DM202 Sem2 Wk5 Scheduling.pptx

Manufacturing Management DM202 Semester 2 – Scheduling Colin Andrews: [email protected] Agenda  Sales & Operations Planning  Theory of Constraints  Responsive Scheduling  Role for IT Sales and Operations Planning A collaborative cross functional process that engages all funct...

Manufacturing Management DM202 Semester 2 – Scheduling Colin Andrews: [email protected] Agenda  Sales & Operations Planning  Theory of Constraints  Responsive Scheduling  Role for IT Sales and Operations Planning A collaborative cross functional process that engages all functions to produce an integrated set of plans that all are committed to support.      Its purpose is to BALANCE demand & supply. It ALIGNS operational plans to high level business & strategic plans. It is performed periodically – monthly or weekly. It can be implemented at a market, regional or global level. At its core is a single set of numbers, i.e. ONE PLAN for the business. When done correctly S&OP can yield:  Improved forecast accuracy - Lower inventories  Better conformance to ONE plan - Reduced operating costs  Increased customer service and increased revenues  Increased profits  Increased Return on Capital Employed (ROCE) S&OP Process: Operational level To Executive level A Routine Cross-Functional, ConsensusBased Process to Align Demand and Supply Plans It is an executive decision-making process In general the process is conducted monthly Deals with volume in both units and $$$ Ties operational plans to financial plans Step 3 Supply Planning Step 2 Demand Planning Step 5 Exec S&OP Meeting Decisions & Updated Game Plan Step 4 Decisions, Recommendations, Scenarios & Agenda for Exec Meeting Resource Requirements Rough cut capacity plan Constrained demand plan PreMeeting Constrained demand plan Step 2 establishes an unconstrained demand plan and Step 1 forecast, Data Actual Step 3 develops rough-cut Gathering Demand, Supply, supply and constrained demand Inventory, Statistical plans, Baseline Forecasts End of Month steps 4 & 5 finalize the alignment of the demand It occurs at multiple levels within the company, up to and including the executive in chargeand of the business supply plans. unit, decision president, business unit general manager, or CEO of a smaller company. S&OP Process and Timetable Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri Mon Tue Wed Thu Fri -19 -18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 S&OP S&OP Pre SOP meeting meeting Supply planning Demand planning Run sales forecast reports In general the process is conducted monthly and by exception (major adjustment to plan) It occurs at multiple levels within the company, up to and including the executive in charge of the business unit, decision president, business unit general manager, or CEO of a smaller company. Who’s involved? The process with which we bring together all the plans for the business into ONE integrated and agreed set of plans. Business Plan S&OP Demand Planning Marketing Sales Supply Planning Production Financial Planning Inventory Distribution Purchasing The Link between operations planning and the strategic S&OP links theplan company’s strategic plans and business plan to its detailed CT PA IM Financial Planning Supply Planning Demand Procurement Transportation Planning Planning c is de Inventory of Distribution Production io ns Supplier Production Transportation Inventory Scheduling Scheduling Scheduling Deployment Demand Fulfilment Reaction to changing supply and demand conditions Execution Monitoring Fully integrated bottom-up feedback g In cr ea s in g in Sales & Operations Planning s ea cr nu m be r of de c is io ns Strategic Planning In Fully integrated clear top down direction processes – the order entry, master scheduling, plant scheduling and purchasing tools it uses to run the business on a week to week, day to day and hour by hour basis. The Pyramid principle Aggregate (up) / Disaggregate (down) the plan to meet functional and management needs Business Unit up e th 1 Individual SKU /Shop Orders an pl Production constraints & capabilities te da Brand / technical config. Unconstrained Forecast 5 & Ro llu p or Total te ga re gg sa Di 3 ag gr eg at e Finance - Budget (£/€/$) Marketing - Business Units/Brands (£/$/€) - Customers (£/€/$) - SKU (£/€/$, units) 4 Planners - SKU (units); materials; labour; time; capacity, etc. Align with AOP 2 Resources: Materials; Labour; capacity AOP = Annual Operations Plan Strategic Annual Plan Sales & Operations Planning 1 we – 13 eks Work Sequencing 1d ye1a– 3 rs Mo1- 24 nth s Bookings / Flow Plan ay to 1 we e k 1– yea 5 rs Future products, plant location and markets served Technology selection Additions or withdrawals of major capacity elements Long term competitiveness Partners and affiliations Operating capacity Manning levels Costs and performance targets Product mix Current market activities Align sales plan and capacity New product introductions Balancing of deliveries to capacity Order acceptance Planning rules Product mix changes SKU level forecasts Stock Control Dispatch planning Work smoothing/Scheduling Stock Control S&OP implementation requires a staged approach 1. Get Executive buy-in and establish high level process ownership 2. Is Supply Chain Excellence understood and is there a clear Supply Chain strategy? 3. Do you have complete data and can all functions access the same data? 4. Are the ‘feeding components’ for S&OP fit for purpose?     Demand planning Capacity planning Supply planning Financial planning 5. Technology is important….. 6. Training andThe development is essential. biggest challenges in building an S&OP plan include: • Gaining the support of the Executive team – 39% • Gaining clarity of supply chain strategy – 29% • Getting the right technology to support the process - 18% The critical ‘feeding’ components: Step 2: Building a robust Demand Plan Adjustments to the baseline S&OP Step 2: Demand Planning Statistical Forecast Baseline Forecast Marketing Forecast Marketing Sales Manager Forecast Sales Management Demand Planning Demand Agreement Inputs & Outputs Demand Forecast Nightly Transaction Files Inputs Inputs Sales, Orders, Opportunities , Budget & Master Data Consensus Forecast Forecast, NPI & EOL, Product Volume Planning Planning Processes Processes Sales Region Forecast Demand Review Consensu s Forecast Creating the baseline forecast • Time series analysis takes historical sales or usage data and attempts to break it down into components Sales 450 Sales Forecast 2010 +2stdev -2stdev 200 180 160 Level & Trend 400 350 140 120 100 80 60 40 20 0 300 Seasonality 200 12 18 24 30 36 3.50 Seasonal Index 250 6 3.00 2.50 2.00 1.50 1.00 0.50 150 0.00 1 2 3 4 100 5 6 7 8 9 10 11 12 Month Random 'Noise' 50 0 80 60 40 20 - 0 6 12 18 24 30 36 (20) 0 5 10 15 (40) (60) The underlying trend is then extrapolated into the future and combined with the other ‘components’ to produce the baseline forecast 20 25 30 Project the Trend 1800 Estimate a forecast range for Jan 08? 1600 1400 Sales (£000s) 1200 1000 800 Jan Jan 08 08 forecast forecast is is about about £1020k £1020k 600 From From aa planning planning perspective perspective this is not very useful. this is not very useful. Better Better to to forecast forecast aa range! range! 400 200 0 J an 02 002 002 002 002 002 003 003 003 003 003 003 004 004 004 004 004 004 005 005 005 005 005 005 006 006 006 006 006 006 007 007 007 007 007 007 008 008 008 008 008 008 009 009 009 2 2 l2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 p o v a n a r ay Ju l e p o v a n ar ay Ju l e p o v a n a r ay Ju l e p o v a n ar a y Ju l e p o v a n a r ay Ju l e p o v a n a r ay Ju l e p o v a n a r a y a r a y Ju J J J J J J J M Se N M S N M S N M S N M S N M S N M S N M M M M M M M M M 20 Month Project the expected error (random noise) 1800 1600 1400 Sales (£000s) 1200 II am am 95% 95% confident confident that that sales sales in in Jan Jan 08 08 will will be be £1020k £1020k ± ± 120k 120k i.e. between 1140k and 900k i.e. between 1140k and 900k 1000 Actual Sales Jan08: £952k 800 600 400 200 0 02 002 002 002 002 002 003 003 003 003 003 003 004 004 004 004 004 004 005 005 005 005 005 005 006 006 006 006 006 006 007 007 007 007 007 007 008 008 008 008 008 008 009 009 009 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 l2 2 l2 2 2 2 l2 2 2 l2 2 l2 2 2 2 l2 2 l2 2 2 2 2 2 r r r r r r r r v v v v y y v y y y v y y v y n n n n n n n n Ju Sep No Ju Sep No Ju Sep No Ju Sep No Ju Sep No Ju Se p No Ju Sep No Ja Ma Ma Ja Ma Ma Ja Ma Ma Ja Ma Ma Ja Ma Ma Ja Ma Ma Ja Ma Ma Ja Ma Ma 20 Month Essential forecast error metrics. If you don’t measure it you can’t improve it. • Forecast Error: How inaccurate is the forecast? Error, but no Bias Possible measures are:  Mean Absolute Percentage Error (MAPE)  Average Absolute error (MAD) • Forecast Bias: Is the forecast consistently too high or low? Avg Fcst = Avg Dmd Error & Bias Possible measures are:  Average Error (ME)  Mean Percentage Error (MPE) Avg Fcst < Avg Dmd Do Marketing and Sales Adjustments to the baseline forecast add value? Sometimes human adjustments • • Did the manual adjustments improve forecasts? Possible measures:   Number (or %age) of adjustments where forecast is better after the adjustment = - £ 26,925 Value of the improvement Item Std Cost 249287 £1.56 859948 £11.45 892752 £12.98 22236 £34.10 586152 £9.23 337745 £3.12 299975 £1.56 12345 £12.34 20707 £0.56 257279 £7.45 608672 £7.45 Total • make the forecast WORSE Statistical Forecast 96 996 30 4 769 417 26 804 9344 640 177 Final Forecast 3202 434 37 21 513 1200 2177 1032 21459 1376 1945 = 3 Statistical Final ABS Statistical Actual ABS error error Error Final error Sales %age %age Value value 8129 -251% -154% -£12,532 -£7,686 832 38% -92% £1,875 -£4,560 50 -56% -36% -£270 -£174 8 -20% 60% -£141 £431 432 66% 16% £3,107 £746 603 -15% 50% -£580 £1,862 98 -3% 95% -£112 £3,243 604 33% 71% £2,466 £5,283 7678 8% 64% £933 £7,717 279 26% 80% £2,693 £8,173 272 -5% 86% -£705 £12,464 -16% 22% -£3,266 £27,499 Review Major Successes and Failures to learn Improve value £4,846 -£2,685 £97 -£290 £2,361 -£1,282 -£3,131 -£2,817 -£6,784 -£5,480 -£11,759 -£26,925 Adjustments to the Demand Plan S&OP Step 3: Supply Planning Sales ‘Goal’ Demand Plan Net Requireme nts Materials Mgt ‘In plan’ Constraints Maintenance Mgt Capacity Requireme nts Production Planning Nightly Supply Agreement Transaction Files Inputs Inputs Inputs & Outputs Inventory, Works Order Complete Budget & Master Data RCCP Forecast, NPI & EOL, Product Volume Planning Planning Processes Processes Sales Region Forecast Demand Review Rough Cut Capacity Plan Supply Planning needed as ... Demand Plan from Sales does not include any information about what is happening within the production cycle e.g.  Failed production (less stock on hand)  Improved yield (more stock on hand)  Breakdowns (less capacity on hand)  Improved operations (more capacity on hand)  Inventory issues (stock spoilage)  Purchasing issues (late supply) S&OP Process: A consolidated plan for the whole organisation Step 5 Exec S&OP Meeting Step 4 Decisions, Recommendations, Scenarios & Agenda for Exec Meeting Resource Requirements Rough cut capacity plan Constrained demand plan PreMeeting Step 3 Supply Planning Step 2 Demand Planning Constrained demand plan Step 1 Data Gathering End of Month Actual Demand, Supply, Inventory, Statistical Baseline Forecasts Decisions & Updated Game Plan Benefits of the S & OP consolidated plan  The whole business is working to meet the same goal  Competing demands of efficiency (in operations) and responsiveness (in sales) are balanced  ‘The’ plan represents the agreed compromise for the optimum business benefit Company ABC Company ABC is suffering a frustrating combination of TOO MUCH stock in most products and stock outs in the vital few! Managers recognise that a lack of crossfunctional planning lies at the root of the problem (all figures in millions) SALES What would be the impact on ROCE if we implement S&OP and realise the following benefits? • 30% reduction in inventory investment • 10% increase in sales ROCE 13.4 % Gross Margin Profit after tax £8 NET PROFIT MARGIN / 8% ( net profit sales SALES ) £ 100 £ 45 Cost of goods sold – Total Expenses £ 55 £ 35 Tax – …and the out-of-pocket costs saved by the reduction in stock equalled Source: Lambert & Stock (1993) Strategic Logistics Management McGraw-Hill Other costs £ 35 £2 X SALES AND we use the £ 6m cash made available by a reduction in stock to pay back a bank loan at 15% interest £ 100 – £ 100 ASSET TURNOVER 1.67 ( sales total assets ) / TOTAL ASSETS £ 60 Current assets Inventory £ 20 £ 32 + + Fixed assets £ 28 Other current assets £ 12 Company ABC Company ABC is suffering a frustrating combination of TOO MUCH stock in most products and stock outs in the vital few! Managers recognise that a lack of crossfunctional planning lies at the root of the problem (all figures in millions) SALES What would be the impact on ROCE if we implement S&OP and realise the following benefits? • 30% reduction in inventory investment • 10% increase in sales ROCE Gross Margin Profit after tax Cost of goods sold – Total Expenses NET PROFIT MARGIN ( net profit sales £ 110 – / SALES ) Other costs Tax – £ 110 £ 35 X SALES AND we use the £ 6m cash made available by a reduction in stock to pay back a bank loan at 15% interest …and the out-of-pocket costs saved by the reduction in stock equalled 5% of the inventory value. Source: Lambert & Stock (1993) Strategic Logistics Management McGraw-Hill £ 110 ASSET TURNOVER ( sales total assets ) / TOTAL ASSETS Current assets Inventory + + Fixed assets £ 28 Other current assets £ 12 Company ABC The potential benefits (all figures in millions) SALES Gross Margin 8% NET PROFIT MARGIN 13.4 % ( net profit sales ROCE 23.2 % Profit after tax £ 49.5 Cost of goods sold £ 12.6 – Total Expenses £ 60.5 / 11.4 % SALES ) £ 110 £ 33.8 Tax – £ 110 2.04 ( sales total assets 1.67 Source: Lambert & Stock (1993) Strategic Logistics Management McGraw-Hill £ 33.8 X ASSET TURNOVER 4.3 Other costs £ 3.14 SALES Inventory TURN$ UP from: 2.8 £ 110 – ) / TOTAL ASSETS £ 54 Current assets Inventory £ 14 £ 26 + + Fixed assets £ 28 Other current assets £ 12 Final comment…. “Over the next 10 years, Executive S&OP will emerge as a primary tool in the Top Management tool kit. It will be widely viewed as indispensable for organizations needing to balance demand and supply in a complex, rapidly changing environment.” (Tom Wallace, 2008) Next Steps ...  The consolidated plan still doesn’t identify the sequence in which orders should be fulfilled  The details of sequencing can be highly complex and dependant on specific manufacturing technologies e.g. paint light colours before dark  Some basic rules can be considered Sequencing Approaches  Physical constraints: Always make ‘A’ before ‘B’  Customer priority: Customer X is half the business  Due date: When does the customer expect it  Last in First Out: Seems unfair but might be needed  First in First Out: ‘Fair’, first come first served  Longest Operation Time: Do the biggest job first  Shortest Operation time: Do the smallest job first Impact of Sequencing  RCCP plan looks for all jobs to be done within the plan horizon (month)  Customers and Operations are looking for more:  Meet due date promised to customer  Minimise throughput time for the job  Minimise WIP  Maximise machine centre utilisation Example of impact of sequencing  Steve Smith has 5 jobs to do in the current plan period: Job Work content (days) Due Day (in period) A 5 6 B 3 5 C 6 8 D 2 7 E 1 3 Total 17 days 22 day period The work fits with a rough cut capacity plan – but how should it be sequenced? See Slack et al Chapter 10 Option 1: FIFO Sequence Process Time Start End Due Days Late A 5 0 5 6 - B 3 5 8 5 3 C 6 8 14 8 6 D 2 14 16 7 9 E 1 16 17 3 14 Total in Process 60* Total Lateness 32 Ave in Process 12 Ave Lateness 6.4 *Yes the book is wrong Option 2: Due date Sequence Process Time Start End Due Days Late E 1 0 1 3 - B 3 1 4 5 - A 5 4 9 6 3 D 2 9 11 7 4 C 6 11 17 8 9 Total in Process 42 Total Lateness 16 Ave in Process 8.4 Ave Lateness 3.2 Option 3: Shortest Op.n Sequence Process Time Start End Due Days Late E 1 0 1 3 - D 2 1 3 7 - B 3 3 6 5 1 A 5 6 11 6 5 C 6 11 17 8 9 Total in Process 38 Total Lateness 15 Ave in Process 7.6 Ave Lateness 3 Summary  Sequencing is hard ...  The example has 5! (5*4*3*2*1 = 120) possible different sequences  If there were 2 work stations on the route there would be 5! x 5! possibilities = 14,400  Some ways to simplify are clearly helpful ... Theory of Constraints  Developed in the 80’s by Eli Goldratt and colleagues  Popularised in the book ‘The Goal’  Starts with the premise that in every operation there is a single step / activity that constrains the desired outcome  Only the constraint impacts business performance Theory of Constraints We are often guilty of suggesting processes are always simple and linear Operations can be far more complex … even so there will be a single constraint Theory of Constraints Constraints can be  Machinery (e.g. work centre, crane, lift trucks)  Policy (e.g. all batches signed off by QP)  Skills (e.g. master blender)  …  anything that limits output Theory of Constraints  Spotting the constraint can be hard but:  Look for large WIP queues  What equipment do people fight over  People  standing around waiting The constraint may not be the most expensive piece of equipment. TOC – How to Benefit 1 Identify the constraint 2 Exploit the constraint 3 Subordinate all other processes 4 Elevate the constraint 5 If, as a result of these steps, the constraint has moved, return to Step 1 TOC – How to Benefit 2 Exploit the constraint  Make sure maximum use is being made of the constrained resource  e.g. build the schedule around the constraint  e.g. add manpower TOC – How to Benefit 3 Subordinate all other processes  Regardless of relative investment ($1M CNC works to fit the $100 packaging machine)  EBQ to suit the constraint  etc TOC – How to Benefit 4 Elevate the constraint  Up to this step no investment has been spent  What (simple) improvements can increase the capacity of the constraint? buy another £100 packaging machine improve reliability etc. Examples  Paint shop:  Every  Each item leaving the factory is painted. paint hanger empty is £ profit missed.  Solution:  Qualified Person:  All batches must be signed off by the QP before shipment.  Paper work always arrives on Friday pm for that week’s deliveries.  Solution:  Keep the paint line full Paper work must go daily Crane:  Several  RCCP people want to use the crane at the same time each day suggests the crane is only utilised 20% of the time  Solution: Schedule crane use along with other activity (use TAKT time) Persistent Demand Patterns  Simplify based on demand  Often have a demand pattern that is (somewhat) predictable the 80/20 rule applies – 80% of demand comes from 20% of products volumes of these products per period are Stable  A stable pattern of scheduling can be developed Based on experience Evolved as demand evolves An Efficient Schedule - example  Every month we require:  4xA  4xB  4xC  1xD  1xE  1xF  some of G/H/I/J An Efficient Schedule?  Schedule minimises change overs  Provides a consistent pattern  What if only 3 ‘A’ are required  What if this is discovered in period 5? An Effective Schedule?  Schedule recognises  Runners: Consistent demand  Repeaters:  Strangers: Steady demand but less required Demand is haphazard  Every 5th period a alternate item can be scheduled  Requires much shorter set-up times Role for IT  Scheduling is the aggregating of large amounts of data to get a best ‘plan’  Humans are required to make judgement calls Profitability v. customer service Impact of external factors on forecast Etc.  Structure of the data lends itself to IT use Integrated Business Planning From S&OP Inventory Bill of Material To Schedule MRPII - A Business Wide Planning and Control System Production Schedule Parts List Material Planning Purchase Req’ts 49 MRPII - A Business Wide Planning and Control System PRODUCTION SCHEDULING SALES ORDER ENTRY MATERIALS PLANNING INVENTORY MANAGEMENT PRODUCT STRUCTURE Purchase Req’ts 50 MRPII - A Business Wide Planning and Control System MASTER SCHEDULING SALES ORDER ENTRY PURCHASE ORDER MAN. MATERIALS PLANNING PRODUCT STRUCTURE INVENTORY MANAGEMENT WORK ORDER MANAGEMENT 51 MRPII - A Business Wide Planning and Control System FORECASTING RESOURCE PLANNING SALES & OPS. PLANNING MASTER SCHEDULING SALES ORDER ENTRY PURCHASE ORDER MAN. CAPACITY PLANNING PRODUCT STRUCTURE MATERIALS PLANNING INVENTORY MANAGEMENT WORK ORDER MANAGEMENT 52 MRPII - A Business Wide Planning and Control System FORECASTING RESOURCE PLANNING SALES & OPS. PLANNING MASTER SCHEDULING Manufacturing Control Processes SALES ORDER ENTRY PURCHASE ORDER MAN. CAPACITY PLANNING MATERIALS PLANNING PRODUCT STRUCTURE INVENTORY MANAGEMENT = Closed-Loop MRP WORK ORDER MANAGEMENT SHOP FLOOR CONTROL S.F.D.C. 53 MRPII - A Business Wide Planning and Control System FORECASTING SALES & OPS. PLANNING RESOURCE PLANNING MASTER SCHEDULING Manufacturing Control Processes SALES ORDER ENTRY PURCHASE ORDER MAN. CAPACITY PLANNING MATERIALS PLANNING PRODUCT STRUCTURE SHOP FLOOR CONTROL ACCOUNTS RECEIVABLE PAYROLL FINANCIAL PROCESSES CASH MANAGEMENT ACCOUNTS PAYABLE INVENTORY MANAGEMENT WORK ORDER MANAGEMENT FIXED ASSETS GENERAL LEDGER S.F.D.C. PRODUCT COSTING FINANCIAL REPORTING 54 ERP - A Business Wide Planning and Control System 55 ERP - A Business Wide Planning and Control System 56 END