ERP: The Dynamics of Supply Chain and Process Management

286 Pages·2010·8.027 MB·English

by  Avraham Shtub, Reuven Karni (auth.)

ERP
Avraham Shtub • Reuven Karni

ERP

The Dynamics of Supply Chain
and Process Management

Second Edition
Avraham Shtub Reuven Karni
Faculty of Industrial Department of Industrial
Engineering & Management Engineering & Management
Technion - Israel Institute of Technology Shenkar College of Engineering & Design
32000 Haifa 52526RamatGan
Israel Israel
[email protected] [email protected]

ISBN 978-0-387-74523-7 e-ISBN 978-0-387-74526-8
DOI 10.1007/978-0-387-74526-8
Springer New York Dordrecht Heidelberg London

Library of Congress Control Number: 2009933263

© Springer Science+Business Media, LLC 2010
All rights reserved. This work may not be translated or copied in whole or in part without the
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Printed on acid-free paper

Springer is part of Springer Science+Business Media (www.springer.com)
We would like to dedicate this book to our loving wives Doreen
Karni and Ailona Shtub, to Reuven Karni’s sister, Avis Goldberg
and to Avy Shtub’s late brother, Israel Shtub.
Contents
Preface....................................................................................................................xi

Authors’ Acknowledgements.............................................................................xiii

1 Introduction...................................................................................................1
1.1 The Theme of this Book .......................................................................1
1.2 Operations Management Defined .........................................................1
1.3 The Need for Integrated Production and Order Management ..............3
1.4 Summary: Viewpoints of Enterprise Operation ...................................5
1.5 Operations Management Frameworks ..................................................6
1.6 Modeling in Operations Management ..................................................7
1.7 Modeling in Process Management .......................................................9
1.8 The Dynamic Aspect: Simulation and Systems Dynamics ................10
1.9 Overview of the Book ........................................................................12
Problems .............................................................................................17

2 Organizations and Organizational Structures ........................................19
2.1 Functional and Project Organizations, Typical Goals
and Performance Measures .................................................................19
2.2 The Job Shop, Flow Shop, and Group Technology ...........................25
2.3 Operations Management and Its Interface with Other Functional
Areas: Restructuring the Order-Fulfillment Process ..........................28
Problems..............................................................................................29

3 Enterprise Process Modeling .....................................................................31
3.1 The Reference Model Approach to Enterprise Process Modeling ......31
3.2 Basic Concepts in Enterprise Process Modeling.................................31
3.3 An Example of a Business Process ....................................................35
3.4 Enterprise Modeling Principles ..........................................................35
3.5 Enterprise Functionalities ...................................................................36
3.6 A Procedure for the Design of an Enterprise-Specific Process
Model ..................................................................................................44
3.7 A Case Study: “Hotel Front Desk” .....................................................53
Problems .............................................................................................56

vii
viii Contents
4 Information and Its Use .............................................................................59
4.1 From Data Collection to Decisionmaking ..........................................59
4.2 Information Systems: The Data Base and the Model Base ................61
4.3 The Accounting Information System .................................................63
4.4 Quality of Information ........................................................................65
4.5 Forecasting ..........................................................................................66
Problems .............................................................................................71

5 Marketing Considerations .........................................................................73
5.1 Manufacturing Policies: Make to Stock, Make to Order,
Assemble to Order, Engineer to Order ...............................................73
5.2 The Master Production Schedule ........................................................76
5.3 Lead Time and Time-Based Competition ..........................................78
5.4 Quality and Its Management: Quality-Based Competition ................81
5.5 Cost Considerations and Cost-Based Competition ............................82
Problems .............................................................................................85

6 Purchasing, Outsourcing and Inventory Management ..........................87
6.1 The Need for Purchasing and Outsourcing ........................................87
6.2 Purchasing and Outsourcing – Make or Buy Decisions .....................88
6.3 Supplier Management .........................................................................90
6.4 Inventory Management – Benefit and Cost Considerations ...............93
6.5 Inventory Management – Models and their Assumptions .................97
6.6 The Dynamics of the Order-Fulfillment Process – Early
Studies ..............................................................................................101
Problems ...........................................................................................102

7 Scheduling .................................................................................................105
7.1 The Job Shop: Implementing Priority Rules ...................................105
7.2 Scheduling the Flow Shop ................................................................111
7.3 The Just-in-Time Approach ..............................................................113
7.4 The Dynamic Shop: Expediting and Changing Priorities ................116
7.5 The Drum Buffer Rope Approach ....................................................117
Problems ...........................................................................................121

8 Design of Business Processes ...................................................................123
8.1 Process Design and Process Modeling ............................................123
8.2 Process Perspectives (Process Viewpoints) .....................................123
8.3 Business Process Design Procedure .................................................125
8.4 Business Process Design Example ...................................................134
8.5 New Process Design ........................................................................135
8.6 Comparison of the Current and New Processes ...............................144
8.7 Context-Dependent Processes ..........................................................145
Problems ...........................................................................................147
Contents ix
9 The Integrated Order-Fulfillment Process Using MRP........................151
9.1 Operations Management Frameworks .............................................151
9.2 Evolution of Computer-based Operations Management
Strategies ..........................................................................................152
9.3 The Material Requirements Planning Concept ................................153
9.4 The Product (Engineering) Data: The Bill of Material ....................154
9.5 Logistic (Order) Data: The Master Production Schedule
and Inventory Data ...........................................................................157
9.6 Gross to Net and Time-phasing – MRP Logic..................................159
9.7 Capacity Considerations....................................................................162
Problems ...........................................................................................167

10 The integrated Order-Fulfillment Process Using ERP .........................169
10.1 Cross-Enterprise Processes in the Integrated Order-Fulfillment
Process ............................................................................................169
10.2 The Role of Management in the Integrated Order-Fulfillment
Process ............................................................................................169
10.3 The Hierarchy of Goals and the Road Map to the Goal .................173
10.4 Establishing Control: Identifying Problems ...................................175
10.5 Taking Actions: Solving Problems .................................................177
Problems .........................................................................................179

11 Teaching and Training Integrated Production
and Order Management ..........................................................................181
11.1 Individual Learning and Organizational Learning .........................181
11.2 The Individual Learning Curve ......................................................182
11.3 Team Building and the Team Performance Curve .........................184
11.4 Organizational Learning in the IPOM Environment ......................187
Problems .........................................................................................189

12 Business Process Management ................................................................191
12.1 Motivation ......................................................................................191
12.2 Enterprise Process Master Planning ..............................................192
12.3 Process Action Analysis .................................................................205
12.4 Example: Hotel Front Desk ............................................................208
12.5 Process Action Analysis: Summary ...............................................213
Problems .........................................................................................215

13 Business Process Improvement ...............................................................217
13.1 Motivation ......................................................................................217
13.2 Definitions ......................................................................................218
13.3 Redesign: Dimensions of BPI ........................................................219
13.4 Redesign: Business Process Improvement Procedures ..................222
13.5 Redesign Example: Improving the Telesales Process ....................227
13.6 A Note on Engineering Creativity ..................................................227
x Contents
13.7 Redesign: Incorporating an Improvement into the Process
Flowchart and PAT .........................................................................231
13.8 Performer Capability: Path to Improvement .................................232
13.9 A Discourse on Business Process Training ....................................240
13.10 Performer Capability and Training – Telesales Example ..............241
13.11 Designer Capability: The Path to Improvement ...........................243
13.12 Designer Capability: An Example of Design Focus
Maturation ......................................................................................245
13.13 Summary ........................................................................................249
Problems .........................................................................................251

Appendix: Simulating Process Life Cycles: Serious Games
as Teaching Aids .......................................................................................255
A.1 The Use of Simulators for Training ................................................255
A.2 The Order Life Cycle........................................................................255
A.3 MERP™- Background ......................................................................256
A.4 Functional Views .............................................................................257
A.5 DCSS™ Scenarios ..........................................................................260
A.6 How MERP™ Provides Value .......................................................262
A.7 Benefits to Students ........................................................................263
A.8 Tools Available to Students and Professors ....................................264
A.9 How to Get to Know the MERP™ Tool and the Various
Scenarios...........................................................................................264
A.10 The Registration Process...................................................................265
A.11 General Notes....................................................................................267

References...........................................................................................................269
Index....................................................................................................................277
Preface
To an increasing extent, corporations are recognizing that successful management
is based on three basic functionalities; and these organizations are discovering that
a focus on customer needs is effective only if these functionalities are designed
and managed to meet those needs. The operations function extends from acquiring
raw materials to fabricating parts, to assembling products, and to making sure that
the right products, in the right quantities, are ready at the right time for delivery to
the customer. A systems perspective can enable us, in ideal circumstances, to
fashion an operations function like the inner workings of a finely tuned machine.
The service function extends from acquiring customer orders to monitoring pro-
gress, to delivering the product to the customer, to providing in-house or field
service for maintaining the product, and to providing advice and help to the
customer on how to use the product. A systems perspective can enable us, in ideal
circumstances, to ensure that our product will be used by the customer in the best
way to help him achieve his goals. The enterprise or business process function
visualizes the organization as a set of business processes representing the working
and flow of goods, services, information, decisions and control throughout the
enterprise. A systems perspective can enable us, in ideal circumstances, to ensure
that these processes cooperate effectively to deliver results or deliverables, and
thus achieve the goals of the enterprise.
Life would be uninteresting without change, however; so we can be thankful
that the functioning of the organization is dynamic in nature. We alter one element –
to improve or upgrade it – and others are affected. The customer or the outside
environment introduces variability into one or more points; and we watch the
ripple effects spread across the organization over time. These system behaviors
can be difficult to grasp – and even more difficult to predict or manage.
In addition to understanding the dynamic, interactive and integrated nature of
the operations, service and process systems, it is important to understand and to
practice using the tools supporting the management of these systems. Teaching the
concepts of modern information systems and the processes they support, and their
ability to serve the customer in order to enhance competitiveness, constitute an
important challenge to any IE or MBA program.
Modern information systems combine models (production processes, service
processes) in a model base, data (resources, products, schedules, orders) in a data
base and knowledge (methodologies, decision processes) in a knowledge base.
They support the perspective of an enterprise-wide approach to organizational
activity, be it focused inwards on the provision of a product or service, or inter-
faced outwards with suppliers and customers. Enterprise Resource Planning software
xi
xii Preface
systems provide comprehensive management of financial, manufacturing, sales,
distribution, service and human resources across the enterprise. The ability of ERP
systems to support data “drill down,” to eliminate the need to reconcile across
functions, and to integrate the working of the operations, service and process
functions is intended to enable organizations to compete on the performance along
the entire supply chain. To utilize these capabilities, managers have to learn how
to manage processes using the model, data and knowledge bases in the ERP
environment. Recognizing this need, modern schools have installed commercial
systems for production process simulation, business process design, and ERP. The
amount of time required to teach and learn all the screens and functions of these
tools is enormous as they are not designed a priori as teaching media.
Until now, there has not been an effective mechanism for teaching students and
professionals to understand the dynamics of operation systems by illustrating how
production, service and business processes are designed and how ERP systems are
used. This book and the accompanying software will fill this need. The book has
been written with an emphasis on manufacturing firms, but the principles it
demonstrates are transferable to more service-oriented environments. With this in
mind, both manufacturing and service operations issues have been included in the
problems at the end of each chapter. The book and the accompanying software
have been designed for use in academic and executive programs aimed at teaching
students, and professionals to understand how integrated operational systems
work.
In terms of the book’s use as a course book, a course on planning, operations
and control systems would probably be the ideal place in business school settings.
Some basic understanding of operating systems is needed by the reader. In an
industrial engineering school, in addition to these, the book may give students
their first, and perhaps only, introduction to business issues such as market
demand and relationships with customers and suppliers.