Supply Chain Test 3
Production Planning Strategies - Supply Side
Fluctuating inventory levels [[Increase inventories - build stock in advance of demand in order to use available capacity [[Decrease inventories - temporarily reduce inventory below normal safety stock levels during peak demand periods to meet customer requirements. Change capacity: [[Vary production output through overtime or idle time [[Vary workforce size by hiring or layoff Using part-time workers Subcontract work
Key elements necessary for an effective DRP:
Forecasted demand by Distribution Center (DC) Current inventory levels by DC Targeted safety stock by DC Established replenishment quantities Replenishment lead times
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.
Three basic production strategies:
Level Production Strategy Chase Production Strategy Mixed Production Strategy
Supply chain planning is usually hierarchical and can be divided into three broad categories:
Long Range Intermediate Range Short Range
Waste Reduction - The Five-S's
Seiri - Sort Seiton - Straighten Seiso - Shine Seiketsu - Standardize Seiketsu - Sustain
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.
quality gurus
W. Edwards Deming - is widely considered the father of TQM. He is the creator of the Plan-Do-Check-Act model. Philip Crosby - coined the phrase "quality is free" (which is also the title of his book) as defects are costly. He introduced the concepts of zero defects, and focus on prevention, not inspection. Joseph Juran - defined quality as "fitness for use". He developed the concept of the cost of quality. Kaoru Ishikawa - developed one the first tools used in quality management - the cause and effect diagram, which is also called the "Ishikawa" or "fishbone" diagram.
Supply Chain Planning in a manufacturing environment uses a combination of the planning processes used across the supply chain:
Overall company Business Planning Capacity Planning Aggregate Production Planning (APP) Master Production Scheduling (MPS) Materials Requirement Planning (MRP) Distribution Requirements Planning (DRP)
Supply Chain Planning in a wholesale/retail environment uses a smaller combination of the planning processes:
Overall company Business Planning Supply Order Planning Supplier Capacity Planning Distribution Requirements Planning (DRP)
Continuous Flow
Consistent manufacturing of the same product. (gasoline, chemicals, laundry detergent, PC Boards). MTS Highly Inflexible Very Short lead time
Six Sigma has two key methodologies:
DMADV Methodology: Define --> Measure --> Analyze --> Design -->Verify: which is a data-driven quality strategy for designing products & processes. This methodology is used when the company wants to create a new product design or process that is more predictable and defect free. DMAIC Methodology: Define --> Measure --> Analyze --> Improve -->Control: which is a data-driven quality strategy for improving products & processes. This methodology is used when the company wants to improve an existing business process. DMAIC is the most widely adopted and recognized Six Sigma methodology in use.
The Eight Wastes
Defects Overproduction Waiting Non-Utilized Talent Transportation Inventory Motion Extra Processing
Short Range
A 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, alignment of multiple production lines to feed the final assembly. Includes planning for transportation and warehouse needs Execution-based plans
Bill of Materials (BOM)
A document that shows an inclusive listing of all component parts and assemblies making up the final product. 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).
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.
Rough-Cut Capacity Planning (RCCP)
A medium-range capacity 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.
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.
Gross Requirement
A time-phased requirement prior to netting out on-hand inventory and lead-time
Cause and Effect Diagram
With this tool, the user can see all possible causes of a problem to help find the root cause.
Six Sigma Belts
Yellow Green Brown Black Master Black
Manufacturing Resource Planning (MRP II)
A computer-based system that creates detail production schedules using real-time data. Coordinates the arrival of materials with the availability of machine and labor. MRP II is used widely by itself in manufacturing environments, but is also as a module of more extensive enterprise resource planning (ERP) systems."
Just-in-Time (JIT) -
an inventory strategy to decrease waste by receiving materials only when and as needed in the production process, thereby reducing inventory costs.
Keiretsu Relationships -
cooperative coalitions with cross financial dependence involves companies throughout the value chain, remaining independent but working closely together for mutual benefit
The Master Production Schedule (MPS) is the
core operating plan of a business
Job Shop
creates a custom product for each customer. (artist, craftsman) ETO/MTO High Flexibility Very Long lead time
LEAN provides value for
customers through the use of the most efficient resources possible LEAN is a standard in many industries LEAN often results in: Large cost reductions Improved quality Increased customer service
Operations Management refers to the
design, execution, and control of the operations that convert resources into desired goods and services, aligned with the company's business strategy.
Supply Chain Planning is 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.
Resource Planning is the process of
determining the required resources to effectively and efficiently produce the output required.
Procurement and Production costs per unit go
down as volume goes up (generally, a step function applies as more capital will be required to produce more as volume grows)
Transportation costs per unit go
down as volume goes up, but level off at high volumes (economies of scale in transportation until the container/conveyance is filled up)
Total Quality Management (TQM) is a management philosophy based on the principle that
every employee must be committed to maintaining high standards of work quality in every aspect of a company's operations.
Assembly Line
has standard products with a limited number of variations moving through stages of production (Cars, Televisions, Smartphones) ATO/MTS Somewhat Inflexible Short lead time
Single software solution
implement the desired applications from a single vendor. Resolves integration and data issues but individual system functionality may be reduced
Make-to-Stock (MTS)
literally means to manufacture products for stock based on demand forecasts, a push supply chain Customer Delivery Lead Time
The Mid Term Business Plan is
long-term focus, provides the company's direction and objectives for the long-term (3 - 10 years)
Batch
manufactures a small quantity of an item in a single production run (Milk and other processed food, clothing) MTO/ATO Somewhat Flexible Long lead time
Quick Response -
the rapid replenishment of a customer's stock by a supplier with direct access to data from the customer's point of sale.
Lot Size
the required quantity of an item for ordering or production
A key issue of MTS is
to balance inventory and demand. Companies struggle to make the correct product at the correct time in the correct quantities as forecasts are inaccurate at the detailed specification level.
Inventory and Warehousing costs per unit go
up as volume goes up (must hold more inventory and pay for more storage space, insurance, taxes, etc.)
Setup Time and Changeover Time are both considered a
waste as they are times when the equipment is not performing its intended function; producing the product.
Production Planning Strategies - Demand Side
Influence demand - to align with production capacity Pricing Advertising Promotions Back-ordering during high demand periods - accept that demand is greater than supply capabilities, supply when available. Counter-seasonal product mix - Develop a product mix with offsetting seasonal trends to level the required production 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
Planning factor
The number/quantity of each component or material needed to produce a single unit of the parent item
Assemble-to-Order (ATO)
"Postponement" Strategy Assemble-to-Order (ATO) is a manufacturing strategy where final products are produced quickly as ordered by customers. This enables products to be customized to a certain extent. Manufacturing Lead Time
Scheduled Receipt
A committed order awaiting delivery for a specific period.
Capacity Requirement Planning (CRP)
A short-range capacity plan 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.
Chase Production Strategy
Adjusts capacity to match demand. Firms 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
Two Types of Software Implementation
Best-of-breed Single software solution Implementation Challenges: Cost, committed resources, time, staff inertia, inability to change processes to leverage system capabilities, top management commitment, data conversion, "Go Live" methodology
Intermediate Range
Business Plans (financial, operational, product) establishing annual goals and timing of key events (entering new market, new product introduction) 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 and discontinuation dates Plans are impacted by lead times
Enterprise Resource Planning (ERP)
ERP is an information system connecting all functional areas & operations of an organization via common software infrastructure and database. 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
LEAN Supply Chain Relationships
Eliminating waste in the supply chain by building alliances with suppliers, partners & customers to remove waste, reduce cost, improve quality and customer service by working together. Customer Focused to satisfy end customer demand Moving products efficiently through the system Increase Supply chain visibility beyond just 1st tier suppliers to include 2nd, and 3rd tier suppliers Optimize inventory levels across the supply chain
Engineer to Order (ETO)
Engineer-to-Order (ETO) is a manufacturing process in which the component is designed, engineered, and built to customer specifications only after the order has been received. The essence of ETO is building a unique product every time. Project Management is a key skill for profitable success In ETO, reputation for quality and innovation are key to success. Complicated technology solutions such as operations centers, stadiums, amusement rides are ETO. Product Design Lead Time
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. DRP is an extension of the MRP system and ties physical distribution to the manufacturing planning and control system
Inventory & Setup / Changeover Time Reduction
Excess inventory is a waste and hides other problems (safety stock covers inefficiencies) By reducing inventory levels you can highlight production problems to be solved such as Bottlenecks, idle time, unbalanced flow... The end result is a smoother running production process with less inventory investment. Inventory takes up space and increases costs.
Parent
Item generating demand for lower-level components.
Manufacturing processes:
Job Shop Batch Assembly Line Continuous Flow
LEAN - Six Sigma -
LEAN - is an operating philosophy of waste reduction and value enhancement and was originally created as the Toyota Production System (TPS) by key Toyota executives. Six Sigma - is a quality philosophy that emphasizes a commitment toward excellence, encompassing suppliers, employees, and customers
Material Requirements Planning (MRP)
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 The MRP requires the following information: The independent demand information Parent-component relationships from the Bill of Materials Inventory status of final product & components. Lead time and lot size for each component (buy) and Time required for each process step (make) Safety Stock amount of each level of the BOM MRP output - Planned order releases (purchase & produce) Basic MRP relies on information provided and ignores capacity & shop floor conditions. (Utopian plan)
6 M's
Machines Methods Materials Mother Nature Manpower Measurements
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. Base models with options, project-oriented / seasonal business, basic skill sets Many product variants, short production runs, final assembly focused
The manufacturing strategies include:
Make-to-Stock (MTS) Assemble-to-Order (ATO) Make-to-Order (MTO) Engineer-to-Order (ETO)
The key principles of TQM are:
Management Commitment Employee Empowerment Fact Based Decision Making Continuous Improvement Customer Focus
Workforce Commitment
Managers must support LEAN Manufacturing by providing subordinates with the skills, tools, time, and other necessary resources to identify problems and implement solutions (ICEBERG OF IGNORANCE)
Uniform Plant Loading
Planning production to capacity in earlier time periods to create the inventory to meet demand in later time periods. Enables efficient use of resources. (Plant, machinery, human) Requires accurate demand plans with long forecast periods.
Relationship of TCM to Manufacturing Strategy
Procurement and Production costs per unit go down as volume goes up (generally, a step function applies as more capital will be required to produce more as volume grows) Inventory and Warehousing costs per unit go up as volume goes up (must hold more inventory and pay for more storage space, insurance, taxes, etc.) Transportation costs per unit go down as volume goes up, but level off at high volumes (economies of scale in transportation until the container/conveyance is filled up)
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.
There are three main foundational aspects of Six Sigma:
Quality is defined by the customer: Customers expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more. Use of technical tools such as statistical quality control. Six Sigma provides a statistical approach for solving any problem and thereby improves the quality level of the product as well as the company. People involvement: Six Sigma follows a structured methodology, and has defined roles for the participants.
There are three main foundational aspects of Six Sigma
Quality is defined by the customer: Customers expect performance, reliability, competitive prices, on-time delivery, good service, clear and correct transaction processing and more. Use of technical tools such as statistical quality control. Six Sigma provides a statistical approach for solving any problem and thereby improves the quality level of the product as well as the company. People involvement: Six Sigma follows a structured methodology, and has defined roles for the participants.
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 over an extended period of time, based on worker productivity while varying inventory and backlog according to fluctuating demand. Works well for make-to-stock firms High capital investment, long production runs, Minimal product variants
Long Range
Strategic Plans involves planning for investments in markets, facilities, and major equipment purchase 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 Normally 3-5 years, top-down direction
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 is called a closed loop MRP because of its feedback feature to address capacity, etc
Aggregate Production Plan (APP)
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 of APP is at least one year and 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 (MPS)
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 for stable demand. Breaks down months into weeks/days Planning horizon is shorter than an APP but longer than the lead time to produce the item so the product is completed within the plan. For the service industry, the master production schedule may just be the appointment log or book, where capacity (e.g., skilled labor or professional service) is balanced with demand.
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
The MRP requires the following information
The independent demand information Parent-component relationships from the Bill of Materials Inventory status of final product & components. Lead time and lot size for each component (buy) and Time required for each process step (make) Safety Stock amount for each level of the BOM MRP output -> Planned order releases (purchase & produce)
Total Cost of Manufacturing (TCM)
Total Cost of Manufacturing (TCM) is the complete cost of producing and delivering products to your customers. It incorporates both fixed and variable costs used in the manufacturing, storage, and delivery of the product. It includes all costs associated with: Production and Procurement activities Inventory and Warehousing activities Transportation activities TCM is generally expressed as a cost per unit for each product.
Time Bucket
Unit of time / time period used in MRP, e.g., days, weeks, months
The Seven Elements of LEAN Manufacturing
Waste Reduction LEAN Layouts Inventory, Setup Time, & Changeover Time Reduction Small Batch Scheduling and Uniform Plant Loading LEAN Supply Chain Relationships Workforce Empowerment Continuous Improvement (Kaizen)
Acceptance Sampling
When a shipment is received from a supplier, a statistically significant representative sample is taken and measured against the quality acceptance standard. The entire shipment is assumed to have the same quality as the representative sample that was taken.
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.
Efficient Consumer Response (ECR) -
a strategy to increase the level of services to consumers through close cooperation among retailers, wholesalers, and manufacturers.
Sales & Operations Planning (S&OP) - - - The annual business plan simulates the business for
a year - 18 months. It establishes the near term objectives aligned with the midterm 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.
Make-to-Order (MTO)
is a manufacturing strategy that allows customers to purchase custom products to their specifications. Procurement Lead Time
Components
parts demanded by a parent.
Best-of-breed Single software solution
pick the best application for each individual function. Challenge - integrating the software, data duplication, support resource requirements, training.
Six Sigma seeks to improve the
quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. The goal of Six Sigma is to attain near quality perfection - less than 3.4 Defects Per Million Opportunities (DPMO) (99.99966%)
Lean practices
reduce waste and lead to Lean Green practices: Eliminating waste in production and SCM eliminates wasting natural resources Sustainable management processes get adopted Focus on improving environmental management performance. Implement ISO14000 processes
Production in small batches enables production to be
synchronized with customer demand It increases flexibility allowing the company to respond quickly to changes in customer demand. It can drive down costs by reducing raw materials, WIP, & finished goods inventories minimizing waste in the system. Shortens manufacturing lead time, however, setup / change over time must be low so that it is easy to switch from producing one product to another. Small batch scheduling can be facilitated through the use of Kanbans ("visual signal" or "card.") Production Kanban tells a manufacturing cell to produce to refill an empty container Withdrawal Kanban is used to tell previous cells that more parts are needed
Lowering inventory will help to expose
the hidden problems
Production Capacity
the maximum amount an organization can complete in a given period of time based on the resources available.