Ch 6 Ed.docx

Ch 6 Ed.docx

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Ch6Ed

Chapter6

TransformingDemandinSupplyChain:

PlanningonProductionFlow

6.1TransformingDemandthroughProductionPlanning

Acompanyhastomanageitsproductioninordertotransformcustomerorderstoproductsandtoaddvaluetotheproduct.Thequestionishowtosmoothlytransformcustomerorderstoend-userproductsinthesupplychain.Theanswerexistsintheeffectivemanufacturingplanningandcontrolsystem.

Acompanygenerallybelongstoonesupplychain.However,manycompaniesbelongtomorethanonesupplychain.Productionplanningisamechanismtocoordinatenotonlytheactivitieswithinoperations,butalsootherfunctionsinthefirmsuchasmarketing,sales,humanresources,engineering,accounting,andtheentiresupplychain.

Thegoalofproductionplanningistoensurethatplannedproductionmatchescustomerdemand.Still,demanduncertaintyandvariationareinevitable.Therearetwoapproachestomanagingdemandfluctuation:

oneistoincreaseproductioncapacityflexibilitysothatproductioncanbescheduledwhendemandisthere,andtheotheristoraiseorlowerinventorytomeetdemand.Bothsolutionsrequireresources.Consequently,productionplanningistobalancetheresourcessuchasworkforce,inventory,andovertimethatarerequiredtomanufactureproductstomeetcustomerdemand.Customerdemand,whichisanoutputofdemandmanagementactivitydiscussedinthepreviouschapter（Chapter5）,isacrucialinputtoproductionplanning.

Figure6.1illustratesahierarchicalproductionplanningprocess.Theproductionplanningisbasedonaproductfamily.Thisplanprovidesanoverallbalanceofwhatthecustomerneedsandwhatthemanufacturercanproduce.Amasterproductionschedule（MPS）isplannedaroundstock-keeping-unit（SKU）items,whicharetheitemsthatareshippedoutofthefactory（Figure6.1）.Forexample,attheproductionplanningstage,gardensprayersarestatedintheunitsofproductfamily,whichdoesnotspecifythedemandforvariouscolorsorsizes.TheMPS,ontheotherhand,derivesfromthenumberofgardensprayersthatarestatedintheproductionplananddisaggregatedtoSKUitems.ProductionquantityandtimeforeachSKUitemisspecifiedinthemasterproductionplan.Rough-cutcapacityplanningisconductedatthemasterproductionscheduleleveltoensurethecompanyhasadequatecapacity.

Figure6.1AnOverviewofProductionPlanningandScheduling

Materialrequirementplanning（MRP）translatesthemasterproductscheduleintorequirementsneededforproducingtheproductsuchasrawmaterials,parts,andcomponents.MRPissoftwarethatassistsmanagersinorderingmaterialsandschedulinginventoryreplenishment.AttheMRPstage,capacityrequirementplanningisperformedtoensurethatthecapacityofkeyworkstationsisadequatetosupportproduction.

Schedulingisthelastmanufacturingstagetotransformdemand.Atthisstage,capacityandmaterialsarereadyforcustomerorderstobelaunchedtotheshopfloorforproduction.Afterthisstage,ordersarereadytobeshippedoutofthefactory.

Inmovingfromtraditionalmaterialsmanagementtosupplychainmanagement,demandtransformationismorevisibleintermsofplanning,forecasting,andreplenishment.Thetransformationprocessallocatesavailablecapacityandinventorytosatisfycustomerorders.Whenaproductorcomponentisnotavailableatacertainplace,asystem-widecheckcanidentifyalternativelocationsand/orlocateasubstitutableitem.Manufacturingplanningandcontroliscrucialtothetransformationofcustomerorderstoproductsandtomakingafirmsuccessfulinthemarketplace.

6.1.1Aggregateplanning

Aggregateplanningisalsocalledproductionplanningbecausetheplanaggregatesdemandontheproductfamily.Productionplanningisastatementoftime-phasedproductionrates,work-forcelevels,andinventoryholdingsbasedoncustomerrequirementsandcapacitylimitations.Itservesasalinkbetweenthestrategicgoalsofacompanyandplansforindividualitemsandcomponents.Basedonforecasteddemand,aproductionplanistypicallypreparedforthenext12months.Companiesusuallyupdatetheirproductionplantorecognizechangesindemand.Theymaydothisbyreviewingtheplanmonthlyandupdatingitquarterly.Giventheobjectivessetbyacompany’sbusinessplan,productionplanningwilldeterminethefollowing:

∙Thequantityofeachproductfamilytobeproducedineachperiod

∙Thedesiredinventorylevelforeachperiod

∙Theresources（labor,material,andotherresources）requiredtosupporttheproductionforeachperiod.

∙Theallowedbackorderlevelforeachperiod

∙Theallowedstockoutlevelforeachperiod

∙Theallowedsubcontractingquantity

Theobjectiveofproductionplanningistominimizethecostsofchangeinproductionlevel,thecostofholdinginventory,andthecostofstockoutandsubcontracting.Theinformationneededtomakeaproductionplanincludes:

∙Forecasteddemandfortheplanninghorizon

∙Beginninginventoryanddesiredendinginventory

∙Resources,suchaslaborandmaterialneededforproduction

∙Allowedbackorderlevel

∙Allowedsubcontractingquantity

Therearethreebasicstrategiescommonlyusedinproductionplanning.Theyincludelevelstrategy,chasestrategy,andmixedstrategy.MorediscussiononproductionplanningstrategyisprovidedinSection6.1.4.

6.1.2Dimensionsofproductionplanning

Productionplanninghasthreedimensions:

products（orservices）,labor,andtime.Theplanaggregatesallthree.

（i）Productfamilies

∙Groupssimilarmarketsandmanufacturingprocesses

∙Relevantunitsofmeasurementsuchasbarrels,tons,cases,dollars,standardhours,etc.

（ii）Labor

∙Plansonthelevelofwork-forceneeded,itdoesn’tspecifythetypeofskillsneeded

（iii）Time

∙Updatesmonthlyorquarterly

∙Planningperiodsareintermsofmonthorquarter,notintermsofweeksordays.

6.1.3Planningalternatives

Productionplanningusesvariousalternativestomanagedemanduncertaintyandcapacityconstraints.Typically,twoapproachesareused:

thereactiveapproachandproactiveapproach.

Thereactiveapproachincludeswork-forceadjustmentthroughhiringandfiring,usingovertimeandunder-time,adjustingvacationschedules,buildingupanticipationinventory,usingsubcontractors,andallowingbacklogs,backorders,andstockouts.

Theproactivealternativeintendstoadjustdemandpattern.Commonlyusedmethodsincludeproducingcomplementaryproductstomanagetheseasonalnatureofthedemand,andusingcreativepricingandpromotionmethodstoleveldemandsinhighseasonandslowseason.

6.1.4PlanningStrategies

Companiestypicallyusethreeplanningstrategiesforaproductionplan:

levelstrategy,chasestrategy,andmixedstrategy.

Levelstrategy.Levelstrategymaintainsaconstantoutputrateorastableworkforcelevelovertheplanninghorizonbycumulatinganticipationinventoryandusingovertimetomatchthedemandfortheplanninghorizon.Anticipationinventory,backorders,stockout,overtimeandunder-timeareusedtomatchthedemand.

Chasestrategy.Chasestrategyadjustsoutputratesorwork-forcelevelstomatchthedemandovertheplanninghorizonwithoutusinganticipationinventoryorunder-time.Chasestrategyisaccomplishedthroughhiresandlayoffs,overtime,extrashiftsorsubcontracting.

Mixedstrategy.Mixedstrategycoversarangeofstrategies,suchaslevelstrategyandchasestrategy.Thebeststrategymaybeamixofsomeanticipationinventory,somework-forcelevelchanges,andsomeovertime.

6.2MasterProductionSchedule

6.2.1Thebasicsofmasterproductionschedule

MasterProductionSchedule（MPS）isdisaggregatedfromproductionplan.MPSisnotasalesforecast.Rather,itisthedetailedproductionplanfortheenditemstobeproducedbytheplant.Itisconstrainedbytheproductionplan.Forexample,iftheproductionplancallsfor400windowblindsshouldbeproducedinJune.Thismaymean100windowblindsinivorycolortobeproducedinweekone,100inwhitecolorinweektwo,100ingraycolorinweekthree,and100inlightblueinweekfour.Thisprocessofidentifyingeachenditemiscalleddisaggregation.ThedemandforeachStockKeepingUnit（SKU）enditemmaybedeterminedattheretailstoreswhentheitemisscannedatthecheckout.MPStakesintoaccounttheforecast,theaggregateplan,availablecapacity,andavailablematerial.MPSmustbefeasiblebecausethefollowingplanningstepsinmaterialandcapacityassumethattheMPSisreliable.

Atthemasterproductionplanningstage,roughcutcapacityplanningisusedtocheckthefeasibilityofMPS（Figure6.1）.Roughcutcapacityplanningismedium-termcapacityplanning.Thelengthoftimerangesfromoneweektothreemonthsanddependsonthecompanyandtheindustry.Ifthereisnotenoughcapacity,thensomedemandhastobepushedaheadorpostponed.Alternatively,extracapacitycanbeadded.

Themasterproductionscheduleischangedandupdatedmorefrequentlythantheproductionplan.Itisadetailedplananddoesnotextendasfarintothefutureastheproductionplan.Therefore,itcanbeviewedasacontractamongdifferentfunctionalareaswithinacompany.

InthetimehorizoninwhichtheMPSisfrozen,productionwillproduceeverythingthatisstatedonthescheduleandtherestofthefirmwillsellwhatisproduced.ThecompanywilldecidewhentheMPSshouldbeupdated.InFigure6.2,theMPSisbrokenintothreetimeperiodsanddividedbyacurveline.Thepointsbelowthecurvelineareordersreceivedfromcustomers.Pointsabovethecurvelineindicateavailableproductioncapacityandavailabletopromiseinventory.

Thefirsttimeperiodistheone