CPIM - Master Planning of Resources

How to Evaluate forecast performance

Measure forecast error - the difference between actual demand and forecast demand, stated as an absolute value or as a percentage.

Principles of Demand Management

How to plan and use resources with profitable business results Planning Hierarchy Customer/Supplier Objectives Demand Planning Process Demand Management Activities Manufacturing Process Types and Environments How Forecasts are Created and Used Data Reliability

Mean Absolute Deviation (MAD)

Sum |A-F|/Number of Periods

Warehouse Location Selection Method - Heuristic procedures

Add and Drop approach - This process begins with considering an individual warehouse location that would serve all customer locations. Next we use the remaining warehouse locations and calculate the cost. This process is repeated until the costs are no longer decreasing, and that is where the best number of warehouse locations is determined. Branch-and-bound - This technique is often seen as a "tree search" and uses linear programming that is bounded sequentially. In this method, all costs (including fixed costs) are treated as variable costs in order to fit the linear programming approach. At each level within the tree, the "highest" or most expensive path is eliminated until the organization is left with the optimal path.

Tracking Signal

Algebraic Sum of Forecast Errors/MAD

Push System

A system for replenishing field warehouse inventories where replenishment decision making is centralized, usually at the manufacturing site or central supply facility. Advantages - Planning simplicity, Turnover, Overhead cost reduction, Use of ROP (reorder point) and DRP ordering techniques Disadvantages - Inventory carrying costs, Deficiencies in information flow

Pull System

A system for replenishing field warehouse inventories where replenishment decisions are made at the field warehouse itself, not at the central warehouse or plant. Advantages - Performance measurement, Central planning, Cost reductions, Safety stock control Disadvantages - Requires trained staff, Bullwhip effect, Inventory accuracy, Distribution inventory location, Timeliness of transaction recording

Forecast Error

Absolute Value |A-F| A = Actual demand F = Forecast demand

Linkages between the functional S&OP plans and the organization's strategic plan

All functions must be aligned with the strategic direction chosen by management and their individual plans formulated to achieve these objectives. S&OP relies on strategic planning for direction-setting inputs.

Quantitative Forecasting

An approach to forecasting where historical demand data is used to project future demand. Extrinsic and intrinsic techniques are typically used.

Role of master scheduling in planning and control hierarchy

An effective master schedule provides the basis for making good use of manufacturing resources, making customer delivery promises, resolving tradeoffs between sales and manufacturing, and achieving the organization's strategic objectives as derived from the sales and operations plan. Moves from strategic (product family) to tactical (end item) planning.

Documents to itemize raw materials and components used in manufacturing

Bills of material (BOM) - Listing of all parts that go into a parent assembly, showing the quantity of each required to make an assembly. Indented bill of material - Multilevel bill of material. Highest-level parents closest to the left margin, all components going in are shown indented toward the right. Planning bill of material - An artificial grouping of items or events in bill of materiel format to facilitate master scheduling and material planning.

Evaluating production planning success - Level

Calculate the number of employees needed. Calculate ending inventory levels and days of supply.

Criteria used in selection of forecasting method

Complete versus incomplete data. If all the required sales data for a particular item as well as the causal variables are available, then the data are considered complete. Incomplete data would have limited—or even an absence of—sales data for a particular product or not have the causal variables identified. Stable versus unstable data. Stable data have a distinct pattern such as seasonality or trends. There's a randomness and no distinct pattern to unstable data.

Creating the MPS

Creating a time-phased master schedule grid (determining supply and demand relationships over time). Preparing the production schedule according to the strategy (chase, level, hybrid) Calculating the projected available-to-promise (for multiple available-to-promise activities)

Linkages between DRP, S&OP, and master scheduling

DRP/S&OP - DRP outputs of product family level channel demand and logistics resources requirements plan (LRRP) are sent to S&OP. DRP/MPS - DRP outputs of item-level channel demand and logistics capacity plan are sent to MPS

Functions and Components of the manufacturing planning hierarchy - Demand Management

Demand Management - The function of recognizing all demands for goods and services to support the marketplace.

Distribution Channel Strategies

Direct/internal channel - The manufacturer performs all marketing and distribution and sales functions internally. In this channel, the manufacturer sells and delivers products directly to end users. Exclusive and select channel - The manufacturer relies on a limited number of distributors and retailers, such as automobile dealers and branded high-end apparel stores, for customer sales and support. Complex channel - The manufacturer relies on its own internal distribution functions, such as regional warehousing, in combination with external institutional channels.

Functions and Components of the manufacturing planning hierarchy - Distribution Planning

Distribution Planning - The planning activities associated with transportation, warehousing, inventory levels, materials handling, order administration, etc. to support distribution.

Replenishment parameters for a stock keeping unit

Distribution network structure (bill of distribution) - The planned channels of inventory disbursement from one or more sources to field warehouses and ultimately to the customer. Bill of distribution traces the inventory flow channel for every item sold.

Why different manufacturing environments use different units of measure

Each manufacturing environment uses different units of measures due to differences in their processes. ETO - Engineering labor hours ATO - Machine and labor hours MTO - Order backlog MTS - Material supply capacity

Data Collection Methods for gathering feedback

Email and contact forms Feedback surveys Interviews/focus groups Social listening

Measure master schedule performance

Key performance issues - MPS aggregate performance, MPS stability, MPS lead time, MPS execution Indicators of issues or problems - Unreliable delivery promises, persistent past-due orders, excess inventory, high rate of schedule changes, top management intervention Methods and policies utilized in master scheduling - Role of master scheduler and master scheduling clearly defined, senior management has created a collaborative approach, time fences are used, planning methods clearly defined, rough-cut capacity and advanced planning and schedule methods

Transportation Planning (Transportation Management Process)

Logistics Strategy Costs, Rates, Prices Transport mode and carrier Scheduling and routing Documentation, audit, and claims Performance

Alternative production plan - Chase Production

Maintains stable inventory level while varying production to meet demand Advantages -Changes output capacity to meet demand. Low inventory costs, high smoothing costs Risk -Insecure and unhappy employees, availability of an appropriately skilled workforce, constantly changing short-term capacity, erratic utilization of plant and equipment Financial - Higher cost of workforce change

Distribution Channel factors

Market penetration intensity - How deeply into the delivery network producers are prepared to go in order to increase market share among existing and potential customers. Distribution integrative intensity - The level of integration forward or horizontally a producer chooses to pursue in the demand chain. Distribution intensity - Concerned with deciding on the number of intermediaries to use at each level within the channel. Single Source, Intensive distribution strategy, exclusive distribution, selective distribution.

Functions and Components of the manufacturing planning hierarchy - Master Scheduling

Master Scheduling - The process where the master schedule is generated and reviewed and adjustments are made to the master production schedule to ensure consistency with the production plan. The master production schedule (the line on the grid) is the primary input to the material requirements plan. The sum of the master production schedules for the items within the product family must equal the production plan for that family.

Factor rating method

Method involves qualitative and quantitative inputs and evaluates alternatives based on comparison after establishing a composite value for each alternative. Step 1: Determine relevant and important factors to include in the calculation. Step 2: Assign a weight to each factor, with all weights totaling 1.00. Step 3: Determine a common scale for all factors, usually 0 to 100. Step 4: Score each alternative individually. Step 5: Adjust the score using weights (multiply the factor weight by the factor score), and add up the scores for each alternative. Step 6: Select the alternative with the highest score.

Consequences of an unrealistic schedule

Overloaded master schedule - The five whys, managing output, level adjustments Wrong Planning Horizon - If the horizon is too long, the organization may have inaccurate numbers. If the horizon is too short, purchase orders will generally have to be placed in less-than-normal lead time.

Alternative production plan - Hybrid Production

Planning method that combines aspects of both the chase and level production planning methods Advantages -Balances large fluctuations in demand, takes into consideration volatile demand, smooths out seasonal demand Risk - Availability of an appropriately skilled workforce, level of coordination

Business Environment impact on Master Scheduling -MTO/ETO

Product - Custom, broad variety, low volume Delivery - Slow/variable. As promised.

Business Environment impact on Master Scheduling - ATO

Product - Standard and special product design, medium variety, medium-high volume Delivery - Short lead times, accommodation of changes in product mix

Business Environment impact on Master Scheduling - MTS

Product - Standard designed, narrow variety, high volume Delivery - In stock, fast. Predictable

Aggregation Levels

Product family groupings should be logical and representative of the way in which products are offered to the marketplace. •Be selected to align product families so it is convenient for the different business functions to forecast and provide accurate data •Be meaningful in terms of volume of sales generated •Be meaningful in terms of production and capacity planning •Help the organization select the appropriate unit of measure for each product family.

Techniques for measuring order delivery performance

Reliability - This attribute category focuses on quality of product and service. Number of perfect orders/total number of orders Responsiveness - Responsiveness focuses on the average cycle time that a manufacturer requires to respond to and deliver customer orders. Sum of Actual Cycle Times for All Orders delivered/Total number of orders delivered Agility - Agility metrics evaluate the ability of a supply chain to deal reliably with demand variation in the near and long term. Cost - The supply chain cost attribute category includes supply chain management cost and cost of goods sold. The final row details cost metrics.

Functions and Components of the manufacturing planning hierarchy - Resource Planning

Resource Planning - Capacity planning conducted at the business plan level. The process of establishing, measuring, and adjusting limits or levels of long-range capacity. Requires top management approval

Functions and Components of the manufacturing planning hierarchy - Rough-cut Capacity Planning

Rough-cut Capacity Planning - The process of converting the master production schedule into requirements for key resources often including labor, machinery, warehouse space, suppliers' capabilities, and, in some cases, money.

Linkages with other planning processes

S&OP and production plan - Provides the aggregate demand that is disaggregated to an end item level at the MPS. Demand management - Planning hierarchy, forecasting, customer orders, order promising Distribution planning - Demand management, logistics planning Rough-cut capacity planning (RCCP) - Analyzes the MPS for potential resource constraints Material requirements planning - The validated master production schedule provides the gross requirements of end-item units for the MRP system, which executes the detailed scheduling and planning activities that plan materials and suggest order release dates

Principles of Sales and Operations Planning

S&OP is a key manufacturing planning and control (MPC) process where executive-level management meets on a monthly basis and reviews projections for demand and supply and the resulting financial impact. Looks out 18-24 months Based off interaction of demand, supply, volume, and mix

Explain how to influence demand to better align with supply

S&OP is used to balance supply and demand at the volume level. Once volume in terms or rates and levels is planned, determining the mix becomes easier to manage.

Functions and Components of the manufacturing planning hierarchy - Sales and Operations Planning

Sales and Operations Planning - A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage. Brings together all plans into one integrated set of plans.

Distribution Performance Metrics

Service Fast flow response Reduction of operating variance Minimum inventories Transportation reduction Quality management Product life cycle support

Alternative production plan - Level Production

Sets production at a fixed rate Advantages -Stable labor costs, special customer requests, improved quality control, better cash flow, minimizes smoothing costs, reduced cost of hiring, stable workforce Risk - Cost of carrying excess inventory, subcontracting or overtime costs, backorder costs, cost of expedited shipping, loss of customer good will, using forecast data. Financial - Cost of inventory tend to be higher

Transportation Measures

Shipping cost factors Mix of transport modes Equipment utilization Routing efficiency Labor efficiency Other costs

Warehouse Operations Performance Measures

Throughput percent Order filling percent Shipping accuracy percent Inventory record accuracy percent Storage utilization percent

Planning and Coordinating changes to the master schedule

Time Fences Engineering Control Process Available-to-Promise

Risks associated with distribution planning

Transportation failure Climate/weather Quality issues Loss of assets Profitability

Transportation Controlling

Transportation management systems (TMS) - A computer application system designed to manage transportation operations. Yard management systems - A system that organizes and directs the traffic of all vehicles in the parking yards Routing and scheduling - Ensures order optimization. That orders are delivered to the right place at the right time Event management systems - Manages events or interactions between organizations or supply chain partners Driver-focused technologies - Technology tools used by drivers

Qualitative Forecasting

An approach to forecasting that is based on intuitive or judgmental evaluation. It is used generally when data is scarce, not available, or no longer relevant.

Evaluating production planning success - Chase

Calculate end-of-month inventory target values. Calculate the operations plan in units. Calculate the number of employees required. Calculate hires and fires (layoffs) each period.

Standard Deviation

Square Root (Sum of Actual-Avg Forecast)/n-1

Cause for changes in resource planning

- Acquisitions - Facility startup and shutdown - Hiring, layoffs, and shift changes - Adding and removing tooling and equipment - Outsourcing and subcontracting - Education and training

Resource planning process

1. Determine bill of key resources for each product family in the production plan 2. Determine the UOM for each key resource 3. Determine key resource capacity availability for each resource by period. 4. Calculate the load on each key resource by time period. 5. Compare load to available capacity in each time period for each resource. 6. Revise the production plan or adjust capacity as necessary

How collaborative planning, forecasting, and replenishment (CPFR) improves forecast accuracy

A collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers. CPFR can significantly enhance communications between suppliers and customers to better forecast product demand.

Participants in S&OP planning process and meetings

Executive champion - This individual sets clear performance expectations for top management, authorizes necessary resources, and clears obstacles to effective process performance. S&OP process owner - This individual is recognized as the leader of the monthly S&OP planning process. Demand planning team - This team is responsible for reviewing the sales forecasting reports and ensuring that price changes, promotions, market conditions, and competitor activity are properly accounted for in the forecasts. Supply planning team - This team reviews the preliminary production plan, recommends changes as necessary to meet the demand plan, and identifies any need to ask top management for additional resources. Pre-S&OP team - This team makes decisions on the demand and supply balance, resolves problems, identifies issues needing resolution, and develops alternatives for consideration by the executive S&OP team. Executive S&OP team - This team decides on the sales and operations plan for product families, authorizes spending for production and procurement rate changes, relates the impact of the monetized version of the sales and operations plan to the business plan, resolves issues from the pre-S&OP meeting, and reviews customer service and business performance.

Transportation Scheduling

Factors in vehicle scheduling - Route to be taken, number of vehicles, frequency of visits, number of deliveries/pickups Key performance indicators (KPI) - On time delivery, quality of service, cost of service, on-time loading, delivery consistency, claims for loss/damage, freight bill accuracy

APS Planning/Scheduling Techniques

Finite Capacity Planning - Available capacity is a defined constant Constraint-Based Scheduling - Separates the model from the algorithms that solve the problem Forward and Backward Scheduling - Forward scheduling proceeds from a known start date. Back scheduling works backwards from a known due date.

How to maintain and optimize positive customer relationships using CRM practices

Focus on putting the customer first. Customer Segmentation - Practice of dividing a customer base into groups of individuals who are similar in specific ways relevant to marketing. Customer Service Life Cycle - A model that describes the customer relationship as having four phases: requirements, acquisition, ownership, and retirement. Forecast Consumption - Consuming the forecast as a result of order entry.

Mean Absolute Percent Error (MAPE)

Forecast Error as a Percentage/number of periods

Key Forecasting Concepts

Forecast must match the nature of the decision The forecast model selected should not be any more complicated than necessary. Simpler is better. Data put in, and the forecast that comes out, should be monitored on a routine basis for appropriateness and quality.

Sources of demand in master scheduling process

Forecasts Customer Orders Supply lot size Production lead time Capacity

Consequence of Supply and Demand being out of balance

If supply exceeds demand - Inventories increase as a result of the imbalance between production and demand - Production rate reductions lead to job layoffs and reduction in plant efficiency - Profit margins suffer from price cuts and discounting If demand exceeds supply - Customer service levels fall, as manufacturing cannot match customer demand for products - Costs increase because of overtime and the need to expedite shipping at premium transportation rates - Quality suffers from the rush to ship products - Profit margins decrease as a result of premium transportation, labor, and quality problems

Linkage between organization's strategic/business plans and master planning of resources

Information from MPR will continually feed up to the strategic management of resources done by senior management and will be used to improve and refine manufacturing processes over time.

Steps of the S&OP process - Reviewing Performance

Input - The input into this step is the monthly information. Update data from prior months results, generate data for the current planning cycle, update data on actual sales, inventories, production, and backlog. Generate new data for sales and marketing analysts Output - From the information gathered, the sales analysis reports are generated and sales forecasts are updated.

Steps of the S&OP process - Reconciling Demand, Supply, and Financial Plans

Input - The inputs into this step are any capacity constraints or out-of-tolerance conditions, a list of issues that require resolution, and the financial analysis of the sales and operations plans. Analyze the demand plan, finalize projections, provide a recommendation on the best plan, develop recommendations, set demand priorities, review, accept, or modify the pre-S&OP team decisions. Outputs - The output of the pre-meeting is the agenda for the executive meeting.

Steps of the S&OP process - Evaluating Supply Capability

Input - The primary inputs for this step are the updated S&OP spreadsheets. Review the management forecasts in the first-pass spreadsheets, modify existing production plans to account for changes in the forecast, test new production plans for sufficiency of aligned and non-aligned production resources and logistics resources, develop a list of issues that require resolution, prepare a financial analysis of the sales and operations plans. Output - The outputs are production plans, resource plans, and a list of issues needing resolution, to be presented by the S&OP process owner at the pre-S&OP planning meeting.

Steps of the S&OP process - Evaluating Demand Levels

Input - Updated sales analysis and sales forecasts are the inputs into this step in the process. Creation of the management forecast. Review data on past sales performance, create statistical forecast, modify the statistical forecast to create the management forecast, create the first-pass spreadsheet, convert the unit sales forecast into monetary units, submit the management forecast to operations. Output - The outputs of this step are a management forecast and the first-pass spreadsheet for the new month's cycle.

How changes in strategy can impact functional plans

There is often a cascading effect to tactical plans when changes are made to strategy. Each functional area impacted by the change analyzes the impact of the decisoin and determines the best alternative plan. Management must fully understand the impact of what is being requested in the context of S&OP.

Bias

Sum of (Actual Demand - Forecast Demand)/number of periods

Mean Squared Error (MSE)

Sum of (Errors for each Period)^2/Number of forecast periods

Forecast Accuracy

Sum of Number of Hits/Sum of Number of Hits + Number of misses * 100%

Supply Channel factors

Supply channel complexity - How deep the channel will be (the number of levels) and how much control they would like to have. Supply integrative intensity - Level of backward control. (Contracts for limited or exclusive rights) Supplier intensity - How the process to produce the product impacts the scope and depth of relationships with suppliers at any level.

Advanced Planning and Scheduling (APS)

Techniques that deal with analysis and planning of logistics. 5 main components - Demand planning, production planning, production scheduling, distribution planning, transportation planning Benefits - Improve throughput, delivery, customer service, and sequencing times. Optimize inventory levels, show better utilization rates, reduce costs Inputs - Inputs from MPC/ERP. Inputs to manufacturing execution Outputs - Outputs to MPC/ERP. Manufacturing execution

Planning Horizons

The SOP horizon needs to be at least as long in periods as the annual business plan. It also needs to include additional months (for example, three to six) to cover the period between the start of the business planning cycle in the last half of the current fiscal year and the start of the next fiscal year. The planning horizon should extend far enough into the future to cover the sum of all lead times, including finishing lead time from the beginning to the end of the manufacturing process, and through delivery to the final distribution point.

Time-phased planning logic methods in distribution requirements planning (DRP)

The function of determining the need to replenish inventory at branch warehouses. DRP Order Policies Discrete or lot-for-lot Fixed-period requirements. Discrete above standard lot size Incremental above standard lot size Multiples of standard lot size Minimum/maximum order quantity Lot costing models DRP Safety Stock - Safety stock protects against instances of unplanned variability in supply and demand. DRP Calculation - Inputs into DRP such as planning horizion, bucket size, item forecast by due date, etc. Outputs -Exception reporting, Planned orders, Action messages., Pegged requirements

How approved S&OP plan serves as the basis for monitoring and controlling manufacturing performance

The operations department is responsible for achieving the production plan. Sales and marketing are responsible for achieving the product-family sales plan and the product mix plan. Any changes to the plan require formal management approval.

Relationships among master scheduling, capacity management, and materials management

The process where the master schedule is generated and reviewed and adjustments are made to the master production schedule to ensure consistency with the production plan. The master production schedule (the line on the grid) is the primary input to the material requirements plan. The sum of the master production schedules for the items within the product family must equal the production plan for that family.

Warehouse Location Selection Method - Simulation

The simulation method utilizes trial and error. First, the annual fixed cost for each potential warehouse location is determined. Then, the variable costs of serving customers from each location are determined. This information is placed in a table or grid. Next, a random group of warehouses is selected from the table and plotted on a total annual cost grid by number of warehouses.

Options for updating a firm's network design, enhancing its distribution process, and executing its plan more effectively

Use of customer feedback to improve on distribution network design decisions and the distribution planning process. Distribution network design - The first step in examining market requirements is examining the customer base and any market segmentation that may have been completed as part of S&OP. The MPC system design should be consistent with the strategy that came out of S&OP. Distribution planning process - Process involves examining fill rates, average length of time required to satisfy backorders, percentage of order replenishment cycles in which one or more units are backordered.

Maintaining the stability of the master schedule

Use of time fences and time zones Time Fences - A policy established to note where various restrictions or changes take place. Demand time fence - A point in the future inside which changes to the master schedule must be approved by higher authority Planning time fence - A point in time denoted in the planning horizon that changes in the schedule may adversely affect plans. Time Zones Frozen - Inside the DTF Changes to the MPS cannot or should not be made. Slushy - Inside the PTF. Changes can be made but may have tradeoffs Liquid - Outside the PTF. Zone allows changes in mix and are often done by planning software

Channel network matrix

Use supply partners to obtain either production materials or finished goods and distribution partners to deliver the goods.

Center-of-gravity method

Used in determining the location of a facility that will either reduce travel time or lower shipping costs. Step 1. Place the existing location on a coordinate grid. Step 2. Determine the transportation cost per mile and the number of tons from each location.

Location break-even analysis

Used to determine the best location to stock a product Step 1. Determine the fixed and variable costs for each item. Step 2. Identify the ranges of output for which each location has the lowest total cost. Step 3. Select the location that gives the lowest cost.

Least-cost-per-lane method

Used to determine which warehouse to draw inventory from based on which shipping lane can satisfy store demand at the least cost. Step 1: Determining the item's monthly forecast and the breakdown per customer. Step 2: Calculate the delivery cost per customer from each warehouse. Step 3: Once the least-cost customer has been determined, apply the same methodology to determine the least-cost distribution center.

Transportation Planning (Market and Product Characteristics)

Vehicle profitability - Vehicle return. Achieve two-way balanced movement of loads Liability - Product characteristics that can result in damage. Use of insurance to protect against this. Volume - Transport cost per unit of weight decreases as load size increases. Fixed costs spread out over larger loads. Distance - Labor, fuel, and maintenance impacted by distance. Tapering rate. Stowability - This refers to how product dimensions fit into transportation equipment. Handling - If special handling equipment needed to load and unload. Density - This factor is a combination of weight and space.