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Supply Chain Planning

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Objectives Understand demand management and forecasting objectives Understand the terminology and objectives of various levels of planning S&OP, MRP, DRP, CRP ... – PowerPoint PPT presentation

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Title: Supply Chain Planning


1
Supply Chain Planning
  • Objectives
  • Understand demand management and forecasting
    objectives
  • Understand the terminology and objectives of
    various levels of planning SOP, MRP, DRP, CRP,
    ERP, APS
  • Understand how different planning activities
    relate to each other
  • Recognize the importance of issues such as data
    accuracy, lead times, integration, and
    cross-functional inputs in planning processes

2
Supply Chain Management Planning Matrix
Supply Production
Fulfillment
Demand Planning



Forecasting Demand Management
Supply Chain Design
Sales Ops Planning (SOP or SIOP)
Operational Tactical
Strategic Planning
Planning Planning
Materials Planning
Production Planning
Distribution Planning
Inventory Management
Purchasing
Sales
Production Control
Receiving
Shipping
Adapted from Taylor, A Master Plan for Software
Selection, SCMR, Jan, 2004
3
Elements of Demand Planning
  • Objectives
  • Influence pattern of customer orders to promote
    effectiveness and/or internal efficiency
  • Reduce unpredictable variability of demand
    pattern
  • Set targets to increase marketing pricing
    effectiveness

4
Many Factors Influence Demand
  • Internal
  • Promotions sales initiatives
  • Pricing
  • Product substitution
  • New product introductions
  • External
  • Competitive actions
  • Economic conditions
  • Downstream related products
  • Components of Demand
  • Base demand
  • Trend
  • Seasonality and cycles
  • Shifts
  • Random variation

When developing forecasts, every effort should be
made to consider all relevant factors, and to
eliminate all irrelevant factors
5
Forecasting Techniques
  • Judgment-based
  • Grass roots
  • Market research
  • Historical analogy
  • Executive judgment
  • Model-based
  • Time-series models
  • Causal models
  • Simulation

Stable Short Term Item Level
Unstable Longer Term Aggregate
6
Ways to Gather and Develop Inputs
  • Executives and experts
  • Delphi method
  • Panel consensus
  • Focused forecasting
  • Customers and Sales Representatives
  • Surveys
  • Focus groups
  • Markets
  • Obermeyer method

7
Quantitative Methods
  • Time series models
  • Moving average
  • Exponential smoothing
  • Regression
  • Causal models
  • Regression
  • Simulation
  • Others

Ft a bt
Ft B bd(Dt) ba(At) bf(Ft-1)
8
Evaluating Forecast Models
  • Bias
  • Mean Absolute Deviation
  • Mean Absolute Percentage Error
  • Mean Squared Error
  • Tracking Signal

9
The Forecasting Environment
  • The specific organizational situation must
    dictate the choice of forecasting technique
  • Time horizon/lead time requirements
  • Level of detail needed by user
  • Range of demand and number of product segments
  • Need for early-warning signals and continuing
    patterns
  • Constancy of past performance
  • Existing business processes
  • Cost of forecasting process versus accuracy of
    forecasts

10
Supply Chain Management Planning Matrix
Supply Production
Fulfillment
Demand Planning



Forecasting Demand Management
Supply Chain Design
Sales Ops Planning (SOP or SIOP)
Operational Tactical
Strategic Planning
Planning Planning
Materials Planning
Production Planning
Distribution Planning
Inventory Management
Purchasing
Sales
Production Control
Receiving
Shipping
Adapted from Taylor, A Master Plan for Software
Selection, SCMR, Jan, 2004
11
SOP Overview
Business Planning (Budget/Forecast)
Unconstrained Marketing Plan
Resource Plan
Volume Sales Operations Planning
  • Inputs
  • Inventory Replishment
  • Capacity Constraints
  • Mix Constraints
  • Material
  • Transportation Storage
  • Inputs
  • Orders on hand
  • Current Customers
  • New Customers
  • Competition
  • Margin Analysis
  • New Products
  • Pricing
  • Economy

Sales Plan
Operations Plan
Detailed Planning Execution Systems APS,
Production Planning, Plant Scheduling, Supplier
Scheduling
12
The SOP Process
Step 3 Reconcile Develop Alternatives
  • Step 1
  • Demand Review
  • Sales
  • Program Mgmt.
  • Other
  • Step 2
  • Supply Review
  • Engineering
  • Manufacturing
  • PurchMatls Mgt

Step 4 Financial Review
Step 0 Creating Functional Input
Plan Adjustments
  • Step 5
  • Executive Meeting
  • Review of alternatives
  • Decision making

Step 6 Execute Action Plan Follow-up
13
SOP Maturity Model
Stage 1 Marginal Process Stage 2 Rudimentary Process Stage 3 Classic Process Stage 4 Ideal Process
Informal meetings -Sporadic scheduling Formal meetings -Routine schedule -Spotty attendance and participation Formal meetings -100 attendance and participation Event-driven meetings -Scheduled to address changes or supply-demand imbalances
Disjointed processes Separate, misaligned plans Interfaced processes Demand plans reconciled Supply plans aligned to demand plans Integrated processes Demand and supply plans jointly aligned Collaboration with limited number of suppliers and customers Extended processes -Demand and supply plans aligned internally and externally -External collaboration with all important suppliers customers
Minimal technology -Multitude of spreadsheets Interfaced applications -Demand planning and multi-facility APS systems interfaced on a one-way basis Integrated applications -Integrated demand and supply planning packages -External information brought in manually Full set of integrated technologies -Advanced SOP workbench -External facing collaborative software integrated with internal systems
Traditional Measures -Many metrics, function specific, outcomes only Interfaced Measures -Consolidated set of metrics -Cross-functional awareness Integrated Measures Functional and aligned metrics approved by team SOP process scorecard Ideal Measures -Profit-based metrics -Measures of strategic initiative attainment
Lagging Performance -Lagging in most dimensions Matching Performance -On par with industry averages Few Bright Spots -Leading in one or two areas Industry Leader -Setting the bar in service, turns, margins
Adapted from Lapide, Journal of Business
Forecasting, 2005
14
Seven Virtues for Effective Planning
  1. Planning objectives and metrics tied to business
    objectives
  2. All relevant stakeholders included
  3. Cross-LoB (planning unit) resource or demand
    requirements identified and rationalized
  4. Diversity of information sources and analytical
    methods
  5. Planning frequency consistent with the pace of
    business
  6. Common sense usage of technology as an enabler,
    not as the executor
  7. View planning as a process, and manage
    accordingly

15
Evolution in Planning Systems
60s Automated bill of materials 70s MRP
Material Requirements Planning 80s MRPII
Manufacturing Resource Planning 90s ERP
Enterprise Resource Planning APS Advanced
Planning Systems 00s Extended Supply
Chain Planning Systems (Internet based)
C O M P U T E / S Y S T E M S G R O W T H
BOM
MRP
BOM
MRPII
MRP
BOM
ERP
MRPII
MRP
BOM
APS Capabilities
16
Evolution of MRP to MRPII to ERP
Nolan, Brown, Kumar. Esterline Technologies,
Case teaching note, 2006
17
ERP Functional Components
8
18
Supply Chain Planning Modules of an ERP System
Supply Production
Demand



MPS
Master Planning
CRP
MRP
DRP
Distribution Planning
Capacity Planning
Materials Planning
MPS
Master Planning
Purchasing
Sales
Inventory
Accounting
Shipping
Source Taylor, A Master Plan for Software
Selection, SCMR, Jan, 2004
19
The ERP Scheduling Process
Distribution Requirements Planning
DRP
Distribution Schedule
Forecast
Master Production Scheduling
MPS
Master Production Schedule
Material Requirements Planning
MRP
Procurement Schedule
Capacity Requirements Planning
CRP
Production Schedule
Source Taylor, A Master Plan for Software
Selection, SCMR, Jan, 2004
20
(No Transcript)
21
Advanced Planning and Scheduling Systems (APS)
  • Combines the finite capacity approach and
    memory-resident fast planning
  • Determines a plan that meets all demand needs and
    supply limitations (feasible plan)
  • Optimizes the plan, based on math modeling
    techniques
  • Recommends a best overall solution that considers
    both material and resource availability
  • Future
  • Internet-based communication with external
    suppliers and customers
  • Supplier resources and capacity
  • Demand forecasts
  • Production schedules
  • Optimization across the extended supply chain

22
Improving the System, e.g., Inventory/Service
Relationship
Inventory Level
Service Level
A gt B Improving within the constraints
B gt C Improving the constraints
23
Changing Demand-Supply Planning System Constraints
  • Flexible supply (volume)
  • Close collaboration
  • Excess capacity
  • Frequent planning updates
  • Targeted responsiveness
  • Faster response
  • Reduced product or resource complexity (common
    typology, reduced categories)
  • Modular product design
  • Direct access to POS data (vertically integrated)
  • Quick updates to forecasts based on actual
    demands
  • Near 100 sales and labor data accuracy

More timely and accurate information
Postponement complexity management
24
More Timely and Accurate Information
Source http//hbswk.hbs.edu/item.jhtml?id1624t
globalizationnoseekone
25
Key Takeaways
  • Demand Supply Forecasting and Planning must be
    viewed as a process, and managed accordingly
  • Better data and responsiveness relieves pressure
    on Demand-Supply planning
  • Operational metrics must avoid emphasizing local
    efficiency at the expense of global responsiveness
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