP EA 775 150 100 1 25 200 200 300 X16 FASTENERS EA 5650 600 200 1 50 1200 1200 1800 X121 SHEET METAL MTR 1067.5 500 200 1 57.5 320 390 X1311 TUBE MTR 1932.5 100 100 2 202.5 440 540 750 Calculation: A + C - B = Order Quantity. This is divided over weeks 6-9 with least ordered in beginning considering quantity in hand. Since maximum lead time is 2 weeks there is enough time to order therefore lead time is not a constraint. 5.4 Recommendations The requisition for paints will be made in four different colours of paint handy as the colour required will be known only on the day of manufacture. It is assumed that equal numbers will be ordered by customer since there is no indication otherwise. However this can be changed and as lead time is only one week, this should not cause delays. The possibility of using Aluminum or Poly may bring about a different value added time as aluminum or poly may require different time for certain processes. In case of poly even the process might be different. As this is unknown as of now, should be noted for future consideration. The use of heavy Bearings and Oak in place of Steel or Aluminum for making Handles will change the value added time. But this too is to be noted for future consideration and calculation 6 Conclusion MRP is purchase centric and its usefulness lies in the fact that it plays more in safety and availability of materials for production. It is not the most efficient method of production planning but in an environment where order predictability is low this is the recommended method of planning. However when orders become more regular and more predictable a forecast for a reasonable period of time is possible. In this case the Pull system will be more useful as this will bring about efficiency and better inventory management. When the customer is willing to place regular orders, subject of course to production capacity, then it is recommended to switch over to JIT methods to improve inventory controls. This will bring down operating cost substantially as MRP will then become Production centric and lower stocks can be held thereby reducing working capital costs. JIT will also be more useful when the product is manufactured out of different materials as is being expected by the company. In this case some processes will be different due to different materials and the way they are to be treated. Additional or different machinery will be required and new value added time is to be calculate. These factors demand that a more stringent solution based of JIT will serve the cause of the company in bringing about efficiency and higher productivity at lower cost. 7 References 1 Piece Rate." Dictionary of Business Terms. Barron's Educational Series, Inc, 2000. Answers.com 23 May. 2007. http://www.answers.com/topic/piece-rate 2 Available at: http://www.investorwords.com/1742/ERP.html 3 Available at: http://www.pcmag.com/encyclopedia_term/0,2542,t=ERP&i=42727,00.asp 4 Bragg S. (2004), ‘Software Solutions taking Lean Manufacturing to the next Level”, ARC Strategies, ARC, Dedham, MA. Read More