Planning and Scheduling Operations in Dynamic Supply Chain Sung Joo Bae Assistant Professor Yonsei University 14 1
Supply Chain Management 14 2
Supply Chains Tier 3 Poland USA Canada Australia Malaysia Raw materials Tier 2 Germany Mexico USA China Components Tier 1 Germany Mexico USA Major subassemblies Manufacturer Ireland Assembly USA Ireland Distribution centers East Coast West Coast East Europe West Europe Retail Figure 9.2 Supply Chain for a Manufacturing Firm 14 3
Supply Chain Dynamics Bullwhip effect Variability of the order quantities increase as you proceed upstream Upstream members must react to the demand Slightest change in customer demand can ripple through the entire chain External causes: volume changes, service/product mix changes, late deliveries Internal causes: engineering changes, order batching, new svc/prod introductions, svc/prod promotions 14 4
Order quantity Supply Chain Dynamics 9, 7, 5, Consumers daily demands Retailers daily orders to manufacturer Manufacturer s weekly orders to package supplier Package supplier s weekly orders to cardboard supplier 3, Day 1 Day 3 Day 1 Day 3 Day 1 Day 3 Day 1 Day 3 Month of April Figure 1.2 Supply Chain Dynamics for Facial Tissue 14 5
Across the Organization Operations planning and scheduling is the process of making sure that demand and supply plans are in balance at all levels Sales and operations planning and scheduling Requires managerial inputs from all of the firm s functions Each function is affected by the plan 14 6
Across the Organization TABLE 14.1 TYPES OF PLANS WITH OPERATIONS PLANNING AND SCHEDULING Term Sales and operations plan (S&OP) Aggregate plan Definition A time-phased plan (projected for several months or quarters) of future aggregate resource levels (production rates, workforce levels, and inventory holdings) so that supply is in balance with demand throughout the organization Another term for the sales and operations plan Production plan Staffing plan Resource plan Schedule A manufacturing firm s sales and operations plan that centers on production rates and inventory holdings A sales and operations plan for a service firm, which centers on staffing and on other human resource-related factors An intermediate, more detailed, step in the planning process that lies between S&OP and scheduling A detailed plan that allocates resources over shorter time horizons to accomplish specific tasks 14 7
Stages in Planning and Scheduling Aggregation Targets and resources used for creating effective schedules Product families: according to similar demand requirements (e.g. 12 bicycles into 2 PF mountain and road bikes) Workforce: (e.g. A single group for two PF, or two groups full-time and part-time) Time: planning horizon usually one year, but quarter, season can be used as well The relationship of operations plans and schedules to other plans A business plan: projected statement of income, costs, and profits An annual plan or financial plan Resource planning The lowest planning level is scheduling 14 8
Stages in Planning and Scheduling Figure 14.1 The Relationship of Sales and Operations Plans and Schedules to Other Plans Business or annual plan Operations strategy Forecasting Sales and Operations Plan Sales Plan Operations Plan Capacity/Constraint management Dynamic Resource Planning (services) Workforce schedule Materials and facility resources Resource Planning (manufacturing) Master production schedule Material requirements planning Scheduling Employee schedules Facility schedules Customer schedules Scheduling Employee and equipment schedules Production order schedules Purchase order schedules 14 9
Managing Demand Matching supply with demand becomes challenging when forecasts call for uneven demand patterns Demand management: the process of changing demand patterns using one or more demand options 14 1
Managing Demand TABLE 14.2 DEMAND AND SUPPLY OPTIONS FOR OPERATIONS PLANNING AND SCHEDULING Demand Options Complementary products Prod/svc that has similar resource requirement, but different demand cycles (e.g. city parks used for ice skating for the winter months) Promotional pricing Prescheduled appointments Reservations Creative pricing for evening out the demand (e.g. Low price hotel rooms during off-season, winter clothing in summer) Timely customer service and high utilization of service personnel through scheduled services More lead time and ability to level demand 14 11
Managing Demand TABLE 14.2 DEMAND AND SUPPLY OPTIONS FOR OPERATIONS PLANNING AND SCHEDULING Demand Options Revenue management Backlogs Backorders Process of varying price at the right time for different customer segments to maximize revenues with the existing supply (e.g. airline s varying prices in the reservation system) Accumulation of customer orders that a manufacturer has promised future delivery. (e.g. Airplane manufacturers such as Boeing & firms with customized products and make-to-order strategy uses backlogs) Customer order that cannot be filled immediately but as soon as possible Stockouts Order is lost due to the incapability to meet the demand 14 12
Managing Demand TABLE 14.2 DEMAND AND SUPPLY OPTIONS FOR OPERATIONS PLANNING AND SCHEDULING Supply Options Anticipation inventory Inventory level increased during light demand periods for preparing for heavy demand periods Workforce adjustment (hiring or layoffs) Only available when the skill level doesn t matter much. In some industries such as tourism and agriculture, seasonal hiring and layoffs are common Workforce utilization (overtime and undertime) Part-time workers and subcontractors Longer or shorter working hours. Mostly with extra pay Low skill areas 14 13
Sales and Operations Planning(S&OP) Operations Current machine capacities Plans for future capacities Workforce capacities Current staffing level Distribution and marketing Customer needs Demand forecasts Competition behavior Materials Supplier capabilities Storage capacity Materials availability Aggregate plan Accounting and finance Cost data Financial condition of firm Engineering New products Product design changes Machine standards Human resources Labor-market conditions Training capacity Figure 14.2 Managerial Inputs from Functional Areas to Sales and Operations Plans 14 14
Sales and Operations Plans Planning strategies Chase strategy Hiring and laying off employees to match the demand forecast over the planning horizon Pros: No inventory management, overtime or undertime Cons: Loss of productivity and quality Level strategy Keep the workforce constant Use overtime, undertime, and vacation planning to match the demand forecast Mixed strategy 14 15
Sales and Operations Plans TABLE 14.3 TYPES OF COSTS WITH SALES AND OPERATIONS PLANNING Cost Regular time Overtime Hiring and layoff Inventory holding Backorder and stockout Definition Regular-time wages plus benefits and pay for vacations Wages paid for work beyond the normal workweek exclusive of fringe benefits Cost of advertising jobs, interviews, training programs, scrap caused by inexperienced employees, exit interviews, severance pay, and retraining Capital, storage and warehousing, insurance, and taxes Costs to expedite past-due orders, potential cost of losing a customer 14 16
Sales and Operations Plans Six steps in the sales and operations planning process Gather data 1 Demand planning 2 Update S&OP spreadsheets 3 Finalize and communicate 6 Executive S&OP meeting 5 Consensus meeting 4 14 17
Sales and Operations Plans Figure 14.3 Sales and Operations Plan for Make-to-Stock Product Family 14 18
Using Spreadsheets Figure 14.4 Manufacturer s Plan Using a Spreadsheet and Mixed Strategy 14 19
HMC s Production Planning & Scheduling 5 common causes of misalignment in supply chain Functional organizations managed independently Functional objectives conflict Ineffective information systems Lack of customer focus Different needs of the customers not recognized within the supply chain 14 2
HMC s Production Planning & Scheduling A large-volume-production requirement with a large variety of small-lot make-to-order requirements involving thousands of suppliers and dealers 4 first-tier suppliers, 25 second-tier suppliers (many foreign suppliers) Production-and-sales-control (P/SC) department: centralized coordinating group with an integrated perspective Synchronizing sales and plant capacity Balancing requests from the domestic and export sales departments Dealing with shortages and excesses of inventory due to schedule changes Coordinating the new product introductions or part changes Synchronizing order-launching and delivery activities 14 21
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HMC s Production Planning & Scheduling Structural problems Initially, authority and responsibility for the planning process were not well defined Managing information flows Environmental Problems Rapidly changing internal/external conditions: success in NA, and Korean market Behavioral problems Senior managers frequent changes in production plan Area representatives behaving based on their own performance expectations in each area (sub-optimization problem) Task responsibility (of developing and providing data) 14 23
Video Case 14 24
The End 14 25
Using Spreadsheets Figure 14.4 Manufacturer s Plan Using a Spreadsheet and Mixed Strategy 14 26
Using Spreadsheets Figure 14.4 Manufacturer s Plan Using a Spreadsheet and Mixed Strategy 14 27
Using Spreadsheets Figure 14.4 Manufacturer s Plan Using a Spreadsheet and Mixed Strategy 14 28
Using Chase and Level Strategies EXAMPLE 14.1 A large distribution center must develop a staffing plan that minimizes total costs using part-time stockpickers First level strategy that meets demand with the minimum use of undertime and not consider vacation scheduling Each part-time employee can work a maximum of 2 hours per week on regular time Instead of paying undertime, each worker s day is shortened during slack periods and overtime can be used during peak periods 1 2 3 4 5 6 Total Forecasted demand 6 12 18 15 13 14 78 14 29
Using Chase and Level Strategies Currently, 1 part-time clerks are employed. They have not been subtracted from the forecasted demand shown. Constraints and cost information are as follows: a. The size of training facilities limits the number of new hires in any period to no more than 1. b. No backorders are permitted. c. Overtime cannot exceed 2 percent of the regular-time capacity in any period. The most that any part-time employee can work is 1.2(2) = 24 hours per week. d. The following costs can be assigned: Regular-time wage rate Overtime wages Hires Layoffs $2,/time period at 2 hrs/week 15% of the regular-time rate $1, per person $5 per person 14 3
Using Chase and Level Strategies SOLUTION a. Chase Strategy This strategy simply involves adjusting the workforce as needed to meet demand, as shown in Figure 14.5. Rows in the spreadsheet that do not apply (such as inventory and vacations) are hidden. The workforce level row is identical to the forecasted demand row. A large number of hirings and layoffs begin with laying off 4 part-time employees immediately because the current staff is 1 and the staff level required in period 1 is only 6. However, many employees, such as college students, prefer part-time work. The total cost is $173,5, and most of the cost increase comes from frequent hiring and layoffs, which add $17,5 to the cost of utilized regular-time costs. 14 31
Using Chase and Level Strategies Figure 14.5 Spreadsheet for Chase Strategy 14 32
Using Chase and Level Strategies b. Level Strategy In order to minimize undertime, the maximum use of overtime possible must occur in the peak period. For this particular level strategy (other workforce options are possible), the most overtime that the manager can use is 2 percent of the regulartime capacity, w, so 1.2w = 18 employees required in peak period (period 3) w = 18 1.2 = 15 employees A 15-employee staff size minimizes the amount of undertime for this level strategy. Because the staff already includes 1 part-time employees, the manager should immediately hire 5 more. The complete plan is shown in Figure 14.6. The total cost is $164,. 14 33
Using Chase and Level Strategies Figure 14.6 Spreadsheet for Level Strategy 14 34
Application 14.1 The Barberton Municipal Division of Road Maintenance is charged with road repair in the city of Barberton and surrounding area. Cindy Kramer, road maintenance director, must submit a staffing plan for the next year based on a set schedule for repairs and on the city budget. Kramer estimates that the labor hours required for the next four quarters are 6,, 12,, 19,, and 9,, respectively. Each of the 11 workers on the workforce can contribute 52 hours per quarter. Overtime is limited to 2 percent of the regular-time capacity in any quarter. Subcontracting is not permitted. Payroll costs are $6,24 in wages per worker for regular time worked up to 52 hours, with an overtime pay rate of $18 for each overtime hour. Although unused overtime capacity has no cost, unused regular time is paid at $12 per hour. The cost of hiring a worker is $3,, and the cost of laying off a worker is $2,. 14 35
Application 14.1 Use a chase strategy for the Barberton Municipal Division that varies the workforce level without using overtime. Undertime should be minimized, except for the minimal amount mandated because the quarterly requirements are not integer multiples of 52 hours. (Students complete highlighted sections) 14 36
Application 14.1 Forecasted demand (hrs) Workforce level (workers) Quarter 1 2 3 4 Total 6, 12, 19, 9, 46, 12 24 37 18 91 Undertime (hours) 24 48 24 36 1,32 Overtime (hours) Utilized time (hours) 6, 12, 19, 9, 46, Hires (workers) 1 12 13 19 26 Layoffs (workers) 19 14 37
Application 14.1 What is the total cost of this plan? Costs per Quarter 1 2 3 4 Total Utilized time $72, $144, $228, $18, $552, Undertime 2,88 5,76 2,88 4,32 15,84 Overtime Hires 3, 36, 39, 78, Layoffs 38, 38, Total Cost $683,84 14 38
Application 14.2 Find a level plan for the Barberton Municipal Division that allows no delay in road repair and minimizes undertime. Overtime can be used to its limits in any quarter. Given that the demand peaks in quarter 3, we get: 1.2w = 19, 52 = 36.54 employee-period equivalents w = 3.45 or 31 employees 14 39
Application 14.2 Forecasted demand (hrs) Workforce level (workers) Quarter 1 2 3 4 Total 6, 12, 19, 9, 46, 31 Undertime (hours) 1,12 Overtime (hours) Utilized time (hours) 6, Hires (workers) 2 Layoffs (workers) 31 4,12 12, 31 2,88 16,12 31 7,12 9, 124 21,36 2,88 43,12 2 14 4
Application 14.2 What is the total cost of this level workforce plan? Costs per Quarter 1 2 3 4 Total Utilized time $72, $144, $193,44 $18, $517,44 Undertime 121,44 49,44 85,44 256,32 Overtime 51,84 51,84 Hires 6, 6, Layoffs Total Cost $885,6 14 41
Application 14.3 A mixed strategy considers and implements a fuller range of reactive alternatives than any one pure strategy. Now propose a plan of your own for the Barberton Municipal Division. Use the chase strategy as a base, but find a way to decrease the cost of hiring and layoffs by selectively using some overtime. (Students complete highlighted sections) 14 42
Application 14.3 Quarter 1 2 3 4 Total Forecasted demand 6, 12, 19, 9, 46, Workforce level Undertime (hours) Overtime (hours) Utilized time (hours) Hires (workers) Layoffs (workers) 12 24 6, 1 24 48 12, 12 31 2,88 16,12 7 18 36 9, 85 1,8 2,88 43,12 Several solutions are possible. The key idea in creating this one is hiring only 7 employees in quarter 3, while using overtime to its maximum limit and eliminating undertime for that quarter. Hiring fewer in quarter 3 allows the number of layoffs in quarter 4 to drop to only 13, down from 19. 13 2 13 14 43
Application 14.3 What is the cost of your mixed strategy plan? Costs per Quarter 1 2 3 4 Total Utilized time $72, $144, $193,44 $18, $517,44 Undertime Overtime Hires Layoffs 2,88 3, 5,76 36, 51,84 21, 4,32 26, Total Cost 12,96 51,84 6, 26, $668,24 14 44