OPM Chapter 8

High Performance Management System Steps

1. Good process design 2. Accountability 3. Results S&OP is an example of top management accountability infrastructure/management system - for top management

Production Plan

A plan for labor and production for the INTERMEDIATE term with the objective to minimize the cost of resources needed to meet the demand

S&OP - Sales and Operations Planning

A process that helps firms provide better customer service, lower inventory, shorten customer lead times, stabilize production rates, and give top management a handle on the business Must occur at the aggregate PRODUCT FAMILY level

S&OP Systems

A risk management system to help managers make better decisions relating to the creation of schedules that balance supply and demand (supporting customer service and cost). Performed at the PRODUCT FAMILY LEVEL

Pure Strategy

A simple strategy that uses just one option, such as hiring and firing workers, for meeting demand.

Management System

Accountability Infrastructure

Production Planning

Balancing actual orders and forecast against resources THIS IS THE BALANCING ACT BETWEEN CUSTOMER SERVICE AND COST

Disaggregation

Breaking product families into individual products and components of products Happens further down the business model at the Master Production Scheduling process not at the S&OP stage

Make to Stock (MTS)

Build and stock in anticipation of customer demand. Finished goods made and held in inventory in advance of customer orders

Layered ERP Linkage

Business Plan - long term S&OP - intermediate term MRP Daily Schedule - short term The short term plan must be in line with the objectives of the intermediate term plan and the long term plan Think PROCESS LINKAGE and SYSTEM INTEGRATION

S&OP Process Owners

CEO, VP of Sales or Marketing, COO or VP of Operations ERP Business Model: Business Objectives, Demand Planning, Production Planning

Inputs to the Production Planning System

Customer Behaviors Raw Material Availability Market Demand Economic Conditions External Capacity Current Physical Capacity Current Workforce Inventory Levels Activities Required for Production

Capacity Planning

Establishing the overall level of resources needed to meet customer demand

Closed Loop Process

Feedback between ERP Model Categories Main Flow of information is top to bottom

Product Family Logic

Forecasting by PRODUCT FAMILY is the most effective way to be as detailed and accurate as possible. Any more detailed, you lose accuracy and vice versa The amount of detail put into forecasting is indirectly correlated to the accuracy of the forecast

S&OP Meetings

Master Scheduler is Important All comes down to Resources and Performance Measures New Product Introduction Management Business Review Financial Review Demand Review Capacity Review Supplychain Analysis

S&OP Information Standards

No missing data: ie individual parts sold separately must be forecasted No static data: 12 rolling months No sudden changes

Backlog

Orders that have been accepted (logged) but have not veen sent yet

Production Planning Strategies

Plans for meeting demand that involve trade-offs in the number of workers employed, work hours, inventory, and backlogs.

Decoupling Points

Point in the process where inventory is buffered to allow variation in the next process Planned + Customer Lead Time = Cumulative Lead Time

Engineer to Order (ETO)

Products are designed and produced from the start to meet unusual customer needs or requirements. Completely Customized.

Assemble to Order (ATO)

Products that are customized only at the very end of the manufacturing process. Make major sub-assemblies in anticipation of customer orders

Level Strategy

Relies on a constant output rate while varying inventory & backlog according to fluctuating demand. Firm relies on fluctuating finished goods & backlogs to meet demand. Works well for make-to-stock firms. Stable market demand or production levels

Foxhole Management

Sales and Marketing and Operations do not collaborate There is no HANDSHAKE between the demand side and the fulfillment side

Hybrid Strategy

a strategy that combines the chase and level strategies in different degrees

Back Orders

merchandise orders that have not been filled within the time specified and have not been canceled by the buyer CUSTOMER SERVICE ISSUE

Chase Strategy

the production rate is changed in each period to match the amount of expected demand Advantage: offers companies flexibility in the use of capacity to meet demand fluctuations

Decoupling Points of Inventory

MTS: finished goods ATO: sub-assemblies MTO: key components and raw materials ETO: engineering knowledge and resource

Top Management's Knobs For Adjusting (S&OP)

Inventory Backlog Capacity Lead time Customer service New products Tooling

Production Planning Schedule in Monthly Time Buckets

Knowns: scheduled sold customer orders (MTO) or scheduled stock replenishment orders (MTO) Unknowns: Forecasted production from Production Plan Done for every product family Capacity plan is 12 rolling months Driven by forecast and production plan

Make to Order (MTO)

Long lead time components purchased in anticipation of customer orders

Continuously Used Operations Acronyms

MTS - Make to Stock ATO - Assemble to Order MTO - Make to Order ETO - Engineer to Order

Managing Resources

MTS manages inventory Production Plan = Demand Plan +/- Delta in Inventory / number of periods MTO managers backlog Production Plan = Demand Plan +/- Delta in Backlog / number of periods