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© The Delos Partnership 2007 page 1
Supply Chain ManagementSupply Chain Management
Introduction to the basic tools and techniques
© The Delos Partnership 2007 page 2
Balancing the objectivesBalancing the objectives
Inventory
Customer Service
ManufacturingCosts
ManufacturingFlexibility
© The Delos Partnership 2007 page 3
ABC CompanyABC Company
“We want to deliver Quality products to our customers, competitively priced, delivered on time. We will ensure that our employees are satisfied with their work, and we will take care of the environment.” said the mission statement at the entrance.
Marketing is in the middle of a special promotion, which has suddenly been arranged. The artwork – as usual- is having to be arranged at short notice for the packaging. Sales have just quoted for a big contract which will mean significant extra business above the business plan. It is two months until year end, and if they get the order then the Sales and Marketing Director will get a bonus for exceeding her target. Customer Services will be working late tonight to catch up with the backlog of orders.
Operations has heard the rumour about a 'big order.‘ But they've heard about these before. So they are proceeding with their plans to cancel overtime. The Operations Director meets monthly, individually, with the Marketing managers to get a feel for the market. Then he meets with his Production Planner, compares his ideas with past history and they finalise the Forecast and Production Plan, largely based on history.
© The Delos Partnership 2007 page 4
ABC CompanyABC Company
“Corporate are short on Cash Flow, and hence have told the division to implement a cost reduction programme, and to reduce inventory by 20%. The Finance Director is working on ways to do this, however is reluctant to make any write-offs of current obsolete inventory, so is wanting to restrict any further purchases.
The Manufacturing Manager has just come back from a course. He has come back with ideas on Total Productive Maintenance, and Operating Equipment Effectiveness. He wants a smaller product range and bigger batches. His basic manufacturing philosophy is that lower costs are achieved through maximising utilisation of machines, keeping direct labour at maximum levels of output. The Distribution manager believes that demand is increasing, so is going to open a Central Distribution centre just outside Coventry.
The Development department are in the middle of developing a revolutionary new product, that will dramatically increase market share. However, a minor modification to the product will reduce costs, and enhance the quality. Customer response is excellent. Unfortunately it will delay the launch to Quarter 3 of the next year.
The Chairman and the Chief Financial Officer just met with a key group of Stock-market analysts, and have said that cash-flow will improve this year through a radical cost reduction and inventory management programme. Sales and Profit will rise by 20 % next year, which should mean an increase of 25 % in Earnings per share, due to an exciting new product to be launched in Quarter 4 of this year.
© The Delos Partnership 2007 page 5
Signs of problems in companySigns of problems in company
• What are the major reasons for failures in providing the customer with what they want and when they want it ?
• What are the major signs of problems in an organisation when looking around a manufacturing site ?
© The Delos Partnership 2007 page 6
Signs of problems within the companySigns of problems within the company
© The Delos Partnership 2007 page 7
Reasons for problemsReasons for problems
What are the reasons for the problems that you have identified ?
Classify these as either
• System
• Process
• Cultural/Behavioural
© The Delos Partnership 2007 page 8
Causes of InventoryCauses of Inventory
What are the main causes of inventory ?
© The Delos Partnership 2007 page 9
Vertical Functional OrganisationVertical Functional Organisation
MD
SalesSales MarketingMarketing TechnicalTechnical OperationsOperations FinanceFinance HRHR
R& D
R& D
MKTG
MKTG
SALES
SALES
OPS
OPS
ACCTS
ACCTS
HR
HR
Directors
Managers
Supervisors/Team Leaders
© The Delos Partnership 2007 page 10
The Delos ModelThe Delos ModelFor Business Integration For Business Integration
InnovationInnovation
VisionVision
StrategyStrategy
PrioritisationPrioritisation
DemandDemand
SupportSupport
SupplySupply
© The Delos Partnership 2007 page 11
Basic FormulaBasic Formula
Item DataBOM’s
And Routes
StockAnd
Capacity
Master Schedule
Forecasts Orders
Suppliers Factories
What do theyActually Want ?
What haveWe got ?
Whatdoes it need ?
What do we need to do ?
What do we thinktheyWant ?
© The Delos Partnership 2007 page 12
Periods 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 25 25 25 25 25 25 25 25 20 20 20 20
Actual Demand
Proj Avail Balance
75 50 25 0 50 25 0 50 30 10 65 45
Available to Promise
CumulativeATP
Master Schedule
75 75 75
Item Level ForecastItem Level Forecast
Part Number: 12345 Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: 75 On Hand: 100
Part Number: 12345 Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: 75 On Hand: 100
© The Delos Partnership 2007 page 13
Customer ProfileCustomer Profile
Customer X 50 per month
Customer Y 10 per month
Customer Z 5 per month
Customers A… 35 per month
Total = 100 per month
Forecast at End Item Level
© The Delos Partnership 2007 page 14
Demand ManagementDemand Management
Horizon
PLANMANAGEEXECUTE
Cumulative Lead TimeCumulative Lead Time
Add or subtractTo capacity
Strong Link to
Integrated Enterprise Planning Process
Capacity andMaterials“firm”
Release Orders
Customer Lead Time ?Customer Lead Time ?
© The Delos Partnership 2007 page 15
Demand ManagementDemand Management
Strategy
Demand Manager
Sales and Marketing
SystemForecast
Plan
ManufacturingAnd Purchasing
ERPSystem
Consensus ForecastConsensus Forecast
© The Delos Partnership 2007 page 16
Master Scheduling – what does it replace?Master Scheduling – what does it replace?
• Order point• Throw orders into factory and expedite out• Standard Lead Times• Suppliers must be responsive to our sudden
changes in demands• We say yes to all orders and pray that
manufacturing can respond• Whoever shouts loudest gets what they want• Firefighting and expediting
© The Delos Partnership 2007 page 17
Objectives of Master SchedulingObjectives of Master Scheduling
1. Provide an achievable plan that drives the company
2. To provide reliable promises to customers
3. Provide stability and efficiency to supply chain
4. Achieve highest possible levels of customer service with optimum inventory
© The Delos Partnership 2007 page 18
Balance of Supply and Balance of Supply and DemandDemand
Demands Supply
© The Delos Partnership 2007 page 19
Master Scheduling – what is it?Master Scheduling – what is it?
• Detailed statement of what a company can do by part number in planning system
• Based on realistic material and capacity plans• The basis for promises that customers can rely on, and
advice on when products will be available.• Provides stability to supply chain• People manage; computer calculates• Provides the detailed basis for the SOP process.
© The Delos Partnership 2007 page 20
Master Scheduling – how is it done ?Master Scheduling – how is it done ?
• The Computer system calculates if demand and supply imbalanced
• The computer generates action messages
• Planner responds to action messages and deals with the art of the possible
© The Delos Partnership 2007 page 21
Weeks 1 2 3 4 5 6 7 8 9 10 11 12
Forecast 25 25 25 25 25 25 25 25 20 20 20 20
Actual Demand
Proj Avail Balance
75 50 25 0 50 25 0 50 30 10 65 45
Available to Promise
CumulativeATP
Master Schedule
75 75 75
End Item Level ForecastEnd Item Level Forecast
Part Number: 12345 Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: 75 On Hand: 100
Part Number: 12345 Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: 75 On Hand: 100
© The Delos Partnership 2007 page 22
Time Fence PolicyTime Fence Policy
Horizon
PLANMANAGEEXECUTE
Cumulative Lead Time
Add or subtractTo capacity
Strong Link to
Sales and OperationsPlanning Process
Capacity andMaterials“firm”
Release Orders
Open SesameFirmNO !
© The Delos Partnership 2007 page 23
Time Fence PolicyTime Fence Policy
• Should relate to Cum Lt Requires review of CLT by product Could be different by product group
• Should state who can change and when
• Should be clear about “Emergency Changes”
© The Delos Partnership 2007 page 24
Master SchedulerMaster Scheduler
Strategy
Sales Forecasts
CustomerOrders
ManufacturingPlan
PurchasingPlan
MRPSystem
Balanced PlanBalanced Plan
Master Scheduler
© The Delos Partnership 2007 page 25
Priority settingPriority setting
The key to determining priorities in any organisation should be the schedule date
• Not red tags• Not three stars, two stars• Not driven by output measures
The only measure is therefore schedule achievement..
© The Delos Partnership 2007 page 26
The Delos Core MeasuresThe Delos Core Measures
1. Customer Order Delivery – the “Perfect Order”
2. Demand Forecast Accuracy
3. Lead Time Reduction - Demand, Supply and Change
4. Quality, Right First Time – Demand, Supply and Change
5. Schedule Achievement – In-house and outsourced
6. New Product Introduction
7. Velocity – all processes
© The Delos Partnership 2007 page 27
The Core Measures and Financial The Core Measures and Financial EffectEffect
© The Delos Partnership 2007 page 28
Result of effective Master SchedulingResult of effective Master Scheduling
• Everyone uses the planning system Planner to plan Manufacturing to make
• Spreadsheets or planning tools disappear• A supply chain that is not jerked around• Customers get what they are promised 100 %• Customers get what they require 98 %• Customers get what they need 100 %
© The Delos Partnership 2007 page 29
New Product IntegrationNew Product Integration
Design
Purchase
Intermediate Manufacture
Sub-assemble
Finish
Distribute
Cumulative Lead TimeCumulative Lead Time
Insert NewProducts Here
Insert NewProducts Here
© The Delos Partnership 2007 page 30
Innovations ManagerInnovations Manager
Strategy
Innovation Manager
DevelopmentIdeas
ProjectPlans
DevelopmentPlans
Supply Plans
ProjectSystem
Prioritised PlansPrioritised Plans
© The Delos Partnership 2007 page 31
Policy on MTS/ATO/MTO/ETOPolicy on MTS/ATO/MTO/ETO
Design
Purchase
Intermediate Manufacture
Sub-assemble
Finish
Distribute
Cumulative Lead Time
© The Delos Partnership 2007 page 32
Computer Systems
Detailed ExecutionDetailed Execution
Master Scheduling needs to be part of a Master Scheduling needs to be part of a frameworkframework
Aggregate PlanningAggregate Planning
StrategyStrategy
Detailed PlanningDetailed PlanningPROGRAMMES
DEMAND
SUPPLY
MPS
SOP
WTL
© The Delos Partnership 2007 page 33
Make to StockMake to Stock
Production = Demand Plan + (Inventory Target-
Current Inventory)
= 100 + 75 - 50)
PRODUCTION STOCK
© The Delos Partnership 2007 page 34
Integrated Enterprise LeadershipIntegrated Enterprise Leadership
-3 -2 -1
Demand Plan 120 120 120
Actual Demand 119 125 132
Difference -1 5 12
Cum Diff 4 16
Months 1 2 3 4 5 6 7 8 9
Last Demand Plan 120 120 120 120 120 120 120 120 120
New Demand Plan
Difference
Cum Diff
Months Q4 Q1
360 360
-3 -2 -1
Supply Plan 125 125 125
Actual Supply 119 118 121
Difference -6 -7 -4
Cum Diff -13 -17
1 2 3 4 5 6 7 8 9
Last Supply Plan 125 125 120 120 120 120 120 120 120
New Supply Plan
Difference
Cum Diff
Q4 Q1
360 360
-3 -2 -1
Stock Plan 71 76 81
Actual Stock 66 66 59 48
Difference -5 -17 -33
1 2 3 4 5 6 7 8 9
Last Stock Plan 86 91 91 91 91 91 91 91 91
New Stock Plan
Difference
Q4 Q1
91 91
Make – To- Stock
© The Delos Partnership 2007 page 35
Benefits of Integrated Enterprise Benefits of Integrated Enterprise LeadershipLeadership• One set of agreed & realistic numbers Balanced load &
capacity• Plan will be realistic & stable• Customer delivery dates will be achievable• Proactive not reactive planning• Earlier feedback to customers of any changes to the plan• Greater ability to deal effectively with non-routine or
unanticipated situations• A Sound foundation for decisions taken through the IEL
process
© The Delos Partnership 2007 page 36
IntegrationIntegration
CULTURE/BEHAVIOUR
TECHNO
LOG
YWAYS O
F
WO
RKING
ConsumerAnd Customer
Focussed
SimplicityItself
DeliveringShareholder
Value
© The Delos Partnership 2007 page 37
Cultural Issues to tackleCultural Issues to tackle
• “Hope springs eternal” – WSBAR• EOMC,EOQC,EOYC• Finger pointing• Feedback early – not just too late• “If it is not Past due then it is not urgent”• Inaccurate data• Addiction to fire-fighting• Priority set by dates and not by shouting loudly