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Transcript of MPR_NOTES
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Session1 The Business Planning Process
1.Overview of the curriculum:
Entry module: Basics of Supply Chain Management;
Business process modules: Master Planning of Resources, Detailed Scheduling and Planning, Execution and
Control of Operations.
Capstone module: Strategic Management of Resources.
2.This module includes the explanation of the business processes required to translate actual and projected
demand into realistic and executable production schedules. The module highlights the need for different types of
supply plans, how they are constructed in a range of business environments, and alternative approaches to
developing and evaluating such plans.
Master planning of resources is defined as a grouping of the business processes that includes the following
activities:
Demand Management(which includes forecasting,distribution planning,and order servicing)
Sales and Operations Planning(which integrates the plans of
business-sales,marketing,development,manufacturing,sourcing and financial-and utilizes resource planning)
Master Scheduling(which includes development of a master production schedule and a final assembly
schedules as applicable and which utilizes rough-cut capacity planning)
3.The output of this process(SOP) is the approved production plan, the sales plan, and the inventory/backlog plan.
4.The planning challenge is to keep the supply side and the demand side in balance.
5.The level of product volume establishes the big picture of demand placed on a supply operation.
Setup time reduction programs and the adoption of small work cells have enabled some suppliers to respond to
variation in product mix with relative ease.
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6.Key business goals:
Growth;
Profitability;
Return on investment;
Market share;
Customer service;
Reputation;
Company value.
7.Selection of scheduling approaches:
A type-Make to Stock;
X type-Assemble to Order;
V type-Make to Order.
8.This can also be related to product position within life cycle. In the introductory phase, prototypes may be
engineer-to-order, during the growth phase this normally becomes make- or assemble-to-order, and may become
make-to-order as a product enters the maturity phase, often returning to make-to-order in the decline phase.
9.P:D ratio = the manufacturing lead time/the customer required delivery time.
10.Concerns of the different manufacturing environment strategies:
ETO: availability of technical resources, resource availability, flexible facilities;
MTO: production schedule, flexible facilities;
ATO: rapid delivery, customized variations;
MTS: inventory costs, stock distribution.
The make-to-order environment is used often with items with many possible product configurations.
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11.SOP occurs on a monthly cycle and displays information in both units and dollars.
12.Product families:
Ideally there should be no more than 6 to 12 product groupings per separate business unit;
Products that are grouped into families often have the following characteristics:
Similar manufacturing requirements;
Similar sales requirements;
Proportionate cost and revenue effects;
Similar function and design.
Companies frequently choose to place new products in a separate family.
13.Resource planning decisions always require top management approval.
A bill of resources determines the amount of resources consumed by the production of one typical unit of a
product family.
14.Rough-cut capacity planning is the process of converting the master production schedule into
requirements for critical resources, often including labor, machinery, warehouse space, suppliers capabilities,
and, in some cases, money.
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1.Forecasts should be expressed as a value, with a +/- percentage of error associated with the forecast.
The key concept about forecasting for business purposes is that it does not have to be 100 percent accurate,
but the planning system does need to include information on the level of forecast accuracy. Forecast
of 80 percent accuracy are better than no forecast at all.
2.A forecast is an attempt to reduce the amount of uncertainty a company encounters.
3.Many decisions depend on forecasts. Numerous business examples relate the problem of making purchase
decisions on the basis of inadequate forecast information.
4.General forecasting techniques:
Qualitative techniques: based on intuitive or judgmental evaluation;
Quantitative techniques: based on computational projection of a numeric relationship.
5.General forecasting data sources:
Intrinsic: forecasting data sources are based on historical patterns of the data itself from company
data;
Extrinsic: forecasting data sources are based on external patterns from information outside the company.
Quantitative techniques are based on the premise that past demand is a good indicator of future demand.
6.Sources of demand:
Consumers: the ultimate users of a service or product;
Customers: people who will receive an invoice and pay for a product;
Referrers: people who prescribe or recommend products or services to others;
Dealers and distributors: intermediaries who act on behalf of a supplier;
Intracompany: purchases from affiliated business units of the same company;
Service parts: items subject to independent demand for service reasons.
7.Factors influencing demand:
Internal factors:
-product promotion;
-product substitution.
External factors:
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-random fluctuation;
-seasonality;
-trend;
-economic cycle;
-changing customer preferences and demands.
8.It is important to note that the higher the item in the hierarchy, the more accurate the forecast.
9.Quantitative techniques:
Moving average;
Exponential smoothing;
Regression analysis;
Adaptive smoothing;
Graphical methods;
Econometric modeling;
Life-cycle modeling.
Moving averages do not work well with seasonal demand.
10.Qualitative techniques:
Expert opinion;
Market research;
Focus groups;
Historical analogy;
Delphi method;
Panel consensus.
11.Product life-cycle management:
Stage1: introductory phase;
Stage2: growth phase;
Stage3: maturity phase;
Stage4: decline phase.
12.Most companies develop a business plan on an annual basis, a sales and operations plan on a monthly
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basis, and a master schedule on a weekly or daily basis.
13.It is important to record customer-requested quantities, not merely shipments, in historical records.
14.An outlier is defined by the APICS Dictionary as: a data point that differs significantly from other
data for a similar phenomenon. For example, if the average sales for some product were 10 units per month,
and one moth had sales of 500 units, this sales point might be considered an outlier.
15.Decomposition of data:
Purity the data;
Adjust the data;
Take out the baseline and components;
Identify demand components;
Measure the random error;
Project the series;
Recompose.
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1.The purpose of the forecast is to add some preparation time for the supply operation so that actual
orders can be delivered on the requested due date.
2.Two basic techniques to do this (monitoring the forecast) involve the use of tracking signals and demand
filters.
3.Reasons for forecast inaccuracy:
Inappropriate forecasting method;
Lack of participation;
Too difficult to understand;
Lack of compatibility;
Data may be inaccurate;
Some data are inappropriate;
Lack of monitoring.
4.Forecast accuracy measurements:
Period forecast error = A F;
APE(absolute percentage of error) = |A - F|/A * 100%;
MAD(mean absolute deviation) = |A - F|/n;
MAPE(mean absolute percentage of error) = (|A - F|/A * 100%)/n;
Standard deviation = -(A F)2/(n 1).
5.In a normal distribution, the mean, the median, and the mode are all identical.
6.Monitoring the forecast techniques:
Bias = (A F)/n;
Tracking signal = (A F)/MAD;
Demand filters.
7.Sources of demand:
Customer orders;
Distributors;
Interplant;
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Service and replacement parts;
Repair/overhaul;
Samples;
New product trials.
8.For both overall market and product mix, demand data are required.
9.Customer relationship management(CRM):
Order processing;
Supplier requested changes;
Substitutions;
Change orders;
Customer returns;
Order entry accuracy.
10.A customer-centered perspective is necessary for success.
11.Order management is the planning, directing, monitoring, and controlling of the processes related
to customer orders, manufacturing orders, and purchase orders.
Order service is the function that encompasses receiving, entering, and promising orders from customers,
distribution centers, and interplant operations. Order service is also typically responsible for
responding to customer inquiries and interacting with the master scheduler on availability of products.
12.Customer, however, measure order lead time as the total elapsed time from the moment they identify
a need until the goods are received.
13.Technological elements of Quick Response(QR):
Forecasting/planning system;
Automatic replenishment;
Inventory management systems;
Streamlined distribution center processing;
e-Commerce;
Shipping container marking;
Automated point of sale data.
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14.Order management includes line item fill rate, shipments by due dates, stockouts, cycle times, and
other similar process data.
15.It is important that forecasting be used only for independent items.
16.Quality, value-added service, and speed of delivery have become the means by which the enterprise
can meet and exceed the expectations of its customers.
17.In the pre-transaction or pre-sale phase, the focus is on customer expectations.
18.Being proactive with the customers, anticipating their future needs and developing solutions to their
potential future problems.
19.Conducting customer surveys about product or service satisfaction, collecting and analyzing the data,
and making changes that improve customer service and the level of customer satisfaction.
20.In the eyes of customer, service perception is reality.
A more serious perception problem-that there are two classes of customer: those who are important and
those who are not.
Tell the truth, even if it is bad news
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1.Considerations for distribution:
How many levels should be involved in the distribution of goods?
How many stocking locations should be provided at each level, and where should they be located
geographically?
What functions, such as bulk breaking and packaging, should be performed at each level of stocking location?
Should distribution stocking locations be owned by the manufacture, or should they be subcontracted to
independent companies?
What is the best mode of transportation to ship goods from one level of the distribution network to another?
Should a company own its own transportation system, or should common carriers be used?
How can cost reductions be achieved in the transportation, storage, and handling of goods throughout
the distribution network?
What processes should be put in place to manage replenishment and supply?
2.The overall goal of a distribution system is to provide products and services in an efficient, timely
and cost-effective manner to multiple customers. This goal can be linked to the following objectives:
High level of customer service;
High level of distribution efficiency;
Minimize inventory investment.
3.These members (interdependent members of a common distribution channel system) not only supply products
and services at the right time, place, quality, quantity, and price, but also stimulate demand through
marketing and sales activities.
4.Distribution relationships:
Producing locations regional distribution points area distribution points lowest level
distribution points.
5.A forecast of demand from the distribution system is another source of requirements.
6.Safety stock for DC = SS for 1 DC/- # of DCs
7.In addition to transportation costs, there are other distribution costs such as:
Inventory;
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Inventory carrying costs;
Warehouse lease and utility costs;
Packaging equipment and materials;
Material handling equipment and personnel.
8.Distribution site selection:
-Quantitative factors:
Inbound transportation cost;
Outbound transportation costs;
Building and land costs;
Local tax structures;
Local labor costs;
Operating costs.
-Qualitative factors:
Customer base;
A supply of skilled labor necessary to staff the DC is necessary;
Labor relations in some communities can be contentious; others not;
Government regulations can be minimal or filled with red tape;
Availability of transportation systems.
Climate may play a part in the ability of the transportation systems to function, as in the case of being
snowbound;
Schools, medical facilities, and recreation;
Infrastructure is another siting consideration.
9.Distribution planning systems:
Reorder point;
Pull system with reorder point;
Push system;
Distribution requirements planning (DRP);
Distribution resource planning (DRPII);
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Vendor-managed and vendor-owned inventory (VMI and VOI);
Collaborative planning, forecasting, and replenishment (CPFR).
10.DRPII, the extension of distribution requirements planning into the planning of the key resources
contained in a distribution system: warehouse space, workforce, money, trucks, freight cars, etc.
11.Bill of distribution, the structure of the BOD, on the other hand, has been designed to facilitate
the transfer of requirements from the components (the satellite warehouse) to the parent (the supplying
warehouse). This structure, often called an inverted BOM, performs an implosion whereby requirements
are passed up the structure rather than down.
12.These two systems (DRP/MRP) interfaces at the master production schedule.
13.Because some safety stock will usually be needed in intermediate centers, the overall level of safety
stock in a push distribution system would probably be more than in a pull system.
14.The forecast is managed by DRP, whereas actual customer orders are managed by JIT.
15.The JIT attitude shows that products residing in inventories constitute waste, and that direct shipment,
cutting out the intermediaries, is the most effective means to eliminate this form of waste.
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1.The S&OP process relies on demand information obtained from the forecasting and demand management
functions.
2.The APICS Dictionary defines sales and operations planning as:
A process that provides management the ability to strategically direct its businesses to achieve
competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and
existing products with the management of the supply chain. The process brings together all the plans
for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one
integrated set of plans. It performed at least once a month and is reviewed by management at an aggregate
(product family) level. The process must reconcile all supply, demand, and new-product plans at both
the detail and aggregate level and tie to the business plan. It is the definitive statement of the company
plans for the near to intermediate term covering a horizon sufficient to plan for resources and to support
the annual business planning process. Executed properly, the sales and operations planning process links
the strategic plan for the business with its execution and reviews performance measures for continuous
improvement.
3.The planning challenge is to keep the supply side and the demand side completely in balance all the
time. This is not easy, as forecasts always contain some element of error, customers change orders on
a random basis, and production and suppliers experience numerous problems.
4.The key points of an effective sales and operations planning process:
It is a business process;
It is designed to keep demand and supply in balance;
It is performed at the aggregate level of product families or groups;
It focuses on product volume, not product mix;
It occurs on a monthly cycle;
It displays information in both product units and financial numbers.
5.The monthly sales and operations planning process:
Run sales forecast reports;
The demand planning phase;
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The supply planning phase;
The pre-sales and operations plan meeting;
The executive S&OP meeing.
6.The outputs of the sales and operations planning process include:
The production plan (for manufactured product families) ;
The purchase plan (for purchased product families);
The inventory plan (for make-to-stock product families);
The backlog plan (for make-to-order product families).
7.The information that each participant brings to the table in the sales and operations planning meeting:
Engineering product development and/or product changes;
Human resources workforce availability;
Operations production constraints;
General manager business plan;
Materials supplier constraints;
Finance capital and financing information;
Marketing product demand;
Sales customer interface/concerns.
8.The key points about how product groupings should be defined:
Product families should represent how the product or service is presented to the market;
Product families should be based on similar sales and manufacturing requirements;
Product families should be meaningful in terms of volume of sales generated;
Ideally, there should be no more than 6 to 12 product families per business unit.
9.Forecasts are likely to be more accurate the higher up the product hierarchy they are developed.
Consequently, forecasts should usually be driven down from the top. Actual demand is collected at the
detailed level and hence should be consolidated from the bottom up.
Total company business unit product family product subfamily model/brand package size
stock keeping unit (SKU).
10.There are three general production methods: level, chase, combination/hybrid.
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Level schedule method: in traditional management, a production schedule or master production schedule
that generates material and labor requirements that are as evenly spread over time as possible. Finished
goods inventories buffer the production system against seasonal demand.
Chase method: a production planning method that maintains a stable inventory level while varying
production to meet demand.
11.The grid displays an inventory plan; a make-to-order product would have a backlog plan instead of
an inventory plan.
12.Note, however, that it is always better to use an actual value as the basis for a forward projection.
13.Inventory is a supply item, while backlog is a demand item. Inventory represents what we can supply
to meet our customers demand. Backlog represents demand from our customers and what must be supplied.
The calculation of each is different.
14.Backlog is the term given to all customer orders received but not yet shipped.
A backorder is an unfilled customer order or commitment.
Backlog includes all backorders, but backorders do not include all backlog.
15.A resource is defined as anything that adds value to a product or service in its creation, production,
or delivery.
Resource planning decisions always require top management approval.
16.The resource planning process:
Determine the bill of potentially constraining resources for each product family in the production
plan;
Determine the unit of measure for each potentially constraining resource;
Determine the resource capacity availability for each resource in each period of the planning horizon
of the production plan;
Calculate the load on each resource in each time period of the production plan;
Compare the load to the available capacity in each time period for each resource;
Take action to revise the production plan, or adjust capacity in periods and for resources where loading
problems occur.
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17.A bill of resources determines the link between the resource and the amount of resource required in
the delivery of one typical unit of the product family.
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1.The APICS Dictionary defines master scheduling as: the process where the master schedule is generated
and reviewed and adjustments are made to the master production schedule to ensure consistency with the
production plan. The master production schedule (the line on the grid) is the primary input to the material
requirements plan. The sum of the master production schedules for the items within the product family
must equal the production plan for that family.
2.The master scheduling process enables sales to make legitimate delivery commitments to customers.
The MPS, being an output of master scheduling, is not a forecast.
3.Time fence policies provide order management guidelines about how much change can be accepted depending
on the time period in which the order change is being considered.
4.The master scheduling process:
Develop a preliminary master production schedule based on all the inputs received;
Evaluate the MPS using rough-cut capacity planning to determine if there is sufficient capacity in
the potentially constraining workcenters;
Revise the master production schedule if the previous step indicated that there were capacity problem
areas;
Reevaluate the MPS using rough-cut capacity planning to recheck the new load placed on potentially
constraining workcenters;
Finalize and communicate the master production schedule.
5.The planning time fence is defined in the APICS Dictionary as: a point in time denoted in the planning
horizon of the master scheduling process that marks a boundary inside of which changes to the schedule
may adversely affect component schedules, capacity plans, customer deliveries, and cost.
6.For planning purposes, the forecast is not calculated with the demand time fence;
When the PAB has fallen below the safety stock level, an MPS must be reevaluated.
7.The projected available balance (PAB) is the projected inventory quantity in a particular time period.
It is defined as follows in the APICS Dictionary: an inventory balance projected into the future. It
is the running sum of on-hand inventory minus requirements plus scheduled receipts and planned orders.
8.Available-to-promise (ATP) is the uncommitted portion of the current inventory or future planned supply.
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ATP ignores the forecast. It is maintained as a tool for customer order promising.
9.There are three methods of calculating ATP:
Non-cumulative;
Cumulative;
Look ahead (Backward ATP).
The non-cumulative method is the method used in APICS certification exams unless specifically indicated
otherwise.
10.In the case of the assemble-to-order, engineer-to-order, and make-to-order environments, this involves
a level other than the top level; thus, the master production schedule (MPS) is done at the narrowest
level.
11.Designing product structures:
Single-level bills of material
-Basic
-Enhanced
Multi-level bills of material
Planning bills of material
-Modular bills of material
-Common parts bills of material
-Super bills of material
12.Bills of material should be defined to be as flat as possible for effective processing.
13.The planning of capacity is probably more important than the planning of materials in a process related
environment.
14.Historical shipment numbers may underestimate the true level of demand because they do not record
the level of requested deliveries, only actual deliveries
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1.Data sources for master scheduling
Engineering new product introduction
Sales/marketing sales forecasts
Management customer service targets
Finance expense budgets
Materials supply constraints and inventory availability
Production production constraints and maintenance schedules
Human resources workforce constraints
2.A prevalent myth says that the customer is always right. This is dangerous because it assumes the customer
knows best and that whatever the customer wants must be done. This is not always in the customers own
best interest, and this can often lead to disastrous results.
3.Common changes in demand:
Customer schedule changes;
Rush orders
Order cancellations
Changes to specifications
4.Common changes in supply:
Nonconformance to schedule
-Production downtime
-Capacity availability
Nonconformance to specifications
-Scrap
-Effect of quality
Scrap is not the same as a remnant.
5.Engineering changes:
Mandatory or immediate;
Phased-in or optional;
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Process
-set up a review board
-determine the procedure for instituting change
-set effective dates
-ensure change process deals with multiple items
-assess the cost and impact of the change
-maintain the status for each revision
Engineering changes fall into three categories: product safety issues, product enhancement issues, and
product corrections.
6.Managing change:
Is the change necessary?
Is the change feasible?
Are resources available?
What are the costs, risks, and benefits?
7.Types of supply orders:
A planned order is what the computer system has calculated as the need;
A firm planned order is what the planner thinks you need;
A released order is what you will actually get, whether you need it or not.
8.Defining time fence policies :
The diagram also shows how changes must be controlled depending on the time zone.
A typical time fence policy may permit only +/-5% change to an existing supply or demand order within
the frozen zone.
A typical time fence policy may permit changes to be accommodated on existing demand orders up to a range
of +/- 25%.
Beyond the planning time fence is the free zone, and in this zone, substantial changes can be accommodated
within the constraints of the production plan.
9.This visual also notes a risk area, located in the frozen zone. Released orders represent the supply
response to actual customer demand.
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10.Safety factors for master scheduling:
Safety stock
Volume hedge
Mix hedge
Safety lead times
Safety capacity
In master scheduling, a hedge is defined as a quantity of stock to protect against uncertainty of demand.
The hedge is similar to safety stock, except that a hedge has the added dimension of timing in addition
to the quantity.
11.Three approaches to performing RCCP are the bill of labor (resources, capacity) approach, the capacity
planning using overall factors approach, and the resource profile approach.
12.Rough-cut capacity planning may not take into consideration setup times between different jobs in
the same workcenter.
13.Possible solutions for overloading and underloading are as follows:
Overloading:
-overtimes;
-extra shifts;
-transfer of personnel from underloaded to overloaded workcenters;
-reroute work to an alternate workcenter;
-subcontract all or a portion of the work that is overloaded;
-hire temporary help;
-install more equipment.
Underloading:
-increase sales demand;
-use time for training;
-use time for maintenance;
-reduce shifts/overtime;
-transfer people;
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1.It is true in many aspects of life that measurements influence behavior. It is also true that you cannot
adequately control or manage what you cannot measure.
2.Total customer service is a series of complex relationships a company develops with the external world.
It covers many facets dealing with value and perception of value. It also covers many functions such
as advertising, promotions, supply chain management, and new products introduction. Briefly defined,
it is meeting or exceeding a customers expectations.
3.Usually, this impression is formed within the first 15 seconds of the transaction.
Once the impression is formed, the only thing the customer is looking for is more evidence that supports
that first impression, either good or bad. It is all about perception.
4.Blair Williams states in his book that a satisfied customer will tell an average of 5 others about
a good experience, while a dissatisfied customer will tell an average of 10 others.
5.What does the customer want?
Support
Quality
Delivery
Service
Value
A company that values its customers will always try to ensure that the customer service personnel are
well trained in the people skills needed to deal effectively with customer questions, concerns, and issues,
and that company policies, systems, and structures support the customer service personnel with the
substance needed to provide actual support.
6.Internal elements relate to the productive process of delivering the product or service to the customer,
while external elements relate to the customers perception of the product or service quality.
7.In this situation, there are several major concerns that a customer service representative must be
trained to address.
The customer wants to be heard and understood;
The customer seeks validation that is, the customer wants acknowledgment that the complaint is valid;
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The customer wants the issue resolved;
The customer usually already knows what solution he or she wants.
8.The measurements are determined as follows:
The piece fill rate is measured by looking at the number of pieces delivered from stock compared with
the total number of pieces ordered.
The revenue fill rate is the amount of product delivered compared with the total amount of product
ordered.
The line item fill rate is determined by the number of line items delivered completely compared with
the number of line items ordered.
The order complete fill rate compares the number of orders delivered completely compared with the number
of orders received.
9.It is important not to remove outliers that are caused by factors that could potentially be repeated.
In general terms the ownership for the forecast is best positioned in the sales/marketing department.
10.Inventory turns measures that rate at which inventory is used, or consumed, within the production
process. The higher the number of inventory turns, the better use the organization is making of its
inventory.
11.The master production schedule must be realistic and achievable. The MPS needs to be stable, without
excessive noise/fluctuations from week to week.
12.The goals of master scheduling:
To balance supply and demand priorities and to revise the plan when changes occur in either supply
or demand.
To develop practical solutions to supply constraints, and to maintain a realistic schedule.
To prioritize and allocate supply to customer demands to ensure all customer demand are met.
To establish a strategy to avoid overloaded schedules and unbalanced conditions.
To create a schedule with attainable completion dates that satisfy customer needs.
13.Pegging is defined by the APICS Dictionary as the capability to identify, for a given item, the
sources of its gross requirements and/or allocations.
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Bottom-up replanning refers to the ability of the planner to evaluate the effects of possible alternative
solutions caused by lower-level shortages.