MPR review
Session 1 Master Planning of Resource
Balancing Conflicting Business Objectives
Manufacturing Planning Hierarchy
Strategic and Business Planning: Direction Setting
Manufacturing Planning and Control: Tactical and Operations Planning
-Master Planning of Resource (intermediate to long term)
1. S&OP and resource planning
2. Master scheduling and RCCP
3. Demand management
4. Distribution Planning and LRRP
-Detail Scheduling and Planning (DSP)
1. MRP and CRP
-Execution and Control of Operation (ECO)
Production activity control (PAC)
Role of Planning Software in MPC
1. MRP calculators (1960s -1970s) - DSP
2. MRPII & MES (manufacturing execution system) with close loop (1970s – 1980s) –MPR+DSP+ECO
3. ERP - 2+ finance, CRM & SRM, sales & marketing, HR management
Factors affecting MPC System Design
Product complexity, Volume and Variety, and Rate of Production
Process Choice : Project, Job Shop and Batch, Cellular, Repetitive, Flow
Factors influences the evolution of MPC systems: Increasing cost competition, influx of foreign competitors, expansion into foreign markets, outsourcing
Demand management : fcsting, order management, CRM
Fcsting
1. S&OP – fcst capture overall market demand trend at the product family level
2. Master scheduling – fcst are for the product mix at the individual end-item level as required by the MPS
3. Distribution planning – fcst are for both product families and end-item or SKU’s at the distributed inventory stocking locations (ISLs)
Consuming fcst with Orders & Knowledge
Decoupling Point
The type of inventory from which it will begin to fulfill a customer order
-The location in the product structure or distribution network where inventory is placed to
create independence between processes or entities.
Sales & Operations Planning
1. Business process to connects business planning to tactical planning
Key S&OP activities
Aggregate all sources of demand
1. Customer sales including spare parts
2. Interplant/intracompany transfers
3. Promotions, exhibitions and pilot projects
4. Pipeline buildups
5. Quality assurance needs
6. Charitable donations
Establish meaningful units of measure for different manufacturing environments
1. Material supply capacity for MTS
2. MC & labor hours for MTO
3. Engineering labor hours for ETO
Identification of mid-to long-term changes and developments
1. timing or quantity of orders from significant customers
2. distribution inventory policies such as delivery lead times, safety stock, and lot size Resource Planning
1. Capacity check on the production plan
2. Establish, measure and adjust limits of key resources required by product families in the long term : eqmt, facilities, labor, materials, engineering
3. Support longer-range planning – business and strategic planning, by identifying the need for resources with long acquisition and installation lead times
4. Require management approval of major capital investment or human capital decision Master Scheduling
1. Is based on product family data in the production plan
2. Break product family data into a mix of individual end items, or rolls up end-item fcst to match product family volume
3. Produce MPS for individual end items
4. Balances demand (MPS) with supply (key resources)
5. May link to finite scheduling system (software)
Master Scheduling Process Relationships
1. Production plan, consisting of product family volumes and due dates, is the primary input to master scheduling
2. Demand management updates fcst and customer order information
3. RCCP converts the preliminary MPS into requirements for critical production resources such as labor, eqmt and material
4. Distribution planning
- may be used to update demand fcst and actual orders for end items generated by stocking location and organizations in the supply chain
- may use disaggregated demand data from demand management and master scheduling for use in distribution requirements and logistics planning at the end-item or individual product level
-validates the adequacy of distribution resources to execute the MPS 5. Master scheduling results in MPSs for end items
Distribution Planning
1. Apply finished goods inventory stored at distributed ISLs
2. Report distribution inventory, fcst, customer order
3. Acts on disaggregated demand data from centralized S&OP and master scheduling systems
4. Plan logistics resource requirements (WH & transportation requirements) for S&OP - LRRP
5. Plan distribution inventory and logistics requirement for master scheduling: end item level
6. Plan replenishment order releases to factory supply, shipment to ISLs
Session 2 Forecasting Demand
Differentiate between the forecasting requirements at different levels of MPC
Fcsting for S&OP Planning
Fcsting for Master Scheduling & Control
Calculate a roll-up and force-down fcst in pyramid fcsting
Roll-up fcst exp: 1400 usd
Business fcst exp: 1960 usd
Management fcst exp: 1680 usd
Managing fcst
1. People make right decision on fcsting models
2. Access to relevant data
3. Software selection
Ownership of the fcst
Whoever develops the fcst needs to be responsible for executing it and by extension the one who owns it
1. Fcst analyst manage the process, get inputs from other department
2. A consensus fcst is needed among different functions.
Fcst horizon
?Strategic and business planning: three years or longer, for long term resource and capacity
?S&OP: several months to a year or more
?Master scheduling: divide the months into weeks
?Annual budget and financial planning: three months before the start of the budget year, fcst needs to span 15 monts
Fcst interval
?Weekly: Necessary for master scheduling
?Monthly: Most common used
?Quarterly: a few industries with long production lead times
8 steps of forecasting process
1. Data gathering and preparation
2. Forecast Generation
3. Volume and Mix Reconciliation #1
4. Applying Judgment – expertise of a demand manager, demand planner or product manager
5. Volume and Mix Reconciliation#2
6. Decision-Making and Authorization – senior sales and marketing executive, the owner of the
fcst
7. Volume and Mix Reconciliation#3
8. Documenting Assumptions
Product volume and mix reconciliation: Difference/imbalance between the volume and product
mix fcst, the fcst analyst needs to reconcile them.
Fcsting Techniques
Fcsting: External and Internal Factors
Advantages & Disadvantages of Qualitative Techniques
Advantages
?Initial quantifiable data are lacking ?Demand patterns and relationships are highly unstable
?Strong need exists for executive and expert insight
?Long term fcsting needs behavioral insights from market research
?Enable Sales fcsts to be assembled quickly
Disadvantages
?Bias and overconfidence
?Incomplete supporting documentation
?Not practical when organizations have thousands(too many) of stockkeeping units
?Adverse effect of peer pressure in group decision making
CPFR Model
Session 3 Demand Management and Customer Service Guidelines for Evaluating Forecasts
?Forecasts by nature are not perfect
?Good forecasts often forecast the average
?Forecasts are naturally in error
?Measure period forecast error
?Look for bias: demand consistently too high or low ?Identify large magnitudes of demand variation
?Identify forecast improvement opportunities
Mean Absolute Deviation (MAD): MAD=∑||
=
∑
Mean Absolute Percent Error (MAPE): MAPE=
∑(||)
Bias vs. Random variation
Bias =
∑
Random variation:Cumulative variation of actual demand from the cumulative fcst is zero
Advantages of zero bias
Since the forecast approximates the average of the demand, it is easy to use MAD or std to calculate safety stock to buffer against the random variation. In addition, process improvements such as lead time reduction and more flexible production can reduce dependence on forecast Bias is the most important factor to deal with in evaluating and planning the forecast. Remove bias and it is much easier to manage random variation in demand through statistical safety stock Tracking signal
Tracking signal = ;
RSFE: Running sum of forecast error, bias; Tracking signal limit/trip value: 3.0
Is used to track variation in demand, alert the forecast evaluator to this situation by setting a limit or trip value.
If TS<3.0 => forecast is under control
If TS>3.0 => forecast need to be modified
Stand Deviation/Standard Error
∑
Stand Deviation/Standard Error = √
Use n, when period ≥ 30;Use n-1, when period < 30
Stand Deviation = MAD X 1.25
MAD = Stand Deviation / 1.25
Value proposition of CRM
?Differentiate the customer experience from rivals
?Increase customer retention & loyalty
?Provide insight into impending customer orders
Differentiation based on customer segmentation
1. Profitability segmentation;
2. Strategic importance to the business;
3. Special customer needs segmentation
1. Profitability segmentation
A small percentage(20%) of customers will account for a disproportionately large share(80%) of
a supplier’s profitability, special treatment such as discount, priority attention
2.Strategic importance segmentation
Customer leverage suppliers’ overall profitability, their status as going concerns. Customer impose many terms and conditions to suppliers Manufacturers and service providers are financially vulnerable to customer
3. Special customer needs segmentation
Use of Data and Analytics to Improve Sales CRM is a business process
Order fulfillment Cycle
Differentiate ATP(Available-to-promise) and CTP(capable-to-process)
ATP(Available-to-promise)
?Uses the MPS as data source
?Promises from on-hand inventory and future supply(scheduled receipt) ?Uses software to determine if promise is possible
?Defers to demand manager/planner for final decision
?Require high level communication and negotiation with customer
?Works for both MTO and MTS items
CTP(Capable-to-Promise
?Use when MPS can not make another promise
?Set up new MPS if material and capacity is available, or
?Borrows material and capacity from another MPS(another product) ?Is heavily dependent on CTP software
Order delivery Metrics
Perfect order- correct product, place, time, product condition and packaging, qty, documentation and customer
Responsiveness – focus on average cycle time
Order fulfillment life cycle – from acceptance of a sales order to the customer receipt of the product, consist of
?Order fulfillment process time
?Dwell time – the time an order spends waiting to move between process stages
upside SC flexibility - # of days to increase production by 20%
upside sc adaptability - % increase in production achievable and sustainable in 30 days
Downside SC adaptability - % reduction in qty ordered sustainable at 30 days prior to delivery with no inventory and cost penalty
SCM cost – fixed and operational costs of the plan, source, and deliver and return processes; measured per $ 1000 in revenue
Cost of goods sold –
Cash-to-cash cycle time – measure the efficiency of the use of assets (both fixed and working capital), days of working capital tied up in managing the supply chain, from raw material purchases to receipt of payment for product sold
Number of days of inventory + days of accounts receivable – days of accounts payable
Return on SC fixed assets – effectiveness of manufacturer in generating revenues from its capital investment in fixed assets
Purpose of safety stock (buffer inventory) is to provide additional inventory to cover the adverse consequences of stockouts caused by demand and supply uncertainty – customer dissatisfaction, loss of sales revenue
2 methods for selecting a service level for safety stock
Mathematical : Service level % = ; n: stockout number
Judgmental: Define an acceptable fill rate
Best-in-class benchmark or other rate consistent with the product or customer, rate negotiate with customer
Safety stock calculation
Safety stock = σ (std) X SF (safety factor)
Safety stock (SS) adjusted for lead time interval (LTI)
1. σ adjusted for LTI = (σ for FI ) X √ ; FI: Forecast interval
2. SS adjusted for LTI = safety factory X σ adjusted for LTI
Performance measurement process
1. Evaluate relative importance of generic performance objectives (dependability, speed, flexibility)
2. Determine key metrics for generic performance objectives (exp: perfect order fulfillment)
3. Determine lower level measurement criteria for each metric (deliver on time%, delivered in full%)
4. Develop standards or targets (benchmarking)
Five generic performance objective categories (strategic and business plans, functional plans, generic operations performance objectives (attribute), example of key metrics, low level performance measurements and standards SCOR model p 3-64
Session 4 Distribution planning
Institutional and functional channels
Channel Design Factors
1. Customer service criteria
Product variety; Lead time; Lot size; Location convenience 2. Distribution intensity
3. Channel dependence
4. Channel design attribute matrix
p.4-15
Strategic influences on Network Configuration
?Customer service objectives
?Distribution intensity (product exposure)
?Channel dependency
?Transaction complexity (reduction)
?Logistics strategy
Rationale for Multilevel Network
Central supply warehouse -> regional DCs -> Satellite DCs/local warehouse
Customer service advantages
?More reliable, short-distance deliveries to customer
?Reliable lead time, safety stock decrease
Cost advantages
?Transportation costs are minimized, to RDC
? RDC sort and consolidate shipments, thus reduce transactions with satellite DCs, to RDC ? Hold safety stock at RDC, less safety stock in network Purpose Bill of distribution (distribution network structure)
? Facilitate transfer of demand upwards from low level satellite warehouse, RDC to
central supply source
? Document channels of inventory replenishment from supply sources to distributed
inventory locations and on to customer (downwards)
SS for DC =
√
*SS= Safety stock in each warehouse; DC= Satellite distribution center
Performance characteristic to evaluate transportation mode
? Speed: quickness, air =1, water =5
? Completeness: ability to complete the move without help of other modes, motor =1 ? Dependability: Ability to meet on-time delivery, air =1, water=5
? Capability: ability to carry a specific transport load, pipeline=1, Water=5 ? Frequency: Flexibility in picking up and delivering goods, Motor=1, Water=5 ?
Cost, air=1, water=5
Distribution Site Location Factors
Quantitative Factors
Qualitative Factors
Differentiate between allocation and aggregation methods of forecasting Pull and push approaches p 4-43
Pull system has more disadvantages (mainly fcst, demand, visibility between downstream and upstream) than advantages (demand data timely, accurate, closer to customer)
Push system requires a high degree of data sharing and communication, works best when production facilities, RDC, satellite DCs are owned by a single organization, or partnership relationships exist
Calculate a DRP from warehouse gross requirement P.4-55 Special events must be taken into account
Unique Marketing Events – promotions and events such as major sporting or cultural
events, cause demand to spike exp: use firm plan order P4-57
Product Family and Item Forecast
Logistics resource requirements planning