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Operational Excellence Operational Excellence Demand Management and Master Scheduling

Operational Excellence Demand Management and Master Scheduling

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Operational ExcellenceOperational Excellence

Demand Management and Master Scheduling

Vas Dem MPS - 2 © The Delos Partnership 2004

The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply

Vas Dem MPS - 3 © The Delos Partnership 2004

InnovationInnovation

What counts as innovation ?– New product– Change to existing product : line extension– New Manufacturing process– Change to Manufacturing Process– Regulatory change– Capital Expansion– ERP Project

Vas Dem MPS - 4 © The Delos Partnership 2004

Integration of InnovationIntegration of Innovation

• Innovation carried out by many functions

• All innovation has impact on different areas

• Typical functional split– Development– Supply Chain

Vas Dem MPS - 5 © The Delos Partnership 2004

Integrated Business Plan

Integration of InnovationIntegration of Innovation

Innovation Supply Chain

Vas Dem MPS - 6 © The Delos Partnership 2004

InnovationInnovation

All share the following issues– Need Project Plan– Need Justification– Need co-ordination– Need cross project resource management– Difficult to forecast– Needs integration into all other processes

Vas Dem MPS - 7 © The Delos Partnership 2004

Management of InnovationManagement of Innovation

Stage/Gate Process

Formal Process for Managing Project

Gate0

Gate0

Gate1

Gate1

Gate2

Gate2

Gate3

Gate3

Gate4

Gate4

Stage 0Stage 0 Stage 1Stage 1 Stage 2Stage 2 Stage 3Stage 3 Stage 4Stage 4

Review

InvestigateInvestigate FinancialCase

FinancialCase

DevelopDevelop TestTest LaunchLaunch

Vas Dem MPS - 8 © The Delos Partnership 2004

Overall Process for Change Overall Process for Change ControlControl

Request change to product

Review impact of change

Notify

People who

Need to know

Accept or reject request

Advise change agreed

Notify

People who

Need to know

Vas Dem MPS - 9 © The Delos Partnership 2004

Example of Data Change FormExample of Data Change Form

Change Note Number : Date of Request : __/__/__ Change Type : Add/Amend/Delete

Originator: Effective Date:-Requested __/__/__-Actual __/__/__

Part number :

Department : BOM Attached ? : Y/N

Other Related Changes :

Reason for Request for change

Notification given to : Tick

Description of Change : Development

Manufacturing

Planning

Financial Consequences of Change : Purchasing

Quality

Sales and Marketing

Approved by : Date of Approval __/__/__ Regulatory

Vas Dem MPS - 10 © The Delos Partnership 2004

Example of Data Change Example of Data Change FormForm

Production Quantity on hand: Rework and Scrap Value

Quantity in WIP : Routing Change

Purchasing Supplier : New Part Number

New Cost : New Order Qty

On order : New Safety Stock

Quality Specifications : New Lead Time

Test requirements: Customer Code

Development Reference no,: Vendor Code

BOM Change note: Batch control

Sales Customers Financial Projection attached: Y/N

Quantity on hand

Finance Standard Cost Data Controller :

Regulatory Standards affected

Vas Dem MPS - 11 © The Delos Partnership 2004

Management of InnovationManagement of Innovation

Needs Management across all the projects

0

20

40

60

80

100

120

1st Qtr 2nd Qtr 3rd Qtr 4th QtrQtr

Capacity - Design Resource

Dem Cap

Req Cap

Vas Dem MPS - 12 © The Delos Partnership 2004

Integration with Supply Integration with Supply ChainChain

Design

Purchase

Intermediate Manufacture

Sub-assemble

Finish

Distribute

Cumulative Lead TimeCumulative Lead Time

Insert NewProducts Here

Insert NewProducts Here

Vas Dem MPS - 13 © The Delos Partnership 2004

Bill of Activity – Link with Bill of Activity – Link with PlanningPlanning

ShipShip

MakeMake

ProcessValidation

ProcessValidation

DevelopProcess

DevelopProcess

SourceProduct

SourceProduct

DevelopTooling

DevelopTooling

SourceEquipment

SourceEquipment

DesignEquipment

DesignEquipment

Lt = 2 weeksLt = 2 weeks

Lt = 6 weeksLt = 6 weeksSource

Raw Material

Source Raw

MaterialLt = 4 weeksLt = 4 weeks

Lt = 10 weeksLt = 10 weeks

Lt = 6 weeksLt = 6 weeks

Vas Dem MPS - 14 © The Delos Partnership 2004

Integrated Innovations Integrated Innovations PlanningPlanning

IDEAS

COMMERCIALSUCCESS

IEP AT FAMILYLEVEL – VOLUMEAND VALUE

MPS AT PRODUCTLEVEL – VOLUMEAND VALUE

TIME

MPS/MRP AT PRODUCT ANDCOMPONENTLEVEL – VOLUME

Vas Dem MPS - 15 © The Delos Partnership 2004

The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply

Vas Dem MPS - 16 © The Delos Partnership 2004

Common Reasons for Not Common Reasons for Not FForecastingorecastingI can never make it

100% accurate

My business has toomany unforeseen

peaksMy business isdifferent - you can’t forecast it

I don’t know who’s responsible

for it anywayIt’s not in my

objectives

I’m measured on getting high sales

- so who cares about the forecast

The factory nevermake what I forecast

anyway

Nobody thanks me for it – so why

bother ?

Vas Dem MPS - 17 © The Delos Partnership 2004

Forecasting – DefinitionForecasting – Definition

A forecast is a formal request to the Supply Management function…

From Sales and Marketing to

have the product, materials andCapacity available according to the quantity

and

At the time

that they anticipate the demand will occur from the Customer to ship the product to their premises

Vas Dem MPS - 18 © The Delos Partnership 2004

Forecasting Needs a Forecasting Needs a Simple ProcessSimple Process

FilterDemand

Execute Forecast

CaptureActual

C O N S E N S U S C O N S E N S U S F O R E C A S TF O R E C A S T

Review Commercial Plans

Review ExceptionalDemand

Hold Demand Review

Assumptions written down and agreed

Vas Dem MPS - 19 © The Delos Partnership 2004

The Ten Rules of The Ten Rules of ForecastingForecasting

1. A forecast is necessary for planning supply and supporting financial and business plans

2. A forecast is never going to be right

3. A forecast is wrong because the assumptions were wrong

4. Accountability for the forecast rests with Sales and Marketing

5. Forecasting needs an application of intelligence

6. More accurate forecasting comes from your customers’ customer

7. Forecasts at an aggregate level are more accurate than the detail

8. Effective management of demand is key to managing forecast inaccuracy

9. A written policy for managing flexibility is essential

10. Measuring forecast accuracy will improve the process

Vas Dem MPS - 20 © The Delos Partnership 2004

Forecast must be Forecast must be supported by Assumptionssupported by Assumptions

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

1254 145 145 156 156 170 170 135 135 135 145 160 160

1345 145 167 135 180 200 200 200 200 150 150 150 200

1256 100 200 200 200 200 200 300 300 200 200 200 200

1347 50 50 50 50 40 40 30 30 20 20 40 50

NUMBERS !

ASSUMPTIONS

Vas Dem MPS - 21 © The Delos Partnership 2004

Sales Forecasting: InputsSales Forecasting: Inputs

• New Customers• New Products• Pricing Initiatives• Advertising And Promotions• Cannibalisation• Customers Own Forecast• Competitors Activity• External Factors

Vas Dem MPS - 22 © The Delos Partnership 2004

Move to Customer Centric Move to Customer Centric Sales PlanningSales Planning

Manufacturing

Distance

Rem

ote

ness

Research &Development

Planning

Marketing

Sales Customer

Traditional

Vas Dem MPS - 23 © The Delos Partnership 2004

Move to Customer Centric Move to Customer Centric Sales PlanningSales Planning

ManufacturingManufacturing

Research &Development

Research &DevelopmentPlanningPlanning

MarketingMarketing SalesSales

CustomerCustomer

ManufacturingManufacturing

Research &Development

Research &DevelopmentPlanningPlanning

MarketingMarketing SalesSales

CustomerCustomer

ManufacturingManufacturing

Research &Development

Research &DevelopmentPlanningPlanning

MarketingMarketing SalesSales

CustomerCustomer

Vas Dem MPS - 24 © The Delos Partnership 2004

COLLABORATIVE PLANNING - COLLABORATIVE PLANNING - PROGRESSPROGRESS

Data Exchange

Vendor Managed Inventory

Co-ManagedInventory

Trading Partnership

Integrated Planningand Replenishment

•Ability to view customer data•No management process•Possibly available on Internet

•Agreed process for managing inventory (VMI) – supplier’s problem!

•Supplier schedules provided

•Agreed process for managing inventory•Mutual availability of data and plans in joint systems•Supplier schedules provided, and forecasts provided.

•Mutual sharing of long term plans•Full briefing on long term strategy•Joint improvement activities

•Joint forecast review•Joint agreement on business plans and inventory strategy

•Joint improvement activities

Time

Vas Dem MPS - 25 © The Delos Partnership 2004

Customer Relationship Customer Relationship ManagementManagement

Strategy

Customer relationshipManager

Sales and Marketing

SystemForecast

Plan

ManufacturingAnd Purchasing

ERPSystem

Consensus ForecastConsensus Forecast

Vas Dem MPS - 26 © The Delos Partnership 2004

The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply

Vas Dem MPS - 27 © The Delos Partnership 2004

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 ?

Vas Dem MPS - 28 © The Delos Partnership 2004

Master Production Master Production SchedulingScheduling• MRP and CRP without a Master

Schedule leads to Chaos at the speed of light

• Use Firm Planned Orders to control the plan

• Master Scheduling software identifies imbalance and recommends action

Vas Dem MPS - 29 © The Delos Partnership 2004

Master ScheduleMaster Schedule

Item Number

Safety Stock YieldLead Time

BatchOn

HandAlloc.

Periods 1 2 3 4 5 6 7 8 9 10

Period

Cumul

Master Schedule Receipt

Projected Available Balance

Description  :

Forecasts

Actual Demand

Available to Promise

Vas Dem MPS - 30 © The Delos Partnership 2004

12345 as MPS Item12345 as MPS ItemItem Number

Safety Stock 0 Yield 0Lead Time

2 Batch 3000On

Hand2700 Alloc.

Periods 1 2 3 4 5 6 7 8 9 102500 0 2500 0 2500 0 2500 0 2500 0

2700 200 200 700 700 1200 1200 1700 1700 2200 2200Period

Cumul

Master Schedule Receipt 0 0 3000 0 3000 0 3000 0 3000 0

Bottles

Forecasts

Actual Demand

Available to Promise

Projected Available Balance

12345 Description  :

Vas Dem MPS - 31 © The Delos Partnership 2004

Customer profileCustomer profile

Customer Demand

Customer A 2500 per month

Customer B 1250 per month

Customer C 500 per month

Customers D.. 750 per month

Vas Dem MPS - 32 © The Delos Partnership 2004

Forecast ConsumptionForecast Consumption

Item Number

Safety Stock 0 Yield 0Lead Time

2 Batch 3000On

Hand2700 Alloc.

Periods 1 2 3 4 5 6 7 8 9 102500 0 2500 0 2500 0 2500 0 2500 0

2700 200 200 700 700 1200 1200 1700 1700 2200 2200Period 2700 3000 3000 3000 3000Cumul 2700 2700 5700 5700 8700 8700 11700 11700 14700 14700

Master Schedule Receipt 0 0 3000 0 3000 0 3000 0 3000 0

Available to Promise

12345 Description  : Bottles

Forecasts

Actual Demand

Projected Available Balance

Vas Dem MPS - 33 © The Delos Partnership 2004

Master Schedule - ATPMaster Schedule - ATPItem Number

Safety Stock 0 Yield 0Lead Time

2 Batch 3000On

Hand2700 Alloc.

Periods 1 2 3 4 5 6 7 8 9 102500 0 2500 0 2500 0 2500 0 2500 0

2700 200 200 700 700 1200 1200 1700 1700 2200 2200Period 2700 3000 3000 3000 3000Cumul 2700 2700 5700 5700 8700 8700 11700 11700 14700 14700

Master Schedule Receipt 0 0 3000 0 3000 0 3000 0 3000 0

Available to Promise

12345 Description  : Bottles

Forecasts

Actual Demand

Projected Available Balance

Vas Dem MPS - 34 © The Delos Partnership 2004

Master Scheduling Master Scheduling ManagementManagement

Horizon

PLANMANAGEEXECUTE

Cumulative Lead TimeCumulative Lead Time

Add or subtractTo capacity

Strong Link to

Global Sales and OperationsPlanning Process

Capacity andMaterials“firm”

Release Orders

Firm Planned OrdersFirm Planned Orders

Vas Dem MPS - 35 © The Delos Partnership 2004

Abnormal Demand - Abnormal Demand - WorkshopWorkshop

Item Number CLT

Safety Stock 0 Yield 0Lead Time

2 Batch 3000On

Hand2700 Alloc. 7 wks

Periods 1 2 3 4 5 6 7 8 9 101250 0 2500 0 2500 0 2500 0 2500 01250

2700 200 200 700 700 1200 1200 1700 1700 2200 2200Period 1450 3000 3000 3000 3000Cumul 1450 1450 4450 4450 7450 7450 10450 10450 13450 13450

Master Schedule Receipt 0 0 3000 0 3000 0 3000 0 3000 0

Customer C wants delivery of 5000 as soon as possible; when can they have delivery ? This is not forecast.

Actual Demand

Projected Available Balance

Available to Promise

12345 Description  : Bottles

Forecasts

Vas Dem MPS - 36 © The Delos Partnership 2004

All incoming customer orders All incoming customer orders should be screened (evaluated) should be screened (evaluated)

for normal/abnormal demand for normal/abnormal demand characteristics.characteristics.

Abnormal DemandAbnormal Demand

Vas Dem MPS - 37 © The Delos Partnership 2004

Identifying Abnormal Identifying Abnormal DemandsDemands• Individual Customer Order

– Demand Source• Customer• Market Sector• Trade Sector• Export vs UK

– Quantity• Size Of Order

– For that customer [e.g. > 10 for customer Y]– For any customer [e.g. > 5 for any other than X]

• % Of Forecast

• Cumulative Demand– Track Variances to date in week or month

• Keep it simple !

Vas Dem MPS - 38 © The Delos Partnership 2004

Each abnormal order must be coded Each abnormal order must be coded with an abnormal demand flag so that with an abnormal demand flag so that

the planning system will not consume the planning system will not consume the forecast.the forecast.

This can be done through the order This can be done through the order entry system or after the fact when entry system or after the fact when the demand resides in the planning the demand resides in the planning

system – but before the Master system – but before the Master Schedule is recalculated!Schedule is recalculated!

Software requirementSoftware requirement

Vas Dem MPS - 39 © The Delos Partnership 2004

Process to Manage Process to Manage DemandDemand

Check if Forecast is normalIf normal – promise it

• Recalculate Available to Promise• Consume the Forecast• Recalculate PAB

If abnormal1. Check if any is normal2. Promise normal part of Forecast• Recalculate Available to Promise• Consume the Forecast• Recalculate PAB

For remaining abnormal demand Determine agreeable promise date Advise customer Agree any risks to other customers Recalculate Available to Promise Consume the Forecast Recalculate PAB Review action messages in MPS

Vas Dem MPS - 40 © The Delos Partnership 2004

Abnormal Demand PolicyAbnormal Demand Policy

•Company needs to have a policy that states the process and mechanism for identifying and dealing with abnormal demands

•Accountability needs to be established with Sales and Marketing - the originators of the Forecast !

Abnormal Demand Policy

Vas Dem MPS - 41 © The Delos Partnership 2004

Ways to Manage Abnormal Ways to Manage Abnormal DemandDemand

• Safety Capacity

• Safety Stock

• Manage the Product Range

• Reduce Lead Times

• Redesign the Product

• Sell something else!

Vas Dem MPS - 42 © The Delos Partnership 2004

Safety Stock - EffectSafety Stock - Effect

Planned projected available stock calculated not toGo below Safety Stock

Item Number CLT

Safety Stock 2500 Yield 0Lead Time

2 Batch 3000On

Hand2700 Alloc. 7 wks

Periods 1 2 3 4 5 6 7 8 9 101250 0 2500 0 2500 0 2500 0 2500 01250

2700 3200 3200 3700 3700 4200 4200 4700 4700 5200 5200Period 4450 3000 3000 3000 3000Cumul 4450 4450 7450 7450 10450 10450 13450 13450 16450 16450

Master Schedule Receipt 3000 0 3000 0 3000 3000 0 3000 0

Available to Promise

12345 Description  : Bottles

Forecasts

Actual Demand

Projected Available Balance

Vas Dem MPS - 43 © The Delos Partnership 2004

Time FencesTime Fences

• Demand Time Fence– Controls when forecasts disappear

• Material Time Fence– Controls when Planned orders become firm

orders

• Capacity Time Fence– Indicates where capacity is an issue for

increasing demand

Vas Dem MPS - 44 © The Delos Partnership 2004

WorkshopWorkshop

1. What are the rules on changes to the schedule ?

2. What would be the right time fences in the business ?

3. How will they be reflected in the system ?

Vas Dem MPS - 45 © The Delos Partnership 2004

Master SchedulerMaster Scheduler

Strategy

Sales Forecasts

CustomerOrders

ManufacturingPlan

PurchasingPlan

MRPSystem

Balanced PlanBalanced Plan

Master Scheduler

Vas Dem MPS - 46 © The Delos Partnership 2004

Master SchedulerMaster Scheduler

Master Scheduler

GeneralGeneralManagerManager

ProgrammeProgrammeManagersManagers CustomerCustomer

ServicesServices

FactoryFactoryManagersManagers SupplierSupplier

ManagersManagers

EngineersEngineers

QualityQualityFinanceFinance

Vas Dem MPS - 47 © The Delos Partnership 2004

MPS Job Description ?MPS Job Description ?

• 5 Years experience on Shop Floor• 5 Years experience in Purchasing• 5 Years in Programme Management• 5 Years in Engineering• 5 Years in Finance• 5 Years in Customer Service• BA in Engineering, MBA in Business Studies…. 30 years old….. £ 1,000 per month

Vas Dem MPS - 48 © The Delos Partnership 2004

WorkshopWorkshop

• What do other functions need to do to make the MPS job easier ?

• How well do other functions understand what needs to be done ?

• Where is particular work required ?