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MITSloan
Problems with Traditional Replenishment Systems
Demand is Dependent, not StochasticDemand not Smooth (Batching)Geared Towards Instantaneous ReplenishmentInventories for Assembly are treated in Isolation
MITSloan
Bill of Materials
Level 2
Level 1
Level 0T
W (1) Y (2)
V (3)U (2)
X (2) W (2)
Demand for T = 100
200
400200 600 600
300
MITSloan
Overview of MRP
1 2 3 4 5 6 7Req.Ord.Req.Ord.Req.Ord.Req.Ord.Req.Ord.Req.Ord.
T
U
V
W
X
Y
1
2
2
3
1
1
LTWEEKS
100100
200
300
200
300
400
600
800
600
800
400
MITSloan
MRP Inputs & Outputs Inputs Outputs
Production PlanPurchasing Plan
What ?When ?How Much ?
Master ScheduleForecastsOrders
InventoryBOMLead TimesYields
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MRP NervousnessInformation Updates ⇒ Rescheduling ActionsDampening Methods
MPS FreezeOrder FreezeSafety StockSafety TimeSafety CapacityExpediting
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Uncertainty & Safety Cushions
Safety StockItems with direct external DemandItems with highly variable YieldItems produced at a BottleneckItems with a myriad of different Parents
Safety TimePrimarily Raw Materials
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CRP Capacity Requirements Planning
Product Load ProfileCapacity Requirements of End Items
While Schedule not feasible1. MRP2. Capacity Loading3. Capacity ReconciliationIf no feasible Solution
Modify Master Schedule
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Capacity Reconciliation
Sub ContractEnd PartsComponents
Transfer CapacityMachinesPersonnel
Use alternate Routings
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DRP: Distribution Requirements Planning
Level 1
Level 0
Wholesaler
Retailer 1 Retailer 2
Supply Chain
T
T1 T2
BOM
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MRP Shortcomings…Lead Times
LT = f(Part), f(shop) or f(schedule)?Inflate LT ?
Lot SizesOptimization difficultEOQ, LFL, Heuristics?
Safety StocksIn isolation?
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…MRP Shortcomings…
Improvement IncentivesSignificant Effort to Gather and Input DataReluctance to Change InputsInitialization with Inflated ValuesKeep Inflated Values to avoid ProblemsExcessive Trust in Computer Data
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Application TrapsContinuous Processes
Simple BOMs“Factory like one Machine”Setup Costs drive Schedule
Job ShopsLT ≠ f(part) Simple BOMsShifting BNs
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What is ERP?
Client Server SoftwareIntegrates Majority of Business ProcessesProcesses Majority of TransactionsEnterprise wide Database
Each data point is stored once
Real Time Data Access
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ERP Modules
ERP
Manu-facturing
HR
Logistics
Fin & Acc’t
Marketing
Sales
After Sales
Support
Purchasing
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Stake Holders
ERP VendorsConsultantsHardware ProvidersDatabasesOperating SystemsComplementary Tool Providers
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ERP Factoids
>60% of Multinationals use SAP’s R/3SAP’s revenue:
1995: 90% from large companies1997: 70% from large companies
Average Implementation Costs:$15 M, or ~$53K per user
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ERP Factoids
Market Growth1993: $ 319 M 2000: $ 2400 M
ERP Investments during 90s: ~$ 300BMETA Group Study of 63 companies:
Average quantifiable net gain:Negative $ 1.5M
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Wrap Up
Clean Sheet vs. Technology EnabledBig Bang vs. Phased IntroductionBest of Breed vs. Single Vendor Managing Complex Procedures vs. Procedure Petrifaction