I Demand Management

IA Important Concepts

IA.1 Modules of a Manufacturing Planning and Control System

Business
Planning Top Management Planning

Sales & Resources

Operation Requirement
Planning Planning

Master Rough-Cut
Distribution Operations Management
Production Capacity
Planning Planning
Scheduling Planning

Material Capacity
Planning
Requirements Requirement
Data
Planning Planning

Production Operation Management

Kanban
Procrement Activity Execution
Control
Control

Orders Input/Output
Schedules & Dispatching
control
Releases

Figure-1 Manufacturing Planning and Control System

Firstly: Top Management Planning

Business Planning
Business planning: bring together the several strategies from the sales and marketing
engineering, finance, and operations into one coordinated approach for the running of the
business.
The horizon of business or strategic plan is 5 years.
Business plan is the blueprint for subsequent decisions and the detailed operating plans
should conform to it.

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 The whole company strategy is build into the business plan
In principle, its the company master plan
Its defined as a statement of long-range strategy and revenue, cost, and profit objectives.
Its usually accompanied by:
a. Budgets
b. Projected balance sheet
c. Cash flow (source and application of funds) statement
Its usually stated in terms of dollars and grouped by product family.
It should agree with sales and operation plan and production plan.
It should guide the actions being taken to create the sales and marketing forecast.

Sales and Operational Planning

Input: sales and marketing forecast, manufacturing resources and financial resources.
Output: sales plan, production plan, RRP and financial plan
Level: product family
Conducted after: Business planning
Turning to tactical plans
Performed at least once a month
It is the definitive statement of the companys plans for the near to intermediate term,
covering a horizon sufficient to plan for resources and to support the annual business
planning process

Sales Plan
What will be sold by family by period
This plan is then drive the sales and marketing activities

Production Plan
It identifies the volume of product to be produced by family by period to satisfy the
requirements of the sales plan
It have monthly and quarterly time fences
The monthly periods to create MPS, and quarters for capacity planning purposes
Important Capacity Planning: It uses resource bill for every family to calculate the
required resources by period then compare it to the resources stated to be available.

Secondly: Operations Management Planning

MPS
MPS=the anticipated build schedule
MPS: a result of converting the production plan into a detailed manufacturing plan
MPS: it defined normally at the finished goods part number level in much finer time
periods than the production plan, in either actual dates or weeks.
Once the production plan is created and signed off, the portion in monthly periods is
handed over to the master schedule.
The fixed horizon is maintained by adding the monthly requirements at the end of the
schedule each month.

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 Master scheduler has no authority to change the overall family volumes.
Important: order entry and customer promises are made from information on MPS, and
manufacturing task is to meet the schedule
Important: key purposes of MPS
1- Provides a forward plan for manufacturing
2- Its MPS, when scheduled at the modules level, which provides the materials
availability for the final assembly scheduling (FAS)
3- Input for MRP
4- Input to RCCP to balance workloads across the factory
5- Provide ATP facility

MRP
Its an order priority system. That is, it keeps priorities current for material, capacity and
the shop floor.

MRPs Characteristics
Its a product-oriented system, which means that its working to kit dates for
requirements; not an individual unlinked item replenishment approach.
Its looking to the future, not using past information.
Its a priority planning system.
One of the on-going jobs of MRP is to try to balance the supply to the demand.

CRP
Its the capacity check of the plans created by MRP
It calculates the standard hours required per work center per time period for the full
horizon of MPS
It use products routing data to calculate the balanced load because it the level of
subassemblies (instead of product load profile for RRP and RCCP because it at the
finished item level)

Thirdly: Operations Management Execution

These modules takes the output of MRP, the manufacturing portion can be executed
either by traditional Production Activity Control (PAC) or by Kanban.

PAC
Major functions of PAC
1- Scheduling of work
2- Loading of work
3- Operations dates (by time held in routing file and work center file)
4- Tracking WIP
5- Accept detailed recording
6- Dispatch system
7- Status and production reporting
8- Customer service

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Kanban
Two purposes of kanban:
1. To get the materials from the producer to the next point of use
2. To authorize the producer to make more materials
The essence is the standard container with card attached.
Pull/signal system.

Procurement
In release system: the change notes are not raised against a PO every time a quantity
changes; the new release shows the revised requirements.

IA.2 Production Environment

Design/Engineer to Order
Product design is part of the customers lead time.
The manufacturer waits until the customer specifies his exact needs before ordering
components required.
Each customer order results in a unique set of part numbers, bills of materials, and
routings.
It could include a major piece of equipment made up of standard units, like electronic
telephone exchange.
The overall forecast can be used to plan the business level and to organize the required
resources to support the customers orders when they are defined in detail.
Sometimes subassemblies may be manufactured to a forecast to help reduce total
cumulative lead time.

engineer-to-orderProducts whose customer

specifications require unique engineering design,
significant customization, or new purchased materials.
Each customer order results in a unique set of part
numbers, bills of material, and routings. Syn: design-to-
order.

Make to Order
MTO three major approaches:
1- Customization: Modify standard products to a particular customers requirement this
means make customization in MTS
2- Non-Stocked Catalogue Items: Produce products from materials stocked against
forecast not subassemblies but raw materials-if subassemblies its called Assemble
to Order, like catalog items gauges manufacturer (materials are held and the
required end item is built when the customer order is received).
3- Non-Standard Items: Only order the raw materials and piece parts when the
customers order is received, like major capital equipments.
make-to-orderA production environment where a
good or service can be made after receipt of a customers
order. The final product is usually a combination of

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 standard items and items custom-designed to meet the
special needs of the customer. Where options or
accessories are stocked before customer orders arrive,
the term assemble-to-order is frequently used. Syn:
produce-to-order.

Assemble/Configure/Package to Order
The major subassemblies are master scheduled and the materials to support the build
program are managed by MRP.
The quantities to be manufactured are determined by a forecast using percentage bills.
Master schedule at the module or option level.
No part number for the finished end item (because it phantom not stocked)
The overall volumes are forecasted and the quantities of each subassembly to be
manufactured are determined by using Percentage Bill.
The percentage spread of the options within a function also has to be forecast.
The final assembly operations only start when a customers order is received, FAS is
used to allocate a customers order into the schedule
In other words, Subassemblies percentage bills drive MPS and customer order drive FAS.
One of differences between ATO and ETO that is in ATO is made from Common sub-
assemblies that produced wide range of configured items, so its better to MPS at
subassembly level its common more than end item level.
PTO: the product is manufactured and held waiting for a customers order, like foods and
cosmetics industries.

assemble-to-orderA production environment where

a good or service can be assembled after receipt of a
customers order. The key components (bulk,
semifinished, intermediate, subassembly, fabricated,
purchased, packing, and so on) used in the assembly or
finishing process are planned and usually stocked in
anticipation of a customer order. Receipt of an order
initiates assembly of the customized product. This
strategy is useful where a large number of end products
(based on the selection of options and accessories)
can be assembled from common components. Syn:
finish-to-order.

Make to Stock
Manufacture either against MPS created from a forecast or replenishment orders to
replenish the finished goods warehouse and distribution system.
The company may produce standard products.
The raw materials is ordered against MRP or forecast
Using ATP facility in MPS.
Products are sold off the shelf or ex stock

make-to-stockA production environment where

products can be and usually are finished before receipt
of a customer order. Customer orders are typically filled

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 from existing stocks, and production orders are used to
replenish those stocks. Syn: produce-to-stock.

Project
Used for large, often unique items or structures those require a custom design capability.
A project team controls the project
Lead time also includes design time, purchasing lead time, and installation or assembly
and erection time.

project manufacturingA type of manufacturing

process used for large, often unique, items or structures
that require a custom design capability (engineer-to-
order). This type of process is highly flexible and can
cope with a broad range of product designs and design
changes. Product manufacturing usually uses a fixed-
position type layout.

Process Manufacturing
Its defined as production that adds value by mixing, separating, forming, and/or
performing chemical reactions; it may be done in either batch or continuous mode, like
paints and pharmaceutical manufacturing.
Typically these types of products are sold in a variety of pack sizes.
The original family forecast may be broken down to the individual pack sizes by the use
of a planning percentage bill of material, and then use MRP.
For normal demand, the planning places an order to manufacturing when the stock level
of one of the products can sizes in FG store drops to predetermined level, this level is
based on forecasting requirements.
The products are usually made in batches or continuously, if the product is made
continuously, the end product would usually be stocked, and available for sale off the
shelf, and when it made in batches, it could be made for stock or only when ordered.

process manufacturingProduction that adds value

by mixing, separating, forming, and/or performing
chemical reactions. It may be done in either batch or
continuous mode.

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IB Forecasting Demand

Forecast: estimate of future demand

forecastAn estimate of future demand. A forecast can

be constructed using quantitative methods, qualitative
methods, or a combination of methods, and it can be
based on extrinsic (external) or intrinsic (internal)
factors. Various forecasting techniques attempt to
predict one or more of the four components of demand:
cyclical, random, seasonal, and trend. Syn: sales forecast.

IB1.1 Principles of forecasting

Four basic principle

1. Which material and products are forecasted?
2. The level of detail of the forecast.
3. The data used to create the forecast.
4. The various ways that a forecast can be used in both the short and long terms

Forecast Characteristics:
1- Forecast by family: and the individual end item requirements within a family can be
calculated by using percentage bills.
2- The forecast number: dont try to obtain correct number, accept two numbers-max and
min limits- or mean with expected error percentage.
3- Forecasts are less accurate far out: long-range forecast just to make sure the facilities are
available (dont make commit materials and labors at that level), to do this MRP planned
and firm planned orders are ideal.
4- Never forecast what you can calculate: forecast just independent demand, the depend
demand is calculated by MRP logic
5- A forecast is always wrong

Forecast the right items (types of materials that may forecasted)

1. Distribution inventory (forecast sales by depot be established)
2. Finished goods inventory
3. Modules when using planning bills
4. Service parts inventory

The problem with forecasts

forecast is always wrong

good forecasts have the following characteristics:

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 a. Good forecast are ALMOST right, the good forecast doesnt mean 100% accurate,
and plans can be created to accommodate a certain level of error. As long as forecasts
are correct within a specific error range, they can be cindered good.
b. The right things must be forecasted
c. Forecasts must be timely
Obtaining good forecasts is a function of:
a. Using the correct forecasting techniques
b. Obtaining accurate historical ales data
c. Establishing organizational norms that encourage people to improve their forecast
performance
d. Understanding the sources of demand
Source of demand is particularly important in long supply chain to avoid Bullwhip
Effect
Bullwhip effect: when information is not available through the length of the chain, a
small change in the demand at the customer interface can result in large changes for the
manufacturing at the furthest distance from the customer.
Source of demand:
a. Consumer: the ultimate user of the product
b. Customer: people a long the SC who will receive and invoice for product supplied
c. Inter-company: affiliated business units who will order the product
d. Service parts

Demands Patterns
1. Level
2. Trend
3. Seasonal
4. Cyclical
5. Irregular (random)

Uses and applications for forecast

Most manufacturing planning and control systems today are Front End Driven
Front end driven: the projection of sales forecasts and/or the actual orders in hand
(order backlog) are input to the sales and operations planning and the master scheduling
modules.
Forecast: an estimate of future demand
Forecast Management: the process of making, checking, correcting, and using forecasts.
It also includes determination of the forecast horizon

The importance of demand is:

1. To have numbers for our business planning function
2. Check the available resources in the future
3. The materials can be purchased and piece parts can be sub assembled to FAS
4. Shorten the response time to customer

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Level of details
Aggregate (family) forecast is better
Separate stable items from those unstable or new

aggregate forecastAn estimate of sales, often

timephased, for a grouping of products or product
families produced by a facility or firm. Stated in terms of
units, dollars, or both, the aggregate forecast is used for
sales and production planning (or for sales and
operations planning) purposes.

product group forecastA forecast for a number

of similar products.

Capacity planning

Planning horizon Forecasting is important to capacity

planning to:
Long-term 1- Consider capital equipment and
facilities
2- Go through the approval routine
required for major capital expenditure

Medium-term 1- work center loading and load balancing

Short-term 1- daily dispatch list

2- priority sequencing
3- input/output control

Lead time management

Important: its the lead time, which determines how far the forecast must go into the
future
approach to reduce lead time

Production plan: forecast at family level

MPS: disaggregate to modules level by super bills (percentage bills)
MRP: plan for subassemblies to be stocked
FAS: produce the product once the order received.

cumulative lead timeThe longest planned length

of time to accomplish the activity in question. It is
found by reviewing the lead time for each bill of material
path below the item; whichever path adds up
to the greatest number defines cumulative lead time.
Syn: aggregate lead time, combined lead time, composite
lead time, critical path lead time, stacked lead

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 time.

the relationship between the timelines and accuracy of the data and the requirements of the
forecast

Data availability
From experiment: data required could vary from 2-5 years for quantitative methods.
Major Data source: shipments, sales, and demands
Remember: demands what we want to forecast so focus on it.

demandA need for a particular product or component.

The demand could come from any number of sources
(e.g., a customer order or forecast, an interplant
requirement, a branch warehouse request for a service
part or the manufacturing of another product). At the
finished goods level, demand data are usually different
from sales data because demand does not necessarily
result in sales (i.e., if there is no stock, there will be no
sale). There are generally up to four components of
demand: cyclical component, random component,
seasonal component, and trend component.

Data quality and accuracy

Its very important
Random and one-time occurrences should be taken in consideration (example: if we had
low order intake last year in May because of promotions offered by the competitor, so be
careful when using data or we will forecast low orders in May next years)
Recording errors reasons:
1- Miss reading or miss keying of input documents
2- Mixing of orders and shipments
3- Problem of missing documents
Approached to increase accuracy of data
1- Reasonability check will indicate whether there are any serious discrepancies (if
monthly sales are only half what expected, ASK WHY?)
2- Build into the system demand filters, which look for figures that are out of the
ordinary

demand filterA standard that is set to monitor sales

data for individual items in forecasting models. It is
usually set to be tripped when the demand for a period
differs from the forecast by more than some number of
mean absolute deviations.

Overrides/adjustments
When forecasting file was created, its usually built from actual sales for past periods, but
we must consider that these data needs to be modified.

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Outliers
Outlier: an unusual demand which is not to be used in the forecast because it not likely to
re-occur.
Care must be taken as to what is recorded as demand

outlierA data point that differs significantly from other

data for a similar phenomenon. For example, if the
average sales for a product were 10 units per month,
and one month the product had sales of 500 units, this
sales point might be considered an outlier.

actual demandActual demand is composed of

customer orders (and often allocations of items,
ingredients, or raw materials to production or
distribution). Actual demand nets against or consumes
the forecast, depending upon the rules chosen over a
time horizon. For example, actual demand will totally
replace forecast inside the sold-out customer order
backlog horizon (often called the demand time fence) but
will net against the forecast outside this horizon based
on the chosen forecast consumption rule.

abnormal demandDemand in any period that is

outside
the limits established by management policy. This
demand may come from a new customer or from existing
customers whose own demand is increasing or
decreasing. Care must be taken in evaluating the nature
of the demand: is it a volume change; is it a change in
product mix, or is it related to the timing of the order?

expected demandThe quantity expected to be

consumed
during a given time period when usage is at the
forecast rate.

Units of Measures
Finance wants in money, manufacturing in standard hours and sales in units sold.
Ideally it should be the unit that will link to the manufacturing process, as this will not be
affected by factors such as inflation
It can be converted

Source of Demand

A-Known Demand (Factual requirements):

1- Overdue orders
2- Orders received but not completed in a make to order company

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 3- Future off the shelf deliverables in a make to stock company
4- Subassemblies that need to be master scheduled because of independent demands for
them in addition to MRP calculation of dependent demand
5- Promotion requirements

B-Forecasted demands (Calculated from past data):

1- Off the shelf sales that can be over the counter sales or orders received for immediate
delivery
2- Orders for MTO products can have very short lead time when the manufacturer forecasts
and stocks his raw materials
3- Spares orders
4- Distribution center demand

True demand
Its the hardest data to be acquired
If the customer call sales desk just to get prices and delivery information, is that real
demand?

IB2.2 Internal data sources

Two major internal data sources to make file from where we can forecast (1) customer
orders received Demand, and (2) shipments made Supply.
Use quantity not financial data
1. Promotional demand: demands during promotions
2. Features and options: configured products are scheduled in MPS at level lower that end
item level, its module level, and percentage bill is using to determine options and
features.
3. Engineering/testing requirements: materials and capacity required for R&D and technical
issues should be taken u consideration during forecasting

IB2.3 External data sources

1. Market Surveys and Market Research

a. Its as consulting with market place to establish what it believes it needs or wants
b. Its conducted by going out and interviewing people in the street

marketing researchThe systematic gathering,

recording, and analyzing of data about problems relating
to the marketing of goods and services. Such research
may be undertaken by impartial agencies or by business
firms or their agents. Marketing research includes
several types: (1) Market analysis (product potential is a
type) is the study of the size, location, nature, and
characteristics of markets, (2) Sales analysis (or
research) is the systematic study and comparison of sales
(or consumption) data, (3) Consumer research
(motivation research is a type) is concerned with the

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 discovery and analysis of consumer attitudes, reactions,
and preferences. Syn: market research.

market surveysQuestionnaires designed to get

feedback from potential customers about demand for a
product or service.

2. Market Intelligence
3. Market Changes
a. Temporary changes: like promotions
b. Permanent changes: caused by economy, governments regulations, the political
situations, or decrease or increase in eh market share
4. Service parts:
a. Its those parts that are used to repair and/or maintain an assembled product.
b. (Important): the current position in the life cycle of the product can have a major
impact on the volumes required.

IB3 Forecast Selection

The questions that are start to surface the more you think of forecasting are:
1. Which is the best method?
2. How much do these various methods cost?
3. How much should we as accompany be spending on forecasting?

IB3.1 Forecast selecting issues

Cost of forecast methods

1. Cost of software
2. Cost of staff
3. Cost of poor forecasting, which contains cost of:
a. Lose sales and upset customers
b. Excess inventory
c. Rescheduling the company and vendors to meet shortages

Methods selection
Which techniques are best?
1- One that works
2- One that can be understood and therefore used and managed
3- One that is cost effective

Criteria and pitfalls to select forecasting method/application

1- Comparative Testing: a short list should be tried out using your historical data and the
results compared to see which one closest to the actual sales
2- Comprehensiveness: the proposed method should include all elements that are considered
important to the business

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 3- Complexity: too complex for user to understand isnt efficient
4- Past experience

Forecast accuracy - Responsibility of forecasting

Type of forecast Responsibility of Methodology

National Marketing Use scientific methods heavily
reliant upon historical
information and economic
trends
Local regional Sales Direct contact with the
customer

Important: the manufacturing policy (MOS, MOT, ETO, etc) affects the inventory level, the lead
time to supply, and the use of the forecast.

IB3.2 Forecasting in different manufacturing environments

Manufacturing Environment Wheres forecasting used?

Make-To-Stock Forecast provide MPS

Inventory held is to support the forecast
sales
Assemble-To-Order The overall volumes are forecasted and the
quantities of each subassembly to be
manufactured are determined by using
Percentage Bill.
The percentage spread of the options
within a function also has to be forecast.
Make-To-Order If raw materials are held then a build
program for replenishment system based
on forecasting should be planned.
Engineer-To-Order The overall forecast can be used to plan
the business level and to organize the
required resources to support the
customers orders when they are defined
in detail.
Sometimes subassemblies may be
manufactured to a forecast to help reduce
total cumulative lead time.

Project Forecast would be used to plan the project

on broad terms to reserve capacity ion the
plant.
Process Manufacturing The original family forecast may be
broken down to the individual pack sizes
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Service (organization that provides an
intangible products OR all organization
except farming, mining, and manufacturing.
by the use of a planning percentage bill of
material, and then use MRP.
For normal demand, the planning places
an order to manufacturing when the stock
level of one of the products can sizes in
FG store drops to predetermined level, this
level is based on forecasting requirements.
Estimate the contracts, projects, and
ongoing services they will be asked to
provide in the future periods.

IB4 Select a time horizon and interval, and a level of aggregation

Forecast horizon
Forecast horizon depends on (a) products cumulative lead time, and (b) time it takes to
change or increase the resources.
There are three types of horizon:
1- Long Term: in excess of 2 years.
2- Medium Term: 3 months to 2 years.
3- Short Term: less than 3 months.

forecast horizonThe period of time into the future

for which a forecast is prepared.

forecast intervalThe time unit for which forecasts

are prepared, such as week, month, or quarter. Syn:
forecast period.

rolling forecastMoving the forecast horizon forward

to new periods by adding recent data (and perhaps
dropping the oldest data).

Long Term Forecast

Its input to S&OP meeting
Needs to extent out far enough to cover the lead time required to change any of the
companys key resources, such as factory building or capital equipment.
Its usually in quarters

Medium Term Forecast

Its used for material planning, resource allocation, budgeting, production leveling,
purchasing contracts, and for establishing future inventory level.
Its derived from the original long term forecasting and the current short term forecast
information.
The accuracy often depend in the change of economy
Its usually in months.

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Short Term Forecast
Its created by the sales force after talking to the customers and assessing the local
competition.
Used for:
a. Set or revise the distribution center and F.G store requirements
b. Create assembly programs.
c. Production scheduling
d. Employment levels
e. Short term budgets
Should be reasonably accurate
Its usually in weeks or months
Important: S&OP: use family level forecast in long term horizon
Important: Stock Replenishment: use end item level forecasting in short term horizon.

Aggregate Forecasting
Its forecasting group of items, usually by resources or capacity categories.
Suitable for setting production rates and labor requirements
More accurate than the sum of individual items forecast
Marketing organization looks at overall national forecast (product group level or brand
name level), and when it comes to break down the national forecast into items, the input
from sales forecast by items should be matched to it.

aggregate forecastAn estimate of sales, often

timephased, for a grouping of products or product
families produced by a facility or firm. Stated in terms of
units, dollars, or both, the aggregate forecast is used for
sales and production planning (or for sales and
operations planning) purposes.

product group forecastA forecast for a number

of similar products.

Disaggregating Forecasting
Its breaking the forecast down into smaller groupings OR forecasting the individual
items.
Needed by DC in DRP.

Forecast consistency
Its fault to forecast directly from orders intake files or shipping files directly because it
may dont reflect the truth (because of promotions, stock out situations, etc), but we
should create a file of modified data to forecast from.

Product Life Cycle Management (forecasting point view)

Product Life Characteristics Using of Forecasting

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Cycle Stage
Pre-Product Involves R&D effort Its little use producing a
Development Not aiming to produce necessarily a forecast.
specific product, but make research into
properties and facilities of materials
Look to past to find indications for next
development should be moving to.
The product is not even definable.

Product The necessary resources can be applied Forecasting of the

Development to the actual development of the product potential developments
from pre-product
development stage

Testing and The standards for an item are being Theres rarely sufficient
Introduction established. data to do statistical
The team estimates the type of forecasting; detailed
penetration I will get. statistical tracking is a
useful tool to build the
data.
When its possible, relate
it to similar project.
Rapid Growth The product is being launched. Forecast sales on partially
The company must establish a sales on the initial sales gained
forecast for materials and capacity during launch phase.
reservation. When its possible, relate
Conduct market research to measure it to similar project.
product acceptance
Continuous tracking for products market
development

Steady State Get into the area of trends and Forecast sales to a
Maturity seasonality. historical data it should
be available
Now we can use one or
more of the traditional
forecasting technique.
Phasing Out May be gradual tailing off or abrupt stop Forecasting for phasing
Decline Important the reputation of the company out.
can be damaged if they phased out a Forecast separately for
product and then dont support it spare parts and support
guarantee services.

Classification of forecasting techniques

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 Two approached for classifications forecasting methods:
Approach 1: according to source of data
a. extrinsic
b. intrinsic
Approach 2: according to tools used
a. qualitative or subjective techniques (= human judgement)
1- Jury of Executive opinion
2- Sales Force Composite
3- Pyramid Forecasting
4- Market Research
5- Historical Analogy
b. quantitative techniques
1- Moving average (and weighted moving average)
2- Exponential smoothing (with enhancements for trend and seasonality)
3- Time series
4- Regression models
c. causal or econometric modelling techniques (=identifying factors that influences
sales).

IB5 Basic Qualitative Techniques

qualitative forecasting techniquesAn approach

to forecasting that is based on intuitive or judgmental
evaluation. It is used generally when data are scarce,
not available, or no longer relevant. Common types of
qualitative techniques include: personal insight, sales
force estimates, panel consensus, market research,
visionary forecasting, and the Delphi method. Examples
include developing long-range projections and new
product introduction.

IB5.1 Expert Judgment

Syn: Panel consensus

Committee of people sit and estimate the future sales
Should always be used in conjunction with one of the intrinsic methods if possible.

panel consensusA judgmental forecasting technique

by which a committee, sales force, or group of experts
arrives at a sales estimate.

IB5.2 Jury of Executive Opinion

It consists of one person estimates sales
Generally the quantitative approaches have proved to be more accurate
Its very effective for new products or changed business context
Types such as Delphi Method, and Scenario Planning

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IB5.3 Delphi Method

Best for long term forecast (+ 5 years) and new products sales
Steps of Delphi:
a. A panel of experts is each given a set of questions and they must provide a set of
answers.
b. Each expert is then given a combined list for evaluation and much rate each answer
with the likelihood of its occurrence.
c. The evaluated list is then condensed by removing the items not highly rated.
d. The shortened list is recycled twice more being condensed each time.

Delphi methodA qualitative forecasting technique

where the opinions of experts are combined in a series
of iterations. The results of each iteration are used to
develop the next, so that convergence of the experts
opinions is obtained.

IB5.4 Market Research

It compares the new products to competitive one and determines the relative desirability
of its attributes.
This information is used to forecast market share and volume of sales.
There are three types of market research:
1- Market Analysis: study for size, location, nature, and characteristics of markets.
2- Sales Analysis (Research): comparison of sales (consuming) data.
3- Consumer Research: study of consumer attitude, reaction, and preference.

IB5.5 Management Estimation

management estimationA judgmental forecasting

technique whereby responsible individuals predict the
demand for new products or alter a quantitative forecast
for existing products largely on the basis of experience
and intuition. Other judgmental forecasting
techniques may be used in combination with
management estimation to improve the accuracy of the
estimate.

IB5.6 Historical analogy

Its based on two concepts:

a. Used historical data of related (similar) items that were launched previously.
b. Actual levels between items will vary but the demand pattern will be similar.
Best for replacement products or new similar products
In order to estimate the growth curve of the sales over time its useful to look at
analogous products
19
 E.g. sales for colour T.V could be projected by looking for sales history of black ad white
T.V

historical analogyA judgmental forecasting technique

based on identifying a sales history that is
analogous to a present situation, such as the sales history
of a similar product, and using that past pattern to
predict future sales.

IB5.7 Sales Force Composite

The approaches concentrates on obtaining forecasts from the people who may be
expected to know best-the sales and marketing people
There are three approaches can be used in implementing this technique:
a. Grass Roots:
Each sales person provides an estimate of sales of territory
These figures are arrived at in consultation with the sales manager and often become
targets of sales performance
The individual personal forecasts are accumulated to form the corporate sales forecast
At the corporate level, the composite forecast is usually compared wit an independent
forecast provide by the corporate forecasting group
As differences are reconciled, the corporate forecast is synchronized with each
individual ales persons targets
b. Sales Management Technique:
This techniques uses the assessments of sales executives rather than individual sales
people
Rolling up the forecast, cross checking it, and the process of setting targets follows a
similar approaches for grass roots
This technique consumed less time to be generate forecast because it require fewer
contributors than grass roots (because the contributors are managers not sales forces)
Sales forces are not committed to these figures
c. The distributors approach:
This techniques uses the assessments of distributors rather than individual sales
people
Rolling up the forecast, cross checking it, and the process of setting targets follows a
similar approaches for grass roots
Companies which applied this approaches benefit by receiving more accurate data
and by having distributors pay closer attention to their product lines

IB5.8 Pyramid Forecasting

Forecast at the lowest level has the most error, so when the forecast is rolled dup to an
aggregate level its likely to have a much larger error
So many companies prefer to make the corporate forecast at the highest level and then
break it down to forecast for the lower levels

20
 So, it should be emphases that sales forecast by each item should be reconciled by
corporate national marketing forecast
Reconciling process in this technique is performed by the following steps:
a. Provide individual sales forecast for each region
b. Rolled up (aggregate) the forecast S
c. Get the national corporate forecast from marketing (at aggregating) level C
d. Calculate corresponding ratio

=

e. Multiply each ratio of individual sales forecast to reconcile and synchronize the sales
forecast to new value sat as (a) input for corporate budget, (b) input for S&OP
meeting, and (c) sales target.

pyramid forecastingA forecasting technique that

enables management to review and adjust forecasts
made at an aggregate level and to keep lower level
forecasts in balance. The procedure begins with the roll
up (aggregation) of item forecasts into forecasts by
product group. The management team establishes a
(new) forecast for the product group. The value is then
forced down (disaggregation) to individual item
forecasts so that they are consistent with the aggregate
plan. The approach combines the stability of aggregate
forecasts and the application of management judgment
with the need to forecast many end items within the
constraints of an aggregate forecast or sales plan.

IB6 Basic Intrinsic Quantitative Techniques

quantitative forecasting techniquesAn approach

to forecasting where historical demand data is used to
project future demand. Extrinsic and intrinsic
techniques are typically used.

intrinsic forecast methodA forecast based on internal

factors, such as an average of past sales. Ant:
extrinsic forecast.

Definition: a forecast based on internal factors, such as an average of past sales.

IB6a Simple Average

IB6a.1 Simple Average (SA)

( + )
=
2

21
IB6a.2 Year To Date Average (YTDA)

( )
=
(. )

22
IB6a.3 Moving Average (MA)
Its an arithmetic average of the N" most recent actual, when N is the number of
periods used.
Each period, the oldest actual is dropped and the newest added.
The lesser number of periods used, the more responsive the revised forecast will be.

moving averageAn arithmetic average of a certain

number (n) of the most recent observations. As each
new observation is added, the oldest observation is
dropped. The value of n (the number of periods to use
for the average) reflects responsiveness versus stability
in the same way that the choice of smoothing constant
does in exponential smoothing. There are two types of
moving average, simple and weighted.

simple moving averageA moving average where

the oldest data point is dropped and the newest data
point is included in the calculation. All data points are
assigned equal weights.

IB6a.4 Weighted Average (WA)

weighted moving averageAn averaging technique in

which the data to be averaged are not uniformly
weighted but are given values according to their
importance.

( ( %) + ( 1 %))
=
2

IB6b Single Level Exponential Smoothing

Type of weighted average in which the past observations are discounted according to
their age.
This approach cant be used for an item which has trend or seasonal patterns.
First Order Smoothing:

= + ( )

= alpha factor( Syn: Weighting factor, smoothing constant) is:

a. Management decision
b. Great alpha means great notice is taken to the most recent period actual
c. In case of erratic (irregular) demand, use less alpha because you dont need to react to
the extreme highs and lows of the actual demand.
d. In case of steady demand, use high alpha to react to changes that take place.
e. Should be less than 0.5

23
smoothingThe process of averaging data by a
mathematical process or by curve fitting, such as the
leastsquares method or exponential smoothing.

exponential smoothing forecastA type of weighted

moving average forecasting technique in which past
observations are geometrically discounted according to
their age. The heaviest weight is assigned to the most
recent data. The smoothing is termed exponential
because data points are weighted in accordance with an
exponential function of their age. The technique makes
use of a smoothing constant to apply to the difference
between the most recent forecast and the critical sales
data, thus avoiding the necessity of carrying historical
sales data. The approach can be used for data that
exhibit no trend or seasonal patterns. Higher order
exponential smoothing models can be used for data with
either (or both) trend and seasonality.

first-order smoothingA single exponential smoothing;

a weighted moving average approach that is applied to
forecasting problems where the data do not exhibit
significant trend or seasonal patterns. Syn: single
exponential smoothing, single smoothing.

second-order smoothingA method of exponential

smoothing for trend situations that employs two
previously computed averages, the singly and doubly
smoothed values, to extrapolate into the future. Syn:
double smoothing.

triple smoothingA method of exponential smoothing

that accounts for accelerating or decelerating trends,
such as would be experienced in a fad cycle. Syn: thir-
dorder smoothing.

trend adjusted exponential smoothing forecasting

A form of exponential smoothing forecasting that
includes a factor for increasing or decreasing tendencies
in the data due to things such as population growth or
income changes.

smoothing constantIn exponential smoothing, the

weighting factor that is applied to the most recent
demand, observation, or error. In this case, the error is
defined as the difference between actual demand and
the forecast for the most recent period. The weighting
factor is represented by the symbol . Theoretically, the

24
 range of is 0.0 to 1. Syn: alpha factor, smoothing
factor.

adaptive smoothingA form of exponential smoothing

in which the smoothing constant is automatically
adjusted as a function of forecast error measurement.

This method required 2 parameters (1) initial forecast (2) smoothing constant

= + ( )

NF = called smoothed average

AD-OF = called current trend
(AD-OF) = called correction
Actually you take the current trend and multiply it by smoothing constant (<0.5) to
correct this trend and ad it to old smoothed average to produce new smoothed average
So, when you need to take more attention on the trend you must increase .
So is used to SMOOTH the effect of current trend
Trend-enhanced version of smoothing average:
a. it uses for smoothing the base value, and for smoothing the trend
b. Requirements to be determined before calculations: initial smoothed average, initial
smoothed trend, , and .
c. Calculations
= (( + ( )) + ( + (( ) ))
d. Where
e. NF = new forecast
f. OF = old forecast or smoothed average
g. AD = actual demand for same period of O.F
h. ST = smoothed trend for same period the initial one should be presented
When calculating forecasts for several periods in advance, the formula is:
= + ( . )
The above 2 equations are expressed in comprehensive example in Fig 2-6 page (2-18)-
MGI.

IB6c Time series Decomposition

Time series extrapolation methods assume that the main features of past demand pattern
will be replicated in the future. A forecast is then obtained by extrapolating (projecting)
the demand pattern. Such techniques are suitable for short- and medium term predictions,
where the probability of a changeovers is low.[intro to logistic , willy]
Note: simple average and smoothing exponential is also types of time series.
The time series decomposition method is based on the assumption that the demand
pattern of a product (or a service) can be decomposed into the following five effects
factors):

25
Time Series Factors
1. Level
2. Cyclic
3. Irregular
4. Trend
5. Seasonal

time seriesA set of data that is distributed over time,

such as demand data in monthly time periods. Various
patterns of demand must be considered in time series
analysis: seasonal, trend, cyclical, and random.

time series analysisAnalysis of any variable classified

by time in which the values of the variable are
functions of the time periods. Time series analysis is
used in forecasting. A time series consists of seasonal,
cyclical, trend, and random components. See: cyclical
component, random component, seasonal component,
trend component.

time series forecastingA forecasting method that

projects historical data patterns into the future. It
involves the assumption that the near-term future will be
like the recent past.

When using quantitative tools, the forecaster attempts to identify underlying patterns,
these patterns may be a function of trend, cycles, and seasonality.
Trend: a long term increase or decrease of sales
Seasonality: the sales show a periodic fluctuation a round a mean value
Cyclic: similar to seasonally patterns except it doesnt occur on a regular periodic basis
To make forecasting you should conduct process of decomposition
Decomposition: a process of separating a series of data into its seasonal, cyclical, and
trend components, and any remnants are assumed to be random and unpredictable.
Steps of decomposition:
1- deseasonalized (remove seasonality data)
2- remove trend effect of component
3- remove cyclic effect on data
4- the remain is the random element
Census II is a sophisticated approach of decomposition

decompositionA method of forecasting where time

series data are separated into up to three components:
trend, seasonal, and cyclical; where trend includes the
general horizontal upward or downward movement
over time; seasonal includes a recurring demand pattern
such as day of the week, weekly, monthly, or quarterly;
and cyclical includes any repeating, nonseasonal pattern.

26
 A fourth component is random, that is, data with
no pattern. The new forecast is made by projecting the
patterns individually determined and then combining
them.

Trend projection Method

It assumes that any trend from the past will continue into the future.
It can be performed mathematically by fitting a trend line through past actual demands.
Its very good for short term and reasonably good for medium and long term.
Between 2-5 years data is required for this to be effective.
This is best for established products.

trendGeneral upward or downward movement of a

variable over time (e.g., demand, process attribute).

trend analysisAn analysis to determine whether

trend (general upward or downward change) exists in
data. See: trend forecasting models.

trend componentA component of demand, usually

describing the impact of increasing or decreasing
growth on demand. See: time series analysis.

trend forecasting modelsMethods for forecasting

sales data when a definite upward or downward pattern
exists. Models include double exponential smoothing,
regression, and triple smoothing. See: trend analysis.

secular trendThe general direction of the long-run

change in the value of a particular time series.

Seasonal adjustment
Syn: seasonal index
Many of our products are only sold during certain times of the year.

seasonal adjustmentSyn: seasonal index.

seasonal componentA component of demand,

usually describing the impact of variations that occur
because of the time of year (quarter, month, week) on
demand.

seasonal indexA number used to adjust data to

seasonal
demand. Syn: seasonal adjustment. See: base

27
 series.

seasonalityA repetitive pattern of demand from year

to year (or other repeating time interval) with some
periods
considerably higher than others. Syn: seasonal
variation.

Seasonal index
Seasonal index definition: a number used to adjust data to seasonal demand.

Base series
A standard succession of values of demand-over-time data used in forecasting seasonal
items.
This series of factors is usually based on the relative level of demand during the
corresponding period of previous years.
The average value of the base series over a seasonal cycle will be 1.0. A figure higher
than 1.0 indicates that the demand for that period is more than the average; a figure less
than 1.0 indicates less than the average.
For forecasting purposes, the base series is superimposed upon the average demand and
trend in demand for the item in question.
Syn: base index

base seriesA standard succession of values of demand-

over-time data used in forecasting seasonal
items. This series of factors is usually based on the
relative level of demand during the corresponding period
of previous years. The average value of the base series
over a seasonal cycle will be 1.0. A figure higher than 1.0
indicates that the demand for that period is more than
the average; a figure less than 1.0 indicates less than
the average. For forecasting purposes, the base series is
superimposed upon the average demand and trend in
demand for the item in question. Syn: base index

Calculating the new forecast by period using seasonal index

Steps:
1- Calculating average demand (from historical data)

=
.

2- Calculating seasonal index

Note: summation of all periods seasonal index should be equal o the number of periods.
28
 3- Establish the new forecast average demand

=
.

4- Calculating each period forecast

Notes on seasonality index calculation

MGI: If we collected data for more than one year:
a. the average demand should be calculated over all years.
b. then the seasonal index for each period should be the average of the seasonal
indexes for that period over years.
c. then deseasonalized per period:

cyclical componentA component of demand, usually

describing the impact of the business cycle on demand.

random componentA component of demand usually

describing the impact of uncontrollable variation on
demand.

IB7 Basic Extrinsic Quantitative Techniques

Extrinsic Techniques Definition

Use external data to calculate a forward projection.
E.g. furniture sales based on housing starts or the no. of building plans approved.
Its useful for large aggregation forecast (total company sales) rather than individual
products sales.

extrinsic forecasting methodA forecast method on

a correlated leading indicator, such as estimating
furniture sales based on housing starts. Extrinsic
forecasts tend to be more useful for large aggregations,
such as total company sales, than for individual product
sales. Ant: intrinsic forecast method.

Extrinsic Techniques Methods

1- Regression Analysis
2- Leading Indicators
3- Relationships to trends from other industries and customer (Business Cycle)
4- Econometric Models

29
Regression Analysis
Its used to determine the best mathematical expression describing the functional
relationship between one response and one or more independence variables.
in some forms they can also be considered a causal or econometric model
simple regression model: use only one independent variable to make the forecast
Multiple regression models: use more than one independent variable.
The purpose of the regression model is to create an equation that will pass through al the
data points, this usual not happen (error)
The equations are exist in MGI

regression analysisA statistical technique for

determining the best mathematical expression
describing the functional relationship between one
response and one or more independent variables.

least-squares methodA method of curve fitting that

selects a line of best fit through a plot of data to
minimize the sum of squares of the deviations of the
given points from the line.

linear trend forecastingUsing simple linear regression

to estimate future trends.

multilinear regression analysisModel used for

forecasting with more than one independent variable.

multiple regression modelsA form of regression

analysis where the model involves more than one
independent variable, such as developing a forecast of
dishwasher sales based upon housing starts, gross
national product, and disposable income.

Box-Jenkins modelA forecasting method based on

regression and moving average models. The model is
based not on regression of independent variables, but
on past observations of the item to be forecast at varying
time lags and on previous error values from forecasting.

Leading Indicators
This situation occurs where one activity normally precedes a second, not necessary from
the same industry.
E.g. starting building plans is a predecessor action for metal door fittings sales with 3-
monthes lag.
Government statics are usually produced and they provide a service to industry in finding
relevant leading indicators.

30
 leading indicatorA specific business activity index
that indicates future trends. For example, housing
starts is a leading indicator for the industry that supplies
builders hardware.

Relationships to trends from other industries and customer (Business Cycle)

It often occurs that history repeats itself and a pattern of historical events can be plotted
and used to relate one industry to another.
To do this the concept of Business Cycle can be used.
One can often find that when a certain industry has high sale some period of time later
your industry has high sales, in fact the shape of their curve and yours are similar but
theirs precedes yours.

Business cycle Components

1- Trough
The period at the bottom of the downward cycle.
Sales are at the lowest.
Cash reserves should be at their maximum (payment period of previous sales)
Time to prepare for growth and plans make

2- Expansion
Purchasing and receiving of raw materials takes place
WIP and FG stock levels will go up
Cash start dropping to is lowest

3- Peak
Its hard to be determined in advance
The sales at the highest level
Start to reduce purchasing of RM because its followed by contraction
Its needed to be planned will when to cut back on material purchasing and on WIP so
I couldnt hold extra stock during trough period.

4- Contraction
Cut back starts, first with raw material purchasing, then in WIP, and finally in FG
stocking.
Cash start rising because of high invoicing in peak period

Econometric Models
A set of equations intended to be used simultaneously to capture the way in which
dependent and independent variables are interrelated.

econometric modelA set of equations intended to be

used simultaneously to capture the way in which
dependent and independent variables are interrelated.

31
 econometric modelingThe process of developing
econometric models.

Causal forecast: A type of forecasting that uses cause-and-effect associations to predict

and explain relationships between the independent and dependent variables. An example
of a causal model is an econometric model used to explain the demand for housing starts
based on consumer base, interest rates, personal incomes, and land availability.

causal forecastA type of forecasting that uses

cause-and-effect associations to predict and explain
relationships between the independent and dependent
variables. An example of a causal model is an
econometric model used to explain the demand for
housing starts based on consumer base, interest rates,
personal incomes, and land availability.
typically these models consist of several equations defining interaction among significant
variables
these variables are exogenous variables or endogenous variable
exogenous variables:
a. Its policy variables; which are expected to influence one or more the endogenous
variables according to some functional relationships.
b. Its variables whose worth are determined by external conditions
c. Its the variables that never appear as dependent variables in any equation in a
structural model
Endogenous variable
a. Variables are those that respond to changes in exogenous policy variables whose
behaviours is to be studies
b. element whose worth is determined within a system's framework
a. its variables that appear as dependent variables in at least one equation in a structural
model
some of well known econometric models are:
a. Brooking Model
b. Wharton Model
c. Data Resources Inc. Model
d. Chase Econometric Model
The major advantage of causal methods is their ability to anticipate variations in demand.
As such, they are very effective for medium- and long-term forecasts.[intro logistics
willey]

Forecasting new product sales

forecasting new product sales are more difficult because there is very little history
product life cycle:

Stage Characteristics
Introduction during this stage the market is being made a ware of the
32
 new product
Some products have a short introduction cycle as they
quickly grab the markets interest.
Growth In this stage the product has gain acceptance.
Initial reviews have been good
Sales begin to increase at rapid sales
Maturity The sales volume levels off as the market recognizes the
value of the product and continues to purchase it
Decline During this stage newer products have entered the market
and begun to attract customers or the market simply
become tired of the product
The techniques have been discussed are useful fore forecasting products that rare mature
in gradual decline
Important: for manufacturers and service providers perspective; the most critical forecast
is during the growth rate:
a. Too optimistic forecast: the company may invest too heavily in building capacity and
inventory
b. Too pessimistic forecast: competitors can enter the market
Market research and analogies history is good for forecasting new product sales

The key factors influence the choice of forecasting techniques

1- the time horizon

2- level of detail
3- number of items
4- Existing forecasting procedure: (a) theres always a built-in resistance to change. (b)
Starts with those almost closely related to existing procedures and then proceed through
an evolutionary approach to upgrade methods.
5- pattern of demand
6- accuracy
7- Availability of data: when no historical data are available, only qualitative or subjective
techniques can be used.
8- Timeliness

IB8 Evaluating Forecasting Performance

demand uncertaintyThe uncertainty or variability

in demand as measured by the standard deviation,
mean absolute deviation (MAD), or variance of forecast
errors.

forecast accuracyA measurement of forecast

usefulness, often defined as the average difference
between the forecast value to the actual value. Syn: sales
forecast.

33
 forecast errorThe difference between actual demand
and forecast demand, stated as an absolute value or as
a percentage.

Bias: a consistent deviation from the mean in one direction (high or low).

biasA consistent deviation from the mean in one

direction (high or low). A normal property of a good
forecast is that it is not biased.

A normal property of a good forecast is that it is not biased.

Forecast bias: Tendency of a forecast to systematically miss the actual demand
(consistently either high or low).

forecast biasTendency of a forecast to systematically

miss the actual demand (consistently either high or
low).

Standard deviation:
( )2
= = 1.25

Mean Absolute Deviation (MAD):

|A F|
MAD =

forecast mean absolute percentage of error

(FMAPE)The absolute error divided by actual demand
for n periods. Where absolute error is the variation
between the actual demand and the forecast for the
period expressed as a positive value (without regard
for sign).

mean absolute deviation (MAD)The average of the

absolute values of the deviations of observed values from
some expected value. MAD can be calculated based on
observations and the arithmetic mean of those
observations. An alternative is to calculate absolute
deviations of actual sales data minus forecast data. These
data can be averaged in the usual arithmetic way or with
exponential smoothing. See: forecast error, tracking
signal.

mean absolute percent error (MAPE)A measure

34
 of statistical variation in a forecast. Computed by
dividing each absolute forecast error by the actual
demand, multiplying that by 100 to get the absolute
percentage error, and computing the average.

mean squared error (MSE)A measure of statistical

variation in a forecast. Computed by squaring the
forecast errors and then taking the average of the sum of
the squared errors.

running sum of forecast errorsThe arithmetic

sum of the differences between actual and forecasted
demand for the periods being evaluated.

standard deviationA measurement of dispersion of

data or of a variable. The standard deviation is computed
by finding the differences between the average and
actual observations, squaring each difference, adding
the squared differences, dividing by n 1 (for a sample),
and taking the square root of the result.

tracking signalThe ratio of the cumulative algebraic

sum of the deviations between the forecasts and the
actual values to the mean absolute deviation. Used to
signal when the validity of the forecasting model might
be in doubt.

average forecast error1) The arithmetic mean of the

forecast errors. 2) The exponentially smoothed forecast
error.

Forecast Monitoring
There are several important terms:
1. Magnitude: the size of the variance
2. Variability: the range of actual sales around the forecast
3. Bias: where the actual sales are constantly higher or lower than the forecast or
average
4. Outlier: a very peculiar demand which is so unusual that it needs special
investigation may be excluded from the forecasting data
5. Timing: when the sales pattern alters but the total remains the same

2.9-Selecting and monitoring a forecasting system-MGI

Criteria for selecting forecasting techniques:

1- accuracy of the technique and data
2- availability and pattern of data
3- Cost of forecasting which equal to summation of cost of acquiring data, cost of using
computers, cost of people, and cost of training. Cost is usually significant during the

35
 development of the techniques, once the system is placed in operation, the ongoing
generation forecasts is generally far les costly than the benefits to be obtained
4- The time horizon: for sales have to be predicted
5- Availability:
available time within which the forecast has to be produced
this period has to be used for development (gathering and entering data, designing
and implementing the system) and execution
forecasts for immediate term would require should development and execution
times compared to forecast for long term planning
6- ease of application

Forecast errors measures:

1- Mean Absolute Deviation (MAD)
2- Mean Absolute Percentage Error (MAPE)
3- Running sum for errors RSFE (=cumulative deviation) (give indication of bias)
4- Standard deviation

Example page 2-28

Notes:
a. Ideally, RSFE should be close to zero, and the sign of RSFE should be positive as it is
as negative, this indicates that theres no consistent bias in the forecast
b. Popular measure is MAPE, because it indicates wither the error is large relative to the
forecast, in most situations, the percentage error is more important than the magnitude

Data
There are several issues to be considered with respect to data:
1- The kind of the data to be collected
2- The frequency of the data collection
3- The sources of data
4- Accuracy of the data
5- Data management
6- User interface

In determine the type of the data, the forecaster should determine:

1- What is to be forecast
2- Te level of detail required
3- Wither segmenting of the market would help
Data pre-processing: after the data is collected, it must be processed before being used for
forecasting calculation
Pre-processing of data would include adjustments for the following:
1- Deseasonalized of the data
2- Missing data: a procedure need to be defined to handle missing data. One approach is
to use a moving average value to substitute for it
3- Working day adjustment: (a) find the average no of the days per month, (b) modify
the data from a specific month to make it comparable

36
 4- Special events: should be removed
5- Outliers: should be removed

Demand filters
Once a forecast is made, its useful to track actual orders booked against the forecast and
flag such unusual situations
The first step of designing demand filter is to classify forecasts to ABC.
Forecast is considered A if:
a. Its the company major product line
b. Its forecast sales to a major customer
c. Its a major user of resources, so deviation will result in significant rescheduling
d. It uses critical materials, so deviation will results in significant changes to purchasing
plans
Since the A type are more critical, the tolerable deviations are much smaller than for C
type
This tolerable deviations which is MAPE can de defined as tracking signal
Predicted error = deviation / forecast
Percentage error = deviation / demand
MAPE tends to be less sensitive as a tracking signal, while percentage error tend to be a
more sensitive signal
Tracking signal = RSFE / MAD, and its used to track errors to evaluate forecast
technique
Note:
a. Forecasting error measures (deviation wise) : MAD, MAPE, RSFE, and standard
deviation
b. Forecasting monitoring (bias wise): tracking signal (RSFE/MAD)

Managing the forecasting system

five types of forecasting problem

1- bias
2- corrigibility and impact
3- lack of recent improving in forecasting
4- lack of a firm base on which to built
5- recognition on major opportunities for improvement in the present approach

IC Management of the customer interface

It requires understanding of how o make (a) realistic order delivery promises and (b)
maintain positive customer relationships.

IC.1 Orders Types

order managementThe planning, directing,

monitoring,

37
 and controlling of the processes related to customer
orders, manufacturing orders, and purchase orders.
Regarding customer orders, order management includes
order promising, order entry, order pick, pack and ship,
billing, and reconciliation of the customer
account. Regarding manufacturing orders, order
management includes order release, routing,
manufacture, monitoring, and receipt into stores or
finished goods inventories. Regarding purchasing
orders, order management includes order placement,
monitoring, receiving, acceptance, and payment of
supplier.

1. Customer Order

customer orderAn order from a customer for a

particular product or a number of products. It is often
referred to as an actual demand to distinguish it from a
forecasted demand.

customer tolerance timeSyn: demand lead time.

a. Off the Shelf

Assumption that stock will be available when needed.
Stock is usually provisioned against forecast.
b. Advance Order
Usually used by companies who wish to get price discounts for large order
quantities
An annual requirement is placed with call-offs.
The acceptance of call-off orders is a promise against future production.
The call-off orders are entered on the customer order file and the demands appear
on MPS as actual orders.
c. Customized
It often uses standard parts and assemblies and the final configuration according
to order.
2. Services
The order is to complete a project (e.g. consultation)
The order can be to solve a problem
The payment could be agreed up front for completing the task or based on savings
made.
3. Spare Parts
Orders for spare parts usually demand a very quick response.
The firm performing a repair will very often only be able to define the exact
spares required once the job is started, so the spare is required immediately the
need is identified.

38
 The retail outlet and manufacturer for spares should keep s stock which should be
replenished against forecast.
If the spare parts forecast demand is high and could cause a capacity-loading
problem on manufacturing, the item may be master scheduled; this is known as
Two Level Master Scheduling.
4. Intra-Company Demand
Trading between divisions
The demand may come through the first companys MRP system as planned order
releases and come into the supplying divisions MPS as dependent demands.
5. Interplant Demand
Its a demand from one company in a group to another company in the group.
Usually companies treated these demands as non-profit orders so are given the
lower priority, but it need to be treated as any anther customer orders.

interplant demandOne plants need for a part

or product that is produced by another plant or division
within the same organization. Although it is not
a customer order, it is usually handled by the master
production scheduling system in a similar manner.

IC.2 Order Entry Data Accuracy

Order entry
Order entry: The process of accepting and translating what a customer wants, into terms
used by the manufacturer or distributor.
Major basic steps of order entry:
1. Edit the order: includes check customers file for discounts and credit, and technical
edit to convert the order contents into company parts number
2. Record the order
3. Process the order: includes confirm the order and delivery date to the customer,
creating the picking list, organizing the delivery, and organizing the invoice.

order entryThe process of accepting and translating

what a customer wants into terms used by the
manufacturer or distributor. The commitment should be
based on the available-to-promise (ATP) line in the
master schedule. This can be as simple as creating
shipping documents for finished goods in a make-to-
stock environment, or it might be a more complicated
series of activities, including design efforts for make-to-
order products.

Order related dates

1. Order entry date:
Date of receiving the order and agreed received on price and delivery.
From this date the quoted L.T is applicable.
From this date the internal performance measurement is calculated.

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2. Customer requested date:
The date of customer initially request delivery its not promise date
If this date cannot be met a promise date is offered.
3. Order promise date:
Date promised to the customer and may not be the same date initially requested
by the customer.
Calculated based ATP
Performance measurement of customer service is usually based in this date.
4. Revised promised date:
In case of promise date cant be met.

order penetration pointThe key variable in a logistics

configuration; the point (in time) at which a
product becomes earmarked for a particular customer.
Downstream from this point, the system is driven
by customer orders; upstream processes are driven by
forecasts and plans. Syn: principle of postponement.

order pickingSelecting or picking the required

quantity of specific products for movement to a
packaging area (usually in response to one or more
shipping orders) and documenting that the material was
moved from one location to shipping. Syn: order
selection.

order placementThe commitment of a customer to

buy a product and the subsequent administrative and
data processing steps followed by the supplier.

order preparationAll activities relating to the

administration, picking, and packaging of individual
customer or work orders.

order preparation lead timeThe time needed to

analyze requirements and open order status and to
create the paperwork necessary to release a purchase
order or a production order.

order priorityThe scheduled due date to complete all

the operations required for a specific order.

order processingThe activity required to

administratively process a customers order and make it
ready for shipment or production.

order promisingThe process of making a delivery

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 commitment (i.e., answering the question When can
you ship?). For make-to-order products, this usually
involves a check of uncommitted material and
availability of capacity, often as represented by the
master schedule available-to-promise. Syn: customer
order promising, order dating.

order reportingRecording and reporting the start

and completion of the manufacturing order (shop order)
in its entirety.

order serviceThe function that encompasses receiving,

entering, and promising orders from customers,
distribution centers, and interplant operations. Order
service is also typically responsible for responding to
customer inquiries and interacting with the master
scheduler on availability of products. In some
companies, distribution and interplant requirements are
handled separately. See: order entry, order promising.

order shipmentActivity that extends from the time

the order is placed upon the vehicle for movement until
the order is received, verified, and unloaded at the
buyers destination.

order-to-delivery-cycleThe period of time that starts

when the customer places an order and ends when the
customer receives the order.

IC.3 Production Environment

Manufacturing Environment Order Entry Specification

Make-To-Stock
Assemble-To-Order The customer should identify each options
and choices.
Once the requirements started to be
entered, as each choice is selected, so it
offers the next choice to be decided upon.
Only when decision is made into one
choice will it offer the next.
Each option should be decided upon
before the order is accepted in the system.
The delivery date based on availability of
choices.

Make-To-Order In case of non-stocked catalogue items:

the order promised based on

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 manufacturing lead time and capacity
availability.
For non-standard items: the price should
be estimated on materials and labor costs,
and L.T estimated based on materials
availability and manufacturing L.T.
Engineer-To-Order For standard type of work: the L.T is
known, and price quoted based on
materials and work content.
For non-standard product: (a) the process
has to include an estimated price and
deliver quotation to enable the design
work to go ahead, (b) only when the
finished design is approved by the
customer, the price and delivery ate can be
confirmed.
Project When an inquiry is received, a
proposal/quotation would be raised.
Process Manufacturing The products are usually made in batches
or continuously, if the product is made
continuously, the end product would
usually be stocked, and available for sale
off the shelf, and when it made in
batches, it could be made for stock or only
when ordered.

IC.4 Substitutions/Change Orders

Substitution: the use of non-primary products when the primary one is not available.

IC.5 Customer Returns

IC1 CRM

Its a marketing philosophy using the approach that its the customer who should always
be considered first.
It required obtaining and analyzing data to enabling the company provide improved
services to both existing and potential customers.
It includes account management, catalogue and order entry, payment processing, credits,
adjustments, etc.
Its an advanced way of doing business with customer to build long-term relationships,
with mutual benefits.

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 Its as competitive survival strategy and as a tool o crate Lifetime Customer

customer relationship management (CRM)A

marketing philosophy based on putting the customer
first. The collection and analysis of information designed
for sales and marketing decision support (as contrasted
to enterprise resources planning information) to
understand and support existing and potential customer
needs. It includes account management, catalog and
order entry, payment processing, credits and
adjustments, and other functions. Syn: customer
relations management.

Benefits of Lifetime Customer

1. It takes investment in time and money to attract new customer.
2. The longer you keep a customer the more you learn about the customer the more you
satisfied him.
3. You become approved supplier for your customer.

Created Customer Focused Business

5 steps according to APICS CSCP
1. Change to customer focus: Change in thinking and business approach from product
focused to customer focused.
2. Identify customer needs
3. Create customer map: traditional segmentation of customer based on age, sex,
geographic, etc, now we should add new factor the customer actual buying
behavior, its more beneficial the customer should be segmented based in
approached needed.
4. Implement CRM Program
5. Monitor, measure and report: get feedback and change approve if needed.

4 Ps of Marketing for CRM

1. Product
Product = physical product + service
Create product can be customized deferent customer
2. Price
Pricing strategy is effected by:
a. Using discounts for certain customers
b. Are you the market leader or follower?
c. Is your objective to make your key order winning strategy being the lowest price?
d. Will the price be perceived as value for money in the customers eyes?
3. Placement
How product was presented and made available to the customer?
How the customer learns about the product?
How the support for the product should be available?
4. Promotion

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To obtain customer satisfaction:
1. Quick an defective order entry and processing
2. Accurate and on time deliveries
3. Reject free product deliveries
4. Response that are timely and meaningful to the customer

Churn
Churn: term used to describe the practice of a customer moving to a new supplier that
offers a better service or lower prices.
Its much easier today because of internet.
CRM can provide advance information about vulnerable customers so special actions can
be taken to retain them.

IC2 Customer Services Polices, Safety Stock, & Performance Target

IC2.1 Defining customer service

Customer Service

The ability of a company to address the needs, inquiries, and requests from customers.
A measure of the delivery of a product to the customer at the time the customer specified.

customer service1) The ability of a company to

address the needs, inquiries, and requests from
customers. 2) A measure of the delivery of a product to
the customer at the time the customer specified.

customer service levelSyn: customer service ratio.

customer service life cycleIn information systems,

a model that describes the relationship with a customer
as having four phases: requirements, acquisition,
ownership, and retirement.

Customer Service Ratio

Syn: customer service level, fill rate, order-fill ratio, percent of fill. Ant: stockout
percentage
A measure of delivery performance of finished goods, usually expressed as a percentage.
In a make-to-stock company, this percentage usually represents the number of items or
dollars (on one or more customer orders) that were shipped on schedule for a specific
time period, compared with the total that were supposed to be shipped in that time period.
In a make-to-order company, it is usually some comparison of the number of jobs or
dollars shipped in a given time period (e.g., a week) compared with the number of jobs or
dollars that were supposed to be shipped in that time period.

44
 Set in S&OP meeting
Performance measurements: Percentage on time deliveries, level of service, stockout
percentage.

customer service ratio1) A measure of delivery

performance of finished goods, usually expressed as a
percentage. In a make-to-stock company, this percentage
usually represents the number of items or dollars (on
one or more customer orders) that were shipped on
schedule for a specific time period, compared with the
total that were supposed to be shipped in that time
period. Syn: customer service level, fill rate, order-fill
ratio, percent of fill. Ant: stockout percentage. 2) In a
make-to-order company, it is usually some comparison
of the number of jobs or dollars shipped in a given time
period (e.g., a week) compared with the number of jobs
or dollars that were supposed to be shipped in that time
period.

customer service representative (CSR)Personnel

assigned to customer relations who answer customer
questions and who provide technical support.

Priority Rules

3 approaches
1. Availability Oriented: Orders that have materials available should be shipped
immediately.
2. Customer Oriented: Dividing the customers into A, B, and C, where A is the highest
value business customer, and always be given preference.
3. Items Oriented: As certain items are always profitable than another, the orders including
the more profitable items are always handled first.
Priority rules are set and agreed into S&OP meeting, and clearly defined to master
scheduler and order entry personal.

Delivery Performance Measurements

1. Percentage on time deliveries
2. Customer service ratio
3. Longest delivery time
4. Delivery time availability
5. Average order processing lead time

Standard Container
Syn: Tote box
Its the key unit for materials handling.
Separator holds an appropriate number of specific parts, so that counting is made easier.
The objective is to make counting of how many are in the container unnecessary, but to
quickly verify if any are missing.

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 Only particularly large or small items dont use a standard container.
The number of parts per container would be shown on the item master file
The standard container would ideally be light enough to be carried (not more than 25 Kg)
and easily placed on a rack.
The returnable container is used both between factory work centers and with suppliers
and customers.

Responsiveness
Steels users see that steel manufacturer has a 3-6 months rolling schedule and if you miss
that, they will not help you, and you go without.
The longer L.T, the less responsiveness.
Manufacturer can reduce L.T by 80% by JIT.
One approach to reduce L.T (and therefore increase responsiveness) without JIT is to
build an assembled product as close to completion as possible, leaving the final
configuration to the last moment.
In other words, this is the approach of master scheduling at eh module (sub-assembly)
level, and then using FAS to produce the final product; this also will reduce the product
inventory.
To increase responsiveness:
1. Using module MPS and FAS approach to reduce manufacturing L.T
2. Decrease order processing time
3. Facilitate the way how the customer set the order (e.g. A customer should be
provided with computer terminals linked to their own order intake system.
Performance measurements:
1. Average order processing time
2. Manufacturing L.T
3. In time deliveries
4. Number of orders picked on time
5. Order processing L.T variability

responsivenessA dimension of service quality

referring
to the promptness and helpfulness in providing a
service.

IC2.2 Safety Stock

Safety stock
Syn: buffer stock, reserve stock.
In general, a quantity of stock planned to be in inventory to protect against fluctuations in
demand or supply.
In the context of MPS, the additional inventory and capacity planned as protection
against forecast errors and short-term changes in the backlog.
Overplanning can be used to create safety stock.

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 Its a cushion of protection against uncertainty in the demand or in the replenishment lead
time.
Item inventory = Cycle Stock + Safety Stock
Important: its not planned to be used (sold as units) but to protect against stockout.
3 main factors affect S.S
Demand Variability:
Replenishment Lead Time:
Service Level:

. = ( )

OR

. = 1.25 ( )

Where:
S.S = Safety Factor
= Sigma
SF = Safety Factor, Syn: Service Factor
L = Lead Time
FP = Forecast Period
MAD = Mean Absolute Deviation

safety stock1) In general, a quantity of stock planned

to be in inventory to protect against fluctuations in
demand or supply. 2) In the context of master
production scheduling, the additional inventory and
capacity planned as protection against forecast errors
and short-term changes in the backlog. Overplanning
can be used to create safety stock. Syn: buffer stock,
reserve stock.

IC2.3 Setting Performance Targets

Traditionally the most important performance factor is UTILIZAION so that make the
resources more EFFECTIVE sp more hours produced so the overheads are recovered,
and average unit cost are reduced Economy of Scale, but its fault because Producing
produces doesnt recover overheads (it incurs more cost), but SELLING products does
Today: Target = Completion to plan (produce as plan, then stop to minimize cost)

Time-phased goals
When setting the targets and if takes long time to be achieved -as a plan- from the base of
set, then its better to set a series of targets in the future (gradual steps)
This way makes the target more achievable (goes from 35% to 99% accuracy in
inventory records as one step is not achievable, but in several steps its more realistic).
Each targets need plan, time, and celebration when be achieved!!

operational performance measurements1) In

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traditional management, performance measurements
related to machine, worker, or department efficiency or
utilization. These performance measurements are
usually poorly correlated with organizational
performance.
2) In theory of constraints, performance measurements
that link causally to organizational performance
measurements. Throughput, inventory, and operating
expense are examples.

performance1) The degree to which an employee or

group applies skill and effort to an operation or task as
measured against an established standard. 2) One of the
eight dimensions of quality that refers to product
attributes pertaining to the functioning of a product
(e.g., horsepower, signal-to-noise ratio, decibel output).

performance benchmarkingSyn: competitive

benchmarking.
performance criterionThe characteristic to be
measured (e.g., parts per million defective, business
profit).

performance efficiencyA ratio, usually expressed

as a percentage, of the standard processing time for a
part divided by its actual processing time. Setups are
excluded from this calculation to prevent distortion. A
traditional definition includes setup time as part of
operation time, but significant distortions can occur as a
result of dependent setups.

performance measureIn a performance measurement

system, the actual value measured for the criterion.
Syn: performance measurement.

performance measurementSyn: performance

measure.

performance measurement baselineAn approved

plan used to compare against actual execution to identify
variances for management control.

performance measurement systemA system for

collecting, measuring, and comparing a measure to a
standard for a specific criterion for an operation, item,
good, service, business, etc. A performance
measurement system consists of a criterion, a standard,
and a measure. Syn: metrics.

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 performance ratingObservation of worker
performance to rate the productivity of the workers as a
percentage in terms of the standard or normal worker
performance.

performance standardIn a performance measurement

system, the accepted, targeted, or expected value
for the criterion.

performance varianceThe difference between a

performance standard and actual performance.

strategic performance measurementsMeasurements

that relate to the long-term goals of a business.
Examples include profitability, market share, growth,
and productivity.

UOM
Can be set as
1. percentage (like percentage of on-time deliveries), or
2. actual happening (like no of customer returns)

Benchmarking
Benchmarking is comparing a companys costs, products, and services to that of a
company thought to have superior performance. The benchmark target is often a
competitor but is not always a firm in the same industry.
Benchmark measures are set of measurements (or metrics) that is used to establish goals
for improvements in processes, functions, products, and so on. Benchmark measures are
often derived from other firms that display best-in-class achievement.
Best-in-class is an organization, often from another industry, recognized for excellence in
a specific process area.
Best practices -in benchmarking- are the measurement or performance standard by which
similar items are evaluated.
Defining a best practice identifies opportunities to improve effectiveness.
Seven types of benchmarking have been cited:
1. Competitive benchmarking (Syn: performance benchmarking): Benchmarking a
product or service against competitors.
2. Financial benchmarking: Comparing one companys financial results with that of
another company. This type of benchmarking need not involve direct contact between
the initiator company and the target company, as many financial records are publicly
available.
3. Functional benchmarking: Benchmarking a single function within an organization
rather than the entire organization.
4. Process benchmarking: Benchmarking focused on the target firms business
processes, including process flows, operating systems, and process technologies.

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 5. Product benchmarking: This benchmarking is used for new product design or for a
product upgrade. This often includes reverse engineering (dismantling) competing
products to determine their strengths and weaknesses.
6. Strategic benchmarking: Benchmarking how others compete. It often involves
benchmarking across industries.

Continuous Improvement
Continuous process improvement (CPI): A never-ending effort to expose and eliminate
root causes of problems: small-step improvement as opposed to big step improvement.

continuous improvementThe act of making

incremental, regular improvements and upgrades to a
process or product in the search for excellence.

continuous process improvement (CPI)A never-

ending effort to expose and eliminate root causes of
problems: small-step improvement as opposed to big-
step improvement. Syn: continuous improvement.

Kaizen: The Japanese term for improvement; continuing improvement involving

everyone-managers and workers. In manufacturing, kaizen relates to finding and
eliminating waste in machinery, labor, or production methods.

kaizenThe Japanese term for improvement;

continuing
improvement involving everyonemanagers and
workers. In manufacturing, kaizen relates to finding and
eliminating waste in machinery, labor, or production
methods.

It doesnt have to be a major cost saving, but any improvement is welcome and
implemented.
Traditional quality cycle: Make-Inspect-Rework/Scrap Cycle. (This approach doesnt
provide enough insight as to why the defects occur).
Two ways to improve processes:
1. Use control chart to identify and remove the assignable causes in order to create a
stable process that produces consistent, predictable output (the quality is controlled
economically).
2. Improve the process itself, which implies changes to the system.

IC3 Available-To-Promise (ATP) and Capable-To-Promise (CTP)

It will only allow promises to be made based on the amount of stock on hand and
scheduled receipts that are still uncommitted.

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 The reliability of the promise is dependent upon the stores records accuracy and the
ability of manufacturing to consistently meet their scheduled completion dates.
After we determine ATP from MPS, CTP is asking if we have both materials and
resources available (Capability) to provide this service (refers to ATP).
A realistic and reliable promise must take into account both materials.

available-to-promise (ATP)The uncommitted portion

of a companys inventory and planned production
maintained in the master schedule to support customer
order promising. The ATP quantity is the uncommitted
inventory balance in the first period and is normally
calculated for each period in which an MPS receipt is
scheduled. In the first period, ATP includes on-hand
inventory less customer orders that are due and overdue.
Three methods of calculation are used: discrete ATP,
cumulative ATP with look-ahead, and cumulative ATP
without look-ahead.

capable-to-promise (CTP)The process of committing

orders against available capacity as well as
inventory. This process may involve multiple
manufacturing or distribution sites. Capable-to-promise
is used to determine when a new or unscheduled
customer order can be delivered. Capable-to-promise
employs a finite-scheduling model of the manufacturing
system to determine when an item can be delivered. It
includes any constraints that might restrict the
production, such as availability of resources, lead times
for raw materials or purchased parts, and requirements
for lower-level components or subassemblies. The
resulting delivery date takes into consideration
production capacity, the current manufacturing
environment, and future order commitments. The
objective is to reduce the time spent by production
planners in expediting orders and adjusting plans
because of inaccurate delivery-date promises.

IC4 Effective Customer Communications

IC4.1 Communication Means

1. Electronic Data Interchange (EDI)

Electronic (paperless) exchange of trading documents.
Through EDI the plant advise the supplier as changes occur immediately.
Through EDI the quality of the information flow improves.

electronic data interchange (EDI)The paperless

(electronic) exchange of trading documents, such as
purchase orders, shipment authorizations, advanced

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 shipment notices, and invoices, using standardized
document formats.

2. Customers Online
Airline booking
Spares Business: all depots linked together, so if the spare isnt exist in one
depot you can find in other place because you cant keep the full range of
spare sin each depot.
3. Internet
4. Planner to Planner Communications
Used for annual contracts and release system
After signing contacts, the work is handed over to the planners in both
companies to organize the materials flow, by cutting out the buyer and
salesman from the daily operations of the deal.

quick response program (QRP)A system of linking

final retail sales with production and shipping schedules
back through the chain of supply; employs point-of-sale
scanning and electronic data interchange, and may use
direct shipment from a factory to a retailer.

IC4.2 Communication Topics

1. Promising shipments, delivery or service dates:

Give delivery date (if you deliver the product), or shipment dates (if its sent
overseas)
Order promising is defined as the process of making a delivery commitment.
In order processing communication in MTO, you need to check uncommitted
materials and availability of capacity.
ATP gives on-line facility to prevent the same stock being committed twice.
In absence of ATP, you can assume a standard L.T for a particular product range.
In services, a date must be given is the date when the job can be started, which
gradually firmed up from the initial negotiations to the actual placing of the order.
2. Re-negotiations of promise dates
When the original promise date cant be met, w need to renegotiate with customer
to promise date, its important that the service level which we aim to meet for
renegotiated delivery dates should be higher than the original date service level.
Once the problem is recognized, its passed to master scheduler to update the
system and study options with sales and marketing.
3. Customer requested changes
4. Notification of delays or early shipment
If promise date will not be met, then the customer should be met to plan around
the problem.

advance ship notice (ASN)An electronic data

interchange (EDI) notification of shipment of product.

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 5. Order status
a. Inquiry
b. Quotation
c. Placed (order promising takes place)
d. Acknowledged/Confirmed
e. Picking
f. Delivered
g. Invoiced
h. Completed

IC5 Measuring Order Delivery Performance

In many cases, the customer is more concerned about a reliable delivery quote than a
short one.
Short delivery quotes give the supplier an edge over the competitors, BUT the customers
expect the right quality.
Working with suppliers: how the supplier measure and see us as a customer?
Working with customers: how the customers evaluate us as a supplier?
Fundamental Measurement Concept: once a company has identified its order winners and
qualifiers, it needs to bring in lines its performance measurement to support them.
Performance: (1) The degree to which an employee or group applies skill and effort to an
operation or task as measured against an established standard. (2) One of the eight
dimensions of quality that refers to product attributes pertaining to the functioning of a
product (e.g., horsepower, signal-to-noise ratio, decibel output), the other seven
dimensions are features reliability, conformance, durability, serviceability, aesthetics,
perceived quality.
Performance criterion: The characteristic to be measured (e.g., parts per million
defective, business profit).
Performance measure (Syn: performance measurement): In a performance measurement
system, the actual value measured for the criterion.
Performance measurement baseline: An approved plan used to compare against actual
execution to identify variances for management control.
Performance measurement system (Syn: metrics): A system for collecting, measuring,
and comparing a measure to a standard for a specific criterion for an operation, item,
good, service, business, etc. A performance measurement system consists of a criterion,
a standard, and a measure.
Performance standard: In a performance measurement system, the accepted, targeted, or
expected value for the criterion.
Performance variance: The difference between a performance standard and actual
performance.

Reporting of customer service performance

Typical measurements of our own and supplier performance are:

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 1. Percentage on time deliveries to customer.
2. Percentage of orders dispatched within the target time span.
3. Percentage of deliveries with no problems reported.
4. Number or percentage of customer orders not accepted.
5. Number of orders delivered early.
6. Number or percentage of orders with picking problems.
7. Number of orders with insufficient stock when sent for picking.
These are normally reported on monthly bases.

IC5.1 Customer and supplier Feedback

Supplier Feedback
This can be very much a two way business.
(a)As a customer: to obtain the desired service level from the suppler. (b)As a supplier: to
improve my performance to still in my customer approved supplier list. The following
TWO WAY line information should be provided to support above two assumptions:
1. Before doing business: the customer should provide supplier in advance about the
requirements.
2. After doing business: the feedback about the supplier performance.

Customer Feedback
Some approaches to get customer feedback (from guarantee):
1. Ask questions and get answers about products and service from guarantee coupon.
2. Use address of customers to build database of users
3. Get feedback from repairs under guarantees.

Supplier rating system

Firstly: quality
Secondly: delivery reliability, speed, responsiveness
Prices
Generally the ranking criteria differ from industry type to another.
An important point on rating system is to feedback to the supplier the results, so that they
know the areas in which improvement is required.

supplier performance evaluationMonitoring and

evaluating key suppliers on cost, quality, engineering,
purchasing, and so on, based on an agreed set of
measurements.

cost-ratio planA variation of the weighted-point plan

of supplier evaluation and selection. The cost ratio is
obtained by dividing the bid price by the weighted scores
determined by the weighted-point plan. This procedure
determines the true costs by taking into account
compensating factors. Suppliers are selected and/or
evaluated based on the lowest cost ratio.

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 weighted-point planA supplier selection and rating
approach that uses the input gathered in the categorical
plan approach and assigns weights to each evaluation
category. A weighted sum for each supplier is obtained
and a comparison made. The weights used should sum
to 100% for all categories.

categorical planA method of selecting and evaluating

suppliers that considers input from many departments
and functions within the buyers organization and
systematically categorizes that input. Engineering,
production, quality assurance, and other functional areas
evaluate all suppliers for critical factors within their
respective scopes of responsibility. For example,
engineering would develop a category evaluating
suppliers design flexibility. Rankings are developed
across categories, performance ratings are obtained, and
supplier selections are made.

IC5.2 Internal operations measurements influencing customer service

If a company wants to be successful, it needs to sort out the important factors in the
business and then track them with care.
Traditionally we have being measured by the figures produced by the financial system;
unfortunately they tend to encourage unwanted production.
Now the companies start moving towards JIT and World Class Manufacturing, and
measure what the company needs to accomplish, quality, work force skills, and
adherence to the plan.

Manufacturing Performance
The objective is to measure completion to plan.
Three levels to be considered:
1. S&OP:
a. Percentage of quantity of each family made to the plan.
2. MPS:
a. Percentage completion of master schedule, by product, by week.
b. Number of changes to the master schedule.
c. Percentage of final assembly schedule achieved per week.
d. Percentage of customer promises met, first time.
e. Number of changed delivery promises.
3. Shop performance
The document used to communicate the requirements is the daily dispatch list.
a. Production worker skills acquired.
b. Hours of unplanned overtime.
c. Hours of unplanned subcontract time.
d. Hours of expedite time.
e. Number of unplanned subcontract orders placed.

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Other Measurements
Actual to forecast
Customer service
a. Percentage of orders satisfied either by quantities, line items, or values.
b. Percentage of line items of which we ran out of stock during a time period
c. Note: we should use the same measurement method on a regular basis and see if the
target levels are reached and maintained.
On-time shipments
a. How many of deliveries go out in time in accordance with the original promise.
b. Number of deliveries that are made to the revised promise
Customer returns
Remember: customer service and customer satisfaction is important because its used as
competitive weapons.

IC5.3 Regular review of measurements/Follow up action plan

At S&OP level: measurements like inventory levels, sales compared to forecast, MPS
deliveries on time, and on time deliveries to customer are reviewed monthly.
At master scheduler, materials manager, and production manager level: measurements
like performance to plan by work center, WIP level, how planners control materials flow
are reviewed.
The cycle of follow up is: measuring, comparing to target, define problems, take
corrective action.

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II SALES AND OPERATIONS PLANNING

Sales and Operations Planning (S&OP): A process to develop tactical plans that provide
management the ability to strategically direct its businesses 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, and development, manufacturing,
sourcing, and financial) into one integrated set of plans. It is performed at least once a
month and is reviewed by management at an aggregate (product family) level. The
process must reconcile all supply, demand, and new product plans at both the detail and
aggregate levels and tie to the business plan. It is the definitive statement of the
companys plans for the near to intermediate term, covering a horizon sufficient to plan
for resources and to support the annual business planning process. Executed properly, the
sales and operation planning process links the strategic plans for the business with its
execution and reviews performance measurements for continuous improvement.

IIA General Concepts and Purposes

S&OP is the process of taking the 3 key inputs: (a) the business plan (b) the anticipated
demand, and (c) the available resources, and then create and maintain the two basic plans
for manage the business in the medium and long term (1) Sales Plan and (2) Production
Plan.

Inputs to S&OP

(a)-Business Plan
Its the first real plan
Crated by senior management
The horizon is equal to or more than 5 years
The whole company strategy is built into the business plan, so its blueprint for
subsequent decisions
The company master plan will only be revised in the nest annual business planning
meeting

(b)-Aggregate planning of demand

Marketing team provide corporative forecasting at the aggregate level according to the
country and world economy trend.
Sales force providing detailed forecasting at end item level depending on local
information (face to face with customers)
After that sales and marketing set together to reconcile the figures and agreed on the
family volume, this final agreed figure is input to S&OP.

(c)-Aggregate planning or resources

The resources need to be under the same name and UOM that BOR uses.

57
Outputs of S&OP

(1)-Sales Plan
Its not sales forecast; it is management agreed volume of sales will be made during
defined periods.
Its in family groups
Its at the same level of detail and same unit at the production plan.

(2)-Production Plan
Its basis for shorter term manufacturing plan
Input to MPS
Its at family groups and in coarse time periods (month or quarters)
It must be signed off to authorise the commitment to organize production resources and
to purchase materials to meet the plan.

Resources utilization
One of the major function of management in the S&OP is that the plan uses the
companys resources effectively, and if theres surplus capacity.
IMPORTANT: production should NOT be planned to produce to fill the available
capacity so as to produce high utilization figures.
Extra capacity = low queues = low LT = high responsiveness = high customer service.
Some companys design its utilization figure around 60% to get a competitive edge by
having shorter LT.

IIA.1 Key Linkages to the S&OP Process

The inputs are the sales and marketing forecast of demand, the resources available and
the company strategy ad business plan.
The key outputs are Sales Plan and Production Plan
It provides the means of comparing the resources available against those required, out
into the future. If the resources dont match the requirement, its possible to change either
the resources or the plan.
The families and quantities on the production plan provide a shipping schedule by
product family.
The production or manufacturing portion of the production plan provides the overall
production rate needed by manufacturing to meet the plan.
I must be realized that the shipping schedule and the production plan can be totally
different period to period. When one considers a company in seasonal business,
production will very often have to produce the product long before its sold to provide the
stock for those peak periods.
Its essential the company should be aware about the inventory level in both now and in
the future so the decisions about production plan and shipping schedule can be made, and
the management should agree to hold that certain levels so finance them.

58
 Having now established the production rate within the manufacturing facilities, the
manpower requirements can be established by using bill of labors by product family, it
can be produced in the form of standard hours by time periods.

Production Plan drives the master schedule

In the production plan, the portion sated in monthly periods is handed over to the
master scheduler.
S&OP Report and I/O Technique

S&OP Report = Sales Plan + Production Plan + Effects of Inventory

S&OP uses I/O control technique into a form applicable at the master planning of
resources level, to calculate effect on (Inventory/Backlog) levels.
The formulas are:
For MTS
= 1 +
For MTO
= 1 +
Where:
IL = Inventory Level
BL = Backlog
S = Sales
P = Production

IIA.2 The Different Method for Balancing Supply and Demand

Major approaches (a) Level (b) Chase (c) Combination.

Approach Description Advantages Disadvantages

Level Production is held at a Stabilize the level of Space required
steady rate. resources required. building up
Inventory is stockpiled inventory.
until peak periods where Financial impact on
demands exceed the excessive stock.
production capability so
the inventory will be
reduced.
Chase Production will follow No stockpile for The problem of
shipment plan by month or seasons periods. hiring and firing staff
quarter with SS. to vary production
Specially used when there rate level.
is a growth market. How to ensure the
existing of sufficient
capacity in peak
periods.

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Combination A combined between level and chase.
The production plan is kept steady, but in periods of heavy requirements the
production quantities are stepped up for a number pf periods.
This could be by either:
a. Subcontracting the extra load
b. Adding a second shift
c. Take labour from another product line
The effect is that the basic production line is kept steady with a definite plan of
action for a specific period of time.

Level Strategy
Level production method: A production planning method that maintains a stable
production rate while varying inventory levels to meet demand. Syn: level strategy,
production leveling.
Production level: The rate of production usually expressed in units, cases, or some other
broad measure, expressed by a period of time (e.g., per hour, shift, day, or week). Syn:
production rate.
Level schedule: 1) In traditional management, its a production schedule or master
production schedule that generates material and labour requirements that are as evenly
spread over time as possible. Finished goods inventories buffer the production system
against seasonal demand. 2) In JIT, a level schedule (usually constructed monthly) in
which each days customer demand is scheduled to be built on the day it will be shipped.
A level schedule is the output of the load-leveling process. Syn: JIT master schedule,
level production schedule.
Level-demand strategy: A strategy of keeping capacity level and not variable with
demandlevel schedule.
Resource leveling: The process of scheduling (and rescheduling) the start and finish
dates of operations (or activities) to achieve a consistent rate of resource usage so that
resource requirements do not exceed resource availability for a given time period. Syn:
leveling.
Load leveling: Spreading orders out in time or rescheduling operations so that the
amount of work to be done in sequential time periods tends to be distributed evenly and is
achievable. Although both material and labor are ideally level loaded, specific businesses
and industries may load to one or the other exclusively (e.g., service industries). Syn:
capacity smoothing, level loading.

Production Level (PL) Equations:

In MTO:

+
=
.

In MTS:
+
=
.

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 Notes:
a. Inventory / Backlog act as a buffer when sales or production varies.
b. Backlog of course must never be zero because there must be always WIP on the
shops.
c. Backlog is the total of all customer orders held in the system = over due orders (back
orders) + Current Orders + Planned Shipments. Syn: Open Orders, Orders Board.
d. Inventory is stored up machines hours previously performed, Backlog is machine
hours yet to be performed.

IIA.3 Trades offs related to Volume/Mix Combinations

Job Shop
Definition: (1) An organization in which similar equipment is organized by function.
Each job follows a distinct routing through the shop. (2) A type of manufacturing process
used to produce items to each customers specifications. Production operations are
designed to handle a wide range of product designs and are performed at fixed plant
locations using general-purpose equipment. Syn: jobbing.
Typically, unit sales volumes are low, and price is a qualifying rather than an order
winning criterion.
Its the production of unique products to meet a customers requirements.
The volume for a specific product is very low but the variety of products produced is very
high.
This requires manufacturing to provide general-purposes facility operated by skilled
labour that can produce from drawings and specifications.
These products are typically MTO.
E.g. special purpose lift trucks, customised mobile homes, refurbished aircraft.

Batch Manufacturer
Definition: A type of manufacturing process used to produce items with similar designs
and that may cover a wide range of order volumes. Typically, items ordered are of a
repeat nature, and production may be for a specific customer order or for stock
replenishment.
As order volumes and repeat business increase, price becomes a more important
competitive issue.
Because of the repeat business with batch manufacturer, jigs and fixtures are provided,
and full system documentation is provided in the form of routings and manufacturing
instructions.
These products are typically MTS against forecast requirements.
E.g. specialty furniture, metal components, recreational vehicles, and textiles.

Line Manufacturer
Its used to produce a narrow range of standards items with identical or highly similar
designs.
Production volumes are high.

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 Production and material handling equipments are specialized.
All products typically pass through the same sequence of operations.
Price is the most common order winning criteria
These products are typically MTS against forecast requirements.
When options and choices are offered like car manufacture, then the final product is
assembled against FAS.
E.g. automobile engines, personal computers, standard office furniture, consumer
electronics, and home appliances.

Continuous Manufacturer
Its dedicated to the production of a very narrow range of standard products
The rate of product change and new product introduction is very low
Significant investment in highly specialized equipments allows a high volume of
production at the lowest manufacturing cost.
Unit volumes are very high
Price is almost always a key product winner criteria
Routing is fixed
Setup are seldom changed
These products are typically MTS against forecast requirements.
E.g. gasoline, steel, fertilizer, glass, and paper.

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IIB Management Consideration

IIB.1 How to evaluate alternative plan

One o the role of S&OP meeting is to evaluate and integrate various plans and projects to
make overall plan.

IIB1.1 Project Assessment

Considerations for projects assessment:

a. Financial effects
b. Make the company more competitive in the market place
c. Support strategic plan
d. Align with order winning strategy
e. Enable LT to be reduced so the company is more responsive
Traditionally, the decisions to make go ahead by management team is based on the finical
benefits, fortunately in most cases these can be well justified.
On the question of funding, its purely a matter of can the organization afford proposed
project at this point in time or not? Its at this point that a project is put on the short list,
or rejected.

IIB1.2 Project Selection

Consider interdependencies between projects.

Trades Offs
As with most management decisions, theres a trade off
Each project has its own case, own problem, own benefits, own investments, soothe
management should decide in which the best investment should be made.
E.g. on trade offs: Project (1) give more customer service BUT with high cost and project
(B) introduce new equipment reduce LT BUT it take several years to recover the
investment.

Non-Financial considerations
fitting with order winner and qualifiers strategy drivers
support and align with company overall strategy
support our competitive advantage
Whatre the changing happen in the market, are the customers change their requirements
or the competitors change their position (the competitor support new generation)?

IIB2 How to assess the financial implications of the plan

Financial implications of proposed projects

3 major methods to evaluate financial implications for proposed projects

63
 a. Payback method
b. Average ROI
c. NPV

Financial implications of production plan

Sales and Production Plans are input to Time Phased Cash Flow and profit forecast for
the horizon required.
The aggregate planning process have a major impact on the financial situation of the
company:
a. If the proposed volumes are low then the turnover and income will be down. For the
company to operate with its existing structure and overheads a minimum level of
turnover is required. Ideally, the plan should have volumes to utilize the resources
and give a good ROI.
b. If the proposed volumes are high, it will be assumed that turnover and profits will
increase but there are problem about required capacity, then projects assessment is
made to either decrease the volume or increase capacity.

ROI
Its defined as a financial measure of the relative return from an investment, usually
expressed as a percentage of earnings produced by an asset to the amount invested in that
asset.

=

So to increase ROI, there are three approaches, either to increase income, or to reduce
cost or investment.

Stock Turn

Its difficult to compare different companies using stock turn, but its usual to compare
period to period the trend within the company.
This measure indicates how well the inventory is being managed.
It gives indication about the number of times that an inventory cycles, or turns over,
during the year.

IIB3 How to identify key factors

IIB3a The various stakeholders in the process

IIB3b The planning horizon

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 S&OP meeting is a key management meeting
Its usually run at least monthly
Many issues are reviewed such a future promotions and seasonality

How far to plan?

Important: companies prepare their long term plans to cover those resources which are
needed to produce the plan.
Typical restraints are:
a. Manpower:
The cycle of introduce, orient, and train new manpower could very often take a
year before doing the required job.
To increase output by a substantial amount, a years notice is required.
b. Facilities:
We could be looking at between two and three years to increase our facilities.
c. Equipment:
If the equipment is custom built, its a long cycle
When the equipment is installed, you still have to get it to work effectively and
this bedding in period can often be up to 6 months.
d. Finance:
Important: it probably takes 1-2 years to reduce inventory to a level which
provides the cash (release cash tied up in the inventory) for the expansion
program, whilst still maintaining the required customer service level.
How long we need to plan a head is the time to allow for each of those four to be
adjusted. Thus if the longest of these 4 L.T is 3 years, that is how far we need to plan at a
minimum.

IIB3c the S&OP process owner

Its the responsibility of companys senior management

Process owner is CEO or President
No member of S&OP meeting may send a stand in to attend the meeting

IIB4 How to establish performance levels

IIB4a Customer service level

Customers are one of our most valuable assets

The customer can be either purchaser of finished good, or pant /department perform the
nest operation.
Some C.S issues cost (which required to hold more safety stock, while anther C.S dont
(just smile from reception man).

Cost of desired service level

In MTS major cost of CS is cost of SS.
SS factors are:

65
 a. Demand variability
b. Replenishment LT
c. Desired service level
In summary: more satisfied customers means higher service level which requires higer
inventory investment.

Service level provided

Service level OR level of service: a measure (usually expressed as a percentage) of
satisfying demand through inventory or by the current production schedule in time to
satisfy the customers requested delivery dates and quantities.
In MTS, SL is:
a. Percentage of orders picked complete from stock upon receipt of the customer order.
b. Percentage of line items picked complete.
c. Percentage of total dollar demand picked complete.
In MTO/ETO, SL is:
a. Percentage of times the customer-requested or acknowledged date was met by
hipping compete product quantities.

IIB4d Inventory Level

Inventory = Cycle stock + safety Stock

= Q/2+SS
Q is order quantity.
Important: From a above equation we can determine the main factors affect desired
inventory levels (3 factors; 2 fro m the equation and one from out)
a. Planning approach (Level or Chase)
b. Customer service level (to determine SS required)
c. Replenishment approach (to determine order quantity and cycle) (note: in P
system, TIL is called Order Up To Level)
Inventory level should be reviewed monthly by S&OP meeting.
Typical ways of measuring and recording in companys inventory level is:
a. Absolute value of inventory: this is the sum of the standard value of each item
held in the company.
b. Days Coverage:

=

c. Stockturn

IIB4c Backlog Level

Backlog: orders received but not yet shipped = all orders in the system (past due +
current + future planned).
Syn: Open Orders, Orders Board
Backorders: unfilled orders or commitment. Syn: past due or immediate.

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 Backlog = Backorders + current order + Planned Shipments
Backlog level should be equal to the average LT for products

IIC The S&OP Process

IIC1 Management and their roles in S&OP

Its the most important meeting

Major attendees are (a) top decision maker, (b) his first line teams, and (c) master
scheduler.
Members are not allowed to send delegates to the meetings.
When numbers are agreed to, whether financial, sales, or manufacturing quantities, it
must be understood that the whole organization will be working to them.

IIC2 the Five Steps involved n S&OP

(1)-Run Month-End Report

Performed by IT
Update records with month end results and issue month-end reports
Prepare latest forecast data to next step

(2)-Demand Planning
Demand: Need for particular product or component
Demand sources like:
a. Customer order
b. Forecast
c. Interplant requirement
d. Request from a branch W/H
e. Service part
At F.G level sales are different from demand (sales dont give actual image about
demand because stockout cases mean demands without saes).
Inputs to this steps are:
a. Business plan
b. Contingency planning:
When key factors or regular availability of materials are suspect
In case of short LT: store RM and produce products as needed.
In case of longer LT: store at sub-assemble levels and produce according FAS
when customer order is receipt.
The thought behind this approach are:
1- Preparing for odd big orders with crops up periodically
2- Our forecast is unreliable and we need materials available to provide
flexibility
Once policy of contingency planning is agreed on S&OP it should be passed
clearly to master scheduler to apply it.
c. Historical and forecast data:

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 A minimum of 2 years data is essential for it to be more meaningful.
When 2 or more years data is plotted on a graph, its extremely useful to see
where the peaks were and if they were during the same periods each year.
The marketing group may have conducted a survey or other research to establish
new trends that are appearing like moving to next phase in product life cycle).
d. Month-end report
Ideally the forecast should be the same for last periods, but the change of economy and
market place make it different (trend, seasonality, cycle, regression).

(3)-Supply Planning
Its the process of creating the plans to satisfy the customer needs whilst utilizing the
companys resources effectively and meeting the companys financial needs.
Participants in this steps are:
a. Planning manager
b. Inventory and/or materials manager
c. Master scheduler
d. R&D manager (in case of new product)
Inputs are:
a. Sales and Marketing Forecast:
Output from demand planning
b. Available Resources
To create a viable plan we should no exact available resources.
Resources are anything that adds value to a product or service in its creation,
production, or delivery.
E.g. W/C, floor space, Materials handling, etc.
The resources available are loaded to resource file
c. Bill Of Resources
d. Aggregate Planning of Inventory/Backlog
Decide whether level or chase strategy
Level approach make the manufacturing operation much more effective and
reduce the need for extra equipment to cover just the peak periods, but the
imbalance between sakes and production in a period means that the finished good
store balance is either increasing or decreasing, so in case of stockpile for seasons
in off-season will incur a high inventory investment.
Outputs are:
1- Proposed Sales Plan:
Definition: A time phased statement of expected customer orders anticipated to be
received (incoming sales NOT outgoing shipments) for each major product family
or item.
It represents sales and marketing managements commitment
It is expressed in units identical to those used for the production plan (as well as
in sales dollars)
It shouldnt be confused with either the sales or marketing forecast

2- Previous Production Plan:

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 Its a time phased statement of required production by product family.
The initial periods in months for master scheduling and the remains in quarters for
determine the availability of required resources.

3- Review current plans

The current plans are reviewed to ascertain if changes are required.
The current production plan is then compared to draft sales plan and reviewed if
required.
At this point (point of updating previous production plan to meet draft sales plan
for coming period) the following considerations should be taken:
a. Seasonality
b. Level scheduling
c. Capacity restriction
Use resources planning to balance the load (multiply required quantities with
BOR for each family then summation the load for every resource fro other
families and compare the required capacity with that it stated to be available
(stated in resources file)
The result is rather overload, balanced load, or under load.
Then set the recommendations to balance the load by either (a) reduce the
quantity in plans or (b) organize sufficient extra resources so that the plan can be
met taking the financial considerations in amount.
Then the two drafts of sales and production plans with recommendations are
forwarded to Pre-S&OP meeting.

(4)-Pre-S&OP Meeting
Inputs are:
a. draft sales plan
b. draft production plan
c. Set of recommendations
Set of considerations to be taken at this meeting are:
a. Performance measurement (e.g. customer service level)
b. Inventory and/or backlog levels
Output is recommendations to Executive S&OP meeting in the form of:
a. Proposed sales plan
b. Proposed production plan
c. Change to resources
d. Full back up documentation
e. Cash flow based in the proposed plans
f. Alternative solution
g. Tabled form for proposed changes on the companys policy and strategy
h. Create agenda for Executive S&OP Meeting, which a typical one includes:
1. Order book: the orders currently on hand.
2. Inventory: actual compared to calculated target levels that were planned for.
3. Order entry forecast: proposed sales plan plus how actual sales were to that
forecast last month.

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 4. Operations: proposed production plan plus how operations were performed for
last month (like is manufacturing meeting the scheduled deliveries on time, i.e., at
all levels for manufacturing not just finished products)
5. Service level against target.
6. New Product launch: (a) when developing a new product nearing completions, a
planned launch should be organized; often its badly handled, how? (b)
Manufacturing is asked informally o provide capacity to do trail, and because its
engaged in schedule it (the trail) comes a poor second, so (c) a new product
launch should be handled in S&OP so that its given the right capacity in these
final stages.

(5)-Executive S&OP Meeting

Inputs are output from Pre-S&OP meeting
Outputs:
a. Plans are signed off and then distributed within the company.
b. Authorization of additional resources supply is approved with action dates and
responsibilities identified.
c. Approved changes to policies.
d. A set of minutes documented the decisions made.
The syllabus required the following topics to be understood:

IIC3a Month Ends Report

Its the review for the results of operations in preparation for the new planning process.
Its reporting Actual Versus Planned for sales, production, on hand inventory, and
customer service level.
To manage inventory effectively it should be recorded and monitored regularly.
Its important to determine how high the inventory will climb it has to be financed.

IIC3b Statistical forecasts

Prepared by IT
Used by demand planning team members

IIC3c Field Sales Worksheets

Its a log by activities performed by each sales person.

It records the companys visited, the result of the visits, and problems identified by the
customer; it can also show anticipated sales in the future periods.
Used by demand planning team members to improve the statistical forecast from IT and
identify changes.

IIC3d Management Forecasts

Its the qualitative forecast created by demands management team.

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IIC3e Capacity Constraints

One approach to mange constraints is Constraints Management

It mange organizations and resources by using TOC.
TOC uses techniques such as Drum-Buffer-Rope and Buffer management
It identifies the bottlenecks and allows production through the plant at the rate the bottle
neck can handle it.

IID Developing and Validating he Production Plan

The key output of the S&OP is the productions plan.

IID1 Developing and validating the production plan

Tools used to perform this process are:

IID1.1 Formulating the production plan

Once the foist production plan has been generated, its a matter of adding to it
periodically.
Typically the production plan goes out as far as LT required changing any of the
companys resources.
The production plan in quarters for its full horizon except that for MPS its in months.
Once a quarter is added, the first quarter is broken into months, ad each month, a month
is handed over to master scheduler.
At each S&OP meeting:
a. Performance of the last month is evaluated.
b. Problems areas are identified.
c. Sales are asked for latest forecast revisions.
d. Manufacturing is asked to identify if they foresee any problems with the next months
planned work load.
e. When adding new quarters the implications of quantities are evaluated using RRP.

IID1.2 Aggregation planning of operations

Very often production plan is smoothed using production rate giving manufacturing a
level schedule.
Important: it should be noticed that the product family is created by combining products
that use the same resources, they are not necessary sales families.
Once the plan is created it should be checked by using interactive What If approach at
this level called RRP.

IID1.3 Communications of the approved sales and production plan

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 Once sales plan is agreed its issued to sales, and brake down to end items to determine
sales targets by regions and persons.
Once production plan is agreed, the master scheduler should add requirements to the
master scheduling by breaking down monthly quantity into weekly or daily basis and
product families to end items or modules level, this is done by using planning bills.

IID2 How to carry out resource planning

RRP is the capacity or resources check of the production plan.

Using BOR for family groups, it allows you to:
a. Anticipate the long term resource requirements
b. Picture the load by key resource category
c. Balance the requirements across the available capacity
d. You can check out the plan to verify if it will give you the required performance
measurements.
After comparing the required capacity with what stated to be available, and in case of
imbalance, the solutions is either:
a. Decrease the qty in production plan
b. Increase the capacity
c. Keep both resources and quantities as is and re-balance the load over resources if
possible.
Inputs for RRP
a. Production Plan: quantities of families by periods.
b. Historical performance data: to plan over Demonstrated Capacity
c. BOR: Syn: Load Profile.
d. BOL: kind of BOR, it calls up standard hours by job grade and its; used to calculate
labours required per family per work centre.

Typical BOR
Its an accumulative of all the resources required to build up one product.
It include all levels of assembly
Only key resources are shown

Calculations of RRP

= ( ( /) (/))

Steps:
a- Multiply each qty for each group in the contents of BOR, the output is required
resources for that group.
b- Summation the required load required by various groups for every resource.
c- Compare the cumulative load for every resource with what stated to be available.

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 d- Dont forget to take routing in considerations (may load profile contain one resource
with high capacity required but by routing file its shown that this load required is
distributed over three time the product pass through this resource).
e- The result is Comparing Report that can be produced indicating the amount of a
resource required against the available.

UOM
Example:
a. If stores are considered as critical resources, then UOM could well be Cubic Meter
or Cubic Foot.

IID3 How to assess the desirability of alternative production plans

When conducting RRP, three scenarios can be result:

Case Case Description Choices

First case Production fit to resources Nothing
2nd case Production < resources 1- Resource should be laid of (but the problem will
be in 3 area (a) cost of redundancy payments (b)
cost of recruitment and training of new staff
when business picks up, and (c) morale of
labours
2- Kept staff as is and keep preparing for coming
demand
3- Conduct extensive education and training
program
3rd Production < resource 1- Reduce the plan
2- Increase resources (consider (a) LT of new
resource (b) cost of new resource (b) time and
cost of training staff and low quality and speed
for trails running.
3- Keep resources and qty as is and rebalance load
over work centres if possible.

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MGI HOME STUDY

4 SALES AND OPERATIONS PLANNING

4.1-the concept of a sales and operations plan

Management plans and control the business through the process of business planning.
The business plan includes (a) market forecasts (b) financial plan, and (c) sales and
operations plan.
Sales and operations plan is usually stated in aggregate terms.
It may be stated in dollars or I aggregate units of input.
It may be further aggregated to include several time buckets of the master schedule in an
aggregate time bucket S&OP.
S&OP is the primary communication tool among the key functional areas.
Each area needs to provide data that will be incorporated into this aggregate plan as
shown in the following table:

Function Information required

Engineering New products and product changes
HR Workforce availability
Operations Production constraints
GM/CEO Business plan
Materials/Purchasing Supplier constraints
Finance Capital and financial information
Sales Customer issues
Marketing Demands and promotions

S&OP is a key input of business plan because its the largest portion of controllable
expenses.
S&OP has 3 key characteristics:
a. S&OP represents a controllable part of the business, while orders booked are
influenced by sales, these can only partially controlled, companies usually have a
significantly higher degree of control over the production process.
b. S&OP will seldom match the marketing forecast or shipping plan. S&OP
attempts to vary inventory and/or backlog level to optimise customer service level
with manufacturing and inventory cost.
c. The detailed materials requirement and capacity plans are driven by S&OP.
The result of S&OP is that all functional area in management can operate from the
same sheet of music.

4.2-S&OP Process

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 In pure MTS, the orders backlog should be close to zero, because pure MTS Company
would never plan to be out of stock, the planned finished goods inventory would always
be greater than zero.
In a purely MTO, the production plan should be equal to the shipping forecast, if the
production plan and shipping forecast didnt identical then the company is expected to
built the inventory or increase backlog.
The order backlog line is an important indicator of future revenues for the company.
The backlog consists of 3 types:
1- Current open orders
2- Past due orders
3- A MTS items but in stockout situation (it arent be planned to be in backlog), its a
small fraction (about 1-csutomer service level).
The shipping forecast is the first step in determine the revenues the company will obtain,
its also the first step in creating S&OP.
The production plan and the planned daily rate must be adjusted to meet the shipping
forecast, keeping on mind the level of finished goods inventory and the resources
available.
Large fluctuation in the production rate can reduce manufacturing efficiency.
Level strategy:
a. Maintains a level production rate.
b. The fluctuations in the shipping forecast are accommodates by carrying a large FG
inventory or maintain a large backlog.
c. The advantage of having a level production plan is greater stability for
manufacturing.
d. Manufacturing cost should be reduced because of reduction in overtime and
hiring/layoff cost.
e. Both cases of high inventory and stockout can occur.
f. The cost of carrying inventory is high.
g. Management will tend toward this strategy when the cost of changing the production
rate is significant.
h.
Chase Strategy:
a. The company attempts to reduce FG inventory and/or backlog to zero.
b. Production rate must change in concern with shipping forecast.
c. FG inventory is always maintained at a level that has been established as a minimum
inventory target.
d. The assumption implicit in using a chase strategy is that resources are flexible and
can be changed easily at low cost.
e. A crucial element of the chase prediction plan is the portion requiring evaluation of
that plan against the available capacity as a feasibility check; this activity is called
resources planning.
Mixed Strategy: most companies will determine the best strategy by costing a chase
strategy, level strategy, and finally through a trial and error approach, arriving at a more
economical mixed strategy.
for the purpose of determine the cost of strategy; the cost of product families can be
determined by two commonly methods:

75
 1- The composite Method: the cost of each product in the group is established, the mi x
ratios are used to rate these costs and arrive at a composite cost for each unit in the
group.
2- Representative Item: in some groups, one item may be considered as typical. If this
is so, cost data for that particular item is used as a cost figure for the entire group.
Improtant: Negative inventory = order backlogs.
An implication assumption we have made while developing level production plan is that
the number of working days per quarter is the same.

4.3- Resources Planning

Typically, rough measures of capacity are used to convert S&OP into RRP.
Measuring output against capacity can determine the point at which additional capacity is
required.
Moving toward a mi strategy can level the variations in percent of capacity variation.
Its the master schedulers task to take a feasible production plan and develop the detailed
item by item master schedule.

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III MASTER SCHEDULING

IIIA General Concepts and Purposes

Its translates high-level aggregate plans into feasible schedules that operations and
suppliers can execute.
Its a process of disaggregating the production plan into an executable schedule which
links shipment of customer orders to materials management.
It the acts of converting production plan into detailed manufacturing plan.
The order entry and customer promises are made from information contained in the
master schedule and manufacturings task is to meet the schedule.

Master Scheduling Terminology

Differences between MS and MPS:

Master Schedule The term of master schedule is used in

Master Production Schedule
reference to a time-phased planning chart,
which include demand, supply and calculated
inventory availability.
The term MPS is used in reference to a single
line on this chart, the schedule of production.

Master Scheduling Objectives

Control the company build program
Provide a balanced work load to manufacturing
Produce product in an economical manner
Support the sales plan and satisfy the customer demands

IIIA1 The role of master scheduling in the planning and control hierarchy

Master scheduling purposes

1- A schedule for master scheduled items either end item or module level
2- Stock for Final Assembly Schedule
3- Input to MRP
4- Input to RCCP
5- Basic for making delivery promises based on ATP facility

Important: the portion of production plan which is given to master scheduler should meet
the following criteria:
1- Covers a minimum of cumulative LT of each product family
2- Allows for the batching period used for ordering

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 Each month master scheduler should add another month requirements onto the end of the
master schedule from the production plan.
To do this master scheduler should break down the family from production plan into
master schedule level items, which are:
a. End item, or
b. Modules if planning bill are being used.
To break the family down master scheduler uses the sales forecast percentages, and then
schedule the work contents across the month in daily or weekly basis.
Using RCCP to obtain a balanced workload in the critical work centers.
The sum of MPS item quantities must balance back to the production plan family group
quantity.
MPS drives MRP to:
a. Determine the required manufacturing schedule for sub-assembles
b. Establish of purchased materials requirement
c. Provide stock for Final Assembly Schedule (FAS).
In summary; MPS is dependent upon production plan, and MRP is dependent upon MPS.
ATP is used by the order entry function when making promises to customers.

IIIA2 the linkages with other planning processes within the planning and control hierarchy

The basic modules of a standard manufacturing planning and control system are:
1- Top management planning
2- Operations management planning
3- Operations management execution

IIIA2.1 Top management planning

Inputs Techniques Outputs

Business plan S&OP meeting Sales plan
Sales and marketing Production plan
forecast
Resources available
per period

Sales plan
Its defined in production planning families, when this is broken down to individual items
or SKUs, it can then be added into the master schedule as a forecast.
Important: note that business plan is issued first, then sales plan is issued (by using
forecast) to meet profit margin in business plan, then production plan to meet sales plan
(same quantities but different period before seasonality of sales, you may produce in June
what you intend to sell in August), and then the monthly portion of production plan is
input to MPS (with actual order entry) and sales plan is input to (after production plan) to
forecast line in MPS, and to sales and marketing function after drilling down into end
items, it can be used as sales target for regions, are, or individual sales person.

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IIIA2.2 Operations Management planning

Inputs to this level are:

1- Production plan
2- Sales plan (forecast)
3- The inventory Available
4- Planning data held in the item master file

Master schedule
The customer order line is obtained from the actual orders held in Customer Order File

MRP
MRP uses firm planned orders (with is MPS)

DRP
TPOP creates planned orders for each DC
Planned orders are cumulated though MPS in CW
Then MPS output firm planned orders to MRP

IIIA3 The relationship between master scheduling, capacity management and materials
management.

Two factors must always be considered when discussing the master schedule; Capacity
and Materials.
Very important: RCCP is used to verify if the proposed MPS will fit into the
manufacturing bottlenecks, as this doesnt cover all work centers and isnt time phased
for lower levels, there might will be some balancing to be performed when the
manufacturing date become closer.
MPS could go out for two years and its pretty ( ) certain that something will
change, its necessary to load the jobs to the shops.
Once MPS is released to live system, MRP performs its calculation and uses RCP to
see how each work center is load for the full horizon of MPS.

IIIB Linking the master scheduling process to the business environment

The question is: which level of the product structure should be used for master
scheduling.

IIIB1 the relationship between the manufacturing environment and product structure

End item
MPS Customer
BOM type defined at Example
level order
which level?
Limited End item Standard MPS End item Master
range of BOM is scheduler

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assembled used by reports
products MRP in direct to
netting senior
process manager
Provide Module A planning FAS would End item Painting Master
off the level bill is used replenishment scheduler
shelf sales to the stock =
but families determine Planning
of the the Manager
products are percentage
configured of each
to a range module
of catalogue required
items from the
total
forecast.
And each
module
have its
owned
standard
BOM for
planning
the material
supply
Offer Option A planning FAS detail List of Automotive Master
options and level bill is used configuration options scheduler
choices to as per reports
determine customer direct to
the order senior
quantities manager
of each
option
required.
And each
option have
its owned
standard
BOM for
planning
the material
supply

Standard BOM
Each manufactured pat or subassembly has BOM.

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 The parent is the item to be made and the raw materials or piece parts used are known as
its component.
A whole complex assembly can be built up of sub-assemblies and piece parts, but each
sub assembly is entered into the BOM and controlled as an individual entity, they are
known as single level BOM.
A BOM is always loaded to the system as single level BOM, that is, the parent code of
the BOM only has material one level down associated with it.
A combination of a number of BOM to show the total multi-level content of a product is
known as a product structure.

Planning BOM
Its an artificial grouping of items or events in BOM format to facilitate MPS and MM

Super Bills
Syn: percentage Bills, family Bills
Its used to disaggregate products family level in production plan to end item, module, or
option level.
Important: the concept is, although annual sales may be changed, the percentage spread
or mix of individual items will remain similar, this means a BOM can be created for a
product family with each item within that group having its percentage spread as the
quantity per.
When dealing with wide range of configured items by various options, you should create
a BOM of standard item and use past history to establish the percentage spread of each of
the options within the function.
Summary: super bill is used to break down total sales forecast from family level to
module or option level.

Common parts bills

Its used when have a large number of bills, one for each final product with only very
minor differences (in packaging and labeling)
The sense is to group those common parts or even options together and give it a
Phantom parent code (Phantom=its not planned to be stocked, MRP blow through to
next level).
This process is called Modularizing the bill, so full BOM = common parts BOM+
specials
Good for ECN performed in one BOM instead of many

IIIB2 how to determine the level in the BOM where the master schedule should be
developed

IIIB2.1 Manufacturing environment

Refer to previous table, and the following table

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Manufacturing
Characteristics
Environment
MTS End item level, or by using planning bills in case of wide range of
products used
ATO This is typically when options and choices are offered.
The end product is not master scheduled but the options and choices
make up are.
Percentage bill used to define the percentage of each option
MTO These can be standard products not kept in stock, and they are only
produced when a customer requires one.
His occur when a wide range of choices is offered in a catalogue and
the products are assembled from standard parts that have a high
commonality across the range.
Typical are often created to simplify master scheduling.
For each family in the range a typical BOM is created which
includes the average material requirements for the range and its used
for planning purposes.
Its typical that is master scheduled to plan the material supply and
to reserve the average capacity.
The actual product required is manufactured as per the customer order.
Another form of MTO is when the firm keeps the raw materials and
produces the product according to drawings attached to the order.
In this case master scheduling is used to plan capacity requirements
based on a forecast of anticipated work to be received.
The material is usually controlled by replenishment system, as the
demand is independent.
Like manufacturer of presswork or machinery.

ETO Each end product has a unique set of BOM and because of this; the
individual end products are put into the master schedule.
In some cases a forecast of typical can be created and master
scheduled.
This would require an average demand of certain parts and this
technique can be used to shorten the lead time to the customer.

IIIC Management Considerations

IIIC1 Senior Executive Responsibility Related to Managing the Master Schedule

Senior management is normally the CEO and his first line.

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 Senior management issues the production plan in S&OP level and master scheduler is
required to support the executive by restricting the volumes to that provided by the
production plan.
Master scheduler should involve managers (sales, marketing, materials, etc.) in
rescheduling processes.

IIIC2 Roles of the master scheduler

Create and maintain master schedule.

Consider varies considerations of manufacturing, marketing, financial, etc when creating
the schedule.
Coordination functions.
Master scheduler characteristics:
a. Constructive
b. Imaginative
c. Diplomatic
d. Practical
e. Positive
f. Must be thick skinned to endure that hassles of handling the opposing approached
of the different departments.
He should have god practical experience in:
1. Manufacturing
2. Marketing and sales
3. Planning
4. Inventory

IIIC3 How to plan and coordinate changes

Type of changes:
a. Inventory level
b. Backlog
c. Capacity
d. Major customers orders
e. Time fence
f. Product or process design
g. Supplier

IIIC3a Inventory Level Changes

In MTS environment planned inventory changes can occur for 3 main reasons:
1. A change in forecast demand: decreasing or increasing in demand effect directly to
MPS orders quantities and frequency, so inventory will be affected.

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 2. A change in the frequency of supply: even if demands remain constant, change in
supply frequency (e.g. scheduled delivery from a DC) will affect MPS order quantity
(more frequent delivery means less MPS order qty).
3. A change in the service level required: changing in customer service level leads to
changing in safety stock levels.
In any case, changing in MPS orders will cause a ripple effect down through the netting
logic of MRP, the result will be a number of rescheduling massages for the component
parts.

IIIC3b Backlog Changes

To reduce the LT, its required the backlog to be decreased, that means produce more,
which in its order required the MPS to be rescheduled; again the ripple down affect in
MRP and rescheduling notices will increase.

IIIC3c Capacity Changes

Techniques to deal with increasing in capacity in the long term includes:

a. New plant/production line
b. Increase capital equipment
Techniques to deal with increasing in capacity in the short term includes:
a. Subcontracting bottleneck operations
b. Moving flexible (multi cross functional ) labours from line to another
c. Overtime
d. 2nd shift
What some companies do to try and reduce the effect of changes is o keep percentage of
their capacity in reserve for such a resource contention, rush and rescheduled jobs and
machines breakdowns.

IIICd Major Customers Orders

Its important to have a good relationship with your major customers.

If you are working on a release system or vendor scheduling, you will receive it
automatically on the schedule each month. The advantage of obtaining this information is
that it allows you to firm your forecast, which can make your supplying orders more
effective.
Changes to your customers requirement can be difficult to handle. When receiving
request for delivery dates or quantity changes care must be taken not to promise without
verifying if its practical.
Many companies hold a small percentage of their capacity as safety capacity to enable
them to manage a small number of customer requests fir changes.

safety capacityIn the theory of constraints: The

planned amount by which the available capacity exceeds
current productive capacity. This capacity provides

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 protection from planned activities, such as resource
contention, and preventive maintenance and unplanned
activities, such as resource breakdown, poor quality,
rework, or lateness. Safety capacity plus productive
capacity plus excess capacity is equal to 100
percent of capacity. Syn: capacity cushion.

IIIC3e Time Fences

Time Fence Characteristics & Affects Changing Handling

DTF (Frozen Freezing the current build program. Approved by senior
Period) Giving stability to the final stage in the management.
manufacturing
Provides confidence in the current
periods delivery promises.
PTF (Flexible It covers the cumulative LT of the Master scheduler controls the
Period) product. negotiations for changes.
It covers both the lower level of
manufacturing and the purchasing LT for
the products component.

Free Period Its used to determine long term Open

requirements for manufacturing and
purchased items.
And provide information for ordering
when batching rules are used.

IIIC3f Product or Process Design changes

Reasons for EC are:

a. Problem in design (safety issues, or product improvements)
b. Lack of resources
The important in EC is how urgent must it be introduced.
For some changes (like those related to safety issues) immediate changes should be taken
and time fence policy will be overridden.
The policy of introduction the change will either be when existing stock has been used
up, or a time phased date change is decided upon because several parts are involved
which all must be changed at the same time.
Engineering Change Committee: controls the approval and introduction the changes.
Engineering changes Note: the official document identifying how, when, and what must
be changes.

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Engineering changes
For business that copes with rapid technologies changeover it should maintain low
inventory.

engineering changeA revision to a drawing or design

released by engineering to modify or correct a part.
The request for the change can be from a customer or
from production, quality control, another department, or
a supplier. Syn: engineering change notice, engineering
change order.

Engineering Change Control

Who authorizes the changes?
Who implements the change?
How do we inform the supplier about the change?
Fig 3-8 Page 3-24.
Engineering Change Order Board (ECOB):
a. Chaired by senior person.
b. Engineering change note controller doesnt need great knowledge in the products.
c. A full documentation backup should be provided with change request.
d. Documents are sent to each department manager in the ECOB to study, then by hold a
meeting, each member in the board is expected o give proposal.

Who implement the changes?

The person who implements the change must have access to change BOM.
Its preferable to only have 2 people in the company with access to change BOM.
Updating BOM should be done from approved ECN only.

Inform the supplier

Once the engineering change note is approved, the Change Note is produced and
circulated to all affected parties within the companies.
From a practical point of view, its essential that the planner keeps his suppliers up to
date on all proposed and approved changes to ensure that unwanted material in not
ordered.

IIIC3g Supplier Change

Change of a supplier
Usually due to the suppliers failure to meet the required performance level.
New suppliers are appointed after going through an extensive assessment procedure with
the multi-disciplined assessment team (quality, engineering, finance, etc).

Change in the conditions of supplied items

This can include not only parts not meeting the specification but also not meetin the
required delivery date.

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 IIIC4 How o maintain the integrity of the master schedule

The master schedule should be practical, attainable, and stable.

IIIC4.1 stabilizing the master schedule

Stabilizing the master schedule addresses the techniques for minimizing the effect of
schedule changes.
These techniques include:
a. Safety stock and capacity
b. Hedging
c. Early warning systems
d. Replanning rules
Stable MPS is an essential requirement for successful manufacturing and planning
system.
The following scenario is eventually a result of unstable MPS:
1. If MPS orders change there is a ripple effect down through the levels of the BOM, so
the due dates for sub-assemblies have been changed.
2. The required changes are indicated to the planner in the form of rescheduling
massages.
3. If many MPS dates change, the planner will receive an unmanageable amount of
massages, and be unable to action them all.
4. The result will be shortage and manufacturing orders with start and finish dates in the
past.
5. The manufacturing will ignore the schedule eventually, as the dates are impossible.
6. Gradually, the shop floor will revert to working with unofficial hot lists.
To prevent this happening, the following rules should be followed.

Master Scheduling Rules

1. The master schedule should be kept as stable as possible to provide a stable lower level
schedule, which is essential if we want effective manufacturing performance.
2. The use of agreed time fences with a frozen period is essential if the master schedule is to
be controlled in an organized manner, and the time fence policy needs to be adhered to.
3. To enable the master scheduler to be in full control of the master schedule, orders loaded
in to the MPS covering the cumulative lead time should be firm planned orders.
4. Limited changes will have to be allowed, but with (a) take materials availability and
capacity in consideration, and (b) often a change becomes a trade one in, means one
out.
5. One way to buffer the MPS against inaccurate forecast is to carry an amount of safety
stock at the finished product level, either by (a) an extra amount of stock or (b) by
offsetting the MPS dates by a period of time.
6. If the master scheduler allows more to be put onto the schedule than is realistic from a
capacity standpoint, all the work will not be competed resulting in rescheduling, so we
should be very PRACTICAL when controlling MPS.

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Flexibility
Flexibility doesnt mean that we can chop MPS and change it at will.
To be flexible and provide high customer service level we should organize (a) bill
structure and (b) stocking points.
This done by two approached: FAS and Typical BOM.
Organize stock point = use FAS = stock at the level of subassemblies which allowed us to
convert it rapidly to final product after receiving customer order.
Organise bill structure = use Typical BOM = the bill of a typical calls up material which
are used for any one item in the family, and the same thing for routing.
Filling Schedule: another form of FAS, in paint manufacturing, colours and types are
master scheduled, only when the batch is in production is the decision made as to which
tin sizes are to be filled, this is determined by checking the existing stock levels of each
pack size, the objective is to bring each pack size stock balance to the same number of
days usage. This balancing of the pack sizes stock level is known as Equal run out
quantities.

equal runout quantitiesOrder quantities for items

in a group that result in a supply that covers an equal
time for all items. Syn: equal runout method.

fair-share quantity logicThe process of equitably

allocating available stock among field distribution
centers. Fair-share quantity logic is normally used when
stock available from a central inventory location is less
than the cumulative requirements of the field stocking
locations. The use of fair-share quantity logic involves
procedures that push stock out to the field, instead of
allowing the field to pull in what is needed. The
objective is to maximize customer service from the
limited available inventory.

Hedging

hedgingThe practice of entering into contracts on a

commodity exchange to protect against future
fluctuations in the commodity. This practice allows a
company to isolate profits to the value-added process
rather than to uncontrolled pricing factors.

speculative buyingPurchasing an item not

immediately needed in anticipation of future price
increase.

buying downGiven a product that historically

experienced price swings, attempting to buy when the
price is low or down.

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 Its the practice of planning the receipts earlier than needed because of some anticipated
problem; its changing the timing of supply rather than baying more.

Option Overplanning

option overplanningTypically, scheduling extra

quantities of a master schedule option greater than the
expected sales for that option to protect against
unanticipated demand. This schedule quantity may only
be planned in the period where new customer orders are
currently being accepted, typically just after the demand
time fence. This technique is usually used on the second
level of a two-level master scheduling approach to create
a situation where more of the individual options are
available than of the overall family. The historical
average of demand for an item is quantified in a
planning bill of material. Option overplanning is
accomplished by increasing this percentage to allow for
demands greater than forecast.

The decision of over-plan should come from the executive S&OP meeting as its incurring
investment in inventory.

Safety Stock
If serious forecast error is experienced one solution is for the MPS dates to be brought
forward, or over-planning.
The policy of safety stock (customer service level that be calculated based on it) should
be set in S&OP meeting.

Safety Capacity

safety capacityIn the theory of constraints: The

planned amount by which the available capacity exceeds
current productive capacity. This capacity provides
protection from planned activities, such as
resource contention, and preventive maintenance and
unplanned activities, such as resource breakdown, poor
quality, rework, or lateness. Safety capacity plus
productive capacity plus excess capacity is equal to 100
percent of capacity. Syn: capacity cushion.

Its the concept of having more capacity available than required for the planned
workload.
Short in capacity = longer queue = higher WIP = longer LT = delivery rate = Poor
customer service.
When moving to JIT = using spare capacity at all manufacturing capacity.

Safety Lead Time

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 safety lead timeAn element of time added to normal
lead time to protect against fluctuations in lead time so
that an order can be completed before its real need date.
When used, the MRP system, in offsetting for lead time,
will plan both order release and order completion for
earlier dates than it would otherwise. Syn: protection
time, safety time.

The concept is that we off-set the order due date by the suppliers unreliability.

IIIC4.2 Managing Changes

Adapting the MPS to changing supply conditions

Supply conditions = deal with suppliers.

Nowadays, and to reduce supplier LT, its better to operating with regular call-offs to
meet actual demand as pat of annual contract, against individual PO.
Establish supplier partner and work with techniques such as scheduling the vendor and
the release system.

customer-supplier partnershipA long-term

relationship between a buyer and a supplier
characterized by teamwork and mutual confidence. The
supplier is considered an extension of the buyers
organization. The partnership is based on several
commitments. The buyer provides long-term contracts
and uses fewer suppliers. The supplier implements
quality assurance processes so that incoming inspection
can be minimized. The supplier also helps the buyer
reduce costs and improve product and process designs.
Syn: customer partnership.

outpartneringThe process of involving the supplier

in a close partnership with the firm and its operations
management system. Outpartnering is characterized by
close working relationships between buyers and
suppliers, high levels of trust, mutual respect, and
emphasis on joint problem solving and cooperation.
With outpartnering, the supplier is viewed not as an
alternative source of goods and services (as observed
under outsourcing) but rather as a source of knowledge,
expertise, and complementary core competencies.
Outpartnering is typically found during the early stages
of the product life cycle when dealing with products that
are viewed as critical to the strategic survival of the firm.

supplier partnerA supplier organization with which

a company has formed a customer-supplier partnership.

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 supplier partnershipThe establishment of a working
relationship with a supplier organization whereby
two organizations act as one. Syn: collaborative supply
relationship.

blanket order releaseA message that is used to release

a quantity from a blanket order.

blanket purchase orderA long-term commitment

to a supplier for material against which short-term
releases will be generated to satisfy requirements. Often
blanket orders cover only one item with predetermined
delivery dates. Syn: blanket order, standing order.

blanket releaseThe authorization to ship and/or

produce against a blanket agreement or contract.

Main factors should be considered for practical MPS is the availability of materials and
capacity and LT.
When a modified MPS is used in a What if mode, the MPS logic will use the standard
lead time held in the system and re-plan the material supply.
When circumstances alter, as they do in the real world, then the plan must be modified to
meet the real needs.
How to work in case of supply changes?
a. With suppliers
1. Find alternative sources of supply.
2. Air fright against of sea fright.
3. Reduce order quantity.
b. If the orders just to replenish the stock or they should be filled immediately to
customers.
c. Contacts sales to discuss which customers should be given the highest priorities
d. Decide who best to use what materials are available and hat items are completed first.
e. Alter the master schedule.

Adapting the MPS to changing capacity conditions

In some conditions, your output is controlled by the suppliers capacity. In this case
supplier capacity should be considered as key bottleneck and checked in RCCP.
For external suppliers we need to reserve capacity in their plant by using such
approaches of scheduling the vendor and release system with blanket orders where
you set up long term contract or annual agreement with calls-off delivery. In this case you
should support the supplier with MRP output which identifies the volume per pat per
period, so the supplier adopt his capacity for your requirement, so you can reduce the
effect of insufficient capacity by planning in advance.

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 When you work with standard unit its easier to plan future capacity requirements, but in
cases of project or job shop work, such approached like book machines hours for
typical items.
MPS uses RCCP to check capacity.
Major types of capacity we deal with it in MPS level is:
a. Labours
b. Machines
c. Tools / Fixtures

Resolving capacity limitations

Method When used?

Alter the routing When a particular work canter is overloaded, it
may be practical to use an alterative routing to
utilize under loaded machine.
Alter order quantity Reduce order quantities and work on making
quantities just sufficient to satisfy immediate
customer needs.
Work extra hours Over time for short term, second shift for
longer term.
Move the work force Reorganize the work force to create more
capacity at the bottlenecks.
Sub-contract Its considered a medium term solution, but if I
need it immediately the assumption that I
already established subcontractor well
previously.

Rescheduling

If all the work is still needed and time cannot be found to work out the overload, then the
only alternative is to reschedule the MPS with all the problems that go with the process
(remember: trades off-one in means one out).

IIIC5 the consequences of an unrealistic Master Schedule

1- Overloaded work center

2- Poor customer service
3- Meaningless priority system

IIIC5a Overloaded work centre

General overloaded or front end loaded.

General overloaded
Overload the work center = the work will not complete = lead to shortage in the higher
level assemblies = the work will become overdue.
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 If each period is fully loaded, where do you reschedule the jobs to?

overloadA condition when the total hours of work

outstanding at a work center exceed that work centers
capacity.

overlap quantityThe number of items that need to

be run and sent ahead to the following operation before
the following overlap operation can begin. Syn: offset
quantity. See: process batch, transfer batch.

overrun1) The quantity received from manufacturing

or a supplier that is in excess of the quantity ordered.
2) The condition resulting when expenditures exceed
the budget.

Frond end loaded

Explained well in section IIIE.1.1

Incomplete master schedule

The golden rule with master scheduling is never load more than the agreed capacity
permits.
Many companies deliberately under load the MPS to give a certain amount of flexibility.

Poor customer service

The business today moving toward using single source of supply, so poor customer
service means that you will be dropped from customer approved list, which leads you to
lost business and gradually extinction.
Reasons for poor customer service from MPS point of view:
1- Unstable MPS
2- Short horizon allowed: (means that materials and capacity may not be available
when its needed).
3- Wish list: make MPS is wish list for customer!!!

Meaningless priority system

In priority system, dont just pull the urgent work to the front of the queue, which then
overloads the work center and delays the planned work even more, you should NOT
consider only the work to pull forward, but also the work can be delayed.
Wishful thinking leads to overload work centers and jobs running late.

Expediting and de-expediting

expediteTo rush or chase production or purchase

orders that are needed in less than the normal lead time;
to take extraordinary action because of an increase in
relative priority. Syn: stockchase.

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 expeditorA production control person whose primary
duty is expediting.

pre-expeditingThe function of following up on open

orders before the scheduled delivery date, to ensure the
timely delivery of materials in the specified quantity.

de-expediteThe reprioritizing of jobs to a lower level

of activity. All extraordinary actions involving these jobs
stop.

In case f expedite you should make Short list = hot list = Top ten.
The objective of this is to put the required pressure and attention on the selected items so
that the items are available in time for use in the next level of assembly.
Companies should respond to de-expedite cases as expedite one, when MRP re-plan the
work it releases rescheduling exception massages advising us about what either to be
brought forward or delayed.
To be realistic and make your supplier or shop floor more responsive to your expediting
request its better to provide parallel de-expedite case (ask for extra priority work but also
says what is not needed).

IIID the master scheduling process

Availability of tools (software etc.)

ERP

Linear Programming

Advanced Planning and Scheduling (APS) System

advanced planning and scheduling (APS)Techniques

that deal with analysis and planning of logistics and
manufacturing during short, intermediate,
and long-term time periods. APS describes any
computer program that uses advanced mathematical
algorithms or logic to perform optimization or
simulation on finite capacity scheduling, sourcing,
capital planning, resource planning, forecasting, demand
management, and others. These techniques
simultaneously consider a range of constraints and
business rules to provide real-time planning and
scheduling, decision support, available-to-promise,
and capable-to-promise capabilities. APS often generates
and evaluates multiple scenarios. Management
then selects one scenario to use as the official plan.
The five main components of APS systems are

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 (1) demand planning, (2) production planning, (3)
production scheduling, (4) distribution planning, and
(5) transportation planning.-

APS can be summarized as follow:

a. it replaces existing infinite CRP
b. it uses finite loading
c. it can work to the nearest minute
d. it provide simulation reports
e. it calculate dynamic queue times
f. it used by many world class manufacturing companies

APS achieve improved levels of performance, the benefits of which include:

a. optimized makespan (lean principles) using advanced planning scheduling execution

software

b. improved due date adherence - an accurate Available To Promise date

(results in higher on time delivery) - using finite capacity planning

c. a reduction in work in progress

d. improved visibility of plans and schedules

e. shorter lead times offered to customers

f. increased throughput [http://www.worldclassaps.com/]

APS (UK - Advanced Planning & Scheduling System; US - Advanced Planning System): A
comprehensive planning and operational control system based on proprietary software and
comprising a number of distinct modules, or sub-elements. The sub-systems include MPS,
Forecasting, BOM and many others common to MRPII and ERP. However, a notable absentee
among the modules is Closed-Loop MRP. The day to day plan control which is effected by
Closed-Loop MRP in an MRPII/ERP system is replaced in an APS by a Finite Scheduling
"Engine". That is, what is at the heart of an APS is the capability to produce a realistic schedule
of work detailing the order of jobs, start and finish times and so on, taking account of practical
scheduling and production rules and the desirability of optimising throughput. Unlike the
cumbersome manner of MRP, APS provides for interactive interrogation of the scheduling
situation and interactive resolution of problems (eg planning difficulties due to plant
breakdowns).[ http://www.glossaryofmanufacturing.com/]

Pegging

full peggingThe ability of a system to automatically

trace requirements for a given component all the way up
to its ultimate end item, customer, or contract number.
Syn: contract pegging.

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 peggingIn MRP and MPS, the capability to identify
for
a given item the sources of its gross requirements and/or
allocations. Pegging can be thought of as active where-
used information.
requirements traceabilityThe capability to determine
the source of demand requirements through record
linkages. It is used in analyzing requirements to
make adjustments to plans for material or capacity.

When a problem is experienced with a part, for example, we are informed there will be a
short delivery of that component, we often needs to establish what products will use that
part.

Bottom-Up Replanning

bottom-up replanningIn MRP, the process of using

pegging data to solve material availability or other
problems. This process is accomplished by the planner
(not the computer system), who evaluates the effects of
possible solutions. Potential solutions include
compressing lead time, cutting order quantity,
substituting material, and changing the master schedule.

Some of the techniques used to support the planners efforts include:

a. Reducing the batch size to produce as many as possible from the material available.
b. Reducing the inter-operation time for sa specific order to get it through the plant
quicker.
c. Order splitting or operation splitting can be used to get only the required number of
parts from the plant quicker.

Keeping the master schedule practical

If a demand was not forecast where will we get the material?
To add extra demands into the master schedule is there sufficient capacity available?
An important rule is to never overload the MPS; it must be kept within the capacity
constraint.
Always check for materials and capacity availability before adding orders into the MPS.
Remember the Horse Trading Rules- ONE IN, MAY MEANS, ONE OUT.

Trade-offs to achieve eh master schedule

Trade-offs between whats required against materials available.
Trade-offs between customer service and flexibility and manufacturing efficiency (small
batches against large batches)

IIID1 how to identify and quantify sources of demand

Source of demand (input to MPS) is:

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 1. Forecast (from sales plan)
2. Customer Order
3. Spare Parts
4. Demands from distribution center/branch warehouse (DRP)
5. Safety Stock

IIID1.1 customer orders and forecast

We enter customer orders into the system after various vetting processes, via the
customer order entry module.
Many packages have a Customer Order File, which is where our customer orders are
held until its time to deliver them.
Customers orders are used in the master schedule for calculating PAB within DTF, and
in subsequent periods if they exceed the forecast.
As a general principle, customer orders should not be allowed to exceed the forecast
within an order time period as insufficient material will be ordered and capacity will not
be reserved for the additional production required.

IIID1.2 Service Parts Requirements

Important: the dependent demand for the sub-assemblies is often shown in the master
schedule as Dependant Demand or Production Forecast and the spares requirement is
shown separately as Independent Demand or Forecast.

IIID1.3 Distribution requirements

Either pull system (ROP, double ROP, P system, etc) or push system (DRP/TPOP).

IIID1.4 Safety Stock

IIID2 The Mechanics of the Master Scheduling Process

IMPORTANT: Steps for formulating the master production schedule

1- Identify sources of requirements

a. Customer orders
b. F.G Warehouses
c. Spares Requirements
d. Safety Stock
e. Interplant Orders
f. Forecast Requirements
2- Establish schedule of factory requirements
Why plans quantity differs from original requirements:
a. Existing stock
b. Batch sizes

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 c. Capacity limitation
3- Create MPS
This is a trial and error approach to find a practical fit.
Many attempts will be made trying to fit the requirements into the available
resources, before a balanced workable plan is produced.
Bills of Resources are used to test the critical resources.
4- Select feasible MPS
Using RCCP as what-if approach to select more feasible MPS
The trial MPS will be transferred into the Live system.

IIID2a. Disaggregating the production plan (Important)

Consume production plan

Each month the master scheduler takes one additional months requirement and breaks
the family down into MPS items and adds them to the current MPS.
He enters Firmed Planned Manufacturing Order into the MPS row of the master
schedule.

Consume sales plan

The disaggregated sales plan quantities of end items requirements are entered into the
forecast row of the master schedule.

IIID2b. Determine On-Hand Balances and Consuming the Forecast

IIID2b.1 calculating the projected on hand balances

Firstly: Content of MPS display

Header
1- Item name
2- Lead time
3- Order quantity (or lot size)
4- DTF
5- PTF
6- On Hand quantity
Rows
7- Forecast (from sales plan/MTS)
8- Customer Orders (Actual orders/MTO)
9- Projected OH(Available) Balance
10- ATP
11- MPS (Firm planned manufacturing order should meet production plan quantity, or
it can be defined as schedule receipt for manufacturing to produce against)

Secondly: Calculating Projected Available Balance (PAB)

PAB is the calculation of what the stock O.H will be at the end of future periods if the
assumptions made are met.
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 Prior to DTF:
PAB = the opening stock balance or previous PAB + MPS orders customer orders.
After DTF:
PAB = the previous PAB + MPS orders the greater of forecast or customer orders.
MPS required: when PAB equal to or closer to zero or safety stock.
MPS release: equal to MPS required date minus lead time.

projected available balanceAn inventory balance

projected into the future. It is the running sum of on-
hand inventory minus requirements plus scheduled
receipts and planned orders. Syn: projected available
inventory.

IIID2b.1 consuming the forecast

Important
Inside DTF: actual orders consumes forecast, because both of PAB and ATP is
calculated based on customer orders (actual demand).
Outside DTF: As orders gradually arrive, they can be offset against the quantities in
the forecast, but the forecast itself is not reduced, why? Because the two rows
(forecasts and actual orders) should remain because the two are used for different
purposes: Forecast: for calculating PAB, and actual orders: for calculating ATP.

consuming the forecastThe process of reducing the

forecast by customer orders or other types of actual
demands as they are received. The adjustments yield the
value of the remaining forecast for each period. Syn:
forecast consumption.

IIID2c Identifying ATP quantities using both the cumulative and non-cumulative methods

Definition: an uncommitted portion of a companys inventory and planned production,

maintained in MPS to support customer order promising.
In periods in which an MPS receipt is scheduled the ATP is calculated as the MPS receipt
quantity minus the customer orders for the period and the following periods prior t the
next MPS scheduled receipt.
ATP can be:
1- Cumulative
2- Non-cumulative

ATP with multi-level MPS

When a company uses a final assembly schedule with options and choices, the ATP for
the parent must never exceeds the availability of the options and choices still available
when taking the option percentage usage into account.

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IIID2d. Working with time-phased order records

In master scheduling, the MPS is manually created which is a number of supply orders.
The master scheduled is time-phased, that is the data entered whether demands or
supplies are shown under defined time periods.

IIID2e. Working with time fence and rescheduling

time fenceA 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.
Time fences can be used to define these points.

DTF
demand time fence (DTF)1) That point in time inside
of which the forecast is no longer included in total
demand and projected available inventory calculations;
inside this point, only customer orders are considered.
Beyond this point, total demand is a combination of
actual orders and forecasts, depending on the forecast
consumption technique chosen. 2) In some contexts,
the demand time fence may correspond to that point
in the future inside which changes to the master
schedule must be approved by an authority higher than
the master scheduler. Note, however, that customer
orders may still be promised inside the demand time
fence without higher authority approval if there are
quantities available-to-promise (ATP). Beyond the
demand time fence, the master scheduler may change
the MPS within the limits of established rescheduling
rules, without the approval of higher authority.

1- DTF= final assembly stage (not all cum LT) = frozen period=actual orders just
considered=emergency changes=high level authority to change.
2- In component type manufacturing with a single level bill it would be the whole
manufacturing process.
3- Its the point of no return
4- Once the job started should be finished and the parts and materials are committed to
the final product.
5- Only customer orders are considered
6- Changes to the master schedule should be approved by authority higher than the
master scheduler.

PTF
planning time fenceA point in time denoted in the

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 planning horizon of the master scheduling process that
marks a boundary inside of which changes to the
schedule may adversely affect component schedules,
capacity plans, customer deliveries, and cost. Outside the
planning time fence, customer orders may be booked
and changes to the master schedule can be made within
the constraints of the production plan. Changes inside
the planning time fence must be made manually by the
master scheduler. Syn: planning fence.

1- PTF=manufacturing and purchasing for components (fabrications and procurement)

=flexible period=actual and forecast are considered = trades offs
2- PTF+DTF=Cumulative LT
3- Planned orders outside PTF can be changed by system planning logic
4- Changes inside PTF should be done manually.

firm planned order (FPO)A planned order that can

be frozen in quantity and time. The computer is not
allowed to change it automatically; this is the
responsibility of the planner in charge of the item that is
being planned. This technique can aid planners working
with MRP systems to respond to material and capacity
problems by firming up selected planned orders. In
addition, firm planned orders are the normal method of
stating the master production schedule.

Look ahead
1- Look ahead=batching period=liquid period=forecast only=changes constrained by
production plan.
2- The size of looking ahead period determined by Batching Rule
3- Planning horizon = amount of time the plan extends in the future (determined in
MPS)
4- PH = min cum LT + lot sizing low level component+ and capacity changes of
primary W/C or key resources
5- In short LT keep PH at least one year
Important: term time fence differs from planning horizon:
Time fence: policy to state MPS and restrict changes.
Planning horizon: how time MP extends in the future.

Approval of exceptions to time fence policies/escalating approvals

1- DTF: its need CEO authority
2- Changes in DTF=lost output + unplanned costs
3- PTF= changes done manually by master scheduler after negotiation to be more practical
4- To make changes in PTF look to material and capacity availability and reallocating
feasibility
5- Free period by master scheduler (look to capacity constrains and cumulative should not
exceeds production plan)
6- Dont promise what you cant deliver, dont make MPS a wish list

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 7- Publish time fences once its agreed, to let salesman that is a time between order and
delivery.

Characteristics DTF PTF Looking a head

length Ass lead time Components Batching rule/ L.T for
fabrications and changing capacity
procurement lead time
Changes Just for emergency Trade-offs and free
changes rescheduling
Changes restriction Frozen Slushy Liquid
Changes authority CEO Master schedule with Master scheduler
negotiate with
sales/marketing
Changes constraints Materials availability Materials and capacity Restricted to
/FAS rescheduling reallocating feasibility production plan
stop works under (volume constraints)
ass

Rescheduling

We must examine our overdue work carefully and not just make it because it was
originally planned or because it was in the budget. E.g. if a manufacturing order just to
replenish stock in MTS and theres no actual demand for it customer order and if its
overdue and rescheduling it will case overloaded work center and lot of rescheduling
massages then cancel it.
If you dont rescheduling in practical manner to meet the current schedule and work
center max demonstrated capacity then the orders will have start and finish date in the
past, this lead shop floor to lose faith in the formal system.
Rescheduling is done with negotiation with sales and marketing, according to priority
systems.

IIID2.f Determine master scheduling lot sizes

MPS lot size depending mainly in the manufacturing process:

Manufacturing Process MPS Lot size

Job Shop Equal to Customer order
Batch Determine according several factors:
Annual quantity
Set up process clean time
Tank size replenishment approach in
process manufacturing
Line Equal to working shift size or production rate
continuous Equal to production rate

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 IIID3 How to structure, interpret, and use a BOM

BOM = Items master file (parts list) + Product structure (content of ass is defined)
Component
a. Raw materials, parts, sub assemblies
b. Goes to higher level of assembly
Parent items
a. Consists from one or more components
Product structure
a. Its sequence of operation for manufacturing purposes
b. Raw materials TO fabricated components TO subassemblies TO assemblies TO end
item
Product structure records
a. Required for each components used to manufacture the parent.
b. It differs from parts list that its contain dynamic (not just identification or static )
data.
BOM = recipe = formula = ingredients list (in process manufacturing)
BOM = sum of all product structure records for a particular parent
BOM can be displayed either explosion or implosion
Explosion
Enter parent code then the structure appears
Implosion
Called where used
Enter parts or subassembly code and it display where used in parents
IMPORTANT: BOM is entered to the system single level JUST, then the system can matches it
and display multi-level one.

product structureThe sequence of operations that

components follow during their manufacture into
a product. A typical product structure would show
raw material converted into fabricated components,
components put together to make subassemblies,
subassemblies going into assemblies, and so forth.
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product structure recordA computer record defining
the relationship of one component to its immediate
parent and containing fields for quantity required,
engineering effectivity, scrap factor, application selection
switches, and so forth.

product treeA graphical (or tree) representation of

the bill of material such as is shown below:

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Product structure

bill of material (BOM)1) A listing of all the

subassemblies, intermediates, parts, and raw materials
that go into a parent assembly showing the quantity of
each required to make an assembly. It is used in
conjunction with the master production schedule to
determine the items for which purchase requisitions and
production orders must be released. A variety of display
formats exist for bills of material, including the single-
level bill of material, indented bill of material, modular
(planning) bill of material, transient bill of material,
matrix bill of material, and costed bill of material. 2) A
list of all the materials needed to make one production
run of a product, by a contract manufacturer, of piece
parts/components for its customers. The bill of material
may also be called the formula, recipe, or ingredients list
in certain process industries.

single-level where-usedSingle-level where-used for

a component lists each parent in which that component

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is directly used and in what quantity. This information
is usually made available through the technique known
as implosion.

summarized bill of materialA form of multilevel

bill of material that lists all the parts and their quantities
required in a given product structure. Unlike the
indented bill of material, it does not list the levels of
manufacture and lists a component only once for the
total quantity used.

summarized where-usedA form of an indented

where-used bill of material that shows all parents in
which a given component is used, the required
quantities, and all the next-level parents until the end
item is reached. Unlike the indented where-used, it does
not list the levels of manufacture.

where-used listA listing of every parent item that

calls for a given component, and the respective quantity
required, from a bill-of-material file

assemblyA group of subassemblies and/or parts that

are put together and that constitute a major subdivision
for the final product. An assembly may be an end item or
a component of a higher level assembly.

bill-of-material explosionThe process of determining

component identities, quantities per assembly, and other
parent/component relationship data for a parent item.
Explosion may be single level, indented, or summarized.

componentThe raw material, part, or subassembly

that goes into a higher level assembly, compound,
or other item. This term may also include packaging
materials for finished items.

implosionThe process of determining the where-used

relationship for a given component. Implosion can be
single-level (showing only the parents on the next higher
level) or multilevel (showing the ultimate top-level
parent). Ant: explosion.

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 Indented BOM

indented bill of materialA form of multilevel bill of

material. It exhibits the highest level parents closest to
the left margin, and all the components going into these
parents are shown indented toward the right. All
subsequent levels of components are indented farther to
the right. If a component is used in more than one
parent within a given product structure, it will appear
more than once, under every subassembly in which it is
used.

indented where-usedA listing of every parent item,

and the respective quantities required, as well as each
of their respective parent items, continuing until the
ultimate end item or level-0 item is referenced. Each
of these parent items calls for a given component item
in a bill-of-material file. The component item is shown
closest to the left margin of the listing, with each parent
indented to the right, and each of their respective
parents indented even further to the right.

ingredientIn the process industries, the raw material

or component of a mixture.

intermediate partMaterial processed beyond raw

material and used in higher level items.

matrix bill of materialA chart made up from the

bills of material for a number of products in the same
or similar families. It is arranged in a matrix with
components in columns and parents in rows (or vice
versa) so that requirements for common components
can be summarized conveniently.

multilevel bill of materialA display of all the

components directly or indirectly used in a parent,
together with the quantity required of each component.
If a component is a subassembly, blend, intermediate,
etc., all its components and all their components also
will be exhibited, down to purchased parts and raw
materials.

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 multilevel where-usedA display for a component
listing all the parents in which that component is directly
used and the next higher level parents into which
each of those parents is used, until ultimately all top
level (level 0) parents are listed.

parts listA list of parts, materials, and components

required to make an item.

BOM can take several forms, and also the information included are different, e.g. for the
same product, the information and display and graphic display for BOM for engineering
function is differs from manufacturing function and its differs from planning functions.
For manufacturing its used as instructions for assembly, in engineering its used for
study the function of the parts and its material compositions structure, etc. and for
planning the important information is parts lead time, manufacturing level, make or bye,
etc.

IIID4 Reviewing capacity requirements and the role of RCCP

Proposed MPS (then) checked and reviewed by RCCP (then) live MPS
A series of trails should be run to get the best workloads balance over critical resources
RCCP is an attractive what if approach
RCCP works with critical resources (bottlenecks) only
MPS run against bottleneck to insure its availability
RCCP = MPS * BOR (check with available)
Separate BOR from BOM to reduce work (one BOR can be used for many BOM)
Extra capacity + lower utilization = low LT = high flexibility = high customer service
Extra capacity is often seen as marketing cost

rough-cut capacity planning (RCCP)The process of

converting the master production schedule into
requirements for key resources, often including labor,
machinery, warehouse space, suppliers capabilities,
and, in some cases, money. Comparison to available
or demonstrated capacity is usually done for each
key resource. This comparison assists the master
scheduler in establishing a feasible master production
schedule. Three approaches to performing RCCP
are the bill of labor (resources, capacity) approach,
the capacity planning using overall factors approach,
and the resource profile approach.

Objectives of RCCP
It provides a feasibility check of MPS.
It gives early warnings about bottlenecks.
It projects the future utilization of the critical work centers.
It provides the means to manage correctly the work in process to prevent major buildups.
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 BOR include tools, so RCCP give indications about tools requirements.
Suppliers may be included as a critical work center.

RCCP inputs
MPS
BOR
Work Center Availability

Bill Of Resources (BOR)

bill of resourcesA listing of the required capacity

and key resources needed to manufacture one unit of
a selected item or family. Rough-cut capacity planning
uses these bills to calculate the approximate capacity
requirements of the master production schedule.
Resource planning may use a form of this bill. Syn: bill
of capacity.

It contains the standard hours required to produce all subassemblies and parts that goes to
final product.

Bill Of Labours (BOL)

bill of laborA structured listing of all labor

requirements for the fabrication, assembly, and testing
of a parent item.

Its not unlike bill of resources.

But its a structured listing of all labor requirements by skills.
Its used to estimate the required labors for given periods for a given build program.

RCCP outputs
Total requirements for each resource by time period.
Load comparison.
How to display the load: Before and after run RCCP, the load should be displayed over
resources, and product:

product load profileA listing of the required capacity

and key resources needed to manufacture one unit
of a selected item or family. The resource requirements
are further defined by a lead-time offset to predict the
impact of the product on the load of the key resources
by specific time period. The product load profile can be
used for rough-cut capacity planning to calculate the
approximate capacity requirements of the master
production schedule.

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 resource profileThe standard hours of load placed on
a resource by time period. Production lead-time data are
taken into account to provide time-phased projections
of the capacity requirements for individual production
facilities.

load profileA display of future capacity requirements

based on released and/or planned orders over a given
span of time. Syn: load projection.

Capacity Planning using Overall Factors

A rough-cut capacity planning technique. The master

schedule items and quantities are multiplied by the total
time required to build each item to provide the total
number of hours to produce the schedule. Historical
work center percentages are then applied to the total
number of hours to provide an estimate of the hours per
work center to support the master schedule. This
technique eliminates the need for engineered time
standards. Syn: overall factors.

Important notes:
a. Historical work center percentages are then applied to the total number of hours to
provide an estimate of the hours per work center to support the master schedule.
b. This technique eliminates the need for engineered time standards.

RCCP: Simulation or what if analysis

capacity simulationThe ability to do rough-cut

capacity planning using a simulated master production
schedule or material plan rather than live data.

simulation1) The technique of using representative

or artificial data to reproduce in a model various
conditions that are likely to occur in the actual
performance of a system. It is frequently used to test the
behavior of a system under different operating policies.
2) Within MRP II, using the operational data to perform
what-if evaluations of alternative plans to answer the
question, Can we do it? If yes, the simulation can then be
run in the financial mode to help answer the question,
Do we really want to?

what-if analysisThe process of evaluating alternate

strategies by answering the consequences of changes to
forecasts, manufacturing plans, inventory levels, and so

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 forth. See: simulation.

what-if simulationAn approach to conducting a

what-if analysis usually found in MRP II and ERP
systems.

what-if facility allows the master scheduler to try out the MPS and see the impact on
the available resources before committing himself to it.
As the name implies, RCCP is not perfect, but a rough guide and its a tool to assist the
master scheduler to balance the overall workload.
The final lower capacity level balance will only be resolved by the planner after the
netting logic has taken place in the MRP module, and the detailed operation scheduling
and capacity requirements have been calculated by CRP.

IIID5 Developing and Using a FAS

final assembly schedule (FAS)A schedule of end

items to finish the product for specific customers orders
in a make-to-order or assemble-to-order environment.
It is also referred to as the finishing schedule because it
may involve operations other than the final assembly;
also, it may not involve assembly (e.g., final mixing,
cutting, packaging). The FAS is prepared after receipt
of a customer order as constrained by the availability of
material and capacity, and it schedules the operations
required to complete the product from the level where it
is stocked (or master scheduled) to the end-item level.
FAS horizon:
a. Should be as short as possible.
b. The horizon could go out for several weeks, allowing for order slotting to take place
as the order is start coming in.
UOM: may be modules, quantity of one, container size, etc.

IIIE Measuring Master Schedule Performance

Fundamental Measurement Concepts

1. Performance measurements should be brought in line to support the order winners and
qualifiers.
2. The data should economical to collect and present.
3. The measurement must be meaningful to the people receiving the data.
4. The information presented should be applicable to the activity measured.
5. The results of the measurement should be presented timorously.
6. For people to understand the results of a measurement it needs to be presented clearly.
7. Each measurement should have a target result so that improvement can be measured.
8. The measurement should encourage activity that will lead to meet the company
objectives.

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 IIIE.1 how to validate the master schedule

3 topics will be covered:

1. Symptoms of an Invalid Master Schedule
2. Rescheduling the MPS
3. Improving the validity of the master schedule

IIIE.1.1 Symptoms of an invalid master schedule

Invalid master schedule = master schedule is not practical, feasible, or is imbalanced =

periodic overloaded of critical work centers = frequent rescheduling of manufacturing.

The symptoms are:
1. Front-end loaded
2. Customer changes
3. Rush orders
4. Cancellations
5. Production downtime
6. Capacity Availability
7. Inaccurate reports

Front-end Loaded
A schedule which is front end loaded is one with a very high content in the first period
and a normal load in the following period.
How the schedule reaches the Front end loaded case? some reasons such as materials
shortage or technical problems will prevent ship floor from completing the scheduled
work, at the end of that period the outstanding work then appears in the current and
overdue period with the current periods work, if the master scheduler is not attended to,
it will gradually built up and this current ad overdue period will have a very high work
content.
The response to front end loaded schedule is immediate action to (a) provide extra
capacity, and (b) take out work not essential, so that the schedule becomes realistic again,
if this response is not taken, then the front end loaded schedule will lead to schedule that
shows orders in starting and finish date in the past, so that shop floor will lose faith in the
formal system.

Customer changes
To carry out customer changes, we should consider the following:
1- Content of changes: in the quantity, specifications, delivery date, etc.
2- Cost of changes: require extra capacity, cause high scrap.
3- Importance of customer: should we charge him in the cost?

Rush orders

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 rush orderAn order that for some reason must be
fulfilled in less than normal lead time.

Two important things should be taken in consideration before take a commitment to rush
order:
a. Jump over queue in work center.
b. Cause delay to normal planned work.

Cancellations
Complete write-off.

Production downtime
Unplanned downtime = overdue orders = its not possible to the manufacturing orders to
catch up the original schedule = rescheduling MPS.
To reduce the cases of unplanned downtime:
a. Plan for preventive maintenance in MPS.
b. Design gab between work shifts to conduct cleaning and operational maintenance
work and also to catch up overtime.

Capacity Availability
Capacity considerations differ according to manufacturing environment. (We will take
the difference between repetitive manufacturing line = assembly line layout, and
jobbing = functional layout.
Assembly line:
a. Standard production rate.
b. To increase the capacity by any considerable amount that means redesigning the total
operation.
c. Keep spare resources to maintain eh planned production rate.
Functional layout:
a. The load is different from day to day (according to production volume because its not
produce standard products but customized products)
b. Level of utilization we plan for should be considered, dont plan for high figure of
utilization if theres no orders, just MEET THE PLAN. (As best practice 8o%
utilization is optimal to make WIP and concerned LT responsive to optimal customer
service.
Once you have good reliable sub-contractors, when a peak load hits you, you can put out
some of the work to assist in meeting all the scheduled requirements.

Inaccurate records

Records Type Typical minimum requirements are often stated as:

BOM and Routings 99%
Purchasing 95%
Inventory 95%

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 Cycle counting should be conducted to maintain high level of these records accuracy
(may be in daily basis for new adjusted records).

IIIE.1.2 Rescheduling the MPS

In a weekly basis, a meeting to review MPS measurements should be held, threes

measures such as:
a. MPS completed to schedule
b. Order intake in line with sales plan
c. Number of jobs held for materials
d. Number of revisions due to customer changes

Replanning rules
There are typical problems experienced in the manufacturing causes rescheduling for
MPS, like:
a. Materials will not arrive in time
b. Machine has broken down and you should wait for spares
c. Manufacturing has a technical problem
If the demand has already been satisfied by an alternative, take the overdue demand out
of the schedule because its no longer needed. This will then reduce the current and
overdue load and make it easier to bring the MPS back under control.

IIIE.1.3 improving validity of the master scheduler

Some techniques used for maintaining MPS once its implemented:

1- Reviewing the master schedule
2- Reducing lead time
3- Flattening BOM and simplifying the product line

Reviewing the master schedule

Review the progress for rescheduling purposes
Any jog that doesnt get completed or will not get completed on time must be (a)
rescheduled or (b) taking out of the schedule like demand for retailers because the
customer should be satisfied from other retailers
When reviewing MPS, consider the followings:
1- The availability of materials and capacity, and how to provide extra capacity
(overtime, sub-contracting, etc).
2- Priority rule and what overdue that I can take it out.
Reducing LT
LT is probably the most expensive thing we have in the manufacturing.
Long lead times cause high WIP, less flexibility, and require us to forecast further into
the future with the deterioration of accuracy that is unavoidable.
Reducing LT is carried out by removing unwanted non-value adding activities.
Manufacturing LT=setup time +queue time +processing time +wait time +move time
Techniques are used in reducing LT such as:

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 a. Setup reduction
b. reduce processing time = Reduce batch size
c. Reduce queue time by creating cell manufacturing layout (avoid functional)- BE
CAREFUL queue time is about 95% of the manufacturing lead time.
d. Reduce move time = deliver the product directly to the line and avoiding the stores
and recording the issues by back flushing.

Flattening BOM and simplifying product line

Each level in BOM = stockable items & manufacturing lead time
One techniques used to decrease the number of level sin BOM id to create a Phantom.
A phantom BOM represents an item that is physically built, but not stocked, before being
used in the next step or level in manufacturing.
Important Simplifying production line = using cell manufacturing with pay point:
as we move to work cells the routings are simpler as they dont need to define each
machining operation any more but can simply say operation 20 manufacture on work
cell AAC, previously we may have had to define 6 operations in detail.
Its not necessary to record output at each operation; instead terms such as pay point
and count point are introduced to describe how progress is measured.

count pointA point in a flow of material or sequence

of operations at which parts, subassemblies, or
assemblies are counted as being complete. Count points
may be designated at the ends of lines or upon removal
from a work center, but most often they are designated
as the points at which material transfers from one
department to another. Syn: pay point.

Advantages of reducing BOM levels:

a. Reducing LT
b. Reducing inventory
c. Increase flexibility and responsiveness
d. Decrease unit cost

IIIE2 relating the master schedule to functional areas

Master schedule can be changes due to:

a. Changes due to customer request
b. Changes due to materials non availability, because of:
Late receipt
Scrap or yield problem
Engineering changes
c. Changes due to capacity non availability because of unplanned (out of RCCP)
breakdowns.

MPS Performance Measurements

1- On-time completion

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 2- Customer changes
3- Materials availability
4- Capacity availability

IIIE.2.a relating the master schedule to S&OP performance

Measurements are needed to check if the sales and production plan which were created in
the S&OP meeting are met:
a. Are orders received as per the sales plan?
b. Is product produced in line with the master schedule, which will then equal the
production plan quantities per family?

IIIE.2.b relating the master schedule to customer service level

Master schedule should meet production plan, which should meet sales plan, which
should meet forecast, with should meet customer requirements = meet this means
customer service.
Common performance measurements from customer service point of view:

Measurement Description
On time delivery The percentage of deliveries made to
customers on the promised delivery dates.
Lead Time Requirements The percentages of times the customer
requested dates can be met.
Fill Rate The percentage of orders filled by the promised
delivery date
Error rates The percentage of orders delivered with
incorrect materials
Stockout percentage 1- Customer service ratio

IIIE.2.c relating the master schedule to marketing/sales performance

Its not about measure how MPS meets demand in detailed lines, but how the company
meet customer demand even though the demand was not what was initially anticipated.
Common performance measurements from marketing/sales point of view:

Measurement
Percent of MPS completed on time
Percent of FAS completed on time
Percent of MPS items changed inside DTF
Percent of MPS items changed inside PTF
Percent of changes to product mix
Percent of promises based on system ATP
Comments
Direct measure to completion to plan
Its not necessary affect customer but it will
affect manufacturing
Either in one product family or from one
family to others
System ATP is depended upon 3 key factors:

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 Are the customer orders in the system up o
date and accurate?
Are the finished goods store balances
reliable? What is the store accuracy
percentage?
Do manufacturing consistently complete
the MPS orders by their due dates?
Percent of customer promises met on time

IIIE.2.d relating the master schedule to marketing/sales performance

MPS drives MRP which release planned orders for purchasing.

It uses purchasing LT held in the system (so should be accurate).
Common performance measurements from purchasing point of view:

Measurement Description
Supplier quality Percent of good or faulty parts received
Supplier delivery Percent of deliveries made on time
LT accuracy Percent of orders promises made by suppliers
within the system held LT
When working with supplier partnership concept, the way how we look to supplier
quality will differs (because the delivery inspect will be eliminated and the supplier will
delivery direct to the point of use).

IIIE3 Maintaining data accuracy

Sources of data for master scheduling

1- Master Production Schedule: This data entered usually manually based on several
factors, like (a) level or chase which means stockpiling for seasonality or not, (b)
production plan quantity, and (c) ordering policy.
2- BOM & Routing: the capacity requirement is shown in the routing file in the form of
standards hours required to perform on operation.
3- BOL
4- BOR
5- Options Planning (Percentage bills)

Affects of data inaccuracy on the master schedule

Data Affects of inaccuracy

Forecast of demand On PAB accuracy for future periods.
Actual Customer Orders On PAB & ATP accuracy.
Physical Stock on hand On PAB & ATP accuracy.
MPS Orders On PAB & ATP accuracy.

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