Back-To-Basics Workshops
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1 Back-To-Basics Workshops KEN TITMUSS, CFPIM The outcomes of the two workshops will be for the delegate to understand the generic overall Master Planning process for a manufacturing company and to be able to generate a Sales and Operations Plan (SOP) and Master Production Schedule for a case study company. WORKSHOP 1 SALES AND OPERATIONS PLANNING The agenda for this workshop will be Manufacturing Planning and Control Systems, Sales and Operations Planning and Resource Requirements Planning. The outcomes of this workshop are for the delegate to appreciate in more detail the Sales and Operations Planning process and to be able to create a SOP for a case study company. WORKSHOP 2 MASTER PRODUCTION SCHEDULING The agenda for this workshop will be Master Production Scheduling and Rough Cut Capacity Planning. The outcomes of this workshop are for the delegate to appreciate in more detail the Master Production Scheduling and Rough Cut Capacity Planning process and to be able to create a Master Schedule and a Rough Cut Capacity Plan for a case study company. In order to reinforce the concept of Master Planning in a manufacturing environment, the above workshops will use the following case study. ELF (PTY) LTD WORKSHOP CASE STUDY ELF (Pty) Ltd, the Electrical, Lighting and Fan Company of Germiston established in 1923, has changed over the years. Currently the company manufactures four ranges of products: Small appliances such as kettles, toasters and irons Heaters oil filled and convection type Fans, both ceiling and table / free standing models Electrical plugs and adapters. The lighting side of the business was discontinued in the late 1980s due to competitive pressure from imported products and aggressive marketing from another local supplier. At the same time, small appliances were introduced and five years later, the production of heaters was started. At the company s last strategic planning meeting, a month ago it was decided that in the fan range, ELF would discontinue manufacturing the ceiling range of fans, again due to competitive pressure from the Far East. Production would be phased out over the next three months; production would cover the current demand of 2,000 per month in the next three months only. ELF would still manufacture the table and freestanding models for the time being but there is no reason to expect current figure to increase significantly. In addition, Marketing announced that a deal had been struck with one of the largest retail supermarket chains in the country to stock the small appliances. They will need to supply 6000 each of kettles, irons and toasters by end September to fill the distribution supply chain, after which it is expected to supply at the rate of 2000 of each per month. For Elf to significantly change their capacity in any of their manufacturing departments, the lead time is between three months for the plugs and adapters, up to six months for the heater range. They have sufficient space in their factory to increase production by 50 to 60% without having to build new facilities. The production machinery they use is fairly readily available from local agents and there are plenty of people living in the area with the required skills. The cumulative lead time for raw materials in the plugs and adapter department is no longer than two months and no more than one months stock is held at any one time. Paper presented at SAPICS 24 th Annual Conference and Exhibition 8 to 10 July 2002, Sun City, South Africa Empowering The Supply Chains Of Africa ISBN SAPICS 2002,
2 The capacity to make products in the plug and adapters family has been determined to be 72,000 units based on the normal product mix. The SOP team has also requested that we reduce inventories in the family group to plus / minus 10,000 by the end of December. During this workshop we will be concentrating on the plugs and adapter side of the business looking at the priority and capacity planning for the first two major levels of planning in an ERP system, namely: Sales and Operations Planning Master Scheduling The plugs and adapter product group is produced in one section of the plant that consists of: A brass machining area producing the metal components for the range A plastic injection moulding section making the plastic components An assembly area putting the product together and packing it for shipment. The plug and adapters product group consists of three products: Three pin plugs Double adapter Two-pin adapter. The three pin plugs, as well as being sold as a product in their own right, are also used in the other plants where they are attached to all the small appliances, heaters, table and free standing fans being produced. Plugs are not included with the ceiling fans. The independent demand for products in the plugs and adapters is fairly consistent throughout the year, but demand for fans and heaters are seasonal in the summer for fans and winter for heaters. The company has organised the labour in the fan and heater department to be multiskilled so they can be moved from one department to the other according to the season. The demand for small appliances is fairly constant, but there is a slight increase in demand during the Christmas period. Manufacturing strategy for the various family groups is as follows: Heaters Chase Strategy Fans Chase Strategy Small Appliances Level Strategy Plugs / Adapters Level Strategy The marketing team has prepared aggregate forecasts for fans, small appliances and heaters. These forecasts do not include the recent information in the strategic plan with regards to the deal with the supermarket chain and the phasing out of the ceiling fans The company has just closed it books for the month of June and our job is now to prepare a SOP for the next six months, concentrating on the Plugs and Adapter product family. When Top Management approves the SOP, we will then need to create a Master Production Schedule for the three products in the plugs and adapters product family. The Master Schedules will then need to be confirmed viable using the Rough Cut Capacity Planning process. Time fence policy for the company has been set as follows: Demand Time Fence one month Planning Time Fence four months Planning Horizon six months
3 The manufacturing lead times for the Plugs and Adapter product family are as follows: Three pin plugs one week Double adapters two weeks Two pin adapters two weeks The customer service level for plugs and adapters has been set at 98%. In order to achieve this level of service it has been decided that statistical safety stock will be calculated and set for the products in the Plugs and Adapters product family. To achieve this, a MAD safety factor of 2.56 will be used. Top management has set the Master Schedule Policy that includes a performance measure stating the Master Schedule should be within 95% of the aggregate SOP. At the Master Production Scheduling level, the critical resource to manufacture the products in the Plugs and Adapter product family is the injection-moulding department. It has been demonstrated over several months that they only have the capability of processing 70kg of polymer per day and it is assumed that the department works an average of twenty days per month. As some background reading to the workshops the following is some generic reading on the Master Planning process. MASTER PLANNING The function of Master Planning is the development of the Master Plans, at both the product family and finished product level. It determines which finished products will be made, in what quantities and when, to meet the companies Business Plan. We can call this the company Game Plan. It can be related to a sporting analogy, where we would only go into a sporting fixture with a game plan to win, the same should hold true for a company. Master Planning involves the senior management from all the major functional areas of the business, who must approve these ongoing plans on a regular, formalised basis. There must be no section of the company that is not involved. MRPII / ERP is hierarchical when it comes to planning. At the top level, the three successively more detailed plans are put together with input from three directions. The company Business Plan is developed according to: 1. Overall corporate strategy 2. The development plans for the company's products and 3. The marketing plans for those products. The SOPs are put together to: 1. Achieve the Business Plan 2. To satisfy the demand from the market place and 3. Be achievable with the key resources within the company. The Master Production Schedule is developed as the statement of the finished items that will be manufactured: 1. To achieve the SOPs 2. To best satisfy the demand from the market place and 3. Be achievable with the key resources available within the company. A regular planning cycle must be developed. A year will be added to a three year Business Plan, once a year, generating a four-year plan. Once a quarter, a quarter will be dropped down from the Business Plan, adding another three months to a twelve or 24 month SOP. Once a month, a month will be dropped down from the SOP, adding another four weeks to a 26 week Master Production Schedule. Whatever the horizons are, a regular cycle is required.
4 The Business Plan is the statement of the company plan expressed in financial numbers and business ratios. It may be made up of both financial and non-financial performance measures. It will be a three to five year plan and will set the long range objectives, with targets including revenue, profit, inventory, lead times, return on assets, inventory turnover and number of employees. The Business Plan drives the development of the SOPs that states in product families or groups, what will be sold, made and stocked to achieve the Business Plan. These are the mid-term company plans. The planning horizon must be long enough to plan the availability of key resources that will be needed to execute the plans. There is normally a monthly cycle going through the development of the Sales Plan by sales and marketing and the development of the best Operations, or Production Plan to achieve the Sales Plan. The plan is checked for viability against available key or bottleneck resources. This process will doubtless lead to some contention. The issues raised are resolved at the Sales and Operations Planning meeting, attended by all the senior representatives of the company and chaired by the chief executive. At this meeting the plans are agreed for sales, marketing, operations, engineering and finance to achieve the Business Plan. The Operations Plan determines how many of each product family must be made to achieve the inventory, or backlog / order book, targets. The complete operation will be reviewed to determine the key resources that will constrain the achievement of the Operations Plan. Bills of resources are developed for each product family, showing how much of each key resource will be consumed and when, in the production of an average member of each family. A key resource plan will be developed to confirm viability of the Operations Plan. The output of the SOPs will be cross-checked with the Business Plan before proceeding further. The agreed Operations Plan must now be converted into a statement of how many of each finished item will be made and when, to develop the MPS. In some environments, planning or percentage bills may be used to explode the SOP into a trial MPS, which would be massaged before being firmed up to become the final MPS used to drive MRP. In other environments, the MPS is more directly developed from the demand in the marketplace, comprising all the different sources of demand, mainly customer orders and forecasts. For a good MPS, accuracy and knowledge of all demand is absolutely essential. The development of the MPS for each finished product has to achieve particular objectives. In a make-to-stock (MTS) environment the target may be to have a projected available balance (PAB) greater than or equal to two weeks of forecast. In a make-to-order (MTO) plant it may be to have a positive available-to-promise (ATP) from four weeks forward. The available-to-promise (ATP) is the quantity of a delivery from an MPS order that has not yet been promised to a customer order. Displays are normally provided to show PAB and ATP. The master scheduler utilises these displays and others, to manage the MPS. The objective is to manage stability into the MPS, to give production the best set of circumstances from which to achieve the plan, week after week. Time fences are established to help manage this stability. The aim of time fences is to freeze the MPS inside the demand time fence and to manage trade-offs and negotiate with marketing and manufacturing inside the second planning time fence. Rough Cut Capacity Planning is used to ensure the achieveability of the MPS, via a resource bill for each finished product. The definition of the critical resources at this level are more detailed than those considered for the Operations Plan. The horizon for the MPS must be as long as the cumulative lead time for the purchasing of the raw materials and components for the product and long enough to acquire these key resources to satisfy the MPS. There are well-recognised principles for a successful MPS: The detailed MPS must match the aggregate SOP. It must be recognised that the MPS drives the entire manufacturing system. Included in the MPS are all known requirements and demands. Use Pareto analysis to minimise the number of items in the MPS.
5 Treat the MPS as a set of firm planned orders that are not changed by the system. Manage stability into the MPS. The MPS must be understandable as far as parts, quantities and dates are concerned. Close the planning loop and feed unresolved problems back to the SOP. Any safety stock, or Master Schedule stock, of an MPS item must be highly visible. Order promising must be tied directly to the MPS, the PAB and the ATP. Use Rough Cut Capacity Planning to ensure sufficient resources to execute the MPS. Above all, the MPS must be realistic, valid and achievable. Up to this point a Master Plan has been developed that will achieve the Business Plan. Full detail for every raw material and component to achieve the master plan is planned through MRP. ABOUT THE AUTHOR Ken Titmuss has been running his own business, Kent Outsourcing Services, for the last six years providing CS-SAPICS education and consulting to more than 70 clients around Southern Africa. He holds a BSc Production Engineering and Management from Loughborough University, UK and was qualified to the level of CFPIM from APICS in 1994.
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