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     Merloni TermoSanitari

    New System Evaluation

    BPCS Manufacturing Module Implementation

    April 20, 2000

    Merloni TermoSanitari

    I. Project Background

Merloni TermoSanitari (China) Co., Ltd. (“MTS (China)”) is a wholly foreign owned

     investment entity of Merloni TermoSanitari Group (MTS) in which MTS (China) is

    engaged in the manufacture and sale of high quality electric water heaters.

In order to enhance MTS (China)’s management system efficiency and be compatible

    with MTS headquarters' existing system, MTS (China) planned to implement BPCS

    Distribution, Financial and Manufacturing modules phase by phase. Phase I

    Distribution Module went live in November 1999, Phase II Financial Module (V6.04)

    started in January 1999 and successfully went live in July 1, 1999. For phase III

    Manufacturing and Costing Modules (V6.04). MTS (China) expects that will be

    implemented in September 1999 and go live by January 1, 2000.

    II. Project Objectives and Scope

The Phase III BPCS implementation project covered following modules:

    ? Manufacturing Data Management (MDM)

    ? Master Production Scheduling (MPS)

    ? Material Requirements Planning (MRP)

    ? Shop Floor Control (SFC)

    ? Costing Module (CST)

The major objective of implementing BPCS MDM, MPS, MRP, SFC and CST modules is


    ? Integrate sales forecasting, master production planning, material requirement,

    production management and share common database

    ? Speed up material requirements and saving processing time

    ? Integrate with Financial and Distribution modules

    ? Minimize duplication work in source data input especially in costing, material

    requisition and production performance

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    III. Project Approach

    Steps Detail Objectives Key Tasks By

    Implementation ? Identify and agree Interview with functional managers to AA Preparation upon required understand current business processes and

     changes to future requirements

     software and

     business processes Conduct MRP/MPS/CST conceptual AA/

     training for end users MTS

    Benchmark against Global Best Practices AA

    Database and other engagement



    ? Business Requirement Report

    ? Operation Diagnostic Review

    ? Training Materials

Development & Conduct Prototyping according to business AA/ ? Design and

    Confirmation process requirements MTS implement all

     changes required

     Explain to the end users on the new AA/

     business processes MTS

    Conduct Conference Room Pilot AA/



    ? Business System Map

    ? Requirement Definition Report

    ? Approved New System

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    Steps Detail Objectives Key Tasks By

    Implementation ? Ensure the Conduct End User Training Workshop AA

     readiness of

     procedures, Resolve data conversion issues and test AA/

    personnel and data converted data MTS

    ? Convert static and

    variable data to the Prepare Cut-Over Readiness Checklist AA

    new system

    ? Cut-over to the new Monitor cut-over and resolve cut-over AA/

    system issues MTS

    Provide on line support AA


    ? Cut-over Readiness Checklist

    ? New System Operating

    New ? Evaluate the Review the implementation progress of AA/ System Effectiveness of the new system MTS Operation New System

     Identify possible major implementation AA


    Recommend further improvement AA


    New System Evaluation

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IV. Key Issues

The new system has been running smoothly since went life in January 2000. However, there

     are certain issues that could be improved:

    ID Issues Current Status Solution

    Handling of co-product, Set up co-product in BOM, using

    e.g. one steel coil raw Usage Code “E”. Also define the material may be cut to Not yet started cost percentage of this co-1. produce two types of product as towards the BOM

    steel sheet parent item.

    - Use Batch instead of Interactive run time parameter MRP results are not Finance and Order Entry while exploding MRP stable, i.e. the results batch jobs may affect the - Coordinate with Finance and 2. may be different for execution of MRP Order Entry to avoid sending a consecutive explosions program lot of batch jobs during scheduled MRP explosion

    Delivery plan for some - Planning should coordinate th purchased items must be MRP explosion date, 25with Purchasing to reduce thof each month, is too late issued around 10 of purchasing lead time for those local purchased each month, while the 3. - Consider moving the MRP items with long lead time, monthly MRP explosion explosion date forward to say 15 to 20 days is scheduled to take cover purchasing lead time th place on 25

    Production is responsible for the

    feedback of actual material usage

    The material substitution and yield in a timely manner. In Handling of material taking place in reality is case of material substitution, the substitution while Shop 4. not feed back to the planner should modify the Shop Order is partly received system at present Order, or release a new one, if

    necessary, according to the

    feedback from production

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    ID Issues Current Status Solution

    Many a time, production To avoid intervention of the may assemble more than balanced material flow, Shop Order requirement. production should strictly follow Over production It is roughly estimated 5. the instruction of Shop Orders, that more than 1/3 of the and feed back any variance Shop Orders are over instantly produced

    - Set up Access Right matrix for

    There is currently no each user Access right formal control system in - Implement Access Right 6. place application and approval


    The process developed

    7. Outside operation in prototyping is not Implement the system solution


    - Establish Inventory Accuracy

     performance measure

    Inventory is not accurate - Implement cycle counting as a

    at present. And it is very means to continuously

    8. Inventory Accuracy hard to estimate how far discover and solve the cause

    it went, since there is no of inventory errors. It should

    inventory accuracy function more than just

    performance measure changing unmatched inventory


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    V. Recommendation for Further Improvement

    ? Develop KPIs (Key Performance Indicators) to monitor the status of business

    operations, and reward or penalize the responsible party accordingly. The key

    consideration areas may include:

Data Accuracy and Integrity

    - Forecast accuracy

    - Inventory accuracy

    - Bill of material accuracy

    Asset Management

    - Inventory turns

    - Excess/obsolete inventory

Purchasing Effectiveness

    - Sales per purchasing dollar

    - Purchase dollar per purchasing employee

    - Total purchase dollar versus cost reduction dollar

Cycle Time

    - Quotation processing

    - Incoming inspection

    - Stock-to-consumption

    - Purchase order to receipt

    - Manufacturing build

Flexibility and Responsiveness

    - Capacity adjustment factors

    - MRP re-schedule cycle

    Delivery Performance

    - Lead times

    - On-time delivery percentages

    - Out-of-box quality

    - Customer satisfaction

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? Exploit the system to reduce inventory level. To keep inventory at minimum level, and

    ensure that sales and production are not impacted by material shortage,

    - Purchasing Dept. need to negotiate with suppliers to reduce purchasing lead

    time and lot size to the best interest of MTS

    - Sales forecast should be extended to a longer range, say 12 months as a

    common practice, to cover the planning of imported materials, and be more

    accurate so that the dependence on safety stock for local materials is


    - Specific personnel should be designated to the task of continuously reducing

    inventory level. Normally, it is the Planner’s responsibility

? Develop Standard Operation Procedures to regulate business processes and set up

    discipline for every employee

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