Module 3 Section D: Implementation of Demand Plans

Benefits of time fences

- can help balance the need for a production system to maintain scheudles and control costs against the need for it to be flexible. - Flexibility is needed because customers can cancel orders or request changes --equipment failure, capacity issues.

Malfunction recovery

- contingency plans - EX: avg number of days (or hours) from malfunction to recovery can be measured.

Measures of customer service levels

- Customer service fulfills marketing objectives. - Key question in developing customer service strategy - Does the cost associated with acheiving specified service performance represent a sound investment? --fundamental measures of basic customer service are fill rates, lead time monitoring, order status monitoring, and customer satisfaction.

Planning horizon

- DEF: amount of time a plan extends into the future.

Continuous replenishment (CR)

- DEF: supplier is notified daily of actual sales or warehouse shipments and commits to replenishing these sales without stockouts and without receiving replenishment orders. --results in lowering of associated costs and an improvement in inventory turnover. - aka rapid replenishment - relies upon POS data by retailer and supplier. - supplier uses POS data to prepare shipments at intervals determined in partnership with the customer. - goal is continuous reduction of inventory levels at the store as the forecasts become more accurate.

Quick response program (QRP)

- DEF: system of linking final retail sales with production and shipping schedules back through the chain of supply. --employs POS scanning and electronic data interchange and may use direct shipment from factory to a retailer. - customer still typically submits the individual orders. Supplier uses the POS data to improve synchronization of supply with actual demand by using the POS data as the basis for scheduling production and determining inventory levels.

Demand prioritization in MS and MRP

- Master scheduling (MS) - establishing planning horizons and setting time fences for master scheduling into the future to ensure that demand plans are implemented properly. - Material requirements planning (MRP) - using MS and MPS to overall production planning process.

Capturing data at the POS

- POS - relief of inventory and computation of sales data at the time and place of sale, generally through the use of bar coding or magnetic media and equipment - Point of sales information - information about customers collected at the time of sale. POS benefits: 1. Capture data on product SKU (price, promotion, inventory 2. Replace a push system with a demand-pull system 3. Deduct inventory from the books immediately 4. Immediately forward accounting information to finance. 5. Collect information about purchasing habits 6. reduce bullwhip effect 7. Reduce data errors 8. Update POS systems at reduced cost. - Business portals allow individuals to see exception-based information and forecasts based on POS data. This data is presented on a dashboard.

Sharing data among trading partners

- POS data and forecasting has to be married to an inclusive SCM process. - Partners must collaborate and be willing to share information to develop a single forecast. --goal is to replace estimates with data reflecting customers buying patterns - Collaborative planning, forecasting, and replenishment (CPFR) 1. Distributor integration 2. Quick response program 3. Continuous replenishment 4. Vendor-managed inventory

DEMAND PRIORITIZATION

- Supply is often constrained or lacking, demand needs to be prioritized to guarantee that the SC as a whole is well served and the org uses its resources wisely so that operations lead to profitable business results. --may include setting time fences --includes allocation of supply --giving visibility to projected available balance and what is available to promise to customers.

Vendor-managed Inventory (VMI)

- Vendors have access to customer's POS inventory data for items they supply. --vendors responsible for maintaining the inventory level required by the customer. --vendors perform actual resupply.

Allocation of supply

- allocation - DEF: classification of qtys of items that have been assigned to specific orders but have not yet been released from the stockroom to production. It is the "uncashed" stockroom requisition. - process used to distribute material in short supply. - involves finding ways to commit inventory and scheduled production to specific customer orders, including order promising.

Projected available balance (PAB)

- available inventory - DEF: on-hand inventory balance minus allocations, reservations, backorders, and qtys held for quality problems. - inventory balance projected into future periods --whenever the PAB falls to a negative value or below the safety stock level, the MPS must be reevaluated. - MPS logic calculates the PAB for all future periods based on the beginning inventory and the demand for each period --based on a calculation of ending inventory equals beginning inventory plus any additional supply minus any demand - prior to the demand time fence (DTF) we are only concerned with the known component of demand (customer orders). After the DTF it is the higher of orders or forecast. --only orders we have in hand will consume the on-hand inventory. Deyond the DTF, ,we can expect to receive more orders than those already booked. - MPS logic uses the PAB level to determine when additional product is needed and proposes an MPS activity --MPS has to be checked with the RCCP to verify that capacity is available. --MPS logic is for the PAB to go negative before ordering.

Getting started

- customer and supplier may go directly into a full-scale VMI alliance, or they may take it a step at a time. - at the beginning the customer may exercise thorough oversight of the process. --ultimate goal is for the supplier to control the ordering process Steps in getting started: 1. Contract negotiation - transfer ownership o the inventory, terms of credit, performance metrics 2. Integration of information systems 3. Joint development of replenishment 4. Development of a shared forecasting process 5. Development of logistical supplier tools 6. Hiring or training personnel

Speed of performance

- elapsed time from when a customer places an order until the product is delivered to the customer and is ready for use. - Idle time may constitute a large percentage of production time, while work or run time makes up a small percentage. - cycle time - DEF: 1. industrial engineering - time between completion of 2 discrete units of production 2. materials management - length of time from when materials enter production facility until it exits. - Speeding up cycle time in production reduces WIP in inventory costs and meets SCM goals of reduced cost and improved customer service. --tradeoff may be in the cost of equipment, facilities, training, or hiring. --may be worth it if it benefits to consumer. Speed of performance measured by metrics: 1. Order delivery cycle time 2. Time to process a customer-requested change 3. Time to respond to a customer query 4. avg wait time to be connected to an operator 5. % of calls that encounter a busy signal 6. % of calls to customer service that are abandoned.

Master schedule items

- master scheduled item - DEF: part number selected to be planned by the master scheduler. Item is deemed critical in its impact on lower level components or resources such as skilled labor, key machines, or dollars. --master scheduler maintains the plan for these items --master schedule item may be an end item, a component, a pseudo number, or a planning BOM. - a modular or planning BOM is one of the alternative types of items that can be master-scheduled. --master scheduling process is used to forecast the number of modular BOM items needed in total for the period's production. - Modular BOM allows some flexibility in master scheduling of product mixes as actual customer orders come in. --simplifies forecasting and MS and MRP planning by allowing aggregate planning and reducing the number of items that must have their own MS grid and BOM - Modular BOM can help create economies of scale when ordering bulk standardized parts.

Lead time monitoring

- measuring the time needed to deliver a customer order. --speed of performance --consistency --flexibility --malfunction recovery

Consistency

- number of times that cycles meet the amount of time planned for completion. Greater value is typically placed on consistency than on speed of service --direct impact on the customer's ability to conduct their activities. Metrics: 1. Variance in lead times 2. % delivered in quoted lead time.

Distributor integration (DI)

- occurs when distributors are integrated using information systems so the expertise and inventory located at one distributor are available to the others, such as sometimes exists between auto dealerships - inventory related DI - Distributors gain flexibility without having to carry excess stock. - service related DI - individual distributors build expertise in different areas. --ex: customer requests service, which is routed to distributor with most expertise. Customer's perception of distributor's ability increases. --Ex: restaurant services - procurement systems and strategies are automated. Obstacles of DI: 1. ownership of inventory. --indepentently owned distributors may not want to provide access to information. --solution: manufacturer acts as middleman. 2. distributors may doubt the benefits of participating in such a system. --must feel certain that the DI is a long-term alliance.

Flexibility

- orgs ability to accommodate unexpected or unusual customer requests. - org's logistical strength is closely tied to the ability to be flexible.

Order status reporting

- providing methods for customer to check on the status of their order. ("order on schedule or not?") with new arrival dates. - For intermediate customers, this data could be automatically sent via EDI Measurements of success: 1. Functionality supplied vs requested 2. Order status accuracy 3. % downtime of Web site or reporting system

Master scheduling grid

- purpose is to develop the MPS, which answers what to produce, when to produce the units, and in what quanitites to produce the units. - Master scheduling grid is time-phased.

Customer satisfaction

- setting realistic expectations with their customers --EX: "under-promise, over-deliver" - customers will have pre-established expectations based on competitor offerings. - orgs can benchmark their internal capabilities against competitors. Gaps can be areas for improvement.

Measuring VMI success

- should reflect its potential benefit to both parties, not just one. - VMI supplier certifications Measures of success: 1. Reduction of bullwhip effect 2. Reduced inventory costs 3. Reduction of stockouts 4. Reduction of leadtimes 5. Increased inventory turns

Time fences for Material requirements planning (MRP)

- to ensure that materials needed for orders are committed to those orders and not for any other purpose. --usually set when material is ordered or production is begun on component. - Demand time fence is usually set when the material is received or production of the component is complete. - Cumulative lead time ("end-to-end leadtime") - DEF: longest planned length of time to accomplish the activity in question. It is found by reviewing the lead time for each bill of material path below the item; whichever path adds up to the greatest number defines cumulative lead time.

Available-to-promise (ATP)

- uncommitted portion of a company's inventory portion of a company's inventory and planned production. - order promising - the process of making a delivery commitment --methods used to compute ATP are discrete ATP (or non-cumulative), cumulative ATP with look-ahead, and cumulative without look-ahead. - non-cumulative (discrete) method - base method that the other methods build upon --used for products that have an expiration date. - at the beginning of the planning horizon, the ATP amount includes inventory on hand plus the items scheduled to arrive in the form of a master production schedule receipt or scheduled receipts from a supplier. - for all other periods in where there is an MPS, the ATP does not include inventory on hand.

Fill rates

- used to measure availability of inventory when it is wanted by a customer. - goal is to achieve high levels of availability while keeping the investment in inventory and facilities to a minimum. - fill rates - method of measuring service levels based on the percentage of product delivered compared to the ammount ordered by the customer. --basic calculation - full orders delivered complete and ontime. other variations: 1. unit fill rate - % of items delivered vs. ordered 2. Line item fill rate - % of items delivered vs ordered 3. Monetary value fill rate - % of monetary value delivered vs ordered stockout frequency examples: 1. % of items that are in stockout 2. Monetary value of items ordered that are in stockout 3. avg age of stockout 4. avg time to recover item from stockout

Supply-demand options

1. Make-to-stock - MPS focus: Schedule finished goods - product family contains small number of items made from a large number of components - high volume, low variety of products 2. Make-to-order - MPS focus: Schedule raw materials - large number of products made from a smaller number of components. - low volume, high variety of products - dependent on the individual company strategy 3. Assemble-to-order - MPS focus: Schedule module production - product families include a large number of end items but number of components may be limited.

Time fences in master scheduling

2 types: 1. demand time fence (DTF) 2. Planning time fence (PTF) Include the following: 1. Demand time fence/frozen zone - capacity and materials are committed to specific orders. Any changes require approval of senior management 2. Planning time fence/slushy zone - room to negotiate changes to orders. Master scheduler is allowed to make these decisions --tradeoffs 3. Liquid zone - changes are ok as long as they dont violate the limits set in the production plan.

Who owns the inventory - and who benefits?

Early VMI - customer continued to purchase goods but the supplier took over inventory management in whole or in part. Present VMI - some partners have adopted a VMI consignment arrangement in which the supplier continues to own the inventory as well as manage it. - consignment - DEF: process of a supplier placing goods at a customer location without receiving payment until after the goods are used or sold. --sometimes called "vendor-owned inventory (VOI)" Traditional relationship - customer has an incentive to keep inventory lean by placing small, frequent orders --may expect supplier to bear the costs of maintaining larger inventories of safety stock to respond to unexpected demand. VMI-consignment relationship - customer benefits from reduced inventory costs or inventory management costs by transferring one or both to the supplier. - either type of VMI loses some degree of control over the inventory. EX: deciding the amount and frequency or orders. - when supplier takes over management of inventory, incentives change. --supplier now determines the size and frequency of orders. --if the customer buys inventory upon transfer it may be tempted to transfer as much inventory to the customer's stockroom or shelves as possible. --as more total inventory is owned, ordering an dcarrying costs of inventory will be higher for the supplier.

Specific VMI functions

Traditional customer supplier relationship: - customer stocks its shelves with products bought from a supplier, basing orders on demand forecasts. --customer controls all decisions (ex: storage, display, sale, replenishment) --supplier basis its forecasts and inventory levels upon past customer orders VMI arrangement relationship - supplier takes over multiple inventory functions: 1. how inventory will be stored and displayed 2. Provide bins, vending machines, or other storage units. 3. Replenish the inventory on schedule using POS data 4. Maintain inventory records 5. Handle delivery, receiving, stocking and counting functions. 6. Provide a permanent vendor rep for reorder functions. - vendors can also use historic data and predictive models to forecast stocking demands.