Module 3

Production and Supply Chain

Management Information Systems
 Sales Forecasting
• SAP’s ERP system takes an integrated approach
– Whenever a sale is recorded in Sales and Distribution
(SD) module, quantity sold is recorded as a
consumption value for that material
• Simple forecasting technique
– Use a prior period’s sales and then adjust those
figures for current conditions
• To make a forecast for Fitter Snacker:
– Use previous year’s sales data in combination with
marketing initiatives to increase sales

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 Sales Forecasting (cont’d.)

Figure 4-3 Fitter Snacker’s sales forecast for January through June

Concepts in Enterprise Resource Planning, Fourth 3Edition

 Sales Forecasting
(Final Format)

Sales Forecasting Dec Jan Feb Mar Apr May June

Previous Year (Cases) 5734 5823 5884 6134 6587 6735
Promotional Sales (Cases) 0 0 0 0 300 300
Previous Year Base (Cases) 5734 5823 5884 6134 6287 6435
Growth % 3 172 175 177 184 189 193
Base Projection (Cases) 5906 5998 6061 6318 6476 6628
Promotion (Cases) 0 0 0 0 0 500
Sales Forecast (Cases) 5906 5998 6061 6318 6476 7128

Concepts in Enterprise Resource Planning, Fourth Edition 4

 Sales and Operations Planning
• Sales and operation planning → next in
production planning process.
• Sales and operations planning (SOP)
– Input: sales forecast provided by Marketing and sales
– Output: production plan designed to balance market
demand with production capacity
• Production plan is the input to the next step, demand
management.
Goal : Balance demand with production capacity.
• The goal is to develop a production plan that meets demand without
exceeding capacity and that maintains “reasonable” inventory levels (neither
too high nor two low).
• This process requires judgment and experience.

Concepts in Enterprise Resource Planning, Fourth 5Edition

 Sales and Operations Planning
If Fitter had an ERP system, the calculation would be done as described here.

Figure 4-5 Fitter Snacker’s sales and operations plan for January through June
(first six month)

Concepts in Enterprise Resource Planning, Fourth 6Edition

 Sales and Operations Planning
(Final Format)

Sales and Operations Planning Dec Jan Feb Mar Apr May June
Sales Forecast 5906 5998 6061 6318 6476 7128
Production Plan/ Month (Percentage Increase/ Decrease) 0 0 0 0 2.69 -2.5
Production Plan/Month (Cases Increase/ Decrease based on
0 0 0 0 174 -178
Percentage)
Final Production Plan/ Month 5906 5998 6061 6318 6650 6950
Per Day Production (Max Cases Produced per Day) 333.3
Number of Working Days (Per Month) 21 20 23 21 21 22
Per Month Production Capacity (Max Cases Produced per
6999 6666 7666 6999 6999 7333
Month)
Plant Utilization (%) (Monthly) 84 90 79 90 95 95
NRG-A (Cases) 70 4134 4199 4243 4423 4655 4865
NRG-B (Cases) 30 1772 1799 1818 1895 1995 2085

Concepts in Enterprise Resource Planning, Fourth Edition 7

 Description
Sales forecast - o/p of the sales forecasting process.
Production plan – production plan developed based
on trial and error fashion.
Inventory – Based on previous periods inventory,
sales forecast and production plan.
Working days - Based on company calendar date
Capacity – Based on the possible number of cases
they can produce
Utilization – production plan / capacity

Concepts in Enterprise Resource Planning, 4th Edition

8
 Working days
=200 bars per minute X 60 minutes per hour X 8
hours per day
= 200 x 60 x 8
= 96,000 bars per day

• 200 bars / minute

• 24 bars / box
• 12 box / case
= 96,000 / 24 bars per box / 12 boxes per case
=333.3 Cases per day
Concepts in Enterprise Resource Planning, 4th Edition
9
 Capacity
• Multiplying the no/. Of working days in month times
the production capacity of 333.3 shipping cases per day
gives the monthly capacity in shipping cases
= 21 days → January
=21 x 333.3 = 6999.3 ( capacity)

Utilization:
Jan → 5906
Utilization = 5906 / 6999
= 84%

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Concepts in Enterprise Resource Planning, 4th Edition
 Disaggregate (Output)
• NRG A (cases) = 70% = 70/100* 5906 = 4134
• NRG B (cases) = 30% = 30/100 *5906 = 1772

• Break it down into plans for individual products

[70/30]

• Output of the sales and operations planning

process. They are primary i/p to the demand
management process.

Concepts in Enterprise Resource Planning, 4th Edition

11
 Demand Management (cont’d.)
The demand management process splits Fitter’s monthly production planning values into
finer time periods.
Figure 4-14 shows January’s production plan by week and by day.

Figure 4-14 Fitter Snacker’s production plan for January: The first five weeks
of production are followed by a day-by-day disaggregation of week 1

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 Materials Requirements Planning
(Final Format)

Master Production Schedule Previous Week Week1 Week2 Week3 Week4 Week5
Days 3/1 - 7/1 10/1 - 14/1 17/1 - 21/1 24/1 - 28/1 31-Jan 1/2 - 4/2
Monthly Demand - NRG-A 4134 4134 4134 4134 4134 4199
Monthly Demand - NRG-B 1772 1772 1772 1772 1772 1799
Working days in Week 5 5 5 5 1 4
Working days in Month 21 21 21 21 21 20
MPS Weekly Demand - NRG-A (Cases) 984 984 984 984 197 840
MPS Weekly Demand - NRG-B (Cases) 422 422 422 422 84 360
Each shipping case weighs 72
Convert shipping case weighs to 500

MPS Weekly Demand - NRG-A (Cases) for 500 pound cases (Eg. 984*72/500)
142 142 142 142 28 121

MPS Weekly Demand - NRG-B (Cases) for 500 pound cases (Eg. 422*72/500)
61 61 61 61 12 52
Bill Of Materials of Oats for producing one case of NRG-A 300
Bill Of Materials of Oats for producing one case of NRG-B 250
Gross Requirements of Oats for producing NRG-A (Monthly) 42600 42600 42600 42600 44700
Gross Requirements of Oats for producing NRG-B (Monthly) 15250 15250 15250 15250 16000
Total Gross Requirements of Oats for producing both NRG-A and NRG-B
57850 57850 57850 57850 60700
(Monthly)
Schedued Receipt of Oats 44000 44000
Planned Receipt of Oats 88000 44000 44000
Oats - On Hand 29650 15800 1950 32100 18250 1550

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 Materials Requirements Planning (MRP)
• Determines required quantity and timing of the
production or purchase of subassemblies and raw
materials needed to support master production schedule
(MPS).
– What quantities of raw materials should we order so we can meet
that level of production?
– When should these materials be ordered.
• In Fitter’s case, all product components (ingredients,
snack bar wrappers, and display boxes) are purchased, so
the company could use the materials requirements
planning process to determine the timing and quantities
for purchase orders.

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 Materials Requirements Planning
(MRP)
• Bill of material (BOM): list of the materials
(including quantities) needed to make a
product.
• The BOM for a 500-pound batch of the NRG-A
or NRG-B bars is shown in Figure 4-16.

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 Figure 4-15 The bill of material (BOM) for Fitter Snacker’s NRG bars
The BOM for Fitter’s NRG bars is fairly simple because all ingredients are mixed
together to form the dough; there are no intermediary steps. Many other products,
however, are produced by joining component parts into subassemblies that are then
joined to form the finished product. It is obviously more complicated to calculate the
raw material requirements for products with more complex BOMs.

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 Example – Fitter Snacker
For example:
• Fitter uses large quantities of oats, the most cost-effective
way to purchase oats is in bulk hopper-truck quantities,
which means that the material must be ordered in 44,000-
pound quantities.
• Wheat germ, however, is used in smaller quantities, and to
avoid having wheat germ become stale, Fitter orders it in
2,000-pound bulk containers.
• Protein powder is packaged in 50-pound bags that are
loaded 25 to a pallet, so the most cost-effective way to
order protein powder is by the pallet load (1,250 pounds).

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 Materials Requirements Planning
(MRP) (cont’d.)

Figure 4-17 The MRP record for oats in NRG bars, weeks 1 through 5

Each shipping case weighs 72 pounds → to convert shipping case to 500 pounds
- Multiply the number of shipping cases by 72 pounds per case, and then divide by 500
pounds per batch
- Eg : For Week 1(NRG -A) → 984 * 72 / 500 = 142 ,
(NRG –B) → 422 * 72 / 500 = 61
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 Materials Requirements Planning
(Final Format)

Master Production Schedule Previous Week Week1 Week2 Week3 Week4 Week5
Days 3/1 - 7/1 10/1 - 14/1 17/1 - 21/1 24/1 - 28/1 31-Jan 1/2 - 4/2
Monthly Demand - NRG-A 4134 4134 4134 4134 4134 4199
Monthly Demand - NRG-B 1772 1772 1772 1772 1772 1799
Working days in Week 5 5 5 5 1 4
Working days in Month 21 21 21 21 21 20
MPS Weekly Demand - NRG-A (Cases) 984 984 984 984 197 840
MPS Weekly Demand - NRG-B (Cases) 422 422 422 422 84 360
Each shipping case weighs 72
Convert shipping case weighs to 500

MPS Weekly Demand - NRG-A (Cases) for 500 pound cases (Eg. 984*72/500)
142 142 142 142 28 121

MPS Weekly Demand - NRG-B (Cases) for 500 pound cases (Eg. 422*72/500)
61 61 61 61 12 52
Bill Of Materials of Oats for producing one case of NRG-A 300
Bill Of Materials of Oats for producing one case of NRG-B 250
Gross Requirements of Oats for producing NRG-A (Monthly) 42600 42600 42600 42600 44700
Gross Requirements of Oats for producing NRG-B (Monthly) 15250 15250 15250 15250 16000
Total Gross Requirements of Oats for producing both NRG-A and NRG-B
57850 57850 57850 57850 60700
(Monthly)
Schedued Receipt of Oats 44000 44000
Planned Receipt of Oats 88000 44000 44000
Oats - On Hand 29650 15800 1950 32100 18250 1550

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 Materials Requirements Planning
(MRP) (cont’d.)
Gross Requirement
• The Gross requirements figures are calculated by multiplying the
MPS quantity (in production batches) by the pounds of oats
needed for a batch of snack bars.
• Fitter uses 300 pounds of oats per batch of NRG-A bar and 250
pounds of oats per batch of NRG-B bar.
• Therefore, for Week 1, Fitter needs: (From BOM)
– NRG-A: 142 batches × 300 lb. per batch = 42,600 lb.
oats
– NRG-B: 61 batches × 250 lb. per batch = 15,250 lb.
oats
– Total = 57,850 lb. oats

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Problem Final Consolidation
 Sales Forecasting
(Final Format)
Sales Forecasting Dec Jan Feb Mar Apr May June
Previous Year (Cases) 5734 5823 5884 6134 6587 6735
Promotional Sales (Cases) 0 0 0 0 300 300
Previous Year Base (Cases) 5734 5823 5884 6134 6287 6435

Growth % (Eg. (3/100)*5734 = 172) 3

172 175 177 184 189 193

Base Projection (Cases) (Eg. 5734 + 172 = 5906)

5906 5998 6061 6318 6476 6628
Promotion (Cases) 0 0 0 0 0 500

Sales Forecast (Cases) (Eg. 6628 + 500 = 7128)

5906 5998 6061 6318 6476 7128

Concepts in Enterprise Resource Planning, Fourth Edition 23

 Sales and Operations Planning
(Final Format)

Sales and Operations Planning Dec Jan Feb Mar Apr May June
Sales Forecast 5906 5998 6061 6318 6476 7128
Production Plan/ Month (Percentage Increase/ Decrease) 0 0 0 0 2.69 -2.5
Production Plan/Month (Cases Increase/ Decrease based on Percentage)
0 0 0 0 174 -178
(Eg. (2.69/100)*6476 = 174)
Final Production Plan/ Month 5906 5998 6061 6318 6650 6950
Per Day Production (Max Cases Produced per Day) 333.3
Number of Working Days (Per Month) 21 20 23 21 21 22
Per Month Production Capacity (Max Cases Produced per Month)
6999 6666 7666 6999 6999 7333
(Eg. 333.3 * 21 = 6999)
Plant Utilization (%) (Monthly) (Eg. (5906/6999)*100 = 84) 84 90 79 90 95 95

NRG-A (Cases) (Eg. (70/100)*5906 = 4134) 70 4134 4199 4243 4423 4655 4865

NRG-B (Cases) (Eg. (30/100)*5906 = 1772) 30 1772 1799 1818 1895 1995 2085

Concepts in Enterprise Resource Planning, Fourth Edition 24

 Materials Requirements Planning
(Final Format)

Master Production Schedule Previous Week Week1 Week2 Week3 Week4 Week5
Days 3/1 - 7/1 10/1 - 14/1 17/1 - 21/1 24/1 - 28/1 31-Jan 1/2 - 4/2
Monthly Demand - NRG-A 4134 4134 4134 4134 4134 4199
Monthly Demand - NRG-B 1772 1772 1772 1772 1772 1799
Working days in Week 5 5 5 5 1 4
Working days in Month 21 21 21 21 21 20
MPS Weekly Demand - NRG-A (Cases) (Eg. (4134/21)*5 = 984) 984 984 984 984 197 840
MPS Weekly Demand - NRG-B (Cases) (Eg. (1772/21)*5 = 422) 422 422 422 422 84 360
Each shipping case weighs 72
Convert shipping case weighs to 500
MPS Weekly Demand - NRG-A (Cases) for 500 pound cases (Eg. 984*72/500 = 142) 142 142 142 142 28 121
MPS Weekly Demand - NRG-B (Cases) for 500 pound cases (Eg. 422*72/500 = 61) 61 61 61 61 12 52
Bill Of Materials of Oats for producing one case of NRG-A 300
Bill Of Materials of Oats for producing one case of NRG-B 250
Gross Requirements of Oats for producing NRG-A (Monthly) (Eg. 142*300 = 42600) 42600 42600 42600 42600 44700
Gross Requirements of Oats for producing NRG-B (Monthly) (Eg. 61*250 = 15250) 15250 15250 15250 15250 16000
Total Gross Requirements of Oats for producing both NRG-A and NRG-B (Monthly) 57850 57850 57850 57850 60700
Schedued Receipt of Oats 44000 44000
Planned Receipt of Oats 88000 44000 44000
Oats - On Hand (Eg. ((29650+44000) - 57850) = 15800)
29650 15800 1950 32100 18250 1550
(Eg. ((15800+44000) - 57850) = 1950)

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