Manufacturing Mid-Term

S&OP Strategies: Level Strategy

A strategy that keeps the workforce constant, but varies its utilization via overtime, undertime, and vacation planning to match the demand forecast

Managers can use the following strategies to increase product differentiation and customer value

Add more product features; Focus on customer service and responsiveness; Increase customization; Offer complementary products

Sales and Operations Planning

Aligns other functions of the organization (i.e. sales and marketing) with manufacturing and operations and sets the planning direction

Resource Plan

An intermediate step in the planning process that lies between S&OP and scheduling

Aggregate Plan

Anothet term for the sales and operations plan

Product-Focused Operations: Worker-paced Lines

Batch Process; single-piece flow

Types of Costs with S&OP: Inventory HOlding

Capital, storage and warehousing, pilferage and obsolescence, insurance, and taxes

Cost Advantage: Step 2

Establish the relative importance of each activity in the total cost of the product

Differentiation Advantage: Step 2

Evaluate the differentiation strategies for improving customer value

Enterprise Resource Planning (ERP)

Evolved out of MRP systems by the use of faster IT

Make - to - Stock Production Plan: Required Data

Forecasts by period •Opening inventory •Desired ending inventory •Any back orders

Three phases of the MPC system:

Front End, Engine, Back End

Establish product groups from similar manufacturing process however larger changes in capacity typicaly not possible but can

add or eliminate people or shifts, adjust inventory policies, and/or subcontract

Completing a master production schedule (MPS) is the next step

after production planning

S&OP is also referred to as

aggregate planning

A production plan typically covers

aggregated products or product lines over a 6 - 18 month time horizon

Level 1: Sales and Operations Planning

aggregation information inputs relationship to other plans

The framework for the MPC is general and

all 3 phases must be performed but specific applications must reflect particular firm conditions and objectives.

MPC system must reach out to

all members of the supply chain

Well designed MPC systems can increase

competitiveness by lowering costs and improving market response

In SC environments, the MPC must

coordinate the planning and control efforts.

An effective MPC can contribute to competitive performance by

lowering costs and providing greater responsiveness to the market

The Value Chain Analysis reveals

where a firm's competitive advantages or disadvantages are

A firm that competes through differentiation advantage

will try to perform its activities better than competitors would do

MPC system should be comprehensive and integrate

with other functional areas

Resolution of Differences in MPS

•Check MPS to see if planned use of resources is within available capacity 1.Resource use 2.Customer service 3.Cost

Make - to - Stock Production Plan: typical product characteristics

•Constant predictable demand •Few product options •Delivery time shorter than production time •Long shelf life

Make - to - Order Production Plan: Typical Product Characteristics

•Customized goods •Customers willing to wait for production •Expensive to make and store •Several product options

Make - to - Order Production Plan: Required Data

•Forecasts by period •Opening backlog of customer orders •Desired ending backlog

Process Design: What are we designing for?

•Process focused operations •Product focused operations •Worker paced lines •Machine paced lines •Continuous flow processes

Rough-Cut Capacity Planning

•Step 2 •Single product resource bill used along with preliminary MPS •Checks whether critical resources are available to support the preliminary MPS

Required info for MPS

•The production plan •Forecasts for individual end items •Actual customer orders and stock replenishment •Inventory levels for individual end items •Capacity restraints

Resource Planning

•Used to determine if resources are available to meet the production plan. •And how differences will be reconciled. •Very detailed, short time horizon.

MPS Relationship to Production Plan

•Uses the production plan (based on families or groups of products, aggregate plan) and disaggregates into single products. •Drives all shorter run operations. •Typically shorter time periods (weeks or days). •Initial production plan used to reconcile discrepancies or potential stockouts

MPS is used to calculate

capacity and required resources

S&OP Strategies: Chase Strategy

A strategy that involves hiring and laying off employees to match the demand forecast

S&OP Supply Options

1. Anticipation Inventory 2. Workforce Adjustment 3. Workforce Utilization 4. Part-Time Workers 5. Subcontractors 6. Vacation Schedules

Three Main steps of devloping a MPS

1.Develop a preliminary MPS. 2.Check preliminary MPS against available capacity. 3.Resolve differences between the preliminary MPS and available capacity

Balancing priorities (_________) and Capacity (__________)

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Manufacturing Planning and Control system is a ______________ designed to efficiently manage the _____________________, the _______________________, and to respond to ________________________ by utilizing the capacity of suppliers, internal facilities, and in some cases our customers to meet customer demand.

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Schedule

A detailed plan that allocates resources over shorter time horizons to accomplish specific tasks

Master Schedule Decisions: Make to stock products

A limited number of standard items assembled from many components

Level 2: Resource Planning

A process that takes sales and operations plans; process time standards, routings, and other information on how services or products are produced; and then plans the timing of capacity and material requirements.

Level 3: Scheduling

A process that takes the resource plan and translates it into specific operational tasks on a detailed basis.

Productio Plan

A sales and operations plan for a manufacturing firm that centers on production rates and inventory holdings

Staffing Plans

A sales and operations plan for a service firm which centers on staffing and on other HR factors

S&OP Strategies:Mixed Strategy

A strategy that considers the full range of supply options

Types of Costs with S&OP: Hiring & Layoff

Cost of advertising jobs, interviews, training programs, scrap caused by inexperienced employees, exit interviews, severance pay, and retraining

Types of Costs with S&OP: Backorder and stockout

Costs to expedite past-due orders, potential cost of losing a customer

Back End of MPC System

Depicts the MPC execution systems

The more activities a company undertakes compared to industry's VC, the more

vertically integrated it is

Cost Advantage: Step 3

Identify cost drivers for each activity

Cost Advantage: Step 4

Identify links between activities

Cost Advantage: Step 5

Identify opportunities for reducing costs

Differentiation Advantage: Step 3

Identify the best sustainable differentiation

Differentiation Advantage: Step 1

Identify the customers' value‐creating activities.

Cost Advantage: Step 1

Identify the firm's primary and support activities

Short Term There is a need for detailed scheduling of resources to meet production requirements

Involves time, people, material, equipment and facilities. •Involves people working on the right things. •Involves tracking the use of resources and execution results. •Provide problem-solving support

Process-Focused Operations

Job Shop

Levels in Operations Planning and Scheduling

Level 1: Sales and Operations Planning Level 2: Resource Planning Level 3: Scheduling

Developing a Master Production Schedule: Objectives

Maintain customer service levels with desired finished goods inventory levels and delivery requirements. To make the best use of resources - materials, labor, equipment. To maintain required levels of inventory investments

Master Schedule Decisions: Make to order products

Many end items made from a small number of components

ERP allows for

visibility across business units and firms

Intermediate: The fundamental issue is matching supply and demand in terms of both volume and product mix

Planning for the right logistics. •Providing customers with information on correct quantities and location to meet market needs. •Planning of capacity to determine employment levels, budgets, overtime and subcontracting needs, etc

Types of Costs with S&OP: Regular TIme

Regular-time wages plus benefits and pay for vacations

Front End of MPC System

Set of activities and systems for overall direction setting (Demand Management, Sales & Operations Planning, Resource Planning and MPS)

5 levels in MPC system

Strategic business plan •Production plan (sales and operations plan) •Master production schedule •Material requirements plan •Purchasing and production activity contro

Engine of MPC System

Systems for detail material and capacity planning

Matching MPC System with the Firm needs: the expectations, capabilities, and needs are changing towards

The trend is towards on-line data access and systems. •Firms competing on delivery speed need to improve execution

VCA is done differently when a firm competes on differentiation rather than costs.

This is because the source of differentiation advantage comes from creating superior products, adding more features and satisfying varying customer needs, which results in higher cost structure

Types of Costs with S&OP: Overtime

Wages paid for work beyond the normal workweek exclusive of fringe benefits

A good planning system must answer

What are we going to make? •What does it take to make it? •What do we have? •What do we need

Product-Focused Operations

Worker-Paced Line; Machine-Paced Line; Continuous-Flow Process

MPS forms the link

between production planning and actual manufacturing

A production plan integrates the

capabilities and capacity of the factory with market and financial plans to achieve strategic goals

Master Production Schedule (MPS)

entral component of the framework •First actionable information •Disaggregates the aggregate plan into Individual products &Smaller time periods (days or weeks) •Usually focused on the bottleneck for capacity and scheduling • made for end items or narrowest part of the material structure

MPC system design depends upon

everal internal and external factors, and evolves over time

ERP is a

framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage

Nowadays, competitive advantage mainly derives

from technological improvements or innovations in business models or processes

S&OP is a time phased plan of

future aggregate resource levels so that supply is in balance with demand

In firms that have an integrated ERP system and database, the MPC system should

integrate with and support cross-functional planning through the ERP system.

Value Chain Analysis (VCA)

is a process where a firm identifies its primary and support activities that add value to its final product and then analyze these activities to reduce costs or increase differentiation

If a firm competes through cost advantage

it will try to perform internal activities at lower costs than competitors would do

MPS prioritizes

marketplace need with available capacity for manufacturing

A production plan sets general levels

of production and inventories consistent with the strategic business plan

Different Manufacturing processes dictate the need for different designs

of the MPC

MPS breaks

production plan down into individual items

Long term: managing and planning control systems is responsible for

providing information to make decisions on: •The appropriate amount of capacity (including supplier capacity) to meet the market demands of the future. •Provide the appropriate mix of human resource capabilities, technology, and geographic locations.

MPS is an important planning and communications tool between

sales and manufacturing

MPC systems should support

t the strategy and tactics pursued by the company

When a company is capable of producing gods at lower costs

than the market price or to provide superior products, it earns profits

Matching MPC System with the Firm needs: As competitive conditions, customer expectations, supplier capabilities, and internal needs change

the MPC should change

MPC system must support s

the company's policies and tactics

Value Chain represents

the internal activities a firm engages in when transforming inputs into outputs

The MPC should be comprehensive in supporting

the management of all manufacturing resources.

The MPC should evolve to meet changing requirements in

the market, technology, products, and processes

MPS drives

the material requirements plan

Main objective of production plans:

to minimize costs of carrying inventory, changing production levels, and stock outs

Goal of Value Chain Analysis

to recognize, which activities are the most valuable to the firm and which ones could be improved to provide competitive advantage

Value Chain Analysis is a strategy tool

used to analyze internal firm activities