Supply Chain Management Chapter 3

Supply Chain Planning

the element of supply chain management responsible for determining how best to satisfy the requirements created by the Demand Plan

Long-range planning

Involves planning for actions such as the construction of facilities and major equipment purchase (ref., Aggregate Production Plan – APP, Annual Business Planning). Executive level. Ford Motor Company wants to grow its market share by 5% over the next 1 - 3 year.

Intermediate-range Planning

Shows the quantity and timing of end items (ref., Master Production Schedule – MPS). Mid-level. Ford Motor Company wants to make 1,000 F-150 pickup trucks/week for the next 3-18 months.

Short-range Planning

Detailed planning process for components and parts to support the master production schedule (ref., Materials Requirement Planning – MRP). Closely connected workers. 1,000 engines, 1,000 transmissions, seats, windows, etc. each week over the next 1-12 weeks.

Business Planning

Provides the company’s direction and objectives for the next two to ten years (long-term). Typically updated and reevaluated annually, usually during the annual budgeting cycle.

Aggregate Production Plan (APP)

Hierarchical planning process that translates annual business plans, marketing plans, and demand forecasts into a production plan for a product family in a plant or facility. The planning horizon of APP is at least one year and is usually rolled forward by three months every quarter.

Purpose: to establish production rates that will achieve management’s objective of satisfying customer demand by maintaining, raising, or lowering inventories while attempting to keep the workforce relatively stable.

Goals:

 Meet demand

 Use capacity efficiently

 Meet inventory policy

 Minimize costs

Demand Adjustments

Used to help revise and meet objectives with APP.

Influencing demand, backordering, counter-seasonal product mixing

Influencing Demand

So that it aligns with available production capacity (e.g., airline and hotel weekend discounts, telecommunication companies’ weekend rates):

– Advertising

– Promotional plans

– Pricing

APP Strategies

Demand and supply adjustments

Supply adjustments

Change inventory levels and change capacity

Sales and Operations Planning (S&OP)

A process to develop tactical plans that allow management to strategically direct the business to achieve a competitive advantage continuously by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. Reviewed and performed monthly (short-intermediate range).

Capacity = demand

Emphasis should be placed on meeting demand as efficiently as possible

Capacity > demand

Promotion and advertising to increase demand

Capacity < demand

May subcontract a portion of the work to a 3rd party

Master Production Scheduling (MPS)

Represents what the company plans to produce, expressed in specific product configurations, quantities, and dates. Represents what the business plans to achieve.
Aggregate Production Plan: forecast for 2-door, 4-door, and convertibles

Master Production Scheduling: forecast specifically for 4-door cars

Time fence

A policy-driven boundary in a production or supply chain planning horizon that restricts or disallows changes to a schedule to protect near-term operations from costly disruptions

Firmed Time Period

From the current date out several weeks into the future. Established at the outer limit of this up-front immediate time period to signify the point when changes can no longer be made automatically by the planning system. Any changes require high level permission.

Planned Time Period

End of the Firmed Time Period to the end of the planning horizon. The 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

Level, chase, and hybrid production

Level Production Strategy

Maintains a constant production rate regardless of demand and allows inventory and backlog to vary according to fluctuating demand. No changes in labor, materials, or associated costs. Works well with make-to-stock items.

Chase Production Strategy

Adjusts the production rate and capacity to match demand exactly. Production set to match demand exactly. Company increases/decreases labor, materials, and costs as necessary. Best used when the skill level, training required, or the cost of training/firing people is low. Works well with make-to-order items.

Hybrid Production Strategy

Adjusts the production rate and capacity to match demand as closely as possible.

Material Requirements Planning (MRP)

A computer-based materials management tool that calculates the exact quantities, need dates, and planned order releases releases for all the parts and materials required to manufacture a product. Major disadvantage is that it ignores capacity. Focuses only on what is needed at the time. Requires inventory status, Bill of Materials data, and independent demand.

Bill of Materials (BOM)

A document that shows an inclusive listing of all raw materials, component parts, and assemblies making up the final product.

Single Level Bill of Materials (BOM)

Display of components that are directly used in a parent item, together with the quantity required for each component (i.e., the planning factor). Shows only the relationships one level down. Lists all direct dependent demands needed for the independent demand (i.e., you need 4 legs and 1 top for a table)

Multilevel Bill of Materials (BOM)

A display of all the components directly or indirectly used in a parent, together with the quantity required for each component (i.e., the planning factor). If a component is a subassembly, blend, intermediate, etc., all its components and all their components will also be exhibited, down to purchased parts and raw materials. (Need raw wood, screws, etc. to make legs to make a table)

Scheduled Receipt

Used in MRP. A committed order awaiting delivery for a specific period, (as opposed to a planned delivery, hasn’t been released yet—it still has to go through the full lead time before it ships).

Parent

Used in MRP. Item generating demand for lower level components. Forecast is placed on this.

Components.

Used in MRP. Parts demanded by a parent.

Planning Factor

Used in MRP. The number/quantity of each component or material needed to produce a single unit of the parent item.

Pegging

Used in MRP. Term is used to relate the requirements for a component part back to its parent item. It can be thought of as determining where a component item is used.

Capacity Planning

Determines the production capacity needed by an organization to produce the goods or services its customers require. Uses resource requirement planning (check whether resources are capable of doing the APP), rough cut capacity planning (checks feasibility of the MPS), and capacity requirement planning (checks feasibility of the MRP).

Distribution Requirements Planning (DRP)

The process of determining how and where to deploy the finished goods inventory that is produced. Determines the need to replenish finished product inventory at branch warehouses, when there are multiple warehouses in the network.

Enterprise Requirements Planning Systems (ERP)

An information system connecting an organization's functional areas and operations via a common software infrastructure and database. SAP, Oracle, and Microsoft. Types of implementation include best of breed and single integrator solution.