APPLICATION OF MTO CONCEPT FOR EXISTING ERP SYSTEM ^DIVERSITY OF MORATUWA. SRI LAWS W.M.C.P Wanasinghe (06-8107) Dissertation submitted in partial fulfillment of the requirements for the degree Master of Science in operational research Department of Mathematics University of Moratuwa Sri Lanka University of Moratuwa 1 0 0 8 5 7 A p r s \ a o \ \ 1 0 0 3 5 7 ( 0 0 8 5 * 1 I m m m f i DECLARATION I declare that this is my own work and this thesis/dissertation does not incorporate without acknowledgement any material previously submitted for a Degree or Diploma in any University or other institute of higher learning and to the best of my knowledge y and belief it does not contain any material previously published or written by another person except where the acknowledgement is made in the text Signature Date: 1 hereby grant the University of Moratuwa the right to archive and to make available my thesis or dissertation in whole or part in the University Libraries in all forms of media, subject to the provisions of the current copyright act of Sri Lanka. I retrain all proprietary rights, such as patent rights. 1 also retain the right to use in future works (such as articles or books) all or part of this thesis or dissertation.: Date:...ys.7-.P.S\-A-0\.V I have supervised and accepted this thesis/dissertation for the award of the degree Signature of the supervisor: Date: ipJpv/.M1 II Acknowledgement I am heartily thankful to my supervisor, Mr. T.M.J.A Cooray - senior Lecturer of the Department of Mathematics - University of Moratuwa, guiding me throughout this project. I had some difficulties in doing this task, but he taught me patiently until I ^knew what to do. He tried and tried to teach me until I understand what 1 supposed to do with the project work. Then I would like to thank Dr. T S G Peiris- (Head of the Department, Department of Mathematics - University of Moratuwa), whose encouragement, guidance and support from the initial to the final level enabled me to develop the project. Then I would like to say thank you, for giving me the strength and advices to do this project work providing TJL production and planning information to Mr. Gamini Senarathne - former head of TJL planning & Senior Manager in South Asia Textiles Pvt. Ltd and the great support done by Mr. Linkesh Ratnasamy - Head of IT- TJL by letting me to hold a part of TJL MTO project and Mr. Shehan Witharana- Director in Textured Jersey and also thankful to my family members, they also supported me and encouraged me to complete this task so that I will not procrastinate in doing it. Last but not least, it is a pleasure to thank Mr. E.A.C.P.Karunarathne - Senior Lecturer, Department of Industrial Management, Wayamba University of Sri Lanka, who were sharing the ideas and guided me throughout the project works. Lastly, 1 offer my regards and blessings to all of those who supported me in any respect during the completion of the project. Chinthaka Wanasinghe Ill Abstract Companies , organizations and government agencies are all seeking to improve their customer value, eff ic iency and effect iveness , while there are many approaches to improving performance. It is the combinat ion o f management perspective, appropriate improvement methodology and visibil ity on production orders & order status in production and the ability to analyze relevant measures o f performance that will yield best results. lr\ Relay's e c o n o m y , having a good marketing strategy is not enough to meet organizational goals . So organizations are struggling to implement operational strategies, streamline operations, and del iver more value to their customers. MTO (make to order) strategy in ERP (Enterprises Resources Planning) was a decis ion o f Textured Jersey board (reference Textured Jersey Board minutes September 2 0 0 9 ) considering continues improvement. This research is discussed the exist ing approaches and M T O applications that are implemented in SAP ERP system. A l s o w e were considered systems where s o m e products are make-to-stock while another product line is make-to-order. We are also presented the rich and effective strategies for which a variety o f cost and performance measures can be evaluated efficiently by analytical methods . This is also examined an approach to improving operational performance by calculating the "post order cost ing, improve order tractability & forecasting whi le addressing the relevant configurations in the S A P ( E R P Software name) system on M T O strategy and aims to provide the M T O solution map based on the existing production processes at Textured Jersey. Further, the project is addressed the exist ing business 'pain points' (Annexure A) based on the complete Make-to-Order ( M T O ) process and evaluate h o w the S A P - MTO help organizations to measure, monitor, and manage business performance whi le addressing Key performance indicators (KPls ) such as sales order projection profitability, on time delivery o f the sales orders, total sales and profitability per sales order etc. iv f% Con t en t s ~* DECLARATION I ACKNOLEDGEMENT " ABSTRACT Ill CONTENTS IV LIST OF FLGUP'"". VII LIST OF TABLES IX * ABBREVIATIONS X CIII'TT.R 1- BACK GROUND OF THE STUDY I * 1 . 1 INTRODUCTION I 1 . 2 IDENTIFICATION OF RESEARCH AREA I 1. 3 OBJECTIVES OF THE STUDY 3 l. 4 SCOPE OF THE STUDY 4 1 . 5 SIGNIFICANCE OF THE STUDY 4 1. 6 LITERATURE REVIEW 5 1 . 7 CONTENTS OF THE THESIS 8 CHAPTER 2 - INTRODUCTION TO TEXTURED JERSEY LANKA (PVT) LTD 9 2 . l INTRODUCTION 9 2 . 2 T H E OBJECTIVES OF TEXTURED JERSEY, 1 0 ^ 2 . 3 MISSION & V I S I O N O F T . i l n 2 . 4 T H E MAIN PRODUCTS IN T J L 1 1 2 . 5 CUSTOMERS OF TEXTURED JERSEY 1 2 2 . 6 ORGANIZATIONAL STRUCTURE 1 3 2 . 7 PRODUCTION PROCEDURE OF TEXTURED JERSEY 1 4 2 . 8 T J L PRODUCTION & PLANNING SYSTEM 1 4 CHAPTER 3 - S A P , S A P - P P & O P E R A T I O N S PLANNING 1 7 3 . 1 INTRODUCTION 1 7 3 . 1 . 1 INTRODUCTION TO E R P 1 7 3 . 1 . 2 A N INTRODUCTION TO S A P 1 7 3 . 2 S A P PRODUCTION MANAGEMENT 1 8 3 . 3 S A P - PROCESS FLOW 2 0 3 . 4 T J L - PROCESS FLOW 2 1 3 . 5 MATERIAL REQUIREMENTS PLANNING ( P P - M R P ) 2 3 3 . 6 T . I L USE A PLANNING TOOL - W H A T IS FASTREACT? 2 3 CHAPTER 4 - M T O F U N C T I O N A L S C O P E IN T J L 2 4 4 . I INTRODUCTION TO M T O 2 4 V 4> \ 4 ^ 4 . 2 SPECIAL FEATURES IN M T O 2 5 4 . 3 SCOPE OF THE CHAPTER 2 6 4 . 4 THE MAKE TO ORDER CYCLE IN S A P 2 6 4 . 5 M R P FOR M T S AND M T O IN S A P SYSTEM 2 6 4 . 6 PRODUCTION MASTER DATA 2S 4. 7 MAKE TO ORDER PROCESS 2 8 4. 8 MAKE TO STOCK PROCUMENT 31 4 . 9 REPORT REQUIREMENTS IN MTO 3 2 CHAPTER 5 - SOLUTION OVERVIEW FOR TEXTURED JERSEY 3 3 5 .1 INTRODUCTION 3 3 5 . 2 INQUIRY PROCESS 3 3 5 . 3 STRATEGIC GREIGE PURCHASE ORDERS 3 4 5 .3 .1 ROLLING ORDERS 3 4 5 . 3 . 2 NON ROLLING ORDERS 3 5 5 . 4 BENEFITS IN SALES 3 6 5 . 5 DEMAND GENERATION / LOT SIZING 3 6 CHAPTER 6 - PURCHASING, INVENTORY & SALES DELIVERY 3 8 6. I I N T R O D U C T I O N 3 8 6 . 2 BULK YARN PURCHASING, INVENTORY & ALLOCATION 3 8 6 . 3 SPECIAL YARN PURCHASING & INVENTORY - SPECIFIC M T O 3 9 f 6 . 4 DYES & CHEMICAL PURCHASING & INVENTORY-RE-ORDER POINT 41 6 . 5 BENEFITS IN PURCHASING 4 2 • 6 . 6 GREIGE PRODUCTION 4 2 6. 7 DYE PRODUCTION 4 5 6. 8 BENEFITS IN SHOP FLOOR CONTROL = 4 5 6 . 9 DELIVERY & BILLING 4 6 6. 10 BENEFITS IN DELIVERY AND BILLING 4 7 CHAPTER 7 - S A P - M T O BENEFIT ANALYSIS 4 9 7. l INTRODUCTION 4 9 7 . 2 POST ORDER COSTING BY SALES ORDER 4 9 * 7 . 3 THE EFFECT OF LEAD TIME 5 3 7 . 4 ON TIME PRODUCTION UPDATE TO THE SALES ORDER 5 4 7. 5 PROFITABILITY ANALYSIS, (BY PRODUCT, CUSTOMER, ETC.) 5 5 7 . 6 SALES AND OPERATIONS PLANNING ( S O P ) 5 7 7. 7 CREATE S O P PLAN FOR PRODUCT GROUP 5 9 vi CHAPTER 8- DATA ANALYZING 71 8. I INTRODUCTION 71 8. 2 DECISION AID 71 8. 3 DEMAND ANALYSIS 72 8 . 4 ECONOMIC CONSIDERATIONS 74 8. 5 CAPACITY CONSTRAINS 7 6 CHAPTER 9- CONCLUSIONS, LIMITATIONS & FURTHER STUDY 79 9.1 CONCLUSION AND DISCUSSION 7 9 9 . 2 LIMITATIONS 8 3 9 . 3 FURTHER STUDY 8 3 ANN EX DUE A - 8 5 REFERENCES 8 6 vii List of Figures FIGURE l. I FISHBONE DIAGRAM - DIFFICULTIES OF M T S TO M T O 2 FIGURE 1.2 DRAFTED INITIAL MODEL OF THE M T O CHANGE 4 FIGURE 2. l ORGANIZATION STRUCTURE 13 FIGURE2. 2 PROCESS FLOW OF TJ 14 FIGURE 2. 3 EXISTING M T S MODEL OF THE TEXTURED JERSEY 16 FIGURE 3. I STANDARD PROCESS FLOW CHART - E R P ( S A P ) SYSTEM 20 FIGURE 3.2 PRODUCTION FLOW CHART BASED ON S A P 21 FIGURE 4. l M T O PRODUCTION ORDER 27 FIGURE 4.2 CREATING SALES ORDER 29 FIGURE 4.3 SALES ORDER, PLAN ORDER & PRODUCTION ORDER RELATIONSHIP 29 FIGURE 4.4 MULTI LEVEL M R P UP TO YARN 30 FIGURE 4. 5 TRANSFER POSTING 31 FIGURE 4. 6 FABRIC STOCK AGAINST SALES ORDER 32 FIGURES. 1 SMALL ORDER PROCESSING/ LOT SIZING 39 FIGURE 6. l PURCHASE REQUISITION CREATED FOR YARN 40 FIGURE 6.2 P O DISPLAY IN STOCK REQ. LIST 40 FIGURE 6.3 CONVERT PURCHASE REQ. TO P O 40 FIGURE 6.4 PURCHASE ORDER DISPLAY WITH REF OF S O 41 FIGURE 6. 5 CUSTOMER STOCK SHOWN 42 FIGURE 6.6 PLANNED ORDER CONVERTED TO PROD ORDER , 43 FIGURE 6. 7 PRODUCTION ORDER DISPLAY IN M R P LIST 44 FIGURE 6.8 GREIGE STOCK RESERVED FOR SALES ORDER 44 FIGURE 6.9 DELIVERY OF SALES ORDER 46 FIGURE 6. 10 INVOICE FOR SALES ORDER 47 FIGURE 6. 11 BUSINESS FLOW MODEL OF THE S A P M T O AFTER CONFIGURED THE SYSTEM 48 FIGURE 7. 1 PLANNING COST CALCULATION 51 FIGURE 7. 2 ACTUAL COST CALCULATION 52 FIGURE 7.3 POST ORDER COSTING REPORT 53 FIGURE 7.4 COMPARISON- ACTUAL & TARGET LEAD TIMES 54 FIGURE 7. 5 ON TIME PRODUCTION UPDATE 55 FIGURE 7.6 SALES AGAINST THE PRODUCTION QUANTITY 56 FIGURE 7. 7 TOP 50 CUSTOMERS AGAINST TURN OVER 56 FIGURE 7. 8 MATERIAL (FABRIC) BASE PRODUCTION 57 FIGURE 7.9 CREATE PRODUCT GROUP 58 FIGURE 7. 10 CREATE PRODUCT GROUP 59 FIGURE 7. 11 ROUGH CUT PLAN 59 FIGURE 7. 12 FORECAST MODEL SELECTION 60 FIGURE 7. 13 FORCAST PROFILE 61 ^ Iff umsm 8 viii FIGURE 7. 14 FORECAST STRATEGY 61 FIGURE 7 . 1 5 FORECAST MODEL SELECTION 6 2 FIGURE 7. 16 FORECAST HISTORICAL VALUES 6 3 FIGURE 7. 17 S A P GRAPHICS (HISTORICAL OVERVIEW) 6 3 FIGURE 7 . 1 8 INTERACTIVE GRAPH 6 4 FIGURE 7. 19 l-l ISTRRICAL (CORR.) GRAPHS 6 5 FIGURE 7 . 2 0 CORRECTED GRAPH 6 5 FIGURE 7 . 2 1 ORIGINAL & CORRECTED GRAPH 6 6 FIGURE 7 . 2 2 HISTORICAL VALUES 6 6 FIGURE 7. 2 3 FORECAST PARAMETERS FOR AUTOMATIC MODEL SELECTION 6 7 FIGURE 7. 2 4 FORECAST RESULT 6 7 FIGURE 7 . 2 5 FORECASTING MODEL 6 8 FIGURE 7 . 2 6 FORECAST HISTORICAL DATA 6 8 FIGURE 7 . 2 7 FORECAST RESULTS 6 9 FIGURE 7 . 2 8 FINAL ROUGH CUT PLAN 6 9 FIGURE 7 . 2 9 CUSTOMER FORECASTING 7 0 FIGURE 8 . 0 1 ARCHITECTURE OF M T O - M T S DECISION 7 2 FIGURE 8. 0 2 OUTPUT REPORT: DEMAND VARIABILITY ANALYSIS 73 FIGURE 9 . 0 1 SALES ORDER PROJECTIONS - PROFITABILITY CHART 81 FIGURE 9 . 0 2 O T D DETAIL REPORT 81 FIGURE 9 . 0 3 GROSS PROFIT DETAIL REPORT 8 2 ix List of Tables TABLE 2-1 MAIN PRODUCTS AND PRODUCT CATEGORIES 11 TABLE 2-2 CUSTOMERS OF T J L 12 TABLE 3-1 MANUFACTURING MANAGEMENT 2 2 TABLE 8-1 OUTPUT REPORT: ECONOMIC CONSIDERATIONS 7 6 TABLE 9-1 PROJECTION- PROFIT DATA ANALYZING FOR CUSTOMER IN M T S 7 9 TABLE 9-2 M T O SALES ORDER PROJECTIONS - CUSTOMER VS TURNOVER AND QUANTITY 7 9 4 Abbrev ia t i ons MTO Make to Order/ Made to order MTS Make to stock ERP Enterprise Resource Planning SAP ERP Software name (Systems, Applications Products in the area of data processing) OTD On time delivery MRP Materials Requirement Planning BOM Bill of material TJL Textured Jersey (Pvt) Ltd. WIP Work in progress MPS Master Production schedule PP Production Planning FG Finished Goods FR FastReact Software PO Production Order/ Purchase Order SO Sales Order MOQ Minimum order quantity GRN Goods received note LI Line Item RFT Right first time POC Post order costing KPI Key Performance Indicators SD Sales & Distribution MM Material Master TCODE Standard Transaction Code in SAP RM Raw Material SOP Sales and operations planning CODP Customer order decoupling point OPP Order penetration point* RDV Relative demand volatility CMTS Cost for Make to Stock CMTO Cost for Make to Order