Planning, Sched, Control Exam 2

Top Down Forecast

Summarizes metrics to forecast the aggregate demand
Breaks down aggregate total into product families

Strategic planning is a response to this top down forecast

Too general to adequately execute the SOP process only parts of the forecast are passed to the S&OP team

Bottom-Up forecast

Reviews individual product sales and builds up into aggregate

Short term Forecast

Less than 3 months (Generally)

For larger products may be up to one year

Medium-Term forecast

3 moths to a Year

Larger projects can take up to 3 years

Long term Forecast

Time span longer than a year

Larger project long-term forecasts are longer than 3 years

Forecasts are based on

• Capital expansion projects

• New product lines

• Mergers or acquisitions

• Developing new markets

Types of Forecasts

Time Series: Uses historical data to forecast future trends and patterns 

Qualitative: Relies on expert opinions and non-numerical data 

Casual: Identifies relationship between variables to understand how they will impact future outcomes

Moving average forecasting

A simple method of taking the average of past demand to forecast future demand
For more sensitive forecasts use shorter rolling periods such as three previous periods

More insensitive forecasts will use longer rolling periods s

Exponential Smoothing Forecasting

Adjusts the weights of the historic data to smooth out the demand line

Each new forecast is based on an average that is adjusted each time there is a new actual demand
Smoothing constant (1 - ) is applied to the actual demand

Total weight must equal 1 but can go back several periods

Incorporating external information pt.1

Special Promotions

Product changes

Competitors actions

Economic changes

Future conditions do not reflect past conditions, can be modified directly to reflect the assessment of the future

Incorporating external information - New products

Forecast may require updating more frequently

Testing the new model may be required

No history of forecasting so no past data

Special knowledge may help with altering forecast or parameters

• Intelligence must be included in the forecasts

• Must be readied for use in preparing and controlling the plans of the firm 

Concluding principles

Simple not complex

Input data and output forecasts should be routinely monitored for quality 

Seasonality, market trends, company polices included

Managers run forecasts

Sales and Operations planning

Provides key communication link for top management

Basis to focus on detailed production resources for strategic objectives

Provides framework within which the master production schedule is developed

• Master production scheduling decisions can be planned and controlled

  • Material resources and plant capacities can be coordinated

Planning fundamentals

Ensure balance between demand and supply

When demand > supply customer service suffers becasuse volume cant be provided

When supply> demand the effect on business is unfavorable

Volume and mix

Concerns big picture decisions about how much to make adn the product rates for product families

Mix concerns detailed decisions about which individual products to make, in what sequence 

S&OP planning and management

Commonly understood broke up among product lines

Stated in units or dollar amounts

Not a forecast of demand it is planned for production stated in an aggregate basis

OPS plan is a result of the SOPS process

Near term planning

Constrained by availability of materials

Evaluate for alternatives to meet demand requirements switfly

Monitoring performance is key to get value 

operators will run the easy orders or the ones that require least set up time to get better numbers

Run sales forecast report

Occurs after the month end involves updating files and data 

Demand reports, actual sales, demand variance and forecast to actual sales

Run the sales forecasting reports pt 2

Demand reports, supply reports, capacity utilization, inventory levels and supplier performance

Run sales forecast cont 2 

Days inventory on hand, stockouts or backorders, safety stock compliance, average inventory by SKU or location

Financial reports → Revenue vs planned reveneue, margin adn profit analysis, Cost of goods sold, variance analysis (budget v actual) and SOP plan vs budget/forecast

Generate demand plan

- Sales and mrkt review the reports form the previous steps with the intent on developing a new forecast for the next 12 months
- The new management forecast must include planned market activities by the company or competitors, economic changes, changes in customer preferences

- May results in overriding statistical forecasts when appropriate

Pre SOP meeting

- Purpose: involves reps from various places and business functions:

o Make decisions regarding the balance of demand and supply

o Resolve problems where differences in recommendations exist

o Identify areas that cannot be resolved to be discussed in the exec sop meeting

o Develop alt courses of actions

o Set the agenda for the exec SOP meeting

Executive SOP meeting

- Monthly senior execs hold a culminating meeting to review the SOP and make final decisions on the monthly directions

- Purpose:

o Make decisions on the sales and operations plans for each product family

o Authorize spending changes in production/procurement rate changes

o Relate the collective impact of the dollarized version of the product grouping sales and operations plans to the overall business plan

o Break ties in areas where the pre SOP team was unable to reach consensus

o Review customer service and business performance

SOP process matching levels

Level: producing a consistent quantity of products over a specific period, regardless of fluctuations in demand

Chase: produces only what is needed when it is needed, minimizing inventory levels

Hybrid: combines elements of both level and chase methods. It aims to balance production stability with responsiveness to demand

Top management roles

- Committed to Sop process

- Ensure SOP framework is established

o Right team or process

o Set meetings

o Functional management participates in the process

o Ensure proper performance of system

- In instances of a stalemate top management must force a decision

- Lead cultural change to accept the SOP process and trust results

Integrating strategic planning

- Integrating planning and control is between sales, mrkt and production needed

- The sales and mrkt job under integrated SOP is to sell what’s in the sales plan

- Manufacturing’s job is to achieve the plan – exactly as set in the SOP process

- Some orgs may breakdown SOP process into strategic business units

MPS activity

- Statement of planned future output

- Not a statement of demand

- Mps considers capacity limitations, costs of prod, and other resource considerations as well and sales and ops plan

- The MPS forms the basic communication link between sales, the market, and manufacturing

ATO environment for MPS

- The firm usually has a limitless number of possible end item configurations

- Customer delivery times are often shorter than total manufacturing lead times

- The larger number of end item possibilities makes forecasting exact end item configurations difficult

- Assemble to order firms typically do not make and MPS for end items

- The MPS unit is stated in planning bulls of materials, such as an average

Linkages to other comp activities

- In SOP the information from demand management will be consolidated and incorporated into the sales and operations plan

- The operations plan is a statement of the aggregate output that will meet the objectives of the firm

- The aggregate operations plan constrains the MPS, because the sum of the detailed MPS quantities must always equal the whole as defined by the operations plan

Rough cut capacity planning involves an analysis of the MPS to

o Discover the existence of any manufacturing resources that represent potential bottlenecks in the productions flow

o Provides a rough evaluation of potential capacity problems

The MPS provides the input data (the overall output requirements) to the MRP system

o Disaggregation of the operations plan into production plans for specific products which defines the product mix to be produced

o It is the driver of all the detailed manufacturing activities needed to meet the output objectives (planned sales) of the firm

Order promising and ATP

- The delivery date ( promise date) is negotiated through a cycle of order promising

- Order promising can be coordinated with the MPS by using a concept known as available to promise (ATP)

Bill of materials

- BOM specifies the ingredients required to make each part number oir assembly in the system

- The BOM uses modular options which can be combined with the other modules to make a unique end item wanted by a customer

o The modular configuration will result in a large number of potential end products

o Ford automobiles runs int othe billion when all the oiptions available to the customer are considered

Basic MRP record

- Schedule receipts describe the statues of all open orders

- Scheduled receipts results from previously made ordering decisions and represent a source of the item to meet gross requirements

- “projected available balance” is the projected balance after replenishment orders have been received and gross requirements have been satisfied

o The “projected available balance” row has an extra time bucket shown at the beginning

Basic MRP record 2

- BMRP just described provides the correct info on each part of system

- Linking these single part records together is called the explosion process

Back schedule

-starts each item as late as possible

-observes critical path

-a substantial savings in work in process inventory is obtained by the shift of dates

-postpone the commitment of raw materials to specific products

-minimize storage time of completed components

Processing frequency

- MRP records must be brough up to current requirements

o New orders come in

o Customers cancel orders

- The bring MRP up to date the MRP process is ran, this process is called regeneration

- Regeneration is intensive and requires a lot of computer time

- Need to balance the extra load on computer with lower customer satisfaction

- An alternative to full generation is net generation which only updates records that have changed

Planning horizon 2

- Cumulative lead time is the total lead time for all components

- It is an important parameter for determining the length of the planning horizon

- The planning horizon should be long enough to cover the cumulative lead time for the low level code 0 item having the longest cumulative lead time.