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
