Chapter 3

Chapter 3: Supply Chain Planning: - supply chain planning is the element of supply chain management responsible for determining how best to satisfy the requirements created by the Demand Plan - Objective is to balance supply and demand in a way that realized the financial and service objectives of the company - Operation managers are continuously involved in planning operations and resources to balance capacity and output - Supply chain planning is a combination of all the planning processes that are used across the supply chain, primarily: (LEVELS OF PLANNING) - Aggregate production planning (APP) - Master production scheduling (MPS) - Material requirement planning (MRP) - Distribution requirements planning (DRP) - capacity planning - Supply Chain planning is usually hierarchical and can be divided into three broad categories: - Top and goes down - Long range: - Involved planning for actions such as the construction of facilities and major equipment purchase (aggregate production plan- APP) - Executive level: ford motor company wants to grow the market by 3% (1-3 years) - STARTS WITH LONG TERM - Sets Target - Job of top management, board of directors - Thinking of R&D - Intermediate range: - Shows the quantity and timings of end items (MPS) - Mid level: ford motor comp wants to make 1000 F-150 pickup trucks/week for the next 3-18 months - Make 1every 52 seconds - Mid level managenet ppl - How to sell and production plann - How many employees to hire - Short range: - Detailed planning process for components and parts to support the master production schedule (MRP) - Planner, 1st line supervisor- 1,000 engines, 1000 transmissions, seats, windows, etc, each week over the next 1-12 weeks - Assembly line - Front line workers - Job assignments, scheduling, dispatching, ordering

- - Start with the business plan - Strategic plan - The Business Plan → - long-term focus, provides the company’s direction and objectives for the next two to ten years - Management gathers input from the various organizational functions such as finance, marketing, operations, and engineering, to develop the Business Plan - The plan states the company’s objectives for profitability, growth rate, and return on investment - Start investing and coming with new products - Right level of intelligence, building factories, staffing - Typically updated and reevaluated annually - Each year look at plan and move out another year and as it gets closer refine it - Also typically used as the starting point for developing the organization’s Production Plan or Aggregate Production Plan - Sales & Operations Planning (S&OP) - Brings all the demand and supply plans for the business (sales, marketing, development, production, sourcing, and finance) together to provide management with ability to strategically direct the business to achieve a competitive advantage - If capacity and demand are nearly equal, emphasis should be placed on meeting demand as efficiently as possible - If capacity is greater than demand the first might choose promotion and

- Pricing - Backordering during high demand periods → accept demand greater than supply capabilities - How we can manipulate demand in the short term - Counter-seasonal product mixing - Develop a product mix with antithetic trends that level the cumulative required production capacity (lawn blowers, snow blowers) - Aggregate Planning Strategies→ Supply Options - Change inventory levels - Increase inventories → build stock in advance of demand n 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 - Subcontracting - Master Production Schedule (MPS) - A detailed disaggregation of the aggregate production plan (APP), listing the exact end items to be produced by a specific period - Looking at more detailed plan - Aggregate production planning is the family - Planning horizon is shorter than APP, but longer than the lead time to produce the item - What inventory levels, how many we need to produce, what customer orders are - Inputs: - Forecast - Customer orders - Beginning inventory - Outputs: - Projected inventory - Available to promise - Master production schedule - Time Fencing - MPS is the plan that drives the business. Even if small changes in the MPS can cause major changes in the detailed production schedule and the material plan, creating nervousness and instability throughout the organization - Planning process→ no changes every week or every month

- How many people we need, what hours, etc - Time horizon WITH NO CHANGE - EX; - 5 WEEKS no change : FENCE - To minimize the impact of changes in the MPS, many companies have adopted a time fencing policy separating the planning horizon into a firmed time period and a planned time period - Firmed Time Period: from the current date out several weeks into future - A firm time fence is established at the outer limit of this period to signify when changes can no longer be made automatically by the planning system - Recommended changes must be reviewed and approved by the Master Production Scheduler or an authorized person(s) - If inventory is getting too high or low? - ONLY IN PLANNED TIME PERIOD CAN CHANGES BE MADE - Planned Time Period: from the end of the firmed time period to the end of the planning horizon - Planning system is free to create or make changes to planned orders in this time period based on the data and planning logic determined by the company - Basic Production Strategies - Three basic production strategies: - 1. Level production strategy: - Relies on a constant output rate while varying inventory and backlog according to fluctuating demand. Firm relies on fluctuating finished goods and backlogs to meet demand. Works well for make-to-stock firms - Plywood, steel, lightbulbs, razors are example. Maybe the changeover is long, or its inefficient to stop/start - - Does not care in that period if customers are buying but we AGREED we are producing - Constant number of workers : continuity

can be impacted by trends, seasonal patterns, and market conditions - dependent demand: internal demand for items that are assembled or combined to make up for the final product (component parts) demand for these items is calculated based on the demand of the final product in which the parts are used, by using the planning factor - Multilevel bill of materials: display of all the components directly or indirectly used in a parent, together with the quantity required of each component (planning factor). If a component is a subassembly, blend, intermediate, etc., all of its components and all their components also will be exhibited, down to purchased parts and raw materials - - Bicycle: independent - All the components : dependent - Start with business plan and cascade DOWN - Timeline becomes shorter - More detail as you go down - Aggregate production planning - Family product - Materials Requirement Planning (MRP) - Computer based materials management system that calculator the exact quantities, need dates, and planned order releases for subassemblies, component parts and materials required to manufacture a final product - Project, make plans, precise quantities//dates - To deliver products - MRP requires: - 1. Independent demand information - Finished product forecast - Independent and dependent demand : you can calculate

- 2. Parent component relationships from BOM - All components in product - Multilevel - 3. Inventory status of final products and each of the components and materials - How much we should get or use for product - 4. Planned order releases (output of MRP) - WHEN? - Jobsite, whenever it needs to be - Calculates it all of these ^^^ - Terms used in MRP - Gross requirement: a time phased requirement prior to netting out on hand inventory and lead time - We need 1000 bicycle spokes: gross requirement - Net requirement: the unsatisfied item requirement for a specific time period - Gross requirement for period MINUS current on-hand inventory - 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 - How much projecting inventory - Planned order release: a specific order for a specific item and quantity to be released to the shop or to the supplier - 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 - Scheduled receipt : a committed order awaiting delivery for a specific period - Time bucket: unit of time/ time period used in MRP : days, weeks, months - Parent: item generating demand for lower-level components - Components: parts demanded by a parent - Planning factor: number/quantity of each component or material needed to produce a single unit of the parent item - MRP explosion: process of converting a parent item’s planned order released into component gross requirements - Looking at parent level order and breaking into all down into individual requirements - Pegging: relates to the gross requirements for a component part to the planned order releases of the parent item, so as to identify the sources of the item’s gross requirements . Pegging can be thought of as active where-used information - Lot size: order size for MRP logic - 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

- Current inventory levels by DC - Target safety stock by DC - Recommended replenishment quantities - Replenishment lead times - Enterprise Requirements 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 - ERP provides a means for supply chain members to share information, so that scare resources can be fully utilized to meet demand, while minimizing supply chain inventories - MINIMIZE BULLWHIP EFFECT - Do collaborative planning - - Implementing ERP systems - Two types of implementation - 1. Best of breed: pick the best application for each individual function. - Disadvantage: software may not integrate well but this may not be a major issue in future - 2. Single integrator solution - One platform - Pick all the desired applications from a single vendor which are already integrated - Implementation problems: - Lack of top management commitment - Lack of adequate resources - Lack of proper training

- Lack of communication - Incompatible system environment - Advantages - Added visibility leads to reduced supply chain inventories - Helps to standardize manufacturing processes - Measure performance and communicate via a standardized method - Disadvantages - Substantial time and capital investment - Complexity - Firms adapt processes to meet ERP system - ERP software applications and providers - Major erp applications - Accounting and finance - Customer relationship management - HR management - Manufacturing - Supplier relationship management - Supply chain management - 3 major ERP providers are - 1. Sap - 2. Oracle - 3. Microsoft - Other small software firms provide applications as well as full ERP solutions, but lack applistructure - The amalgamation of enterprise applications and technological infrastructure - Gross requirement = independent demand - forecast - Scheduled receipts = placed order confirmed by supplier - Projected on hand inventory = 40-15 = 25 ROW 1 - ROW 2: 25+50 ( scheduled receipts ) - 40 (gross requirements) = 35 - ROW 3: 35 (before) + planned delivery (25) - 40 (gross requirements) = 20 - ROW 4: 20 (before) - gross requirements (10)= 10 CHAPTER 3 QUIZ 1. The goal of supply chain planning is to balance supply and demand in a way that realizes the financial and service objectives of the company. a. True 2. Material Requirement Planning is the system intended to develop long-range plans (more than a year away) concerning product families manufactured by the organization. a. False b. Cascades from top to bottom 3. The three basic production strategies for addressing the aggregate planning problem are the chase production strategy, the level production strategy, and the mixed production strategy. a. A. True 4. The Chase Production Strategy relies on a constant output rate and capacity while varying