Supply Chain Planning

Jul 2010
 Supply Chain Planning

Supply Demand

1. Demand Planning

2. Product Design Planning

3. Supply Chain Operations Planning

4. Logistics Planning
Demand Planning – strategic
aspects

 Bullwhip
 Demand Variability

 Forecasting
  Bullwhip
 Demand Variability
 Forecasting

Bull Whip

 Magnified Variation across

the Supply Chain
Actual Demand Variation
 Variation from Customer to
Producer

 What’s the reason for ‘bull Induced Variation in Distribution Demand

whip’ effect?

 What’s the solution? Felt Variation at Factory/RM/Up stream SC etc.

 Increasing Variability of Orders
Up the Supply Chain

Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review

Coping with the Bullwhip Effect
in Leading Companies
 Reduce uncertainty
 POS, Sharing information/forecast/policies

 Reduce variability
 Minimise promotions/ Pricing consistency

 Reduce lead times

 EDI, Cross docking

 Strategic partnerships
 Vendor managed inventory (VMI)
 Data sharing

 Collaborative Planning Forecasting and

Replenishment (CPFR) Role of IT
  Bullwhip
 Demand Variability
 Forecasting

Demand Variability

 Competition
 Seasonality

 Product Life Cycle effect

 External factors

 Promotions

 Bullwhip
 Supply Chain Planning

Supply Demand

1. Demand Planning

2. Product Design Planning

3. Supply Chain Operations Planning

4. Logistics Planning
Product Design Planning

 Traditional Design Process

 Sequential
 Over-the-wall design/development

 Product Design for Supply Chain

 CE - DFM, DFL

 Other Design Strategies

 Standardisation & Component commonality
 Modularity
 Postponement; Mass-customisation
 Supply Chain Planning

Supply Demand

1. Demand Planning

2. Product Design Planning

3. Supply Chain Operations Planning

4. Logistics Planning
Supply Chain Operations Planning Framework
Sales and operations Demand
planning management

Master production
scheduling

Detailed material
Planning (MRP)

Shop-floor Supplier
systems systems
 Demand Management
Main interaction with
 Strategic Planning
Includes
 S&OP
 Forecasting  MPS
 Order Management

 Order processing (entry, book, acknowledgement,

confirm)
 Customer promising

 CRM

Demand mgmt should address complete demand aspects incl. spare parts, service levels etc.
 Forecasting
Forecasts & Plans

• What’s a Forecast?

• What’s a Plan?
 Two Types of Demand
 Independent demand

 Dependent demand

Which demand that a firm has complete control over?

 Customer Order Decoupling Point

It is the point at which the firm (as opposed to

the customer) becomes responsible for
determining the timing and quantity of
material to be produced

The point at which demand changes from

independent to dependent
Forecasting Output

for
•Strategic Planning

• S&OP

• MPS
Forecasting
Sales and operations Demand Forecast
planning management

Master production
scheduling

Detailed material
planning

Shop-floor Supplier
systems systems
 Forecasting

Forecasting Techniques

Judgment

Market Research
Intrinsic (Time Series)
Extrinsic (Causal)
Other models
Judgment Methods

 Sales-force Estimation

 Panels of Experts – internal,

external, both

 Delphi method
Market Research

 Market Survey

 Test Marketing
 Focus groups assembled
 Responses tested
 Extrapolations made
Time Series (Intrinsic)
 Moving Average
 Weighted Moving Averages

 Exponential Smoothing

 Regression

 Trend, Seasonality
(Decomposition)
 Other Models
 Holt’s
 Box Jenkin’s
 Time-Series Forecasting
Time Series Method
 Moving Average
 Weighted Moving Average
 Exponential Smoothing

Evaluating & Using Forecasts

 Forecast Error, Bias & MAD
 Aggregation

 Pyramid Forecasts
 Time-Series Forecasting

 Moving Average Model

 Forecast = Average demand of the past “N” periods

 Weighted Moving Average

Trade off : Stability Vs Responsiveness

 Time-Series Forecasting

 Exponential Smoothing

 α : “Alpha”, smoothing constant

 Dn : Demand for nth period
 Fn : Forecast of nth period
 Forecast(n+1) = Fn + α (Dn - Fn )
 Forecast(n+1) = α . Dn + (1 – α) . Fn

Trade off : Stability Vs Responsiveness

Causal Methods (Extrinsic)
 Based on data other than the data
being predicted

 Examples include
 Sales of other products
 Inflation rates
 GNP
 Unemployment rates
 Weather
 Forecast Error
 Forecast Error = D – F

 Mean Error (Bias)

 Mean Absolute Deviation (MAD)

 Average past absolute error
Pyramid Forecasting
Level 1
Total
Business
Forecast ($)
Force down
Roll up
Level 2
Product Lines

Individual items Level 3

 Forecasting Approach

 A Forecasting Framework –
 Aggregation
 Time frame
 Technique
 Mgmt involvement

 Short term/tactical Vs strategic/long term

CRM application to learn specific customer needs

 Judgment
How to Market Research
choose a Intrinsic (Time Series)
 Moving Average
forecasting  Weighted Moving Average
 Exponential Smoothing
technique/ Extrinsic (Causal)
model?
Pyramid forecast
 Choosing a Forecasting
Technique – some guidelines
 What is the purpose of the forecast?
 Gross or detailed estimates?

 Dynamics of the system being forecast?

 Is it seasonal? Trending?

 How important is the past in estimating the future?

 Product Life Cycle
Most effective to Judgment
combine approaches Market research
Intrinsic (Time
series)
Extrinsic (Causal)
Planning Framework – with DRP
Sales and operations Demand
planning management

Master production
scheduling

DRP
Detailed material
planning

Logistics
&
Transportation

Shop-floor Supplier
systems systems

DRP : Distribution Requirement Planning

Sales & Operations Planning
Sales and operations Demand
planning management

Master production
scheduling

Detailed material
Planning (MRP)

Shop-floor Supplier
systems systems
 Supply Chain Operations Planning
- Traditional planning sequence

Traditional Operations Planning

Business Planning

Sales Planning
Resource Planning Production Planning
Rough-cut Capacity
Master Scheduling
Planning
Capacity Planning MRP
Execution System
Sales Planning - to -
Operations Planning

 Limitations of Traditional Aggregate

Planning
 Functional silos
 Sequential
 Top-down
 People commitment

 What could be the remedy?

Supply Chain Operations Planning
- S&OP led
S&O Planning-led Approach
Business Planning

Sales & Operation

Resource Planning
Planning

Rough-cut Capacity
Master Scheduling
Planning
Capacity Planning MRP
Execution System
Supply Chain Operations Planning Framework
Sales and operations Demand
planning management

Master production
scheduling

Detailed material
Planning (MRP)

Shop-floor Supplier
systems systems
 Master
Production
Schedule

Period 1 2 3 4

Forecast 20 70 70 20
Projected
Available 50 20 30 50

MPS 40 40 80 40
On Hand=30
Safety Stock=20
Batch = 40x
 What should be planned in MPS

 MTS scenario
 End-items

• ATO scenario
 Options or modules from which a variety of end
products could be assembled

• ATO/ MTO scenario

 Numbers of units of an “average” final product
Supply Chain Operations Planning Framework

Sales and operations Demand

planning management

Master production
scheduling

Detailed material
Planning (MRP)

Shop-floor Supplier
systems systems
BOM – Bill of Materials

X (3) Y(2)

X Z

BOM explosion to generate material requirements

 Typical MRP Record

Period 1 2 3 4 5 6

Gross Requirements 20 20 40 30 30 30

Scheduled Receipts 50

Projected Available Balance 15 45 25 55 25 65 35

Planned Order Release 70 70

Lot Size (Q) = 70, LT=2, SS = 20

 MPS to MRP linkage

Period 1 2 3 4 5 6

Forecast 20 70 70 20

Projected Available

MPS 20 30 40 30 30 30
On Hand=30
Safety Stock=0
Batch = Any

Period 1 2 3 4 5 6

Gross Requirements 20 30 40 30 30 30

Scheduled Receipts

Projected Available Balance

Planned Order Release 150 200 150

Supply Chain Operations Planning Framework

Sales and operations Demand

planning management

Master production
scheduling

Detailed material
Planning (MRP)

Shop-floor Supplier
systems systems
 Shop-floor and Supplier
systems
 PAC (Production Activity Control)
i. Shop Floor Scheduling & Control
ii. Vendor Scheduling & Control

 Closed-loop feedback

 PAC and Production environment

 MTS, MTO; Job Shop/Batch Prodn.
 JIT
• Input/Output Control
• Gantt Charts & Sequencing Rules

• Forward scheduling
• Backward scheduling
 Theory of
Constraints
Drum - Buffer – Rope Scheduling

ROPE

20
20
DRUM 18 16
15
10

A B C D E
B

BUFFER

Capacity Constrained Resource

Theory of Constraints
Fundamentals of Business Redefined
 Throughput
- rate at which money is generated by the system
through sales.

 Inventory
- all the money the system has invested in
purchasing things it intends to sell.

 Operating expenses
- all the money that the system spends to turn
inventory into throughput.

Increase Throughput, Reduce Inv. & Op. Ex.

 Planning Framework with Capacity Planning
Resource Sales and operations Demand
Planning planning management

Rough-cut Cap Master production

Planning scheduling

Capacity
Requirement Detailed material
Planning (CRP) Planning (MRP)

PAC
Advanced Production
Scheduling (APS) or Shop-floor Supplier
Finite Loading, systems systems
Input/Output Analysis