Ch.5 Manufacturing Planning System - Advanced.

Part 3 : Acquisition & Production Support. Ch.5 Manufacturing Planning System - Advanced. Edited by Dr. Seung Hyun Lee (Ph.D., CPL) IEMS Research Center, E-mail : lkangsan@iems.co.kr

Manufacturing Planning Process. - 1 -

Sales & Operation Planning. Definition of S&OP. Sale & Operation Plan. A process that provides management the ability to strategically direct its business 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 on integrated set of plans. It is performed at least once a month and is reviewed by management at an aggregate (product family) level. - 2 -

Sales & Operation Planning. The Monthly S&OP Process. Preparing Sale & Operation Planing Meeting. 1. Updating the sales forecast. 2. Reviewing the impact of changes to the operations plan and determining whether adequate capacity and material will be available to support them. 3. Identifying alternative where problem exist. 4. Formulating agreed-on recommendations for top management regarding overall changes to the plans and identifying areas of disagreement where consensus is not possible. 5. Communicating this information to top management with sufficient time for them to review it prior to the executive S&OP meeting. - 3 -

Sales & Operation Planning. The Monthly S&OP Process. Sale & Operation Planing Process. - 4 -

Sales & Operation Planning. The Monthly S&OP Process. Sale & Operation Planing Inputs. Projected demand. Market intelligence *. Actual sales. Capacity information. Management targets. Financial requirement. New product information. New process information. Workforce availability. (Marketing) (Marketing) (Sales) (Manufacturing) (Management) (Finance) (R&D) (Process engineering) (Human resource) - 5 -

Sales & Operation Planning. The Monthly S&OP Process. Sale & Operation Planing Outputs. Sales plan Production plan Inventory plan Backlog projection Purchasing plan Financial plan Engineering plan Workforce plan (Marketing and sales) (Manufacturing) (Management) (Management) (Purchasing) (Finance) (Engineering) (Human resource) - 6 -

Sales & Operation Planning. The Monthly S&OP Process. Sale & Operation Planing Outputs : Example. XYZ company S&OP Planning Sheet. AA Product Family (MTS) Target Finished Inventory : 5 days. History 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 Forecast 333 437 230 253 280 340 300 398 233 287 420 480 427 527 393 Sales Actual 300 400 200 Difference -33-37 -30 Plan 333 437 230 348 366 401 348 383 383 174 401 348 383 348 348 Operations Actual 360 455 300 Difference 27 18 70 Plan 100 100 100 310 396 457 506 496 646 534 514 383 339 161 116 Inventory Actual 60 115 215 Difference Days of Supply 4 6 21 41 28 27 34 25 55 37 24 16 16 6 6 Customer Service (%) 98 100 100 Plan - 7 -

Sales & Operation Planning. Production(Aggregate) Planning. Inputs for Production Planning. 1. The product and sales plan. 2. The management strategy and policy concerning the aggregate planning problem. 3. The manufacturing process for the different product groups. 4. The identification of bottleneck work centers. 5. The allocation of manufacturing resources (plant and equipments) to producing specific products. - 8 -

Sales & Operation Planning. Production(Aggregate) Planning. Costs Relevant to the Aggregate Planning Decision. 1. Inventory costs. - The costs of carrying inventory. - The capital costs of added storage facilities beyond those required level production. 2. Production rate change costs. - Facilities and equipment (greater capacity) - Hiring and releasing employees. - Overtime and undertime. - Part-time and temporary personnel. - Subcontracting. - 9 -

Sales & Operation Planning. Production(Aggregate) Planning. Production(Aggregate) Planning Strategy : Leveling. - 10 -

Sales & Operation Planning. Production(Aggregate) Planning. Production(Aggregate) Planning Strategy : Chasing. - 11 -

Sales & Operation Planning. Production(Aggregate) Planning. Aggregate Planning Models. 1. Trial and error or heuristic methods. 2. Linear programming cost minimization (LP). 3. Goal programming (GP). 4. Simulation. - 12 -

Sales & Operation Planning. Production(Aggregate) Planning. Trial and error or heuristic methods. A heuristic methods is a rule of thumb based on a manager's previous experiences in tackling a problem. A classic heuristic application is E. H. Bownma's management coefficient model. This unique approach builds a formal decision model around a manager's experience and performance. The theory is that the manager's past performance is fairly good, so it can used as a basis for future decisions. - 13 -

Sales & Operation Planning. Production(Aggregate) Planning. Linear programming cost minimization (LP). Linear programming can be used in aggregate planning to allocate operation capacity to meet forecasted demand. The transportation method of LP is not a trial-and-error approach like charting, but produces an optimal plan for minimizing costs. It is also flexible in that it can satisfy the regular and overtime production in each time period, the number of units to be subcontracted, extra shifts, and the inventory carryover from period to period. - 14 -

Sales & Operation Planning. Production(Aggregate) Planning. Linear programming cost minimization (LP) : Example. Harpell Radial Tire Company developed data that relate to production, demand, capacity, and costs at its West Virginia plant, as shown in the below table. Sales Period March April May Demand 800 1,000 750 Regular 700 700 700 Capacity Overtime 50 50 50 Subcontracting 150 150 150 Beginning Inventory 100 tires Costs Regular time Overtime Subcontract Carrying cost $40/tire $50/tire $70/tire $2/tire/month - 15 -

Sales & Operation Planning. Production(Aggregate) Planning. Supply From Beginning Inventory Period 1 Period 2 Period 3 Regular Overtime Subcontract Regular Overtime Subcontract Regular Overtime Subcontract Demand For March April May 100 700 Unused Capacity 0 2 4 0 40 42 44 0 50 52 54 0 50 70 72 74 0 150 40 42 0 700 50 52 0 50 70 72 0 50 40 0 700 50 0 50 70 0 130 Total Capacity Available (Supply) Total Demand 800 1,000 750 230 2,780 100 700 50 150 700 50 150 700 50 130-16 -

Sales & Operation Planning. Production(Aggregate) Planning. Goal Programming. There are usually multiple goals when developing the aggregate capacity plan or master production schedule for the medium range. A typical set of such goals might include the following. 1. The schedule must be within productive capacity. 2. Production schedule be sufficient to meet demand requirements. 3. Production and inventory costs should be minimized. 4. Inventory investment should not exceed a specified limit. 5. Overtime costs should be within a specified limit. 6. Any decrease in employment levels will be handled by attrition. Simulation. Simulation approach uses a search procedure to look for the minimum-cost combination of values for the size of the work force and the production rate. - 17 -

Master Scheduling. Definition of Master Scheduling. Master Scheduling. That process where the master schedule is reviewed and adjustments are made to the master production schedule to ensure that inventory levels and customer service goals are maintained and proper capacity and material planning occurs. It is the process of preparing and issuing a master schedule. - 18 -

Master Scheduling. Master Scheduling. Inputs of Master Scheduling. The production plan. Detailed sales forecasts provide projected values for future business. The current and projected inventory or backlog. Time fence policies. Customer orders. Interplant orders (or any orders from other sites in the organization). Service parts orders and forecasts. Distribution needs. Planning bills of material. Current production and supply position. - 19 -

Master Scheduling. Master Scheduling. Master Scheduling Process. 1. Develop a Preliminary master production schedule. Master scheduler prepare a preliminary master production schedule based on all the input received. This step will usually optimize the inventory levels, but may not be satisfactory with regard to utilization of capacity. 2. Evaluate the MPS using rough-cut capacity planning. 3. Revise the master schedules. - 20 -

Master Scheduling. Master Scheduling. Master Scheduling Process : Example. Lot Size : 50 On Hand : 50 Lead Time : 2 Periods. Item : XYZ Demand Time Fence : 3 Planning Time Fence : 8 Week (Period) 1 2 3 4 5 6 7 8 9 Forecast 20* 22* 21* 25 24 23* 21 21 25 Orders 19 17 15 11 9 25 2 1 0 Projected Available Balance 50 31 14 49 24 0 25 4 33 8 Available-to-Promise 14 15 23 49 MPS 50 50 50 * Forecast consumption - 21 -

Master Scheduling. Master Scheduling. Outputs of Master Scheduling Process. The master production schedule for a manufacturing operation. The master purchasing schedule for a supply operation. The projected inventory position for a MTS product. The projected backlog position for a MTO, ATO, ETO product. The availability of future products based on current commitment. Available to Promise (ATP) The uncommitted portion of a company's inventory and planned production. This figure is normally calculated from the master production schedule and is maintained as a tool for customer order promising. - 22 -

Master Scheduling. Master Scheduling. Time Fence. Policy or guideline established to note where various restrictions or changes in operating procedures take place. For example, changes to the master production schedule can be accomplished easily beyond the cumulative lead time, while changes inside the cumulative lead time become increasingly more difficult to a point where changes should be resisted. Demand Time Fence(DTF) : A future master schedule period inside of which changes to the MPS are typically not accepted due to the excessive cost caused by schedule disruption. Planning Time Fence(PTF) : A future master schedule period inside of which changes to the MPS are evaluated to prevent costly schedule disruption. The MPS is typically stated as firm planned orders inside the PTF. - 23 -

Master Scheduling. Master Scheduling. Planning Bill of Materials. An artificial grouping of items or events in bill-of-material format used to facilitate master scheduling and material planning. 1. Modular bill A type of planning bill that is arranged in product modules or options. It is often used in companies where the product has many optional features, e.g., assemble-to-order companies such as automobile manufactures. - 24 -

Master Scheduling. Master Scheduling. Planning Bill of Materials. 2. Common Part bill. A type of planning bill that groups common components for a product or family of products into one bill of material, structured to a pseudoparent item number. - 25 -

Master Scheduling. Master Scheduling. Planning Bill of Materials. 3. Super bill. A type of planning bill, located at the top level in the structure, that ties together various modular bills (and possibly a common part bill) to define an entire product or product family. The quantity per relationship of the super bill to its modules represents the forecasted percentage of demand of each module. The master-scheduled quantities of the super bill explode to create requirement for the modules. - 26 -

Material Requirement Planning. Master Requirement Planning. Definitions. A set of techniques that uses bill of materials data, inventory data, and the master production schedule to calculate requirements for materials. Time-phased MRP begins with the items listed on the MPS and determines the quantity of all components and raw materials (purchased goods) required to make those items and the date the components and raw materials are required. - 27 -

Material Requirement Planning. Master Requirement Planning. Inputs of Material Requirement Planning. Bills of Materials. The bill of material shows all the parts required to make ONE of the item. Inventory Record. - Planning factors : order quantity, lead times, safety stock, scrap. - The status of each item : on-hand, allocation, on-order, available balance. Master Production Schedule. The anticipated build schedule for those items assigned to the master scheduler. It is a statement of which end items are to be produced, the quantity of each, and the date they are to be completed. - 28 -

Material Requirement Planning. Master Requirement Planning. Generating Planned Orders and MRP Explosion. Order Quantity On-hand Balance : 50 units : 10 Safety Stock : 0 Allocated Qty : 0 Periods Lead-Time : 1 weeks Low Level Code : 0 1 2 3 4 5 Gross Requirements 25 0 15 20 30 Scheduled Receipts 50 A Projected Available 10 Net Requirements Planned Order Receipt Planned Order Release A LT : 1 week LT : 1 week Qty : 2 units B C LT : 1 week Qty : 2 units LT : 1 week Qty : 3 units C D LT : 1 week Qty : 1 unit - 29 -

Material Requirement Planning. Master Requirement Planning. Generating Planned Orders and MRP Explosion. Order Quantity On-hand Balance Safety Stock Allocated Qty Lead-Time Low Level Code A Order Quantity On-hand Balance Safety Stock Allocated Qty Lead-Time Low Level Code B : 50 units : 10 : 0 : 0 : 1 weeks : 0 Periods 1 2 3 4 5 Gross Requirements 25 0 15 20 30 Scheduled Receipts 50 Projected Available 10 35 35 20 0 20 Net Requirements 30 Planned Order Receipt 50 Planned Order Release 50 : 50 units : 50 : 10 : 0 : 1 weeks : 1 50 2 = 100 Gross Requirements 0 0 0 100 0 Scheduled Receipts Projected Available 50 50 50 50 50 50 Net Requirements 60 Planned Order Receipt 100 Planned Order Release 100-30 -

Material Requirement Planning. Master Requirement Planning. MRP Process. Netting - The process of calculating net requirements. Net requirement. The net requirement for a part or an assembly are derived as a result of applying gross requirements and allocations against inventory on hand, scheduled receipts, and safety stock. Net requirements, lot-sized and off-set for lead time, become planned orders. Lead time offsetting (offsetting). This is the process of placing the exploded requirements in their proper periods based on lead time. Level by level explosion. Higher level planned orders become lower level gross requirement in MRP process. - 31 -

Material Requirement Planning. Master Requirement Planning. MRP Outputs. Planned Production Orders. (Quantity, Timing). Planned Purchase Orders. (Quantity, Timing). MRP Exception Message. (Releasing, Expediting, Order Cancelation) Pegging Report. The pegging report shows the parents creating the demand for the components, the quantity needed, and when they are needed. Pegging keeps track of the origin of the demand. - 32 -

Material Requirement Planning. Master Requirement Planning. Lot Sizing Techniques. Lot for lot. A lot-sizing techniques that generate planned orders in quantities equal to the net requirements in each period. Safety Stock = 80 Order Quantity = L4L Periods Lead Time = 2 1 2 3 4 5 6 7 8 Forecast Demand 130 160 120 260 130 120 185 115 Scheduled Receipts 130 160 Y Projected Available 80 80 80 80 80 80 80 80 80 Planned Receipts 120 260 130 120 185 115 Planned Order Releases 120 260 130 120 185 115-33 -

Material Requirement Planning. Master Requirement Planning. Lot Sizing Techniques. Fixed order quantity. A lot sizing techniques that will always cause planned or actual orders to be generated for a predetermined fixed quantity, or multiples thereof, if net requirements for the period exceed the fixed order quantity. Safety Stock = 80 Order Quantity = 500 Periods Lead Time = 2 1 2 3 4 5 6 7 8 X Gross Requirement. 130 160 120 260 130 120 185 115 Scheduled Receipts. Projected Available. 370 240 80 460 200 570 450 265 150 Net Requirements. 120 10 Planned Order Receipts. 500 500-34 -

Material Requirement Planning. Master Requirement Planning. Lot Sizing Techniques. Part period balancing. A dynamic lot-sizing technique to balance setup and inventory carrying cost. PPB uses additional information by changing the lot size to reflect requirement of the next lot size in the future. PPB attempts to balance setup and inventory carrying cost for known demands. Wagner-Whitin Algorithm. The Wagner-Whitin procedure is a dynamic programming model that add some complexity to the lot-size computation. It assumes a finite time horizon beyond which there are no additional net requirements. It does, however, provide good results. - 35 -

Performance Check. 1. Which of the following statements are TRUE regarding production planning? Ⅰ. It is senior management's responsibility. Ⅱ. The master scheduler should "disaggregate" the production plan to the master schedule. Ⅲ. It focuses corporate production goals. A. I and II B. I and III C. II and III D. I, II, and III 2. Which of the following would likely occur with a chase strategy? Ⅰ. Relatively low inventories. Ⅱ. Turbulent employment levels. Ⅲ. Overtime costs would increase in peak periods. Ⅳ. Capacity change costs would be zero. A. I, II, and IV B. I, II, and III C. II, III, and IV D. I, III, and IV - 36 -

Performance Check. 3. Which of the following are principles of production planning? Ⅰ. Production planning is a top management responsibility. Ⅱ. The master production schedule requirements should equal the production plan. Ⅲ. Facility requirements are planned using the production plan. A. I and II B. I and III C. II and III D I, II, and III 4. Which of the following are reasons a time fence is used in master production scheduling? A. Because manufacturing resources are committed after a certain point. B. To regulate changes in the schedule. C. To ensure materials arrive on time to support MPS. D. None of the above. - 37 -

Performance Check. 5. The technique of creating a bill of material based on the common components of a product is a(n) : A. Option definition. B. Modular bill. C. Phantom bill. D. None of the above. 6. Which of the following are objectives of the master schedule? Ⅰ. A level repeating schedule. Ⅱ. Changes are kept to a minimum. Ⅲ. The schedule sums to the production plan. Ⅳ. Maintain planning bills. A. II, and III B. III and IV C. I, II and III D. I, III and IV - 38 -

Performance Check. 7. Capacity utilization is calculated as : A. Actual output divided by design capacity. B. Actual output divided by effective capacity. C. Actual output divided by demonstrated capacity. D. Actual output divided by standard labor hours. 8. In an MRP environment, if the lot-for-lot technique is used, which of the following is TRUE? Ⅰ. Only net requirements will be ordered. Ⅱ. Residual inventory will exist. Ⅲ. Of all the lot sizing rules, it creates the least inventory. A. I and II B. I and III C. II and III D. I, II, and III - 39 -

Performance Check. 9. In cycle counting, an ABC analysis is usually completed to identify the parts with the highest value or highest volume versus those with the least value or volume. Generally, 80% of the value is about 20% of the parts. This 80-20 rule is based on : A. Wagner-Whitin Algorithm. B. Box-Jenkins Model. C. Limit formula. D. Pareto Analysis. 10. The MRP output that shows the source of the requirement for a part is called a(an): A. Input/output report. B. Routing document. C. Shop requirements schedule. D. Pegged requirement report. - 40 -

Performance Check. 11. Which of the following statements about planned orders in an MRP system is/are TRUE? Ⅰ. The MRP system logic will update priorities on planned orders. Ⅱ. The quantity of the planned order will always exceed the net requirements. Ⅲ. MRP develops planned orders in conjunction with ordering policies and lot-sizing. A. I and II B. II and III C. I and III D. I, II, and III 12. All of the following are considered input to MRP EXCEPT: A. Master production schedule. B. Inventory records. C. Bill of materials. D. Forecast of independent demand items. - 41 -

Performance Check. 13. The projected on-hand balance is calculated by which of the following? A. Gross requirements minus scheduled receipts plus planned orders. B. On hand minus allocated minus gross requirements plus scheduled receipts. C. Planned orders plus allocations minus gross requirements minus scheduled receipts. D. Net requirements plus safety stock plus scheduled receipts minus gross requirements. 14. The designation MRP II refers to which of the following? A. Materials Requirements Planning-Phase II. B. Manufacturing Resource Planning. C. The explosion of planning bills. D. None of the above. - 42 -

Performance Check. 15. In the replanning process, MRP uses the bill of materials to : A. Determine the number of components to order. B. Calculate the inventory level for each part. C. Guide the explosion process. D. Determine the safety stock levels. - 43 -

Performance Check. Solutions. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 D B D B B C A B D D C D B B C - 44 -