Role of Information Technology in the Lean Enterprise Professor Debbie Nightingale October 2, 2002 Deborah Nightingale, MIT ? 2002 Integrated Enterprise Integrated Enterprise Customer Product Development Supplier Network Product Support Finance, H/R, Legal, etc... Manufacturing Operations null Organization null Processes null Technology null INFORMATION Information is a Key Enabler! 2 3 Deborah Nightingale, MIT ? 2002 Learning Objectives Learning Objectives null Enterprise Resource Planning null Product Data Management null IT as Enabler for Collaborative Business Models null Enterprise IT issues Manufacturing Resources Planning Deborah Nightingale, MIT ? 2002 (MRP II) Definition (MRP II) Definition Includes: Business Planning MPS/MRP/CRP Manufacturing Resources Planning A method for the effective planning of all resources of a manufacturing company. Sales & Operations Planning Production Planning Execution Support for Resources and Material All integrated with Finance Source: APICS Dictionary 4 Deborah Nightingale, MIT ? 2002 Master Production Schedule Production Plan Customer Orders Forecasts Materials Requirements Planning Capacity Requirements Planning Work Centers/ Routings Item Master/ Bill of Material Inventory Purchasing Shop Floor Control Finance Functions Typical MRP II Diagram Typical MRP II Diagram Source: haw T. S 5 Deborah Nightingale, MIT ? 2002 Sales & Marketing Human Resources Engineering Manufacturing Finance Distribution CEO Master Production Schedule Production Plan Customer Orders Forecasts Materials Requirements Planning Capacity Requirements Planning Work Centers/ Routings Item Master/ Bill of Material Inventory PurchasingShop Floor Control Finance Functions Typical Organization Chart vs. MRP II Source: haw T. S Quality Field Service 6 Enterprise Resources Planning (ERP) Deborah Nightingale, MIT ? 2002 Definition 1 1 Includes: Typical MRP II Functions Sales Force Automation Engineering Functions/PDM Advanced Manufacturing Function Distribution/Logistics Functions Source: haw T. S Enterprise Resources Planning A method for the effective planning and controlling of ALL these sources needed to take, make, ship and account for customer orders in a manufacturing, distribution or service company. Quality Functions Field Service Functions Complete Financial Functions Human Resources Functions Management Reporting ERP is a System for the Entire Company - A Global Tightly Integrated Closed-Loop System (1) Source:APICS Complex Industries Special Interest Group 7 8 Deborah Nightingale, MIT ? 2002 Sales & Marketing Engineering Distribution/ Logistics Manufact- uring Human Resources Quality Finance Field Service PROGRAM MANAGEMENT Typical ERP Functionality Typical ERP Functionality Source: haw T. S Engineering/Product Data Mgt. Deborah Nightingale, MIT ? 2002 ? Revision Control Source: haw T. S Engineering/Product Data Mgt. null Document Creation, Management & Control null CAD Interface/ Image Management null Configuration Management ? Change Order Creation & Control null Engineering Data Management null Product Information Management null Technical Data Management null Technical Information Management null Engineering Item Data & BOMs 9 Deborah Nightingale, MIT ? 2002 Manufacturing Manufacturing null MRPII Functionality Systems Source: haw T. S ? MPS, BOM, Routings, MRP, CRP,PAC null Sales & Operations Planning null Integrated Production Configuration null Statistical Inventory Control null Flexible Product & Job Costing Options null Kanban/JIT/Flow Manufacturing Support null Theory of Constraints/Advanced Planning 10 Sales and Operations Planning Deborah Nightingale, MIT ? 2002 Capability and Marketing Plans and Schedules null Forecasting Source: haw T. S Sales and Operations Planning null Balance Market Demand With Resource null Develops a Contract Between Manufacturing null A Single Set of Numbers Upon Which to Base null Manages Inventory and Backlog 11 Deborah Nightingale, MIT ? 2002 Advance Planning and Optimizing System Advance Planning and Optimizing System planning multiple plants planning Source: haw T. S null Supply Chain Optimization null Constraint-based multi-location master ? Generation of feasible production plans across null Constraint-based factory level scheduling ? Generation of feasible schedules (integrated with feasible production plan) null Optimized distribution and transportation ? Intelligent allocation of inventory through a network 12 Deborah Nightingale, MIT ? 2002 Distribution/Logistics Distribution/Logistics null Purchasing null Fleet Management null Import/Export Source: haw T. S null Supplier Reliability Analysis null Distribution Requirements Planning null Global Transportation Management null Shipping & Receiving null Warehouse Management 13 Deborah Nightingale, MIT ? 2002 Human Resources Human Resources null Applicant Tracking null Employee Master null Job Descriptions null Benefits Tracking Source: haw T. S null Requisition Management null Employee Evaluations null Training & Certification Management null Payroll Deduction Accounting 14 Deborah Nightingale, MIT ? 2002 Quality Quality Source: haw T. S null Quality Management Plans null Quality Specifications/Requirements null Test/Inspection Results null Cause and Corrective Action Tracking null Process/Product Certification null Statistical Quality Control null Cost of Quality Reporting null Equipment & Tool Calibration Mgt 15 Deborah Nightingale, MIT ? 2002 Finance Finance null Financial Budgets null General Ledger null Accounts Payable null Accounts Receivable null Payroll null Fixed Assets null Cash Management null Financial Statements Source: haw T. S null Activity Based Costing 16 17 Deborah Nightingale, MIT ? 2002 Field Service Field Service null Installation Management null As-Maintained BOM null Warranty Tracking null Preventative Maintenance Scheduling & Control null Service Order Planning & Control Source: haw T. S 18 Deborah Nightingale, MIT ? 2002 Sales & Marketing Engineering Distribution/ Logistics Manufact- uring Human Resources Quality Finance Field Service System Wide Elements Technology Implementation Support Tools People / Processes Typical ERP Integration Typical ERP Integration Source: haw T. S Typical ERP Integration Deborah Nightingale, MIT ? 2002 null System Wide Elements (EVM) null Work Flow Management null Multi-Company null Multi-Currency null Multi-Lingual null Multi-Mode null Imaging & Multi-Media Source: haw T. S Typical ERP Integration null Project Management & Project Costing null Executive Management Information System null EDI / Electronic Commerce null Web Enabled / Internet Communications 19 Deborah Nightingale, MIT ? 2002 People / Processes Open Systems Client/Server RDBMS Standard APIs GUI, both navigation and function CASE Tools 4GL Report Writer/Data Warehouse Typical ERP Technology Typical ERP Technology Source: haw T. S 20 Deborah Nightingale, MIT ? 2002 Why ERP? Why ERP? Requirements null Source: haw T. S There Are Several Reasons Why a Company Will Consider The Implementation of a New Backbone Business System: null To Improve the Profitability of the Company null To solve problems of Legacy Systems (Year 2000) null To Be Able to Cope With New Production To Provide the Architectural Anchor for Rationalization of Acquisitions null To Provide Interoperability of Its Organizations null To Provide the Means for Supply Chain Management 21 22 Deborah Nightingale, MIT ? 2002 Reduce Costs - How Will ERP Help? Enable Reduced Resource Requirements due to: Why ERP? (continued) Why ERP? (continued) null Fully Integrated Systems Where Everyone Has Instant Access to the Latest Accurate Information null One Data Base, Data Is Added Only Once and Used by All null The System Allows Interoperability of the Internal and External Supply Chain null On Line (Vs.Batch) System Elements - Data Is There Automatically null Work Flow Is Managed Efficiently Through System Action Messages and Routing of Decisions null Paperless Systems Allow Efficient On-line approvals Source: haw T. S Who is Using and Installing ERP? Deborah Nightingale, MIT ? 2002 America's Most Successful Companies America's Most Successful Companies 6 out of the top 10 companies 7 of the 10 most profitable companies 9 of the 10 companies with the highest market value 7 of the top 10 pharmaceutical companies. 7 of the top 10 computer companies. 7 of the top 10 petroleum companies. 6 of the top 10 electronics companies. 8 of the top 10 chemical companies. 8 of the top 10 food companies. 23 24 Deborah Nightingale, MIT ? 2002 Learning Objectives Learning Objectives null Enterprise Resource Planning null Product Data Management null IT as Enabler for Collaborative Business Models null Enterprise IT issues PDM Functional Components Deborah Nightingale, MIT ? 2002 null Electronic Vault null View and Markup null Work Flow null Tools and Integration- ware null Electronic Collaboration Source: Shaw, Andersen consulting Source: haw T. T. S null Configuration Management null Project Management null Design Retrieval/ Component Libraries null Scanning and Imaging 25 26 Deborah Nightingale, MIT ? 2002 Product Data Management (PDM) Team Data Management (TDM) Electronic Document Management Systems (EDMS) Work Group Enterprise Inter-enterprise Configuration Management CAD Integration Work Flow Document Vaulting Document Imaging Functional Scope An “Industrial Strength” PDM Enables All Participants Involved with Design Intent to Share and Disseminate All Heterogeneous Product Data All Heterogeneous Product Data Source: haw T. S 27 Deborah Nightingale, MIT ? 2002 CAD PDM WFM Enterprise Requirements Planning Planning and Scheduling Manufacturing Execution Systems Performance Measurement and Enterprise Management Systems Enetrprise Connectivity PDES/IGES Interoperability Near Real-Time "MRP" With Algorithms Appropriate to the Industry Dynamic Lead-times Capacity Constrained Master Scheduling IPPD Simulations Models Constraint Management Manufacturing Execution Systems Appropriate to the Industry Constraint Based Scheduling RF Data Transmission Marketing Strategic Planning Sales Management Engineered by Customer New Technologies Two Dimensional Geometry Three Dimensional Geometry Solids Computer Aided Engineering “One” Bill of Materials Generate Demand Supply Chain Logistics and Customer Support Fulfill Demand Source: haw The "Big M" or Enterprise View Encompasses all Components of the Product Life Cycle Components of the Product Life Cycle T. S Deborah Nightingale, MIT ? 2002 RoutingPart Master Project Management ECAD Redline CSM Workflow CAM MCAD Configuration Management Bill of Material CAE Source: haw PDM Systems View of Functionality PDM Systems View of Functionality T. S 28 Deborah Nightingale, MIT ? 2002 ERP Systems View of Functionality ERP Systems View of Functionality Financials Quality Distribution Sales & Marketing MRP IICSM Bill of Material Routing Part Master Human Resources Source: haw T. S 29 The Enterprise View of PDM-ERP Functionality ERP Functionality Shared Resources Routing Configuration Management Sales & Marketing Distribution Workflow CAE ECAD CAM Redline PDMMCAD Project Management Financials Human Resources MRP II Quality ERP Data Vault Part Master Bill of Material CSM Concurrent Engineering Interoperability Area Interoperability Area Management Reporting Design Manufacture Source: hawDeborah Nightingale, MIT ? 2002 30 T. S Support/Service Customer A Robust PDM Product Interfaces with Most Core Processes and Their Best Practice Implementation Processes and Their Best Practice Implementation null Instantaneous Delivery null Real Time Services Solutions null Near Real Time Customer Reaction Assessment null Service Actions Data Base null Adaptive Maintenance Generate Demand null Global Requirements - Local Interpretation null Ultimate Customer Knowledge/ Understanding/ Characterization null Real Time Market Intelligence null Solutions Provider null Customer(s) Chain Life Cycle Characterization null Information Technology Resources Optimization Emerging Best Practices er i Best actices null Highly Segmented Market Intelligence Develop Products/Processes null Rapid Cycle Time Execution null Team Based Program/Project Implementation null 6 s Process Variability null Information Technology Resources Optimization null Multi-Discipline, Multi- Function Team Composition null Integrated Development Processes null Integrated Product/Process Release null Full System/Product/ Process Modeling/ Simulation Fulfill Demand null Single Bill of Materials null Integrated Supply Chain null Low Process Variability: Cpk 3 1.6 null Just-in-Time Inventory Strategy null Information Technology Control of Operations null Real Time Supply Network Integration Deborah Nightingale, MIT ? 2002 Source: T. Shaw 31 32 Deborah Nightingale, MIT ? 2002 PDM ERP ERP ERP PDM PDMPDM ERP PDM ERP PDM - ERP Will Dictate the Industry’s Future for ERP Will Dictate the Industry’s Future for Integration and Interoperability Integration and Interoperability null “Single System” versus “Integrated Systems” Solution null Examples of Each Model Are Successfully Used null Many Issues Impact Appropriate Decision ? Scope, focus, objective, business, interoperability Source: haw T. S Integrated vs. Best of Breed 2002 Ferrari Roadster 385hp Engine Tiptronic Transmission Multi Link Transaxle Motronic Fuel Injection Ferrari Designed Pirelli Tires (all components specifically designed to Ferrari ecifications) 2002 Best of Breed Ferrari Roadster Corvette 5.0 Liter Engine BMW M3 Transmission Porsche Transaxle Maserati Fuel Injection System Mercedes Designed Michelin Tires Ferrari Dealership Big Al’s Auto Nirvana sp Interfaces and Problem Resolution ?? ?One Call to your local Ferrari Service Mgr ?Do you call the Service Mgr from….. ?You are Covered by a Single Warranty Corvette, BMW, Porsche, Maserati or Mercedes ?? Deborah Nightingale, MIT ? 2002 Source: T. Shaw 33 Deborah Nightingale, MIT ? 2002 ERP Issues ERP Issues 1. ? ? ? ? ? 3. Process Re-Engineering ? ? 4. Data Conversion ? essential ERP - a Strategic Enterprise Decision Providing interoperability of systems Integrating supply chain Enabling collaborative partnering 2. Implementation - can’t be outsourced! Core cadre of key process owners Minimum dependence on third party providers Examine existing processes Upgrade to best practices BEFORE implementing ERP Cleansed and accurate population of new data bases in 34 ERP Issues (continued) Deborah Nightingale, MIT ? 2002 5. Stress Testing ? ? 6. Stabilization of Systems ? ? ? from ERP ? 8. Education and training ? ? ERP Issues (continued) Akin to a major system qualification Often short changed since it occurs late in implementation Minimum of 60 days after going live Requires contingency plan for addressing by deliverables 7. Discipline - No cheating allowed! Enterprise management must insist all data/reports come Significant cultural change Personnel involved need extensive training At least 10% of implementation budget 35 ERP Issues (continued) Deborah Nightingale, MIT ? 2002 ? capable people ? ? ? ? ERP Issues (continued) 9. Implementation Cycle Time Critical to assign outstanding program managers and Up to 100 people at one time Cycle times of 15 months can be achieved 10.Cost -- why are ERP systems so expensive?!!! ERP rolls all or most legacy systems, their licensing costs, maintenance costs, etc. into one systems ROI can be VERY SIGNIFICANT! 36 37 Deborah Nightingale, MIT ? 2002 Learning Objectives Learning Objectives null Enterprise Resource Planning null Product Data Management null IT as Enabler for Collaborative Business Models null Enterprise IT issues 38 Deborah Nightingale, MIT ? 2002 Customers, employees, suppliers and business partners working together as one successful entity. Everyone Shares Information The The Vision Vision of Collaborative Business of Collaborative Business “Seamless flow of information” Source: LEM Overarching Principle Personal, Collaborative Solutions on Deborah Nightingale, MIT ? 2002 null Marketplaces Collaboration hubs null Workplaces access Intelligence, null Application Hosting Demand emand Source: haw T. S Portals for personalized, universal, role-based null e-Business Applications e-Commerce, CRM, SCM, Business Logistics, Financials, Human Resources Throughout the solution life cycle 39 40 Deborah Nightingale, MIT ? 2002 Selling companies Buying companies Suppliers Partners Customers Employees Marketplace New World Old World Electronic Marketplaces / Portals / Internet Hubs Source: hawT. S Needed: null A plan null Openness null Partners‘ components null Cross company synchronization null Federated Marketplaces null Common messaging semantics Needed: null A plan null Openness null Partners‘ components null Cross company synchronization null Federated Marketplaces null Common messaging semantics Time before plan changes Strategic nature of integration Low High High Hacker‘s heaven A real plan: integration architecture Go to the lab: ? Short term Buy/build tactically Progra m Progra m Progra m Progra m Progra m Ex t r a ct Progra m Do wn- loa d File Lo a d Progra m Screen Scra pe Tr a n s- action File Ex t r a ct Progra m Do wn- loa d File Lo a d Progra m Me ssa g e Queue Lo a d Progra m Da t a b a se Re p lica t o r Down- loa d File Ex t r a ct Progra m Tr a ns- action File Me ssa g e Queue Application System B Progra m Application System CApplication System A CRM SCM ERPBI eCom- merce Workplace Marketplace Integration Continues to be Key Deborah Nightingale, MIT ? 2002 Source: haw 41 fix: T. S New Type of Inter-Enterprise Apps Deborah Nightingale, MIT ? 2002 null Components migrate into marketplaces null Serving multiple companies at a time null Hosted null Ubiquitious null Personalized null Self help null Partner software built-in null Integrated with back-end null Scalability, performance, availability and security Source: haw T. S A) B) null Supply Chain Optimization null MRO Procurement null Direct Procurement null Planning and Optimizing null Analysis null Relationship Management null Sales null Service null Marketing 42 Evolution of Business Solutions Evolution of Business Solutions 43 Deborah Nightingale, MIT ? 2002 Enterprise Resource Planning Inter-Enterprise Cooperation null Objectives ? Cost and Efficiency ? Optimization ? Supply Chain Excellence null Cooperation across enterprises null Process-orientation null Focus on point-to- point linking null Objectives ? Cost and Efficiency ? Automation ? Best-Practice Business Processes null Integration of business processes null Process-orientation null Focus on internal systems Business Collaboration null Objectives ? Create Value ? Flexibility ? Customer Relationship Management null Collaboration within business communities null User-orientation null Focus on the Internet hub Source: haw T. S 44 Deborah Nightingale, MIT ? 2002 A&D IDE Navy SRM Exchange Air Force Boeing Ex. NAVSUP NAVAIR NAVSEA NASA Ex. DoD DLA SRM Exchange Large Suppliers Small Suppliers Web Browser b Browser Potential Suppliers portal-based interaction exchange-based integration Enterprise Systems terprise Syste s Source: SAP Group Example: on a Web Services Architecture SRM Collaboration Application 45 Deborah Nightingale, MIT ? 2002 PO RT AL A PP LI C A TI O N S E X C H A N G E Portal Infrastructure null User-centric collaboration null Unification of underlying sources for seamless navigation null Device independent presentation technology Web Application Server null Web services provision null Open standards-based connectivity through native Web technology null Platform independent infrastructure Exchange Infrastructure null Process-centric collaboration null Common business process semantics for seamless integration null Application-independent business process collaboration * Example mySAP Technology Source: SAP Group Web Services Architecture Web Services Architecture 46 Deborah Nightingale, MIT ? 2002 Learning Objectives Learning Objectives null Enterprise Resource Planning null Product Data Management null IT as Enabler for Collaborative Business Models null Enterprise IT issues ERP Evolving Reality Deborah Nightingale, MIT ? 2002 sizes solution transaction processing quality ERP Evolving Reality null ERP systems are being implemented in companies of all null ERP is generally viewed as a business solution, not an IT null Results on cost reduction for IT operations are mixed null A single ERP system does not provide end-to-end solution - most companies use systems for specialized functionalities or decision-making processes null ERP simplifies and standardizes systems across the firm null ERP systems are very stable, able to handle large null ERP systems significantly improve data availability and null Most companies are pleased with their ERP systems Source: Mabert, Soni and Venkataraman, “Enterprise Resource Planning: Common Myths Versus Reality” 47 Is There a Lean Way to Implement Enterprise Information Systems? Deborah Nightingale, MIT ? 2002 1. Address process ? ? ? requirements ? Supplier ? Partner ? Enterprise Information Systems? Simplify/eliminate waste Determine “best practice” Standardize across enterprise 2. Determine enterprise processes information 3. Integrate information using ERP/PDM systems 4. Implement across extended enterprise e-commerce/e-business 48