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Managing Production across the Supply Chain

Managing Production across the Supply Chain. Chapter Objectives. Be able to: Explain the activities that make up planning and control in a typical manufacturing environment. Explain the linkage between sales and operations planning (S&OP) and master scheduling.

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Managing Production across the Supply Chain

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  1. Managing Production across the Supply Chain

  2. Chapter Objectives Be able to: • Explain the activities that make up planning and control in a typical manufacturing environment. • Explain the linkage between sales and operations planning (S&OP) and master scheduling. • Complete the calculations for the master schedule record and interpret the results. • Explain the linkage between master scheduling and material requirements planning (MRP). • Complete the calculations for the MRP record and interpret the results. • Discuss the role of production activity control and vendor order management and how these functions differ from the higher-level planning activities. • Explain how distribution requirements planning (DRP) helps synchronize the supply chain, and complete the calculations for a simple example. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  3. Outline • Master scheduling defined • Basic MPS record • Planning horizon • MRP defined • Basic MRP record • MRP special considerations • Special topics: • Job Sequencing • DRP © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  4. Alphabet Soup TLA (Three Letter Acronym) Definitions ATP: Available to Promise BOM: Bill of Materials DRP: Distribution Requirements Planning MPS: Master Production Schedule MRP: Materials Requirements Planning PAC: Production Activity Control S&OP: Sales and Operations Planning © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  5. The Big Picture © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  6. Master Scheduling I • Controls the timing and quantity of production for products or product families • Primary interface point for actual customer orders • Coordinates forecasted demand and actual orders with production activity • Serves as tool for agreement between marketing and operations (but at a different level than S&OP) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  7. Master Scheduling II • Feeds data to more detailed material planning • Indicates the quantity and timing (i.e., delivery times) for a product or group of products • More detailed than S&OP • weekly versus monthly • specific products versus “average” © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  8. Link between S&OP and MPS Month: January February March Output: 200 300 400 S&OP January (weeks) 1 2 3 4 Push Mowers 25 25 25 25 Self-propelled 35 40 Riding 12 13 MPS © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  9. Master Scheduling Criteria The Master Production Schedule must: • Satisfy the needs of marketing • Be feasible for operations • Match with supply chain capability © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  10. MPS Formulas: Definitions • ATPt = Available to promise in period t • EIt = Ending Inventory for period t (same as projected on-hand inventory for next period) • Ft = Forecasted demand for period t • MPSt = MPS quantity available in period t • OBt = orders booked for period t © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  11. MPS Formulas: © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  12. Detailed MPS for a Product • Notes: • Planning time fence  cumulative lead time for product • What seems to be the lot-sizing rule here? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  13. Projected On-Hand Inventory e.g., Projected on-hand inventory for week 47: = 65 + 300 – 150 = 215 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  14. Available-to-Promise ATP (Week 45) = 100 + 300 – (170 + 165) = 65 ATP (Week 47) = 300 – (140+120) = 40 ATP (Week 49) = 250 – (85 + 45) = 120 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  15. Change in Forecast Demand Are we in trouble yet? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  16. Change in Orders Booked Note impact on ATP ( Week 45) and on-hand inventory projections © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  17. Planning Horizon How far an MPS looks into the future depends on • Variability in demand and market conditions • Variability in supplier deliveries and lead times • Length of the production process. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  18. Key Points about MPS • Provides more detail than S&OP • Tracks the following information: • Actual versus forecasted demand • Available-to-Promise • This gives sales information for accepting or not accepting new orders for delivery in a given week © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  19. A Final View of Master Scheduling S&OP Operations & Supply Chain Marketing MPS Rough-Cut Capacity Plan © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  20. Material Requirements Planning • MRP in the planning cycle • The logic of MRP • an extended example • Considerations of MRP © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  21. So Far ... We have only considered labor, overall inventory levels, and equipment:  S&OP  Master scheduling  Rough-Cut Capacity Planning But we haven’t ordered the materials! © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  22. We’ve scheduled 500 chairs to be ready five weeks from now . . . . . . Now what? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  23. Material Needed for a Chair Side rails (2) Seat Front legs (2) Cross bars (2) Back supports (3) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  24. Chair Seat Leg Assembly Back Assembly Back Supports (3) Cross bar Side rails (2) Cross bar Legs (2) Chair Structure Tree(aka “Bill of Materials” or BOM) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  25. Lead-Time I Week 4 Week 5 If final assembly takes one week, then we must start the assembly at the beginning of Week 4 . . . Chair Assembly (1 week) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  26. Lead-Time II Week 2 Week 3 Week 4 Week 5 Which means that the major subassemblies and seats must be done by the beginning of Week 4 ... Back Assembly (1 week) Chair Assembly Seats (2 weeks) (1 week) Leg Assembly (1 week) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  27. Lead-Time III Week 1 Week 2 Week 3 Week 4 Week 5 Back Support (2 weeks) Back Assembly Side Rails (2 weeks) Cross Bar (2 weeks) (1 week) Chair Assembly Seats (2 weeks) (1 week) Leg Assembly Legs (2 weeks) Cross Bar (2 weeks) (1 week) © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  28. Lead-Time Key Points • To have finished chairs at the beginning of Week 5 with no work in progress or finished inventory, we must begin production and order materials in Week 1. • “Exploding” the bill of materials tells us when to order things. • Not much we can do to adjust output of chairs for the next 4 weeks. Why? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  29. Material Requirements Planning (MRP) Requires: • Bill-of-Materials (BOM) • Inventory record • Master schedule to determine what should be orderedwhen, and how much to order. © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  30. The MRP Process Starts with the MPS End items are also known as “Level 0” items © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  31. The “Parent / Child” Relationship Where do the gross requirements come from? Do you understand the MRP logic? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  32. Going Deeper… © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  33. Moving from “Level 1” itemsto “Level 2” items . . . Where do the gross requirements for LEGS come from? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  34. Combining Requirements: “Cross Bars” Note effect of differences in lead times and order sizes on the gross requirements for each component © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  35. Impact of Longer Lead Times We cannot do this since the planned order would be in the past…. Thus the 250 crossbars will be delivered late one week to back assembly. What does this do to our chair schedule? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  36. Do You Understand ... • Why it is important to have an accurate BOM and accurate inventory information? • Why we need to “freeze” production schedules? • Where gross requirements come from? • The difference between planned and scheduled receipts? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  37. Other Considerations I MRP Feedback Feedback Planned Orders Suppliers Production © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  38. Other Considerations II • When do we update the system? • Capacity requirements planning using MRP output • MRP ‘nervousness’ • Increasing order chaos, the lower in the BOM structure of materials • Lot sizing issues © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  39. Recall ... Look at the “lumpiness” of demand for legs © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  40. If we order “lot-for-lot” Much smoother demand for legs, lower average inventory © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  41. Job Sequencing • Rules: • FCFS — first come, first served • EDD — earliest due date • Critical ratio — work time remaining divided by days left before due date • Performance measure: • Average lateness — sum of days late for each job divided by total number of jobs © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  42. Example Data © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  43. Example FCFS Average lateness = 36/4 = 9 days © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  44. Example EDD Average lateness = 6/4 = 1.5 days © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  45. Example Critical Ratio(largest ratio first) Average lateness = 11/4 = 2.75 days © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  46. Interpretation • Here the EDD rule gives better average lateness. Compare with FCFS results. • Note that the critical ratio does not do as well as EDD compared to the text example for Carlos Restoration. Why? © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  47. Distribution Requirements Planning (DRP) • Anticipates downstream demand • Uses this information, not predetermined reorder points or periodic reviews, to determine when to order • Computer-based software systems needed to deal with the added complexity © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  48. DRP Example I Suppose we forecast demand for Wholesaler A for the next 8 days (the best time horizon to use will depend on many factors) Based on this, we anticipate that Wholesaler A will order on Day 3 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  49. DRP Example II We extend the analysis to include Wholesaler B Combined, we expect to see orders on Days 3 and 4 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

  50. DRP Example III The distributor then uses this information to plan its own orders. In this case, suppose it takes two days for the supplier to replenish; based on the information, the distributor would order on Day 1 © 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

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