A Framework for Supply Chains - Oakden chapter 11

PPTs t/a A Framework for Supply Chains by Oakden and Leonaite © 2011 McGraw-Hill Australia Pty Ltd

Chapter 11

Planning and

Scheduling the

Enterprise

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IntroductionLearning Outcomes

After this lesson, you should be able to:• understand the ‘one plan’ approach to planning a

business

• be a constructive part of a sales and operations planning (S&OP) implementation

• scope the extent of a demand plan

• consider how to structure a collaborative approach through planning with customers and suppliers

• understand the significance of the capacity plan

• follow the steps through planning the master plan/schedule, the materials requirements plan (MRP) and the capacity plan.

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Business Planning

• ‘One Plan’ approach – cornerstone of a successful planning and scheduling process which emphasises that to be truly effective, an organisation must have only one plan.

• Therefore essential that all affected divisions, groups, functions and departments have input to and understand the output decisions of the plan.

• Business Plan provides the framework around which the subsequent planning and scheduling processes will function.

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Sales and Operations Planning• Sales and Operations Planning (S&OP) – core

planning process, which takes account of current opportunities.

• S&OP is not complex, nor reliant on sophisticated software applications.

• Has failed in many implementations because it relies on the ability of people to work as a team to implement a change in the way the business operates.

• The term ‘operations’ is used to incorporate logistics, procurement, production, engineering and product development—that is, the functions that work to supply products for sales.

• S&OP elements; demand plan and capacity plan.

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Sales and Operations PlanningS&OP in the business• S&OP is a structured planning process, based on

a monthly cycle, with an objective to improve the balance between market demands, company resources and the supply of materials and services.

• A sequence of steps is followed within each monthly period (preferably a four-week cycle of 13 periods per year). See Figure 11.2.

• S&OP process is owned by the senior manager of the organisation who provides a written S&OP policy document.

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Sales and Operations Planning

S&OP in the business• The S&OP has two parts that are considered at

each step throughout the process:1. A review of recent performance (past period review)

against the agreed S&OP, notes the allowed variances:

1. sales plan variation

2. operations plan variation.

2. Input of future customer requirements against the most likely internal capacity and capabilities that have been established is considered with respect to corporate objectives.

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Sales and Operations PlanningS&OP in the business• It is important to recognise that S&OP is not:

the business plan a budget review a monthly or weekly operations meeting.

• S&OP provides inputs for the master schedule – which is the driver for supplier, production and delivery plans and schedules.

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Sales and Operations Planning

Inputs to the S&OP

Demand plan• Four marketing techniques related to demand

management:1. Market research

2. Demand shaping

3. Demand sensing

4. Demand planning

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Sales and Operations PlanningInputs to the S&OP

Demand plan• Demand planning connects with the following

methodologies: demand forecasting (or sales forecasting) supply planning:

1. master schedule, which includes:

a) prioritising of sales orders and customers by their requirements

b) allocation of product to customers

2. materials requirements planning (MRP)

3. distribution requirements planning (DRP)

4. scheduling of production and distribution.

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Sales and Operations PlanningForecasts• Forecasts of future demand – how much

customers and consumers would like to buy.• Forecasts of future sales – how much the

company will be able to sell.• Forecasts of sales are for what is called

‘independent demand’ items.• Forecasts should not be developed in isolation.• Forecasts are about the future and therefore

provide answers that will not be correct.• The further out the forecast horizon is, the less

accurate the forecast.

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Sales and Operations PlanningForecasts• There are two approaches to forecasting:

1. Aggregate forecast – top-down approach.

2. The use of IT application algorithms – bottom-up approach.

• Risks to the company’s supply chains from forecast ‘error ’ and other uncertainties that can affect product life cycles, such as: relationships with customers impacts of competitor actions changes in technology changes in regulations.

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Sales and Operations PlanningAccuracy of demand• Biggest challenge for a demand planner is

minimising the inaccuracy of a forecast.• Forecast accuracy – measured by each

inventory category/class.• Forecast error – statistical term used to measure

the difference between the actual and the forecast.

• Mean Absolute Percentage Error (MAPE) – difference between forecast and actual sales divided by actual sales.

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Capacity Planning

• Capacity can be difficult to quantify.• Capacity is under constant change, due to events

such as product-mix changes, improvement to processes and equipment, labour skills and transport mode availability.

• Flexibility of the operation is based on the lead time to change (or flex) the operation and the total cost to change.

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Capacity Planning• When considering capacity, be aware of

operational problems, such as: unreliability of equipment continuing quality problems ongoing skills shortages lack of training and therefore flexibility of staff and

inconsistencies with outputs from the computer-based planning and scheduling system.

• Rough Cut Capacity Planning (RCCP) – the base from which to consider the capacity available within the planning periods, equal to the longest lead time of purchased items.

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Planning ToolsMaster planning• Master schedule is key link in the organisation’s

supply chains, interfacing with applications in sales, distribution planning, production planning and capacity planning.

• Each month, the master schedule takes the agreed S&OP plan as its primary input.

• It is the input for the materials requirements planning (MRP) module of the enterprise resources planning (ERP) system in a manufacturing or assembly operation.

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Planning ToolsMaster planning• Output from the master planning process must

provide the customer service department with information concerning availability and lead times, based on the following criteria: available in stock (AIS) available to promise (ATP) capable to promise (CTP) capable to deliver (CTD).

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Material Planning• Materials Requirements Plan (MRP) –

establishes plans for availability of customer orders, production work orders and materials acquisition requirements from suppliers.

• Weakness of the standard MRP process – only ERP systems which contain advanced planning and scheduling (APS) modules are able to plan material and capacity requirements concurrently.

• In other situations, only when materials requirements have been planned can the required (and detailed) capacity resources be evaluated.

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Material Planning

Constraints• Theory of constraints (TOC) – operations (a

supply chain, a distribution sequence or a production line) are governed by the constraint in the system.

How much to order?• Economic Order Quantity (EOQ) – attempts to

minimise the total preparation (the ordering and set-up) costs and the inventory holding costs

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Distribution Planning• Distribution Requirements Planning (DRP) – a

computer application, or module within an ERP system, that plans the cumulative replenishment requirements within a distribution network.

• To meet projected inventory ‘out of stock’ situations, it calculates expected inventory levels over time periods and generates warehouse transfers (or purchase orders) with the appropriate time offsets that account for the distribution lead time.

• Linked to the DRP can be a transport allocation module which collates information about contracted transport service providers’ capabilities, by geographical region.

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Collaborative Approach withCustomers and Suppliers

Collaborative planning, forecasting and replenishment (CPFR)•The four elements of efficient consumer response (ECR) are:

1. Efficient assortment

2. Efficient replenishment

3. Efficient product introduction

4. Efficient promotions.

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•The CPFR concept was developed from the core elements of ECR to include:

a formalised process for sales and order forecasting a formalised process for handling exceptions in the

forecasting process systems to transfer point of sale (POS) data from the

retailer to suppliers structured feedback systems to report on the process

and improvements.

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Consignment stock and vendor managed inventory (VMI)•The supplier agrees to place an amount of inventory of selected SKU at the customer’s premises, with usage or sales recorded as they occur and typically reconciled at the end of each month.

•Advantage from customer’s point of view: inventory they do not own is available for use.

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Consignment stock and vendor managed inventory (VMI)•Advantage from supplier’s point of view: they have ‘locked in’ the customer to at least purchasing the amount held on consignment.

•Disadvantages: customer must provide the storage or shelf space for the products, may be paying a higher price for the certainty of having stock available, ‘locked in’ to the supplier for a period of time until the product is used or sold.

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A Framework for Supply Chains - Oakden chapter 11

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