CH 3 Supply Chain

Rough-Cut Capacity Planning (RCCP)

Medium-range plan 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

Gross Requirement

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

Multilevel Bill of Materials

- A comprehensive listing of all the components used in a product, the parent component relationships along with the quantity of each component required for corresponding parent (the planning factor) - Presented in a hierarchical manner to the lowest acquisition level

Manufacturing Resource Planning (MRP II)

- A computer-based system that creates detail production schedules using realtime data - Coordinates the arrival of materials with the availability of machine and labor - Is used widely by itself in manufacturing environments, but is also as a module of more extensive enterprise resource planning (ERP) systems

Bill of Materials (BOM)

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

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

Intermediate-Range

- Business Plans (financial, operational, product) establishing annual goals and timing of key events - e.g. - VW plans to produce 1,000 Jettas / week at its Chattanooga, TN plant. - Normally 1 year - 18 months focused on quarterly goals - Basis for detailed operational plans and setting individual objectives - Plans are at the product category level, indicating introduction & discontinuation dates - Plans are impacted by lead times

Short-Range

- Detailed planning process for components and parts to produce the master production schedule based on the demand plan - e.g. - Daily production plan for every line and model at the Chattanooga, TN. Plant - Includes ordering of raw materials, scheduling of human resources, delivery from suppliers, etc. - Includes planning for transportation and warehouse needs - Execution based plans

Distribution Requirements Planning (DRP)

- Establish requirements for the distribution network and balances warehouse capacity with production plans - A time-phased finished good inventory replenishment plan in the distribution network determining the need to replenish inventory at branch warehouses - Is an extension of the MRP system and ties physical distribution to the manufacturing planning and control system

Firmed Time Period

- From the current date out several weeks into future - A Firmed Time Fence is established as the period when changes can no longer be made by the planning system - Changes during this period must be reviewed and approved by the Production Manager or an authorized person

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. - The changes are constrained by long lead time components, capacity and the demand plan

Single software solution

- Implement the desired applications from a single vendor. Resolves integration and data issues but individual system functionality may be reduced

Operations Middle-Management

- Intermediate-Range (6 - 18 months) - Sales & production planning - Long lead time components - Setting employment, inventory, and subcontracting objectives - Operating and financial plans

Enterprise Resource Planning (ERP)

- Is an information system connecting all functional areas & operations of an organization - It ties together the specialized system needs with a common, shared centralized database - All areas are updated simultaneously as data is updated - eliminates duplicate data entry and inconsistent information across an organization - Large implementations came from Y2K concerns - A key enabler to efficient operations, access to critical information, speed and flexibility

The Mid Term Business Plan

- Is long-term focus, provides the company's direction & objectives for the long term (3 -1 0 years) - The plan states the company's objectives for profitability, growth rate, and return on investment as determined by the company executives and board - Executive Management gathers input from the various organizational functions such as finance, marketing, operations, & engineering, on what is needed to achieve the objectives - It determines the long term capital investment plan, business investments and funding requirements

Top Management

- Long-Range (over 3-5 year) - R&D - New market / product family plans - Capital investments - Facility expansion

Mixed Production Strategy

- Maintains stable core workforce while using short-term means, such as overtime, subcontracting and part time helpers to manage short-term demand fluctuations. - Works well for make-to-stock firms with custom options, seasonal businesses.

Best-of-breed

- Pick the best application for each individual function. - Challenge: integrating the software, data duplication, support resource requirements, training

Production Planning Strategies

- Primary purpose is to establish the production methodology that will satisfy customer demand while balancing production costs and inventory through workforce management. Objectives: - Satisfy demand - Manage capacity efficiently - Manage inventory levels - Minimize cost: Labor, Inventory, Plant, and Equipment Workforce

Projected On-Hand Inventory

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

Level Production Strategy

- Relies on a constant output rate over an extend period of time based on worker productivity while varying inventory and backlog according to fluctuating demand. - Works well for make-to-stock firms

Types of Capacity Planning

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

Bottom Management (Operations Managers, Supervisor, Foremen, etc.)

- Short-Range (up to 3-4 months) - ordering - scheduling - producing - delivering

The Annual Business Plan

- Simulates the business for a year (18 months) - It establishes the near term objectives aligned to the mid term plan - It covers all areas of the company (sales, marketing, R&D, operations, production, sourcing, service, finance, etc) to provide management with the knowledge of actions needed to be taken to achieve the objectives. • It utilizes the Resource Requirements Plan (RRP). - Capacity plan • It utilizes the Aggregate Production Plan (APP). - Manufacturing Plan • It is the benchmark established to drive decision making throughout the year.

Long-Range

- Strategic Plans involves planning for investments in markets, facilities and major equipment purchase - Normally 3-5 years, top down direction - Multi-year plans establishing overall business goals driven by top executives - e.g.- VW groups wants to be the #1 car company in the world - All division, department complete a plan to achieve the overall goal

Closed Loop MRP System

- System for production planning and inventory control - Synchronizes the purchasing of materials 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 gets its name because of its feedback feature to address capacity, etc

Aggregate Production Plan

- The Intermediate to long range plan that translates annual business plan & demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility - The planning horizon is at least one year & is usually rolled forward by three months every quarter - Sets the production output requirements, workforce needs and inventory plans - Enables the firm to see its capacity requirements and address gaps (RRP) - Determines the production strategy the firm will use (discussed later)

Master Production Schedule

- The Intermediate-range plan that provides a detailed breakdown of the aggregate production plan, listing the exact end items to be produced by a specific period - More detailed than APP & easier to plan under stable demand. - Breaks down months into weeks / days - Planning horizon is shorter than APP, but longer than the lead time to produce the item so product is completed within the plan

Available-to-Promise (ATP) Quantity

- The difference between confirmed customer orders & the quantity the firm planned to produce (amount available to other orders). - It enables the firm to respond to customer order inquiries, based on planned product availability. - It generates available quantities of the product along with expected availability dates. - It represents "the uncommitted portion" of a company's inventory and planned production maintained in the master schedule to support customer order promising

Supply Chain Planning

- The element of supply chain management responsible for determining how operations will best satisfy the requirements created by the Demand Plan - The objective is to balance supply and demand such that the financial and customer service objectives of the company are achieved

Material Requirements Planning (MRP)

- The short-range plan from a computer-based materials management system that calculates the exact quantities, need dates, & planned order releases for subassemblies & materials required to manufacture a final product - Requires the following information: 1. The independent demand information 2. Parent-component relationships from the Bill of Materials 3. Inventory status of final product & components 4. Lead time & lot size for each component (buy) & Time required for each process step (make) 5. Safety Stock amount for each level of the BOM

Net Requirement

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

Developing the Production Plan

1. Gather the demand for each product by period covered by the planning horizon. 2. Compare to the available capacity for each period in planning horizon. Develop the capacity plan. 3. Identifying constraints / risks which may influence the plan. 4. Determining the labor and material requirements to achieve the production plan. 5. Calculate the production costs each product (labor, materials, overhead). 6. Develop the detailed Materials Requirements Plan for execution.

Three Basic Production Strategies

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

3 Categories of Supply Chain Planning

1. Long-Range 2. Intermediate-Range 3. Short-Range

Scheduled Receipt

A committed order awaiting delivery for a specific period

Resource Requirement Planning (RRP)

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

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

Capacity Requirement Planning (CRP)

A short-range capacity plan used to check the feasibility of the Material Requirements Plan

Resource

A source of supply, support, or aid, especially one that can be readily drawn upon when needed

Planned Order Release

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

Chase Production Strategy

Adjusts capacity to match demand - Firm hires and lays off workers to match output to demand - Finished goods inventory remains consistent based on worker productivity. - Works well for make-to-order firms

Parent

Item generating demand for lower-level components.

Components

Parts demanded by a parent.

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.

Production Capacity

The maximum amount an organization can complete in a given period of time based on the resources available.

Capacity

The maximum amount or number that can be received or contained

Planning factor

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

Explosion

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

Resource Planning

The process of determining the required resources to effectively and efficiently produce the output required

Lot Size

The required quantity of an item for ordering or production

Time Bucket

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

Supply Chain Planning in a Manufacturing environment

Uses a combination of the planning processes used across the supply chain: 1. Overall company Business Planning 2. Capacity Planning 3. Aggregate Production Planning (APP) 4. Master Production Scheduling (MPS) 5. Materials Requirement Planning (MRP) 6. Distribution Requirements Planning (DRP)

Supply Chain Planning in a Wholesale / Retail environment

Uses a smaller combination of the planning processes: 1. Overall company Business Planning 2. Supply Order Planning 3. Supplier Capacity Planning 4. Distribution Requirements Planning (DRP)