Managing Production across the Supply Chain

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 2 Chapter Objectives Be able to:  Explain the activities that make up planning and control in a typical manufacturing environment.  Explain the linkage between sales and operations planning (S&OP) and master scheduling.  Complete the calculations for the master schedule record and interpret the results.  Explain the linkage between master scheduling and material requirements planning (MRP).  Complete the calculations for the MRP record and interpret the results.  Discuss the role of production activity control and vendor order management and how these functions differ from the higher-level planning activities.  Explain how distribution requirements planning (DRP) helps synchronize the supply chain, and complete the calculations for a simple example.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 3 Outline Master scheduling defined Basic MPS record Planning horizon MRP defined Basic MRP record MRP special considerations Special topics: –Job Sequencing –DRP

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 4 Alphabet Soup TLA (Three Letter Acronym) Definitions ATP: Available to Promise BOM: Bill of Materials DRP: Distribution Requirements Planning MPS: Master Production Schedule MRP: Materials Requirements Planning PAC: Production Activity Control S&OP: Sales and Operations Planning

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 5 The Big Picture

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 6 Master Scheduling I Controls the timing and quantity of production for products or product families Primary interface point for actual customer orders Coordinates forecasted demand and actual orders with production activity Serves as tool for agreement between marketing and operations (but at a different level than S&OP)

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 7 Master Scheduling II Feeds data to more detailed material planning Indicates the quantity and timing (i.e., delivery times) for a product or group of products More detailed than S&OP  weekly versus monthly  specific products versus “average”

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 8 Link between S&OP and MPS Month:JanuaryFebruaryMarch Output: Push Mowers Self-propelled3540 Riding1213 January (weeks) S&OP MPS

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 9 Master Scheduling Criteria The Master Production Schedule must: Satisfy the needs of marketing Be feasible for operations Match with supply chain capability

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 10 MPS Formulas: Definitions ATP t = Available to promise in period t EI t = Ending Inventory for period t (same as projected on-hand inventory for next period) F t = Forecasted demand for period t MPS t = MPS quantity available in period t OB t = orders booked for period t

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 11 MPS Formulas:

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 12 Detailed MPS for a Product Notes:  Planning time fence  cumulative lead time for product  What seems to be the lot-sizing rule here? On-hand inventory at end of October =100 MonthNovemberDecember Week Forecast Demand Orders Booked Master Schedule

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 13 Projected On-Hand Inventory On-hand inventory at end of October =100 MonthNovemberDecember Week Forecast Demand Orders Booked Projected On-Hand Inventory Master Schedule e.g., Projected on-hand inventory for week 47: = – 150 = 215

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 14 Available-to-Promise ATP (Week 45) = – ( ) = 65 ATP (Week 47) = 300 – ( ) = 40 ATP (Week 49) = 250 – ( ) = 120 On-hand inventory at end of October =100 MonthNovemberDecember Week Forecast Demand Orders Booked Projected On-Hand Inventory Master schedule Available-to-Promise

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 15 Change in Forecast Demand Are we in trouble yet? On-hand inventory at end of October =100 MonthNovemberDecember Week Forecast Demand150 Orders Booked Projected On-Hand Inventory Master schedule Available-to-Promise

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 16 Change in Orders Booked Note impact on ATP ( Week 45) and on-hand inventory projections On-hand inventory at end of October =100 MonthNovemberDecember Week Forecast Demand Orders Booked Projected On-Hand Inventory Master schedule Available-to-Promise

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 17 Planning Horizon How far an MPS looks into the future depends on Variability in demand and market conditions Variability in supplier deliveries and lead times Length of the production process.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 18 Key Points about MPS Provides more detail than S&OP Tracks the following information: –Actual versus forecasted demand –Available-to-Promise This gives sales information for accepting or not accepting new orders for delivery in a given week

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 19 A Final View of Master Scheduling S&OP MPS Marketing Operations & Supply Chain Rough-Cut Capacity Plan

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 20 Material Requirements Planning MRP in the planning cycle The logic of MRP –an extended example Considerations of MRP

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 21 So Far... We have only considered labor, overall inventory levels, and equipment:  S&OP  Master scheduling  Rough-Cut Capacity Planning But we haven’t ordered the materials!

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 22 We’ve scheduled 500 chairs to be ready five weeks from now Now what?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 23 Back supports (3) Side rails (2) Front legs (2) Cross bars (2) Seat Material Needed for a Chair

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 24 Chair Structure Tree (aka “Bill of Materials” or BOM) Chair Leg Assembly Seat Back Assembly Legs (2) Cross bar Side rails (2) Cross bar Back Supports (3)

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 25 Chair Assembly (1 week) Week 5Week 4 If final assembly takes one week, then we must start the assembly at the beginning of Week 4... Lead-Time I

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 26 Chair Assembly Back Assembly Leg Assembly (1 week) Seats (2 weeks) Week 5Week 4Week 3Week 2 Which means that the major subassemblies and seats must be done by the beginning of Week 4... Lead-Time II

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 27 Chair Assembly Back Assembly Leg Assembly (1 week) Back Support (2 weeks) Legs (2 weeks) Side Rails (2 weeks) Cross Bar (2 weeks) Seats (2 weeks) Week 5Week 4Week 3Week 2Week 1 Lead-Time III

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 28 Lead-Time Key Points To have finished chairs at the beginning of Week 5 with no work in progress or finished inventory, we must begin production and order materials in Week 1. “Exploding” the bill of materials tells us when to order things. Not much we can do to adjust output of chairs for the next 4 weeks. Why?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 29 Material Requirements Planning (MRP) Requires: 1.Bill-of-Materials (BOM) 2.Inventory record 3.Master schedule to determine what should be ordered when, and how much to order.

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 30 End items are also known as “Level 0” items The MRP Process Starts with the MPS

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 31 Where do the gross requirements come from? Do you understand the MRP logic? The “Parent / Child” Relationship

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 32 Going Deeper…

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 33 Where do the gross requirements for LEGS come from? Moving from “Level 1” items to “Level 2” items...

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 34 Combining Requirements: “Cross Bars” Note effect of differences in lead times and order sizes on the gross requirements for each component

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 35 Impact of Longer Lead Times We cannot do this since the planned order would be in the past…. Thus the 250 crossbars will be delivered late one week to back assembly. What does this do to our chair schedule?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 36 Do You Understand... Why it is important to have an accurate BOM and accurate inventory information? Why we need to “freeze” production schedules? Where gross requirements come from? The difference between planned and scheduled receipts?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 37 Other Considerations I Planned Orders Feedback Production Suppliers MRP

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 38 Other Considerations II When do we update the system? Capacity requirements planning using MRP output MRP ‘nervousness’ –Increasing order chaos, the lower in the BOM structure of materials –Lot sizing issues

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 39 Recall... Look at the “lumpiness” of demand for legs

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 40 If we order “lot-for-lot” Much smoother demand for legs, lower average inventory

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 41 Job Sequencing Rules:  FCFS — first come, first served  EDD — earliest due date  Critical ratio — work time remaining divided by days left before due date Performance measure:  Average lateness — sum of days late for each job divided by total number of jobs

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 42 Example Data Job Estimated Time Days Until Due Critical Ratio Weldco MetroArt MMCC Jones

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 43 Example FCFS Job Estimated Time Days Until Due StartEnd Days Late Weldco MetroArt MMCC Jones Average lateness = 36/4 = 9 days

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 44 Example EDD Job Estimated Time Days Until Due StartEnd Days Late MMCC99090 Jones MetroArt Weldco Average lateness = 6/4 = 1.5 days

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 45 Example Critical Ratio (largest ratio first) Job Estimated Time Days Until Due StartEnd Days Late MMCC99090 MetroArt Jones Weldco Average lateness = 11/4 = 2.75 days

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 46 Interpretation Here the EDD rule gives better average lateness. Compare with FCFS results. Note that the critical ratio does not do as well as EDD compared to the text example for Carlos Restoration. Why?

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 47 Distribution Requirements Planning (DRP) Anticipates downstream demand –Uses this information, not predetermined reorder points or periodic reviews, to determine when to order Computer-based software systems needed to deal with the added complexity

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 48 Suppose we forecast demand for Wholesaler A for the next 8 days (the best time horizon to use will depend on many factors) Based on this, we anticipate that Wholesaler A will order on Day 3 DRP Example I

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 49 We extend the analysis to include Wholesaler B Combined, we expect to see orders on Days 3 and 4 DRP Example II

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 50 The distributor then uses this information to plan its own orders. In this case, suppose it takes two days for the supplier to replenish; based on the information, the distributor would order on Day 1 DRP Example III

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 51 DRP Benefits  Helps improve customer service  Provides a better and faster understanding of the impact of shortages and/or promotions  Helps reduce costs  Inventory  Freight  Production  Provides integration between the stages in the supply chain

© 2008 Pearson Prentice Hall --- Introduction to Operations and Supply Chain Management, 2/e --- Bozarth and Handfield, ISBN: Chapter 15, Slide 52 DRP Constraints Accurate forecasts and inventory levels –Necessary to anticipate correctly when orders will be placed Consistent and reliable lead times –To ensure that orders can be placed and arrive by the time they are needed “Nervousness” –Even light changes in demand for downstream partners can have a significant impact on order volumes, especially when order sizes are relatively high

Case Study in Managing Production The Realco Breadmaster