SCM Ch.6 (Exam 2)

Combination (Chase + Level) Strategy

- produces at or close to full capacity for some part of the cycle - produces at a lower rate (or does not produce) during the rest of the cycle - makes use of available capacity, yet limits inventory buildup and inventory carrying costs

Level Production Strategy

- In a manufacturing company that uses a level production strategy, the company continuously produces goods equal to the average demand for the goods. Scheduling consistently arranges the same quantity of goods for production based on the total demand for the goods. - If for three months a company wants to produce 20,000 units of a certain item and there are a total of 56 working days, using a level production strategy, it should produce 358 units per day. - Constant output rate - Constant capacity - Constant workforce level - Avoid making changes to operations - Fluctuating inventory - Fluctuating backlog level - Suitable for firms that require highly skilled labor

Aggregate Production Plan (APP)- 1st step

- at least one year and usually rolled forward by 3 months every quarter - sets the aggregate output rate, workforce size, utilization, and inventory and backlog levels for an entire facility - costs relevant to the aggregate planning decision include inventory, setup, machine operation, hiring, firing, training, and overtime costs. - typically stated in terms of product families/groups (consists of different products that share similar characteristics, components, or manufacturing processes) - long-range planning period (>=12 months) - product groups Goal: Specify the optimal combination of... - production rate (units completed per unit of time) - workforce level (number of workers) - inventory on hand (inventory carried from previous period) Aggregate= a whole formed by combining several elements

Costs Relevant to APP

- direct and indirect labor costs and overtime - costs associated with changing the production rate ( hiring, training, layoffs) - inventory holding costs (costs of capital, storage, insurance, taxes, spoilage, obsolescence) - backordering costs (expediting, lost sales due to stockouts)

Aggregate Scheduling Goals

- meet demand - use capacity efficiently - meet inventory policy - minimize costs (labor, inventory, plant, equipment, and subcontract)

Chase Production Strategy

- Companies that use the chase strategy produce only enough goods to meet or exactly match the demand for goods - adjust capacity and production to match the demand pattern - produces only what you sell - produce products or services just-in-time - if there are no sales, do not produce - Typical for services -ex: Restaurants produces meals only when a customer orders, therefore matching the actually production with customer demand - changing output rate - changing capacity -changing workforce level - making changes to operations - stable inventory - assume workers can be hired and trained easily to perform production jobs

Chase vs. Level Strategies

- Hiring and firing costs (chase) - overtime undertime costs (chase) - subcontracting costs (chase) - part-time labor costs (chase) - Inventory-carrying costs (level) - Cost of stockout or back order (level)

Level Strategy Advantages and Disadvantages

Advantage - smooth, level production avoids labor costs of demand matching - very flexible Disadvantages - buildup of inventory - backorders can lead to negative consequences (loss of customer satisfaction) - requires accurate forecast

Enterprise Resource Planning Systems Advantages and Disadvantages

Advantages - Added visibility reduce supply chain inventories - Helps to standardize manufacturing processes - Measure performance & communicate via a standardized method Disadvantages -Substantial time & capital investment - Complexity - Firms adapt processes to meet ERP system

Chase Strategy Advantages and Disadvantages

Advantages - Stable and minimum inventory - Varied production to meet sales requirements Disadvantages - too flexible - costs of hiring, training, overtime, and extra shifts - costs of layoffs and impact on employee morale - possible unavailability of needed work skills - maximum capacity needed

Short-Range Capacity Planning

Capacity Requirements Planning (CRP): used to check the feasibility of material requirement planning (MRP); computes the detailed capacity requirements for each workstation during specific periods to manufacture items specified in the MRP

Types of Aggregate Production Strategies

Chase - match production to customer order rate by hiring and laying off employees Level - stable workforce with constant output, inventory and backlogs absorb fluctuations in demand Some combinations of the 2 - Stable workforce, variable hours- vary output through overtime or flexible schedules

Backlog

a company's sales orders waiting to be filled; any order for a product or service that is accumulating as a result of being delayed an not being able to be met on time

Material Requirement Planning (MRP) - 3rd step

a software-based production planning and inventory control system that has been widely used by manufacturing firms for computing dependent demand and timing requirements - provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced MRP Inputs - MPS - inventory records - bill of material

The Bill of Materials (BOM)

an engineering document that shows an inclusive listing of all component parts & assemblies making up the final product - List of components and quantities needed to make the product - provided product structure (tree)

Backorder

an unfilled customer order or commitment

Operations Managers

continuously involved in balancing capacity and demand - ex: how much can be produced vs. how much is needed

Setup costs (in manufacturing context)

costs associated with setting up machines and equipment to product a batch of product

Master Production Schedule (MPS) - 2nd step

detailed disaggregation of the aggregate production plan, listing the exact end item to be produced by a specific period - more detailed than APP - medium-range planning (shorter than APP) - time-phased plan : specifying how many and when the firm plans to build each end item - specifies the production quantity to meet demand from all sources & is used for computing the requirements of all time-phased end items - specific end items

Resource Planning

is the process of determining the production capacity required to meet demand

Capacity

maximum amount of output that an organization is capable of completing in a given period of time issues - Excess capacity: waste valuable resources (idle labor, equipment, and facilities) - Insufficient capacity/Capacity constraints: worse service and lower quality levels Long-range capacity planning - Resource Requirements Planning (RRP) Medium-Range Capacity Planning -Rough-Cut Capacity Planning (RCCP) Short-Range Capacity Planning - Capacity Requirements Planning (CRP)

Planning

process that translates annual business plans and demand forecasts into a production plan for all products in a plant or facility leading to the Aggregate Production Plan

Capacity

refers to the max workload that an organization is capable of completing in a given period of time

Two types of planning

1. Materials Plans 2. Capacity Plans

Hierarchical Planning Process

Long-range planning - greater than one year planning horizon Intermediate-range planning - 6-8 months Short-range planning - one day to less than 6 months

Long-Range Capacity Planning

Resource Requirements Planning (RRP): used to check whether aggregate resources are capable of satisfying aggregate production plan (resources: labor hours, machine hours)

Medium-Range Capacity Planning

Rough-Cut Capacity Planning (RCCP): used to check the feasibility of the master production schedule (MPS); takes the MPS and converts from production to capacity requirements then compares to available capacity

Enterprise Resource 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 - consist of many modules that are linked together to access and share a common database - ERP provides means for supply chain members to share information