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Enterprise Profitability
Part 2 of 8

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Lean Manufacturing, Basics, Principles, Techniques

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QFD is a method of translating higher-level objectives into concrete actions and metrics, using a tool known as the house of quality. This approach uses the customer requirements as input, then breaks them down by defining how each requirement can be satisfied. It can be used iteratively, at consecutively lower levels. Once a company has decided how it will delight its customers, and what each functional area in the company must do to actually achieve the corporate objec­tives, it has the design objectives for its TEI/ERP system. It can then tailor its system to meet those objectives.
New Product Idea Database
As marketing listens to customer desires, sees current competitive prod­ucts, and hears about potential new competitive products, they can file those ideas in a new product database. R&D or product engineering also contributes to this database as they visit customers to see how the customers are using the company's existing products. R&D uses this data as a primary source as they develop new products. This database normally resides outside ERP today's systems.
Sales and Operations Planning
While marketing represents the customer's desires, a manufacturer must also contend with other competing forces. Sales and operations plan­ning (S&OP) is a process that integrates all the plans for the business (sales, marketing, development, manufacturing, sourcing, and finan­cial). The S&OP process reconciles all supply, demand, and new prod­uct plans at both the aggregate and detailed levels, tying them to the business plan. The planned production levels by product line drive the master production schedule and determine starring requirements. The expected sales by product line can form the basis for the more detailed sales forecasts and for revenue projections.
Manufacturers constantly balance strategic variables to continue to meet continued changes from customers and suppliers. These variables include inventory levels, capacity, alternative sources of supply, lead time to the customer, and new product introductions.
Financial Planning
Virtually all activities within an ERP system are directly connected with the financial system. The S&OP process produces a top-level fi­nancial plan for several months out, which informs the financial ex­ecutives of projected profitability and cash flow.
The ERP system plans the detailed execution of the sales and op­erations plan. The financial planning system can then combine these detailed projections of cash outflows and inflows with other financial data (e.g. investment income, business acquisitions) to create and main­tain detailed financial projections.
Executive Decision Support
Executive decision support encompasses three areas:
1. Decision Support Simulation
Simulation tools can help executives understand the impact of strate­gic and tactical decisions on operating indicators and the profit and loss. These tools utilize data from throughout the TEI/ERP system to project answers to questions such as, what would be the impact on operations and our P&L if we
• changed our model mix, discontinued products, and/or added prod­ucts?
• accepted a hot customer order that requires capacity in our bottle­neck work center?
• brought additional work in that we are currently letting our suppli­ers perform?
• outsourced some current work to suppliers?
• added an additional shift in a bottleneck work cell?
• accepted the customer order for less than our desired selling price?
2. Alert Warning Systems
Alert warning systems in TEI/ERP systems warn executives when the system detects that the threshold value that has been set for a particular attribute has been exceeded. For example, a CEO could set a threshold for yields in a given manufacturing plant; if the actual yields for a given day or week fall below that threshold, the TEI/ERP system would automatically notify the CEO.
This can be a very powerful tool for upper and middle manage­ment. Senior management can set thresholds for each of the attributes that are keys to financial and operational performance, such as gross margin, production volumes, and yield. They can also set thresholds for the attributes on which they are measured by their customers, such as on-time shipments. Middle management can set thresholds for the items for which they are responsible.
3. Business Process Modeling
Several PC-based tools allow a company to model its business pro­cesses to simulate throughput and bottlenecks visually, watching the queues build behind bottlenecks. These tools can be extremely useful in modelling current and proposed business processes in a variety of circumstances, including plant layout, information flows, and ERP implementations (especially in the conference room pilot).

To Be Continued


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