SCM Chapter 3: Supply Chain Planning

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

Product Family

products that share similar characteristics

Available-to-Promise (ATP)

A calculation to provide a response to customer order inquiries, based on product availability. •It represents the uncommitted portion of a company's projected available inventory to support customer order promising. Discrete = (On hand + Supply - Ordered) per period Cumulative = Current period (on hand + supply - ordered) - all future ordered / forecast demand until next MPS quantity

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.

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 Sort of just a list that shows what is needed

Supply chain planning is usually ______________.

hierarchical

Long Range

involves planning for actions such as the construction of facilities and major equipment purchase (ref., Aggregate Production Plan - APP).

Major ERP applications include:

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

Advantages of ERP Systems

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

Primary Planning Processes of SC planning

-Aggregate Production Planning (APP) -Master Production Scheduling (MPS) -Materials Requirement Planning (MRP) -Distribution Requirements Planning (DRP) -Capacity Planning

Disadvantages of ERP Systems

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

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.

Aggregate Planning Strategies - Demand Options

1. Influencing demand (So it aligns with capacity) 2. Backordering during high demand periods (D may >S) 3. Counter-seasonal product mixing: Develop a product mix with seasonal trends that level the cumulative required production capacity (e.g., lawn mowers and snow blowers)

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)

MRP Requirements

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)

Scheduled Receipt

A committed order awaiting delivery for a specific period.

Material Requirements Planning (MRP)

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

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."

Master Production Schedule (MPS)

A detailed disaggregation of the aggregate production plan (APP), listing the exact end items to be produced by a specific period. •More detailed than APP and easier to plan under stable demand. •Planning horizon shorter than APP, longer than lead time to produce the item.

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 Shows what is needed and what goes into what is needed

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.

Gross Requirement

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

Sales & 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. •S&OP is performed at least once a month and is reviewed by management at an aggregate (product family) level.

Capacity Requirement Planning (CRP)

A short-range capacity planning module used to check the feasibility of the Material Requirements Plan.

Planned Order Release

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

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. a logical extension of the MRP system and ties physical distribution to the manufacturing planning and control system

Implementing ERP Systems [2 Types]

Best-of-breed Single integrator solution

Aggregate Planning Strategies - Supply Options

Change inventory levels [↑ before D↑ to use Capacity or ↓ below safety for D↑] Change Capacity [vary output and workforce; use Subcontracting]

Capacity Planning

Determining 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.

What Level is Long-Range done by?

Executive level - Ford Motor Company wants to grow their market share by 5% over the next 1 - 3 years

Firmed Time Period

From the current date out several weeks into future. —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.

Firm Time Fence

established at the outer limit of this period to signify when changes can no longer be made automatically by the planning system.

Aggregate Production Plan (APP)

Hierarchical planning process 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 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.

Three basic production strategies:

Level Production Strategy Chase Production Strategy Mixed Production Strategy

three broad categories of supply chain Planning:

Long-Range Intermediate-Range Short-Range

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 co., retail stores at holiday season

What Level is Intermediate-Range done by?

Mid-level - Ford Motor Company wants to make 1,000 F-150 pick up trucks/week for the next 3-18 months

What Level is Short-Range done by?

Planner, 1st line Supervisor - 1,000 engines, 1,000 transmissions, seats, windows, etc. each week over the next 1-12 weeks.

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

Projected On-Hand Inventory

Projected closing inventory at end of a period. Beginning inventory - gross requirements + scheduled receipts + planned receipts from planned order releases.

Advantage of MRP

Provides Planning Information

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 it's inefficient to stop/ start.

Capacity Planning Tools

Resource Requirement Planning (RRP) Rough-Cut Capacity Planning (RCCP) Capacity Requirement Planning (CRP)

Intermediate-Range

Shows the quantity and timing of end items (ref., Master Production Schedule - MPS)

Bill of Materials (BOM)

document that shows an inclusive listing of all component parts and assemblies making up the final product.

Closed Loop MRP

Synchronizes 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 plans can be adjusted according to capacity and other requirements. The system is called a closed loop MRP because of its feedback feature.

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.

Single Level Bill of Materials - 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.

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.

Time Fencing

To minimize impact of changes in MPS, companies have adopted a time fencing policy separating the planning horizon into a firmed time period and a planned time period:

Time Bucket

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

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.

Enterprise Requirements Planning (ERP)

an extension MRPII 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 modules facilitating the sharing of real-time information and collaboration across multiple business functions necessary for the supply chain to operate efficiently and effectively.

Short-Range

detailed planning process for components and parts to support the master production schedule (ref., Materials Requirement Planning - MRP)

Disadvantages of MRP

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

Lot Size

order size for MRP logic

Supply Chain Planning

responsible for determining how to satisfy the requirements created by the Demand Plan. Its objective, to balance supply 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.

Single Level Bill of Materials - 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.

Key elements of a DRP

•Forecast demands by DC •Current inventory levels by DC •Target safety stock by DC •Recommended replenishment quantities •Replenishment lead times

Implementation Problems

•Lack of top management commitment •Lack of adequate resources •Lack of proper training •Lack of communication •Incompatible system environment