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Information Technology for Supply

Chain Management

Software Systems

Electronic Data Interchange (EDI)

Material Requirements Planning (MRP)
Manufacturing Resource Planning (MRP II)
Enterprise Resource Planning (ERP)
Supply Chain Management Systems (SCM)
Customer Relationship Management (CRM)
Supplies management information system

Basic Definitions

MRP (Materials Requirements Planning). MRP is the

basic process of translating a production schedule for
an end product (MPS or Master Production
Schedule) to a set of time based requirements for all
of the subassemblies and parts needed to make that
set of finished goods.

JIT Just-in-Time. Derived from the original Japanese

Kanban system developed at Toyota. JIT seeks to
deliver the right amount of product at the right time.
The goal is to reduce WIP (work-in-process)
inventories to an absolute minimum.

Why Push and Pull?

MRP is the classic push system. The MRP system

computes production schedules for all levels based
on forecasts of sales of end items. Once produced,
subassemblies are pushed to next level whether
needed or not.

JIT is the classic pull system. The basic mechanism

is that production at one level only happens when
initiated by a request at the higher level. That is, units
are pulled through the system by request.


These methods offer two completely different approaches to basic production

planning in a manufacturing environment. Each has advantages over the other,
but neither seems to be sufficient on its own. Both have advantages and
disadvantages, suggesting that both methods could be useful in the same

Main Advantage of MRP over JIT: MRP takes forecasts for end product
demand into account. In an environment in which substantial variation of sales
are anticipated (and can be forecasted accurately), MRP has a substantial

Main Advantage of JIT over MRP: JIT reduces inventories to a minimum. In

addition to saving direct inventory carrying costs, there are substantial side
benefits, such as improvement in quality and plant efficiency.

Comparisons (cont.)


Limited and known Final Inventory

Every job is a High Stress Rush


Worker only consume their time &

Raw Materials on what is actually

Balanced systems MUST be in


Setup times will greatly impact

Quality MUST be High each piece throughput
has a definite place to go else
Any problem will lead to unhappy
immediate feedback is given
customers (either internal or

Comparisons (cont.)


Allows Managers to manage that
is, plan and control things

Can lead to large inventories

Requires intricate knowledge of

Production Times & Product Flow

Can generate large quantities of

scrap before errors are discovered

Can lead to economies of scale in

purchasing and production

Requires diligence to maintain

effective product flow

Allows for the planning and

completion of complex assemblies as Requires maintenance of large and
sub-components are delivered only
complex databases
by scheduled need

Focusing on JIT

JIT (Just In Time) is an outgrowth of the Kanban system developed by

Kanban refers to the posting board (and the inventory control cards
posted there) where the evolution of the manufacturing process would
be recorded.
a Japanese manufacturing system in which the supply of components
is regulated through the use of an instruction card sent along the
production line.
The Fundamental Idea of JIT and Lean Manufacturing Systems in
General (an Americanization of the Toyota P. S.) is to empower the
workers to make decisions and eliminate waste wherever it is found

Just-in-Time and Kanban


JIT system means that incoming goods

arrive, proceed directly to equipment for
processing, become work-in-process, and
through value-added activities become
finished goods just-in-time for the customer
to pick up.

Just-in-Time and Kanban


requires three basic

A Pull system
Continuous flow processing
Adherence to Takt times

Just-in-Time and Kanban



Pull systems are manufacturing systems that

require that products to be produced only when
needed by a customer.

Just-in-Time and Kanban


flow processing

Continuous flow processing focuses on onepiece-at-a-time production.

Stagnation of work-in-process inventory in and
between processes must be eliminated.

Just-in-Time and Kanban



the rate a process must produce an item in order

to meet customer demand.
Takt time is defined as:

Available working time per

Takt time = -------------------------------------------Customer demand rate per

Features of JIT Systems

Small Work-in-Process Inventories.
1. Decreases Inventory Costs
2. Improves Efficiency
3. Reveals quality problems (see Figure 7-10)
1. May result in increased worker idle time
2. May result in decreased throughput rate

River/Inventory Analogy
Illustrating the Advantages of Just-in-Time

Revealing fundamental problems is the noted

competitive advantages of JIT/Lean

Features of JIT Systems (continued)

Kanban Information Flow System
1. Efficient tracking of lots
2. Inexpensive implementation of JIT
3. Achieves desired level of WIP based on Number of
Kanbans in the system
1. Slow to react to changes in demand
2. Ignores predicted demand patterns (beyond 2 months or so)

Just-in-Time and Kanban


display card in Japanese

a sign, card, or label, that communicates what is
needed and when.

Just-in-Time and Kanban


(Pull Inventory Management)

Kanban improves process management by

focusing on visual control of the process.
Kanban cards tell the worker what must be
produced as well as what has been produced.
Workers can not do more than the Kanban cards
tell them to.

Focus on The Kanban

Typically it is a 2-card system

The P (production) Card and W (withdrawal) Card
Limits on product inventory (number of P & W cards)
are set by management policy
The count is gradually lowered until problems
The actual target level (card count) is based on short
term forecasting of demands

Focus on The Kanban

A very simple method of implementing Kanban is the

use of a three bin system. One bin is available on the
floor of the production unit using the product. A second
bin is available at the inventory department of the
factory where the production staff obtains raw
materials. Finally, a third bin is available at the
premises of the supplier who has been selected to
deliver the materials. Each bin contains cards with
detailed information showing inventory numbers
available within the bins and the date which they were

During the process, the factory floor uses the

materials from the bin and, once the bin is depleted,
its Kanban card is returned to the inventory
department. The inventory department immediately
replaces the bin with a full bin obtained from the
supplier or vendor. In turn, the inventory department
sends the empty bin to the vendor or supplier for
replenishment of materials. Suppliers and vendors
stay on top of replenishing needed materials at their
location, keeping them ready for the next exchange.
This three bin method, therefore, doesn't require onsite storage of materials until they are required.

Such bins, represented by Kanban cards, are created

for each of the items required in the production
process. The number of Kanban cards depends upon
the actual number of the items required during each
stage of the process. The control during the assembly
is achieved by identifying every Kanban card needed
to complete the assembly or production. Hence,
Kanban is considered an effective tool in the Just In
Time inventory process within an assembly line

The Lean Manufacturing

Eliminate Waste

Waste is anything that takes away from the operations

GOAL (to make a profit and stay in business!)
Reduce inventory to only what is absolutely needed
Improve Quality scrap and rework are costly and disrupt flow
Only make what is ordered
Make setups and changes quickly and efficiently
Employ only the workers needed
Eliminate Clutter it wastes time

Quotation by Shoichiro Toyoda

Waste is anything other than

the minimum amount of
equipment, materials, parts,
space, and workers time,
which are absolutely essential
to add value to the product.
Shoichiro Toyoda
President, Toyota

1995 Corel Corp.

Sources of Waste

Unnecessary transportation
Inefficient work methods
Inefficient processing
Unnecessary motions
Product defects

Kaizen Philosophy

Continuous improvement
Waste is the enemy
Improvement should be done gradually and
Everyone should be involved
Built on a cheap strategy
Can be applied anywhere

Enterprise Resource Planning

(ERP) Systems

resource planning (ERP) is a

term used to refer to a system that links
individual applications (for example,
accounting and manufacturing
applications) into a single application that
integrates the data and business
processes of the entire business.

Origins of ERP Systems

ERP systems grew out of a function called materials

requirements planning (MRP) which was used to
allocate resources for a manufacturing operation
MRP systems software ultimately became very
complex allowing for efficiencies of scale not
previously possible
Even more sophisticated MRP II systems began to
replace MRP systems in the 1980s
By the early 1990s, other enterprise activities were
being incorporated into ERP systems

Origins of ERP Systems


an ERP system can encompass, but is

not limited to, the following functions:

Sales and order entry

Raw materials, inventory, purchasing, production
scheduling, and shipping
Human resources
Resource and production planning

Major ERP Systems


PeopleSoft (have been merged by Oracle)

Toyota uses PeopleSoft and SAP


Dynamics (formerly Microsoft

Business Solutions - Great Plains)


are major subsystems within the

supplies management information system
that work together to achieve a set of goals.
These major subsystems are (i) order
management system (OMS), (ii) warehouse
management system (WMS) and (iii)
transportation management system (TMS).


of the subsystems operate together

and provide information required to improve
materials transaction purposes but also
serve as decision support tools that assist in
planning the particular activity.
A typical materials order cycle comprises the
following steps: (1) order preparation (2)
order receipt and record, (3) order
processing, (4) warehouse receiving order,
(5) order transportation, and (6) customer


is pertinent to mention that besides OMS

orders being received by a firm, there is a
similar OMS that handles company purchase
orders. Whereas a customer-based OMS
obtains information on firms customers, the
purchase-based OMS concentrates on the
companys suppliers, showing their delivery
performance ratings, costs and terms of sale,
capabilities, availabilities and financial
strength. Frequency monitoring and
evaluation of suppliers is necessary in
optimising selection process.

Warehouse Management System


warehouse management system (WMS)

can operate as a separate subsystem of
logistics system or contain the OMS. The
WMS performs based on the information
obtained from OMS so that materials/sales
department knows the available materials. It
is a management information subsystem that
updates management with information on
materials movement.


functions consist of the following

activities (i) receiving; (ii) put away (iii)
inventory management (iv) order processing
and retrieving and (v) shipment preparation.

Transport Management System


coordinates materials shipment and freight

bill payment. Ascertaining freight charges for
shipments can be complex and complicated
because of the many exceptions that can be
placed on the freight rates. A computer-based
TMS helps in solving the complicated problems
of freight billing and auditing which always
involves a large number of routes and rate

Applications of Information

system assists supply chain

planning and operations in a number of ways
as stated below:

1. Retail System: companies with extensive retail options had

developed integrated information systems to speed up
customer services and increase the efficiency of inventory
management. The high volume daily routine sales and
inventory turnover that retailers experience had forced them to
imbibe the use of computers and the latest order-handling
technology to realize their goals

Vendor-Managed Inventory:

permits suppliers to manage the inventory

level of their clients on continuous
replenishment. With electronic data
interchange and point-of-sale data, vendors
can be aware of retailers sales and inventory
levels. Some retailers allow vendor inventory,
deciding what and when to buy and ship

The growing information technology is allowing

emerging ways for managing the materials flow
of goods in a logistics system. For the method to
be successful, retailers must furnish the vendors
with required information about product sales,
current inventory levels, dates for receipts of
goods and dead stock and returns. This
Information flows to the vendor through an EDI
or other electronic network.

e-commerce uses the internet to facilitate business
transactions. It is a modern way of organising purchasing,
delivering and warehousing materials through websites.
4. Decision Support System: supplies management
information system makes available quality information to
management for better managerial decisions. A welldesigned supplies management information system can
obtain and analyse logistics related data as well as
organise and present it to support the user in making
important decisions.

What is DRP?

provides the basis for integrating supply

chain inventory information and physical
distribution activities with the Manufacturing
Planning and Control system.

What is DRP?

the flow of materials between

firms, warehouses, distribution centers.
DRP helps manage these material flows.
Just like MRP did in Manufacturing.
Links firms in the supply chain by providing
planning records that carry demand
information from receiving points to supply
points and viceversa.

DRP and the linkages


the Front End one of the linkages is with

demand management which connects it with
the customers .
In the Back End one of the linkages is with
the vendors.