Chapter 3

Long Range

involves planning for actions such as the construction of facilities and major equipment purchase (ref., aggregate production plan - APP). -executive level - Ford Motor Company wants to grow their market share by 5% over the next 1-3 years -over 1 year -R&D -new product plans -capital expenses -facility expansion

components

parts demanded by a parent

Single integrator solution

pick all the desired applications from a single vendor

Best of breed

pick the best application for each individual function. Disadvantage - software may not integrate well but this may not be a major issue in future

Counter-seasonal

product mixing - develop a product mix with antithetic (seasonal) trends that level the cumulative required production capacity (e.g., lawn mowers and snow blowers)

Advantage of MRP

provides planning information

The Bill of Materials

(BOM) - document that shows an inclusive listing of all component parts and assemblies making up the final product -single level -multilevel -planning bill of materials

Available to promise (ATP)

A calculation to provide a response to customer order inquiries, based on product availability -it represent the uncommitted portion of a company's projected available inventory to support customer order promising

Rough-Cut Capacity Planning (RCCP)

A medium-range capacity planning module used to check the feasibility of the Master Production Schedule. Converts MPS from the production needed to the capacity required, then compares it to capacity available.

Firmed Planned Order

A planned order that can be frozen in quantity and time so that the MRP computer logic cannot automatically change when conditions change. Established by the Planner or Supply Chain Manager to prevent system nervousness. This can aid planners working with MRP systems to respond to material and capacity problems by firming up selected planned orders.

Major ERP applications include

Accounting and Finance Customer Relationship Management Human Resource Management Manufacturing Supplier Relationship Management Supply Chain Management

Chase Production Strategy

Adjusts capacity to match demand. Firm hires and lays off workers to match finished output to demand. Finished goods inventory remains constant. Works well for make to order firms -airplane companies do this since training takes time. Union employees are sent back to the union hall, waiting to be recalled. They collect unemployment. Another example are workers that harvest crops

Planning Bill of Materials

An artificial grouping of items (e.g., a product family) in BOM format, used to facilitate master scheduling and material planning.

Single level bill of materials

Display of components that are directly used in a parent item, together with the quantity required of each component (i.e., the planning factor). Shows only the relationships one level down

Backordering

during high demand periods - accept demand greater than supply capabilities

If capacity and demand are nearly equal

emphasis should be placed on meeting demand as efficiently as possible

Advantages of ERP systems

-Added visibility leads to reduced supply chain inventories -Helps to standardize manufacturing processes -Measure performance & communicate via a standardized method

Enterprise Requirements Planning (ERP)

-ERP is an extension MRPII and includes DRP which determines the need to replenish finished product inventory at branch warehouses, when there are multiple warehouses in the network -it is typically implemented through a software platform of integrated functional models facilitating the sharing of real time information and collaboration across multiple business functions necessary for the supply chain to operate efficiently and effectively

Time Fencing

-MPS is the plan that drives the business. Even small changes in the MPS can cause major changes in the detailed production schedule and the material plan, creating nervousness and instability throughout the organization -to minimize the impact of changes in the MPS, many companies have adopted a time fencing policy separating the planning horizon into a firmed time period and a planned time period -firmed time period -planned time period

disadvantages of ERP systems

-Substantial time & capital investment -Complexity -Firms adapt processes to meet ERP system

Manufacturing Resource Planning (MRP II)

-a computer based system that can create detailed production schedules using realtime data -coordinates the arrival of materials with the availability of machine and labor -MRP II is used widely by itself, but also as a module of more extensive enterprise resource planning (ERP) systems

Aggregate Planning Strategies - Supply Options

-change inventory levels -change capacity

Key elements necessary for DRP

-forecast demands by DC -current inventory levels by DC -target safety stock by DC -recommended replenishment quantities -replenishment lead times

terms used in MRP

-gross requirement -net requirement -projected available balance -planned order release -firmed planned order -scheduled receipt -time bucket -parent -components -planning factor -MRP explosion -pegging -lot size -safety stock

Change inventory levels

-increase inventories - build stock in advance of demand in order to use available capacity -decrease inventories - temporarily reduce inventory below normal safety stock levels during peak demand periods to meet customer requirements

Single Level Bill of Materials

-independent demand -dependent demand

Aggregate Planning Strategies - Demand Options

-influencing demand -backordering during high demand periods -counter seasonal product mixing

Implementation problems

-lack of top management commitment -lack of adequate resources -lack of proper training -lack of communication -incompatible system environment

Closed Loop MRP

-synchronizes the purchasing or materials procurement plans with the master production schedule -the system feeds back information about completed manufacture and materials on hand into the MRP system, so that these plans can be adjusted according to capacity and other requirements -the system is called a closed loop MRP because of its feedback feature

Change capacity

-vary production output through overtime or idle time -vary work force size by hiring or layoff -using part-time workers -subcontracting

Basic production strategies

1. Level Production Strategy 2. Chase Production Strategy 3. Mixed Production Strategy

the 3 major ERP providers are

1. SAP 2. Oracle 3. Microsoft other small software firms provide applications (e.g., Sage's MAS 90) as well as full ERP solutions, but lack applistructure (the amalgamation of enterprise applications and technological infrastructure)

Implementing ERP systems

1. best of breed 2. single integrator solution

Developing the aggregate production plan

1. determining the demand for each period covered by the aggregate planning horizon 2. determining the available capacity for each period covered by the aggregate planning horizon 3. identifying any constraints which may influence the plan 4. determining the direct labor and material costs and the indirect manufacturing costs for each product or product family covered by the aggregate production plan 5. identifying or developing strategies and contingency plans to manage the potential upside or downside in the market 6. agree on a plan that best meets the planning goals and objectives

Methods of calculating the available to promise quantities

1. discrete available to promise = (on hand + supply - ordered) per period 2. cumulative available to promise = current period (on hand + supply - ordered) - all future ordered/forecast demand until next MPS quantity

MRP requires

1. the independent demand information, i.e., finished product forecast 2. parent component relationships from BOM 3. inventory status of final product and each of the components and materials 4. planned order releases (output of MRP)

resource requirement planning (RRP)

A long-range capacity planning module used to check whether aggregate resources (i.e., labor and manpower) are capable of satisfying the Aggregate Production Plan.

scheduled receipt

A committed order awaiting delivery for a specific period.

Multilevel Bill of Materials

A display of all the components directly or indirectly used in a parent, together with the quantity required of each component (i.e., the planning factor). If a component is a subassembly, blend, intermediate, etc., all its components and all their components also will be exhibited, down to purchased parts and raw materials

Sales and Operations Planning (S&OP)

A process that brings all the demand and supply plans for the business (sales, marketing, development, production, sourcing, and finance) together to provide management with the ability to strategically direct the business to achieve a competitive advantage -it is the definitive statement of the company's plans for the near to intermediate term, covering a horizon sufficient to plan for resources, and to support the annual business planning process -it links the strategic plans for the business with its execution -it is performed at least once a month and is reviewed by management at an aggregate (product family) level

Safety stock

A quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. Over planning supply versus demand can be used to create safety stock

planned order release

A specific order for a specific item and quantity to be released to the shop or to the supplier.

Gross Requirement

A time phased requirement prior to netting out on hand inventory and lead time

Firmed Time Period

From the current date out several weeks into future -a firm time fence is established at the outer limit of this period to signify when changes can no longer be made automatically by the planning system -recommended changes must be reviewed and approved by the Master Production Scheduler or an authorized person(s)

Planned Time Period

From the end of the Firmed Time Period to the end of the planning horizon -the planning system is free to create or make changes to planned orders in this time period based on the data and planning logic determined by the company

Aggregate Production Plan (APP)

Hierarchical planning process that translates annual business, marketing plans, and demand forecasts into a production plan for a product family in a plant or facility -the planning horizon of APP is at least one year and is usually rolled forward by three months every quarter -includes those costs relevant to aggregate planning decisions: inventory, setup, machine operation, hiring, firing, training, and overtime costs

Enterprise Requirements Planning Systems (ERP)

Information system connecting all functional areas and operations of an organization, and in some cases suppliers and customers, via common software infrastructure and database -ERP provides a means for supply chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing supply chain inventories

parent

Item generating demand for lower-level components.

Planning Responsibilities and Tasks

Long range -> top management intermediate range -> operations middle management short range -> operations managers, supervisor, foreman, etc

Material Requirements Planning (MRP)

MRP - A computer based materials management system that calculates the exact quantities, need dates, and planned order for subassemblies, component parts and materials required to manufacture a final product

Mixed Production Strategy

Maintains stable core workforce while using other short term means, such as overtime, subcontracting and part time helpers to manage short-term demand -construction companies, retail stores at holiday season

Aggregate Planning - Purpose and Goals

Primary purpose is to establish production rates that will achieve management's objective of satisfying customer demand by maintaining, raising, or lowering inventories, while attempting to keep the workforce relatively stable -meet demand -use capacity efficiently -meet inventory policy -minimize cost: labor, inventory, plant and equipment, subcontract

supply chain planning is a combination of

all the planning processes that are used across the supply chain, primarily: -aggregate production planning (APP) -master production scheduling (MPS) -materials requirement planning (MRP) -distribution requirements planning (DRP) -capacity planning

Projected Available Balance

Projected closing inventory at end of a period. Beginning inventory minus gross requirements, plus schedules receipts plus planned receipts from planned order releases

pegging

Relates the gross requirements for a component part to the planned order releases of the parent item, so as to identify the source(s) of the item's gross requirements. Pegging can be thought of as active where-used information.

Level Production Strategy

Relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Firm relies on fluctuating finished goods and backlogs to meet demand. Works well for make to stock firms -plywood, steel, light bulbs, razors are examples. Maybe the changeover is long, or its inefficient to stop/start

InterSupply Chain Planning - Introduction

Supply Chain planning is the element of supply chain management responsible for determining how best to satisfy the requirements created by the demand plan -its objective is to balance supple and demand in a way that realizes the financial and service objectives of the company -operations managers are continuously involved in planning operations and resources to balance capacity and output

Business Planning

The Business Plan, with its long term focus, provides the company's direction and objectives for the next two to ten years -management gathers input from the various organizational functions such as finance, marketing, operations, and engineering, to develop the Business Plan -the plan states the company's objectives for profitability, growth rate, and return on investment -it is then typically updated and reevaluated annually -it is also typically used as the starting point for developing the organization's Production Plan or Aggregate Production Plan

Master Production Schedule (MPS)

The Master Production Schedule represents what the company plans to produce expressed in specific configurations, quantities, and dates, and includes how operations will use available resources -it is a detailed disaggregation of the aggregate production plan (APP) -it is a set of planning numbers that drives material requirements planning note: for the service industry, the master production schedule may just be the appointment log or book, where capacity (e.g., skilled labor or professional service) is balanced with demand

lot size

order size for MRP logic

planning factor

The number/quantity of each component or material needed to produce a single unit of the parent item

MRP Explosion

The process of converting a parent item's planned order releases into component gross requirements

Net Requirement

The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.

Capacity Requirements Planning (CRP)

a short-range capacity planning technique that is used to check the feasibility of the material requirements plan

MPS is a statement of production and not

a statement of demand -it represents what the business plans to achieve not necessarily what the customer wants -as such, individual products can be finished ahead of time (i.e., before they are required to meet demand) and held in inventory rather than only finished as needed

Distribution Requirements Planning (DRP)

a time-phased finished good inventory replenishment plan in a distribution network. the function of determining the need to replenish inventory at branch warehouses. -DRP is a logical extension of the MRP system and ties physical distribution to the manufacturing planning and control system

MPS is reviewed

and updated as necessary

cumulative available to promise

current period (on hand + supply - ordered) - all future ordered/forecast demand until next MPS quantity

Short Range

detailed planning process for components and parts to support the master production schedule (ref., Materials Requirement Planning - MRP) -planner, 1st line Supervisor - 1,000 engines, 1,000 transmissions, seats, windows, etc. each week over the next 1-12 weeks -up to 3 months -job assignments -job scheduling -dispatching -ordering

Capacity Planning

determine the amount of capacity required to produce a good or service in the future -organizations must balance the production plan with capacity. This directly impacts how effectively the organization deploys its resources in producing goods. The following are the major capacity planning tools: -resource requirements planning (RRP) -rough cut capacity planning (RCCP) -capacity requirement planning (CRP)

Disadvantage of MRP

loss of visibility (especially acute for products with a deep BOM), ignores capacity and ignores shop floor conditions

The planning horizon for MPS

must be longer than the lead time to produce the item -typically, the planning horizon of MPS is 3-12 months

Intermediate Range

shows the quantity and timing of end items (red., Master Production Schedule - MPS) -mid level - Ford Motor Company wants to make 1,000 F-150 pick up trucks/week for the next 3-18 months -3-18 months -sales planning -production planning -setting employment, inventory, and subcontracting levels -analyzing operating plans

Influencing demand

so that it aligns to available production capacity (e.g., airline and hotel weekend discounts, telecommunication companies' weekend rates): -advertising -promotional plans -pricing

development of ERP systems

suppliers -> central database with master data -accounting and finance -sales and marketing -customer relationship management -human resources -operations -logistics -supplier relationship management -engineering R&D -> customers

Supply Chain Planning

supply chain planning is usually hierarchical and can be divided into three broad categories: -long range -intermediate range -short range

Independent demand

the external demand for an item that is unrelated to the demand for other items (e.g., finished product). The demand for these items is forecasted and can be affected by trends, seasonal patterns, and market conditions

If capacity is greater than demand

the firm might chose promotion and advertising in order to increase demand

If capacity is less than demand

the firm might consider subcontracting a portion of the work load to an outside third party

MPS must take into account

the forecast, production plan, and other important considerations such as backlog, availability of material, availability of capacity, and management policies and goals

Dependent Demand

the internal demand for items that are assembled or combined to make up the final product (e.g., component parts). Demand for these items is calculated based on the demand of the final product in which the parts are used, by using the planning factor

time bucket

unit of time/time period used in MRP e.g., days, weeks, months