Table of Contents Management Information System2 MIS and the Manufacturing Sector2 CIM – computer integrated manufacturing3 Top-down CIM4 Bottom-up CIM5 Converging Approaches of CIM6 Differences in Technology between MIS and Manufacturing7 Hardware7 Software8 Data8 Table I. Comparison of MIS and Manufactacturing Corporate Culture9 Organizational Differences between MIS and Manufacturing9 MIS Implementation in Manufacturing Sector10 Material Requirements Planning10 The scope of MRP in manufacturing10 Problems with MRP systems12 MRP II13 Key functions and Features14
Benefits17 Industry Specifics17 JIT19 Business models following similar approach20 Vendor Managed Inventory20 Customer Managed Inventory21 Escorts ltd-a case study21 IT Infrastructure at escorts22 Material requirement planning22 Management Information System Management Information System (MIS) is a subset of the overall internal controls of a business covering the application of people, documents, technologies, and procedures by management accountants to solving business problems such as costing a product, service or a business-wide strategy.
Management Information Systems are distinct from regular information systems in that they are used to analyze other information systems applied in operational activities in the organization.  Academically, the term is commonly used to refer to the group of information management methods tied to the automation or support of human decision making, e. g. Decision Support Systems, Expert systems, and Executive information systems. MIS is a planned system of the collecting, processing, storing and disseminating data in the form of information needed to carry out the functions of management.
According to Phillip Kotler “A marketing information system consists of people equipment, and procedures to gather, sort, analyse, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. ” (Kotler, Phillip and Keller, Kevin Lane; Marketing Management, Pearson Education, 12 Ed, 2006) The terms MIS and information system are often confused. Information systems include systems that are not intended for decision making. MIS is sometimes referred to, in a restrictive sense, as information technology management.
That area of study should not be confused with computer science. IT service management is a practitioner-focused discipline. MIS has also some differences with Enterprise Resource Planning (ERP) as ERP incorporates elements that are not necessarily focused on decision support. MIS and the Manufacturing Sector An organisation succeeds by bringing together and managing certain resources in a productive way. The traditional list of resources comprises labour (manpower), money, material, managers, machines and facilities.
Only over the past two decades has information come to be recognised as another resource, one that is crucial to the management of others and one, which under certain circumstances, may be substituted for them cost-effectively. Information shares many properties with other resources: it has value and lends itself to the process of management. Information is a valuable resource and hence must be managed in a well-designed system so that managers are able to obtain relevant information timeously for their decision-making processes.
One of the major problems of organisations that make them fail may be insufficient utilisation of the major resource of the organisation, viz. information. Managers have to be aware of utilising management information systems effectively to be competitive in the business world. Most manufacturing industries are already using products of Information Technology. To be effective in today’s dynamic and competitive business environment, a manager, and an organisation, must think in the system mode. Technological innovation has simplified the collection of data into sophisticated information systems.
With appropriate management information systems in place, managers can focus their attention on the creative elements of management such as developing strategy, searching for new opportunities and competitive advantages, and optimising the use of the organisation’s resources. Survival and success depend entirely on the organization’s ability to adjust to the dynamics of the business environment. It is imperative for the top management to understand the broad effects and implications of the information systems and how it can create substantial and sustainable competitive advantages.
Implementation of information systems is not only an evolution, but also a revolution that streamlines operations. Through the course of development, upper management should take market information into consideration and also ponder how to apply this information. To continue to grow by applying information and perfecting their information network and technology through the process of its development in the current information age is a MIS phenomenon. In today’s global business environment, information systems, Internet, and other global networks are creating new opportunities for corporate coordination and innovation.
Information systems can help companies extend their reach to faraway locations, offer new products and services, reshape jobs and work flows, and profoundly change the way businesses are conducted. CIM – computer integrated manufacturing “Turf Wars” between corporate management information systems (MIS) and corporate manufacturing threaten the success of computer integrated manufacturing (CIM). Co-operation between MIS and manufacturing is essential in the planning, design and implementation of cross-functional information systems, and yet it is information systems that are the biggest source of CIM failure.
Currently the position is that both MIS and manufacturing have been slow to recognize their contrasting corporate cultures and to deal with resolving the conflict between the two groups Longstanding differences in corporate culture have undermined efforts to implement computer integrated manufacturing (CIM). Improvements in manufacturing productivity, as a direct result of investment in information systems, have been slow and inconsistent. The most commonly cited reason for the under-utilization of information systems in manufacturing environments was the “lack of co-ordination and co-operation” between MIS and manufacturing.
Two modern trends have signalled the beginning of the end to the chilly relations between MIS and manufacturing. First, MIS groups in manufacturing organizations have come to realize that the best opportunities for information systems (IS) to impact the “bottom-line” will be in manufacturing. Global economic competition has awakened management to the importance of manufacturing in improving product quality, reducing time-to-market, and in enhancing the marketing function. Second, for the first time many people in manufacturing have come to realize that information systems are vital to the success of their organization.
Currently, information systems jump in and out of manufacturing business processes at discrete points. The development of cross-functional information systems is necessary for CIM. However, the MIS manager charged with integrating the isolated “islands” of computing resources throughout the manufacturing firm is typically faced with significant obstacles. These obstacles are both technical and organizational in nature, but typically it is the organizational issues, not the technical issues, that present the greatest challenges to management.
Clearly, an integrated approach to corporate information services has been needed. Unfortunately, during the 30 years in which information processing was segmented, the different sectors developed very strong traditions and insights that helped each serve its particular clientele. This raises serious problems for integration, because each sector tends to see integration as an extension of its traditions and insights to other parts of the information processing infrastructure. Top-down CIM
The primary focus of MIS in the 1960s and 1970s was the integration of previously constructed applications fed by dedicated file management systems for the conventional administrative functions of an organization. For two decades the primary focus was on transaction data processing in a highly centralized processing environment spawning a top-down viewpoint of most MIS or data processing departments. Furthermore, the MIS department was often viewed as external to the organization, providing transaction processing services, which isolated information specialists from the realities of production and operations.
Manufacturing automation and computerized control was rarely an MIS issue. The 1980s brought the first efforts to integrate systems across functional areas with an objective to improve decision support in a more distributed processing environment. Traditional MIS and data processing departments have typically responded to the development of such systems from a traditional isolated, centralized, top-down perspective resulting in limited success. Backlogs of work requests have typically been measured in years and are often obsolete once completed.
An example of a popular computerized production control system developed in the 1970s and marketed heavily in the 1980s is MRP-II. It theoretically integrates all of the material management processes and should interface with the organizational administrative systems to provide information to other functional subsystems, including executive information systems. MRP-II systems have had limited success as did their MRP predecessors. There is indication that the degree of success depends on three issues: top management commitment, the implementation process, and hardware and software selection.
The last two of these three issues are centrally tied to MIS activities and involvement. MRP-II systems offer tremendous opportunities for integration between functional areas but rarely address lower-level processing strategies which production is now facing. The top-down view of CIM falls short by failing to provide sufficient IS support at lower levels where information technology is a key ingredient for competitive advantage through manufacturing. Bottom-up CIM
Manufacturing has traditionally viewed CIM as a means to improve production operations by integrating systems and devices on the shopfloor. Information systems are seen primarily as a tool for the factory manager to reduce work-in-progress inventory, to increase plant productivity, to improve product quality, and to increase capital equipment operating time. At the lowest level of computer support, computer-aided design (CAD) is often used as a stand-alone application to improve the productivity of engineers in the (re-)design of products and processes.
Computer-aided manufacturing (CAM) involves the integration of a computer with equipment to support the automation of data collection and, if extended further, the automation of execution and control using numerical controllers. Further integration of different machinery and pieces of equipment (e. g. drill with tool handler) allows the development of the automated workstation. Much of the research in CIM has focused on flexible manufacturing systems (FMS). A flexible manufacturing system uses information technology to co-ordinate real-time routing of material, load balancing and production scheduling logic.
Typically, automated guided vehicles, automated storage and retrieval systems and robotics are integrated to decrease time to change tools and fixtures, load and unload machines, and move materials to and from manufacturing cells. A typical bottom-up CIM falls short in providing middle and upper-level management with information, feedback and control mechanisms. [pic] Converging Approaches of CIM Top-down approaches to implementing information systems in manufacturing environments typically result in centralized systems which are inflexible and result in limited support at lower levels.
Bottom-up approaches tend to result in much more decentralized islands of automation which provide a flexible environment for production control, but little strategic advantage to business systems for tactical and strategic planning. Computer Integrated Manufacturing Information Systems (CIMIS) describes all information systems of the manufacturing-based organization, both man-machine and machine-machine systems. This includes all levels of the traditional information system hierarchy; transaction processing systems, MIS, and decision support systems as well as the production-oriented systems; CAD, CAM, MRP-II, and FMS.
An organizational-level strategy for planning, design and implementation of the CIMIS is necessary for successful integration of the different systems. LAN protocols, such as the manufacturing automation protocol (MAP), have been developed in order to interface the many proprietary computer system architectures found in a factory. [pic] Differences in Technology between MIS and Manufacturing Culture is a structure of components connected in various ways and that the degree of fit between components alters the culture and the effectiveness of the organization.
Analysis of the components and fit must be in terms of a few important “properties” of components. The technologies used in MIS and those used in manufacturing have traditionally been distinct and separate. These technologies have played a significant role in shaping the different corporate cultures in MIS and manufacturing. In this section we compare and contrast the differences between certain “properties” including: hardware, software and system data traditionally found in MIS and manufacturing. Hardware
Traditionally MIS has utilized mainframe computers for corporate transaction processing and MIS-level applications while manufacturing has traditionally used minicomputers for lower-level operational systems. For smaller DSS applications, MIS has more recently provided support for micro-based applications while manufacturing tends to favour more powerful workstations for applications such as CAD and CAE. When computers are used to integrate machine tools, minicomputers or workstations are the platforms of choice.
The hardware gap is even wider for CIM and FMS applications which often require the use of numerical control machines, robotics, programmable logic controllers, machine tools and sensors on the factory floor. Others have recognized and reported the consistent differences in vendors of choice between MIS which tends to favour systems by IBM, Unisys or Hewlett-Packard and manufacturing which tends to favour proprietary systems by DEC, Fisher Controls, Foxboro, Honeywell, Allen Bradley and Cincinnati Milacron. Software
MIS application software is typically developed using procedural, third generation programming languages. A well-defined, structured application environment is characteristic of a typical MIS application, and this allows for the effective use of computer-aided software engineering (CASE) tools. Even programming with fourth generation languages requires a structured design and development approach. Typical design tools include data flow diagrams, entity-relation diagrams and program flowcharts. Manufacturing software is typically used to control machine operations on the shopfloor.
Because of this, specialized languages for programmable logic controllers (PLCs) and robotics controllers are used to synchronize and co-ordinate concurrent machine activities. Unlike third generation procedural languages, PLC programming languages can specify machine functions, timing of machine operations, and machine movement in a three-dimensional co-ordinate system. Software development tools for the manufacturing environment typically include ladder diagrams, and state transition tables. Rarely is time dependency an issue in data processing and MIS systems, but is fundamental in production control processes.
Designing more dynamic systems requires the systems analyst to use non-traditional modelling techniques. Data MIS and manufacturing systems traditionally have dealt with different types of data. MIS systems typically handle fewer types of data and have higher volumes per data type than in manufacturing systems. Manufacturing systems typically have highly dynamic data that is subject to greater changeability and timeliness than in MIS systems. CIM data is difficult to manage and store due to their heterogeneous characteristics, their dynamic nature, and their entity orientations. [pic] Table II.
Comparison of MIS and Manufacturing Corporate Culture Organizational Differences between MIS and Manufacturing In this section we compare and contrast the differences between three “properties” which are organizational in nature in the corporate cultures of manufacturing and MIS: strategic mission, education and historical focus. The strategic mission of corporate MIS is to manage the information resources of the firm, while manufacturing? s strategic mission is to produce product. MIS is typically viewed as a corporate support service whose responsibility is to support the different functional areas of the firm.
MIS is often perceived as a cost centre which drains resources away from the rest of the organization. Because MIS is charged with the implementation of cross-functional information systems, such as CIM, it typically sees IS applications from a top-down vantage. Manufacturing is viewed as a profit centre for the firm. This is because the products that manufacturing produces are a direct source of corporate revenue, the results of manufacturing are quite tangible. MIS Implementation in Manufacturing Sector MIS Implementation in Manufacturing Sector 1. MRP 2. MRP-II 3. JIT
Material Requirements Planning Material Requirements Planning (MRP) is a software based production planning and inventory control system used to manage manufacturing processes. Although it is not common nowadays, it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives: • Ensure materials and products are available for production and delivery to customers. • Maintain the lowest possible level of inventory. • Plan manufacturing activities, delivery schedules and purchasing activities. The scope of MRP in manufacturing
Manufacturing organizations, whatever their products, face the same daily practical problem – that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required. Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below: If a company purchases insufficient quantities of an item used in manufacturing, or the wrong item, they may be unable to meet contracts to supply products by the agreed date. • If a company purchases excessive quantities of an item, money is being wasted – the excess quantity ties up cash while it remains as stock and may never even be used at all. However, some purchased items will have a minimum quantity that must be met, therefore, purchasing excess is necessary. • Beginning production of an order at the wrong time can cause customer deadlines to be missed. MRP is a tool to deal with these problems.
It provides answers for several questions: • What items are required? • How many are required? • When are they required? MRP can be applied both to items that are purchased from outside suppliers and to sub-assemblies, produced internally, that are components of more complex items. The data that must be considered include: • The end item (or items) being created. This is sometimes called Independent Demand, or Level “0” on BOM (Bill of materials). • How much is required at a time. • When the quantities are required to meet demand. • Shelf life of stored materials. Inventory status records. Records of net materials available for use already in stock (on hand) and materials on order from suppliers. • Bills of materials. Details of the materials, components and subassemblies required to make each product. • Planning Data. This includes all the restraints and directions to produce the end items. This includes such items as: Routings, Labor and Machine Standards, Quality and Testing Standards, Pull/Work Cell and Push commands, Lot sizing techniques (i. e. Fixed Lot Size, Lot-For-Lot, Economic Order Quantity), Scrap Percentages, and other inputs.
Outputs There are two outputs and a variety of messages/reports: • Output 1 is the “Recommended Production Schedule” which lays out a detailed schedule of the required minimum start and completion dates, with quantities, for each step of the Routing and Bill Of Material required to satisfy the demand from the MPS. • Output 2 is the “Recommended Purchasing Schedule”. This lays out both the dates that the purchased items should be received into the facility AND the dates that the Purchase orders, or Blanket Order Release should occur to match the production schedules.
Messages and Reports: • Purchase orders. An order to a supplier to provide materials. • Reschedule notices. These recommend cancelling, increasing, delaying or speeding up existing orders. Note that the outputs are recommended. Due to a variety of changing conditions in companies, since the last MRP / ERP system Re-Generation, the recommended outputs need to be reviewed by trained people to group orders for benefits in set-up or freight savings.
These actions are beyond the linear calculations of the MRP computer software. Problems with MRP systems The major problem with MRP systems is the integrity of the data. If there are any errors in the inventory data, the bill of materials (commonly referred to as ‘BOM’) data, or the master production schedule, then the outputted data will also be incorrect. Most vendors of this type of system recommend at least 99% data integrity for the system to give useful results.
Another major problem with MRP systems is the requirement that the user specify how long it will take a factory to make a product (NOTE: IRRESPECTIVE OF CONSIDERING PRODUCTION CAPACITY, BREAK DOWN WORKER AVAILABILITY WHICH MRP2 INCLUDES, AND PRODUCE OUTPUTS CONSIDERING ALL THESE FACTORS) from its component parts (assuming they are all available). Additionally, the system design also assumes that this “lead time” in manufacturing will be the same each time the item is made, without regard to quantity being made, or other items being made simultaneously in the factory.
A manufacturer may have factories in different cities or even countries. It is no good for an MRP system to say that we do not need to order some material because we have plenty thousands of miles away. The overall ERP system needs to be able to organize inventory and needs by individual factory, and intercommunicate needs in order to enable each factory to redistribute components in order to serve the overall enterprise. This means that other systems in the enterprise need to work properly both before implementing an MRP system, and into the future.
For example systems like variety reduction and engineering which makes sure that product comes out right first time (without defects) must be in place. Production may be in progress for some part, whose design gets changed, with customer orders in the system for both the old design, and the new one, concurrently. The overall ERP system needs to have a system of coding parts such that the MRP will correctly calculate needs and tracking for both versions. Parts must be booked into and out of stores more regularly than the MRP calculations take place.
Note, these other systems can well be manual systems, but must interface to the MRP. For example, a ‘walk around’ stocktake done just prior to the MRP calculations can be a practical solution for a small inventory (especially if it is an “open store”). The other major drawback of MRP is that takes no account of capacity in its calculations. This means it will give results that are impossible to implement due to manpower or machine or supplier capacity constraints. However this is largely dealt with by MRP II.
Generally, MRP II refers to a system with integrated financials. An MRP II system can include finite / infinite capacity planning. But, to be considered a true MRP II system must also include financials. In the MRP II (or MRP2) concept, fluctuations in forecast data are taken into account by including simulation of the master production schedule, thus creating a long-term control. A more general feature of MRP2 is its extension to purchasing, to marketing and to finance (integration of all the function of the company), ERP has been the next step. MRP II
Manufacturing Resource Planning (MRP II) is defined by APICS as a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer “what-if” questions and extension of closed-loop MRP. This is not exclusively a software function, but a marriage of people skills, dedication to data base accuracy, and computer resources. It is a total company management concept for using human resources more productively. [pic] Key functions and Features
MRP II is not a proprietary software system and can thus take many forms. It is almost impossible to visualize an MRP II system that does not use a computer, but an MRP II system can be based on either purchased / licensed or in-house software. Almost every MRP II system is modular in construction. Characteristic basic modules in an MRP II system are: •Master Production Schedule (MPS) •Item Master Data (Technical Data) •Bill of materials (BOM) (Technical Data) •Production Resources Data (Manufacturing Technical Data) •Inventories & Orders (Inventory Control) •Purchasing Management Material Requirements Planning (MRP) •Shop Floor Control (SFC) •Capacity planning or Capacity Requirements Planning (CRP) •Standard Costing (Cost Control) •Cost Reporting / Management (Cost Control) •Distribution resource planning (DRP) together with ancillary systems such as: •Business Planning •Lot Traceability •Contract Management •Tool Management •Engineering Change Control •Configuration Management •Shop Floor Data Collection •Sales Analysis and Forecasting •Finite Capacity Scheduling (FCS) and related systems such as: •General Ledger •Accounts Payable (Purchase Ledger) •Accounts Receivable (Sales Ledger) Sales Order Management •Distribution Requirements Planning (DRP) •[Automated] Warehouse Management •Project Management •Technical Records •Estimating •Computer-aided design/Computer-aided manufacturing (CAD/CAM) •CAPP The MRP II system integrates these modules together so that they use common data and freely exchange information, in a model of how a manufacturing enterprise should and can operate. The MRP II approach is therefore very different from the “point solution” approach, where individual systems are deployed to help a company plan, control or manage a specific activity.
MRP II is by definition fully integrated or at least fully interfaced. Benefits MRP II systems can provide: •Better control of inventories •Improved scheduling •Productive relationships with suppliers For Design / Engineering: •Improved design control •Better quality and quality control For Financial and Costing: •Reduced working capital for inventory •Improved cash flow through quicker deliveries •Accurate inventory records •Timely and valid cost and profitability information Industry Specifics MRP II systems have been implemented in most manufacturing industries. Some industries need specialised functions e. . lot traceability in regulated manufacturing such as pharmaceuticals or food. Other industries can afford to disregard facilities required by others e. g. the tableware industry has few starting materials – mainly clay – and does not need complex materials planning. Capacity planning is the key to success in this as in many industries, and it is in those that MRP II is less appropriate. MRP and MRPII: History and Evolution Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) are predecessors of Enterprise Resource Planning (ERP), a business information integration system.
The development of these manufacturing coordination and integration methods and tools made today’s ERP systems possible. Both MRP and MRPII are still widely used, independently and as modules of more comprehensive ERP systems, but the original vision of integrated information systems as we know then today began with the development of MRP and MRPII in manufacturing. The vision for MRP and MRPII was to centralize and integrate business information in a way that would facilitate decision making for production line managers and increase the efficiency of the production line overall.
In the 1980s, manufacturers developed systems for calculating the resource requirements of a production run based on sales forecasts. In order to calculate the raw materials needed to produce products and to schedule the purchase of those materials along with the machine and labor time needed, production managers recognized that they would need to use computer and software technology to manage the information. Originally, manufacturing operations built custom software programs that ran on mainframes. Material Requirements Planning (MRP) was an early iteration of the integrated information systems vision.
MRP information systems helped managers determine the quantity and timing of raw materials purchases. Information systems that would assist managers with other parts of the manufacturing process, MRPII, followed. While MRP was primarily concerned with materials, MRPII was concerned with the integration of all aspects of the manufacturing process, including materials, finance and human relations. Like today’s ERP systems, MRPII was designed to integrate a lot of information by way of a centralized database. However, he hardware, software, and relational database technology of the 1980s was not advanced enough to provide the speed and capacity to run these systems in real-time, and the cost of these systems was prohibitive for most businesses. Nonetheless, the vision had been established, and shifts in the underlying business processes along with rapid advances in technology led to the more affordable enterprise and application integration systems that big businesses and many medium and smaller businesses use today (Monk and Wagner). MRP and MRPII: General Concepts
Material Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) are both incremental information integration business process strategies that are implemented using hardware and modular software applications linked to a central database that stores and delivers business data and information. MRP is concerned primarily with manufacturing materials while MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human relations. The goal of MRPII is to provide consistent data to all players in the manufacturing process as the product moves through the production line.
Paper-based information systems and non-integrated computer systems that provide paper or disk outputs result in many information errors, including missing data, redundant data, numerical errors that result from being incorrectly keyed into the system, incorrect calculations based on numerical errors, and bad decisions based on incorrect or old data. In addition, some data is unreliable in non-integrated systems because the same data is categorized differently in the individual databases used by different functional areas. MRPII systems begin with MRP, Material Requirements Planning.
MRP allows for the input of sales forecasts from sales and marketing. These forecasts determine the raw materials demand. MRP and MRPII systems draw on a Master Production Schedule, the breakdown of specific plans for each product on a line. While MRP allows for the coordination of raw materials purchasing, MRPII facilitates the development of a detailed production schedule that accounts for machine and labor capacity, scheduling the production runs according to the arrival of materials. An MRPII output is a final labor and machine schedule.
Data about the cost of production, including machine time, labor time and materials used, as well as final production numbers, is provided from the MRPII system to accounting and finance (Monk and Wagner). JIT Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs. In order to achieve JIT the process must have signals of what is going on elsewhere within the process. This means that the process is often driven by a series of signals, which can be Kanban, that tell production processes when to make the next part.
Kanban are usually ‘tickets’ but can be simple visual signals, such as the presence or absence of a part on a shelf. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization’s return on investment, quality, and efficiency. Some have suggested that “Just on Time” would be a more appropriate name since it emphasizes that production should create items that arrive when needed and neither earlier nor later. Quick communication of the consumption of old stock which triggers new stock to be ordered is key to JIT and inventory reduction. This saves warehouse space and costs.
However since stock levels are determined by historical demand, any sudden demand rises above the historical average demand, the firm will deplete inventory faster than usual and cause customer service issues. Some have suggested that recycling Kanban faster can also help flex the system by as much as 10-30%. The philosophy of JIT is simple – inventory is defined to be waste. JIT inventory systems expose the hidden causes of inventory keeping and are therefore not a simple solution a company can adopt; there is a whole new way of working the company must follow in order to manage its consequences.
The ideas in this way of working come from many different disciplines including statistics, industrial engineering, production management and behavioral science. In the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says about the management within the company, and the main principle behind JIT. Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. This does not mean to say JIT is implemented without awareness that removing inventory exposes pre-existing manufacturing issues.
With this way of working, businesses are encouraged to eliminate inventory that does not compensate for manufacturing process issues, and then to constantly improve those processes so that less inventory can be kept. Secondly, allowing any stock habituates the management to stock keeping and it can then be a bit like a narcotic. Management is then tempted to keep stock there to hide problems within the production system. These problems include backups at work centres, machine reliability, process variability, lack of flexibility of employees and equipment, and inadequate capacity among other things.
In short, the just-in-time inventory system is all about having “the right material, at the right time, at the right place, and in the exact amount”, without the safety net of inventory. The JIT system has implications of which are broad for the implementers Business models following similar approach Vendor Managed Inventory Vendor Managed Inventory (VMI) employs the same principles as those of JIT inventory however the responsibilities of managing inventory is placed with the vendor in a vendor/customer relationship.
Whether it’s a manufacturer who is managing inventory for a distributor, or a distributor managing inventory for their customers; the role of managing inventory is given to the vendor. The primary advantage of this business model is that the vendor has industry experience and expertise which enables them to better anticipate demand and inventory needs. The inventory planning and controlling is facilitated by the use of applications that allow vendors to have access to the inventory picture of its customer. Third party applications offer vendors the benefit afforded by a quick implementation time.
Further, such companies hold valuable inventory management knowledge and expertise that helps organizations immensely. Customer Managed Inventory With Customer Managed Inventory (CMI), the customer as opposed to the vendor in a VMI model is given the responsibility of making all inventory decisions. This is similar to the concepts employed by JIT inventory. With a clear picture of their inventory and that of their supplier’s, the customer is able to anticipate fluctuations in demand and make inventory replenishment decisions accordingly. Escorts ltd-a case study
Established in 1944, Escorts Limited as a part of Escorts Group, is one of the Pioneer Manufacturer and Exporter of Agri Machineries like Tractors (25 to 75 HP), ; Tractor Parts, Diesel Engines (25 to 60 HP), Gears, Shafts, Gear Boxes, Engine Blocks, Crankshafts, Cylinder Heads, Connecting Rods, Spindles etc. With the country’s most modern tractor manufacturing plants and turnover exceeding $ 500 Mil, ESCORTS ranks among the top conglomerates in the country. The Group manufactures equipment for the core sectors of Agriculture, Transportation and Construction and has achieved market leadership in each of the product categories.
The Agri Machinery Group commenced its’ manufacturing operations in 1964 in collaboration with URSUS (Poland). Subsequent collaboration with FORD, UK (1971 –1996) and Class, Germany placed the company among the leading manufacturers of Agriculture Tractors. With a population of over 1 Million and production capacity up to 98,940 tractors per annum, Escorts Tractors are amongst the largest selling tractors in India where every third tractor is an Escorts brand. The tractors are marketed under three major brands and sixteen basic models. IT Infrastructure at escorts Escorts Ltd. has implemented the following MIS Enterprise Resource Planning (ERP)Vendor: Oracle • Material Requirement Planning (MRP)Vendor: i2 Technologies Enterprise resource system The ERP system has been implemented throughout the organization till depot level. The company is considering integration with dealers when they upgrade to the next version of ERP which is web based. The Oracle ERP system was a replacement for the old Avalon system. The Avalon system was implemented in 1992. The system took around 2 years to be implemented due to the high degree of customization that Escorts wanted as well as the time required by a an organization to adopt a new technology.
The high level of customizations introduced bugs into the system and these bugs had a ripple effect over the operations of the entire system. Also, support from vendor gets limited due to customization. In 2003, Escorts decided to replace the old system with Oracle ERP. By then, ERP was already an integral part of the organization. Hence, this time implementation took only 5 months as the technology was no longer new and due to the company’s policy of zero customization. The reason behind this zero customization is as follows: • Zero customization ( No bugs • Full support from vendor Easier to upgrade to higher versions • Adoption of best practices • Integrity of data is assured Adoption of best practices The company felt that Oracle has already adopted the best practices of the industry and processes while designing the ERP system. Hence, when the system processes were in conflict with the company processes, Escorts decided to adapt their processes to confirm with the software. IT Department The IT Dept. has been outsourced to HCL. Earlier, Escorts has their own IT Dept. but decided to outsource it as it was not part of their core process.
Material requirement planning The company decided against implementing Oracle’s MRP module as they wanted to implement a more sophisticated and analytical system. i2 technologies has a long history in the field of manufacturing software and hence Escorts Ltd. decided to implement the i2 module. [pic] Demand Planner The demand planner is not fully implemented. The system has the capability to allow dealers to directly enter demand into the system through the portal. However, Escorts didn’t want to expose the system to external agents.
Hence, inputs are received from the dealers in an excel file. The demand planner forecasts demand for the coming month on the basis of inputs it receives from the dealers as well as the Marketing Department. This is unconstrained demand which is fed to the Lead Time Netting Program. Lead Time Netting Program On the basis of demand forecast it receives, it calculates lead times associated with the various sourced components and raw material and generates the model wise Demand Order. This demand order acts as an input to the Factory Planner. Spare Parts Division (SPD)
This is a flat file containing the final spare parts demand. This acts as an input to the Factory Planner. Avalon/Oracle System The ERP provides inventory information to the Factory Planner. Factory Planner The Factory Planner analyzes the inputs it receives as well as capacity and feasibility consideration of the plant and generates material procurement suggestions. Production and Marketing Planner Based on the suggestions from the Factory Planner as well as data from the Marketing Dept. a constrained demand forecast is fed to the Demand Planner.
Any adjustment in the demand will result in replan. Implications of replan • Changes in demand forecast • Plant is not able to meet full demand due to cash, capacity or material availability constraints factory planner [pic] User Users of the system provide inputs regarding demand. These users are the dealers and the retailers. The Factory Planner delivers planned production details to them. Demand This demand is the demand forecast provided by the Marketing Dept. The Factory Planner delivers planned production details to them. Product Structure
This provides information regarding the following: • Data regarding part numbers • Bill of Material (BOM) • Routing Factory Model This provides information regarding the following: • Resources • Resource Calendar (Validity of Schedule) Material Availability Provides the following: • Inventory • Schedule Vendor Information • WIP Output The Factory Planner generates the following outputs: • Procurement suggestions • Shop Order suggestions • PO EDC Recommendations How does the factory planner FUNCtion? • Reads demand due dates • Determines by when the materials are required. Checks if material is available • If not, suggests procurement (suppliers, timeline, lead-time are taken into consideration) Suggestions Data Warehouse Though data is regularly cleaned and backed up, no warehouse is there. The company does not feel that cost of a Data Warehouse is justified by the utilization they would again out of it Decision Support Systems Escorts Ltd has no Decision Support Systems in place. Strategic decisions regarding expansion, annual targets etc are taken by the top management without the benefit of a decision support system in place.