Supply Chain Management - Chapter 03: Supply Chain Planning

Chapter 03: Supply Chain Planning

Supply Chain Planning Definition

  • Supply Chain Planning: The element of supply chain management responsible for determining how to best satisfy requirements created by the Demand Plan. It involves the coordinated effort across various functions to ensure the smooth flow of goods and services.

  • Objective: To strategically balance supply and demand to achieve the company's financial and service goals. This includes optimizing inventory levels, ensuring customer satisfaction, minimizing costs, and maximizing resource utilization.

  • Operations Managers' Role: Continuously plan operations and resources, making critical decisions about production capacity, inventory management, labor allocation, and logistics to efficiently balance output against fluctuating demand. They aim to align operational capabilities with strategic objectives.

Components of Supply Chain Planning

Supply Chain Planning encompasses various interconnected planning processes used across the supply chain, primarily including:

  • Business Planning: A high-level strategic plan setting the company's overall direction, financial goals, and market objectives, typically for 2-10 years.

  • Aggregate Production Planning (APP): Deals with overall production levels for product families rather than individual items, typically over a 3-18 month horizon, aiming to balance inventory, production rates, workforce, and other controllable variables.

  • Sales & Operations Planning (S&OP): A collaborative process that integrates sales forecasts with operational plans, aligning demand and supply to ensure consistent customer service and efficient resource use. It often involves cross-functional teams.

  • Master Production Scheduling (MPS): A detailed plan for individual end items, specifying the quantity and timing of production for each product, usually over a shorter (e.g., 3-12 months) horizon, disaggregating the APP.

  • Materials Requirement Planning (MRP): A computer-based system that calculates the exact quantities of raw materials, components, and subassemblies needed for production, along with their precise timing, based on the MPS and Bill of Materials (BOM).

  • Capacity Planning: Ensures that available resources (e.g., labor, machinery, facilities) are sufficient to meet production requirements at all levels (RCCP, RRP).

  • Distribution Requirements Planning (DRP): A system that plans the replenishment of inventory in distribution centers and warehouses, linking customer demand to supply chain operations.

  • Advanced Planning and Scheduling (APS): Integrated software systems that use advanced mathematical algorithms to optimize planning and scheduling activities across the supply chain, often incorporating real-time data.

Enterprise Resource Planning (ERP) Systems

Overview

Enterprise Resource Planning (ERP) systems are integrated software solutions that manage and integrate a company's core business processes across various functions, including finance, human resources, manufacturing, supply chain, services, and procurement. They aim to provide a single, unified view of the business.

Purpose

The primary purpose of an ERP system in supply chain management is to facilitate real-time information sharing and process integration across the entire organization and with external partners. This integration allows for better decision-making, improved efficiency, and enhanced collaboration.

Key Features Relevant to Supply Chain Planning

  • Centralized Database: An ERP system uses a single, shared database to store information from all functional areas. This eliminates data silos, ensures data consistency, and provides a 'single source of truth' for all operations.

  • Real-time Visibility: Provides up-to-the-minute data on inventory levels, production status, order fulfillment, and financial performance. This visibility is crucial for responsive supply chain planning and execution.

  • Module Integration: Different modules (e.g., Manufacturing, Inventory Management, Sales & Distribution, Procurement) are seamlessly integrated, allowing data to flow automatically between functions without manual re-entry.

  • Process Standardization: Enforces standardized business processes, which helps improve efficiency, reduce errors, and ensure compliance across the organization.

  • Decision Support: Through analytics and reporting tools, ERP systems offer insights into performance metrics, helping managers make informed decisions regarding capacity, production, inventory, and logistics.

Major ERP Providers

  • SAP: A leading global provider of ERP software solutions, known for its comprehensive suite of modules catering to various industries and business sizes.

  • Oracle: Another major player offering a broad range of ERP applications, including cloud-based solutions, often favored by large enterprises.

  • Microsoft Dynamics: Microsoft's line of ERP and CRM (Customer Relationship Management) applications, designed to integrate with other Microsoft products and popular among small to mid-sized businesses.

Benefits in Supply Chain Planning

  • Improved Forecasting: Integrates historical sales data with current demand signals to enhance the accuracy of forecasts.

  • Optimized Inventory: Helps maintain optimal inventory levels by providing precise data on stock, work-in-progress, and inbound shipments, reducing carrying costs and preventing stockouts.

  • Enhanced Production Scheduling: Links customer orders and forecasts directly to production plans (like MPS and MRP), ensuring that manufacturing resources are efficiently utilized and deadlines are met.

  • Better Supplier Management: Streamlines procurement processes, from purchase order generation to invoice processing, fostering stronger supplier relationships and improving material availability.

  • Streamlined Distribution: Integrates with DRP to optimize warehouse management, shipping, and logistics, ensuring timely and cost-effective delivery of products.

Challenges

Implementing and maintaining ERP systems can be complex, involving significant financial investment, extensive training, and potential resistance to change within the organization. Data migration and customization also pose considerable challenges.

Central Principle of Supply Chain Management

  • Standardized Stepwise Approach: A central principle involves a structured, hierarchical method for managing the supply chain, categorized into distinct planning horizons, each with specific objectives and levels of detail:

    • Long Range: Strategic planning (over 1 year, often 2-10 years). Focuses on high-level decisions affecting the entire organization's structure and direction, such as the construction of new facilities, major equipment purchases, new product development, and market entry strategies. These decisions have significant financial implications and are difficult to reverse.

    • Intermediate Range: Tactical planning (3-18 months). Translates strategic goals into more concrete plans. It involves decisions about overall production quantities, workforce levels, inventory policies, and subcontracting to meet aggregate demand while considering resource constraints.

    • Short Range: Operational planning (up to 3 months, often weekly or daily). Deals with the detailed execution of tactical plans. This includes specific production schedules, job assignments, material ordering, and dispatching activities, aiming for efficient day-to-day operations.

Hierarchy of Planning Processes

  • Long-Range (Strategic): Executive level decision-making, focusing on broad objectives and resource allocation. For example, a company targets a market share growth of 5% over 1-3 years, necessitating plans for capital investment in new production lines or geographic expansion, as well as R&D into new technologies. These decisions set the stage for all subsequent planning.

  • Intermediate-Range (Tactical): Mid-level planning, translating long-range strategy into actionable plans for specific product families or aggregated units. For example, a company plans to produce 1,000 F-150 trucks per week for the next 3-18 months, requiring decisions on staffing, inventory buffers, and potential outsourcing to manage demand fluctuations.

  • Short-Range (Operational): Frontline supervision and highly detailed component planning, focusing on daily or weekly execution. This includes precise weekly requirements for specific engines, transmissions, tires, and electronic components for the F-150 production line, ensuring that parts arrive "just-in-time" to support the MPS.

Planning Responsibilities and Tasks

  • Top Management Responsibilities (Long-Range, over 1 year):

    • Research and Development (R&D)

    • New product plans

    • Capital expenses

    • Facility expansion

  • Operations Managers' Tasks (Intermediate-Range, 3-18 months):

    • Sales and production planning

    • Setting employment, inventory levels, and subcontracting plans

    • Analyzing operating plans

  • Short-Range Tasks (up to 3 months):

    • Job assignments

    • Job scheduling

    • Dispatching

    • Ordering

Master Production Schedule (MPS) Time Fences & Planning Horizons

Overview

In Master Production Scheduling (MPS), time fences are used to establish different planning horizons, each with varying degrees of flexibility and control over the production plan. These fences help balance the need for production stability with the ability to respond to changes in demand.

Firmed Time Period (Demand Time Fence)

  • Definition: This is the most immediate planning horizon, extending from the present moment for a short duration (typically the next 6-8 weeks, but can vary by industry).

  • Characteristics:

    • Rigidity: Highly rigid. Production orders inside this fence are considered "firmed" and are typically frozen.

    • Control: Changes usually require multiple levels of management approval due to the significant cost and disruption associated with altering committed production.

    • Input Focus: Primarily driven by actual customer orders rather than forecasts.

    • Purpose: To provide a stable production schedule for manufacturing, allowing for efficient material procurement, labor scheduling, and facility utilization without constant last-minute changes. This ensures high customer service levels for committed orders.

Planned Time Period (Planning Time Fence)

  • Definition: This horizon extends beyond the firmed time period, covering an intermediate duration (e.g., 8-26 weeks out).

  • Characteristics:

    • Flexibility: More flexible than the firmed period, allowing for easier adjustments to the production plan.

    • Control: Changes can often be made automatically by the MPS system based on updated demand forecasts or new order intake, though significant changes might still warrant review.

    • Input Focus: Driven by a combination of actual customer orders and the latest sales forecasts.

    • Purpose: Provides a window for tactical adjustments such as managing inventory levels, adjusting aggregate capacity (e.g., overtime, temporary labor, subcontracting), and responding to anticipated shifts in demand without major disruptions.

Outside the Planning Time Fence (Long-Range Planning)

  • Definition: This is the furthest planning horizon, typically extending beyond 26 weeks.

  • Characteristics:

    • Flexibility: Highly flexible and largely driven by long-range forecasts.

    • Control: The MPS in this period can be automatically adjusted by the planning system without manual intervention, reflecting changes in strategic direction or market outlook.

    • Input Focus: Primarily strategic forecasts and business plans.

    • Purpose: Used for strategic capacity planning, evaluating potential capital investments, new product development, and understanding long-term resource requirements. Changes here are less costly and are part of standard long-term planning exercises.

Capacity and Demand Planning Process

  • Capacity Planning Definition: Ensures that available resources (e.g., labor, machinery, facilities) are sufficient to meet production requirements at all levels.

  • Capacity Adjustments: The process begins with Rough-Cut Capacity Planning (RCCP), which is a high-level assessment to evaluate if the Aggregate Production Plan (APP) is feasible given the current overall production capacity of key resources (e.g., labor hours, machine hours) and identifying potential bottlenecks early in the planning cycle.

  • Resource Requirements Planning (RRP): A more detailed capacity check than RCCP. It examines if aggregate resources (e.g., specific departments, critical work centers) can adequately satisfy the Aggregate Production Plan, taking into account available labor, equipment, and facility space. Its purpose is to ensure that the necessary resources will be available to execute the APP.

  • Manufacturing and Distribution Requirements Planning (DRP): This involves two interconnected aspects:

    • Material Requirements Planning (MRP) ensures the availability of raw materials and components for manufacturing.

    • Distribution Requirements Planning (DRP) evaluates distribution requirements and confirms strategies for timely product delivery to customers by planning inventory movements between distribution centers and warehouses. Both systems work to synchronize the flow of materials through the entire supply chain.

Business Planning

  • Business Plan Purpose: A comprehensive document that provides strategic direction and specific objectives for the organization over the next 2-10 years. It outlines the company's long-term vision, mission, strategic goals, marketing strategies, financial projections, and operational strategies. This plan serves as the foundation for all subsequent lower-level planning activities, translating into demand forecasts and production targets that drive the entire supply chain planning process forward.

Chapter 3 - Supply Chain Planning

- covers how we create a plan to supply the market with our products

- supply chain planning: element that determines best way to satisty requirements created by the demand plan (what/how to satisfy customers)

- companies find a balance between quality + demand

• customers want goods at a low price but high quality

• manufacturers know they can't increase quality without increasing price

- hierarchical approach

- Long- Range: planning for big actions like constructing facilities, executive level, growing market share over next 1-3 years, Aggregate Production Plan (APP) - shows exactly what is needed, strategic, company wants to expand

- Intermediate - Range: shows quantity and timing of end items, mid-level, making more products for next

3-18 months, Master Production Schedule (MPS) - all about the dates when goods are completed. tactical, actua) implication of what is needed to expand business

- Short-Range: detailed planning for components and parts to support MPS, low/entry level, making set number of inputs each week over next I-R weeks, Materials Requirement Planning (MRP) - breaks down

inputs needed for items, operational, day to day, managers, up to 3 months

- goes from top to bottom

- Business planning:

strategic plans → busines planning- financial plans

- shows company's objective over next 2-10 years

- updated anvally

- product family: lex: cars that have common car parts) tend to be made in the same plants/factories.

- planning horizon of APP is at least one year and rolled fomard by three months every quarter

includes costs of inventory, setup, machine operation, hiring, firing, training

- APP is used to establish production rates that will achieve the objective of satstying demand by changing inventery levels while keeping workforce stable

• aims to meet demand, use space efficiently, meet inventory policy, minimize costs

- Strategies:

→ Demand adjustments: influencing demand to align with production capacity (discount, marketing, pricing), backordering for high demand

counter-seasonal product mixing - making/selling products with opposite seasonal demand to keep production steady year-round

Supply adjustments:

- change inventory levels

• increase inventories - build stock

• decrease inventories - reduce inventory below safety stock to meet demand

- change capacity:

• chase production/strategy

• vary production

• vary workforce size (ex: seasonal workers)

part- time workers

- sales and operations planning (880P): develops tactica) plans that help companies achieve a competitive advantage by integrating customer-focused marketing with som

• performed monthly

- determines most profitable outcomes

- if capacity/what is being produced = demand.

companies try to meet customer goals and expectations ASAP

- if capacity > demand, change marketing plans+ promote to decrease inventors, lower prices

- if capacity < demand, subcontracting, overtime, more labor

Master Production Scheduling (MPS) : shows what company plans to produce, quantitative, opposite of APP

i statement of what business wants to achieve → production

- 3 to 18 months planning horizon

- has nothing to do with customers orders

- Projected Available Balance for current

period = Projected Available Balance from

last period - customer orders/forecast

+ MPS quantity

- Firmed time period: from current date out to several weeks in the future

- firm time fence: at the end of this period where changes can no longer be made

- Planned time period: from the end of firmed time period to end of planning horizon

- MRP ignores capacity

- Three major ERP providers:

- SAP

- Oracle

- Microsoft

- Two types of implementing ERP Systems:

→ Best-of - breed: picking best application for each function

→ Single integrator solution - pick all the desired applications from a single vendor

- Common problems:

- lack of management

- lack of training/communication

MRP terms:

  • Gross Requirement – A time-phased requirement before netting out on-hand inventory and lead-time​

  • Net Requirement – The unsatisfied item requirement for a specific period. Gross requirement for the period minus current on-hand inventory.​

  • Projected Available Inventory – Projected closing inventory at the end of a period. Beginning inventory minus gross requirements, plus scheduled receipts, plus planned receipts from planned order releases.​

  • Planned Order Release – A specific order for a particular item and quantity to be released to the shop or 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 in responding to material and capacity problems by firming up selected planned orders.​

  • Scheduled Receipt – A committed order awaiting delivery for a specific period.​

  • Lead Time - The time it takes to process and prepare material, produce the product, and transport it to the customer.

  • planning factor: quantity of inputs you need to make parent factor

  • lot size - specific quanttity of order size

  • Time Bucket – Unit of time/period used in MRP, e.g., days, weeks, months​

  • Parent – Item generating demand for lower-level components.​

  • Components – parts demanded by a parent.​

  • Planning Factor – The number/quantity of each component or material needed to produce a single unit of the parent item​

  • MRP Explosion – The process of converting a parent item’s planned order releases into component gross requirements​

  • Pegging – Relates the gross requirements for a component part to the planned order releases of the parent item to identify the source(s) 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 used to create safety stock.​

  1. Level Production Strategy – Maintains a constant production rate and allows inventory and backlog to vary according to fluctuating demand. ​

  2. Chase Production Strategy - Adjusts the production rate and capacity to match demand. ​

  3. Hybrid Production Strategy – Sets a baseline production rate based on a stable core workforce and then uses other short-term means, such as overtime, subcontracting, and part-time labor, to manage short-term fluctuations in demand. ​

  4. ​Ford decides theyre going to make 500 cars/month. They had 25 people to produce them. No matter what happens with the amount of orders they have 25 ppl and they will produce 500 cars (1)​

  5. Companies that use 2 are chasing the orders. If they have 25 people and 25 people produce 500 of their product, when the orders go up to 1000, they increase production by hiring more ppl to chase that demand. When those orders stop and go down to like 10, they fire all those people and production rate goes down (2).​

  6. Get the best of both worlds. They use other techniques to match/meet customer demand. The end of the year a lot of gift giving so a company like Macys offers overtime to their workers during holiday seasons. They also hire some seasonal services. This how they meet this increased demand for short-term(3).​

  • the name of the engineering document that shows all component parts and materials which make up the final product? (bill of material)