MANUFACTURING PLANNNG & CONTROL

MATCHING SUPPLY AND DEMAND

Manufacturing

firms must find ways to adequately match supply and demand to achieve optimal levels of cost, quality, and customer service to enable them to compete

There are several ways to closely match supply and demand of the products and services

MANUFACTURING PLANNNG & CONTROL

1. 2. 3.

4.

MATCHING SUPPLY AND DEMAND Supplier holding plenty of available stock for delivery at any time. Use of flexible pricing Using sub-contracting & overtime to increase capacity to meet the demand for products. Accurate forecasting of demand

MANUFACTURING PLANNNG & CONTROL

MATCHING SUPPLY AND DEMAND
Success of material management depends on the

firm being able to accurately forecast the demand of products so that it can produce and deliver the right quantities demanded by their customers in a timely and cost effective manner. factors will continue to influence demand should be considered when forecasting.

Factors that influence demand and whether these

MANUFACTURING PLANNNG & CONTROL

FACTORS DETERMINING DEMAND

The brand; market segment; product mix; corporate culture; sales performance; geographic presence, customer satisfaction levels

Internal factors:

Economic factors:

The industry, the business climate, market share, financial performance, unemployment rates and IT expenditures
Technological factors:

Current install base, hardware/software price/performance vs. competition and benchmarks.

changes,

Dependent & Independent Demand

Dependent Demand
Describes the internal demand for parts based on the demand of the final product in which the parts are used. Subassemblies, components, & raw materials are examples of dependent demand items.

Independent Demand
The demand for final products & has a demand pattern affected by trends, seasonal patterns, & general market conditions.

MANUFACTURING PLANNNG & CONTROL

MATCHING SUPPLY AND DEMAND

Better forecasts result in lower inventories,

reduced stock-outs, smoother production plans, reduced costs, and improved customer service.
error as much as possible.

The aim is to minimize the forecasting

Demand Forecasting
A projection of past information and/or experience into expectation of demand in the future. Levels of detail may include:

Individual products Product families Product categories Market sectors Resources

MANUFACTURING PLANNNG & CONTROL FORECASTING

Forecasting is the basis for all strategic and planning decisions & used for both push and pull processes
Examples:
Production: Scheduling, inventory, aggregate plan Marketing: Sales force allocation, promotions, Finance: Plant / equipment investment, & budget

Personnel:

Workforce planning, hiring, layoffs

All of these decisions are interrelated

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Qualitative forecasting is based on

opinion and intuition.

Quantitative

forecasting uses mathematical models and historical data to make forecasts.

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Qualitative forecasting methods Generally used when data are limited, unavailable, or not currently relevant. Forecast depends on skill & experience of forecaster(s) & available information

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Four qualitative models in use are:

Jury of executive opinion Delphi method Sales force composite Consumer survey

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Quantitative Methods
Time series forecasting- based on the assumption

that the future is an extension of the past. Historical data is used to predict future demand. more factors (independent variables) predict future demand.
of quantitative and qualitative techniques

Associative forecasting- assumes that one or

It is generally recommended to use a combination

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Components of Time SeriesData should be plotted to detect for the following components:
Trend variations:

Either increasing or decreasing

Cyclical variations:

Wave like movements that are longer than a year

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Seasonal variations:

Show peaks and valleys that repeats over a consistent interval such as hours, days, weeks, months, years, or seasons
Random variations:

Due to unexpected or unpredictable events

Demand Over Time Example

Figure 8.2 Demand over time

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Time series forecasting models Simple moving average forecasting model. Simple moving average forecasting method uses historical data to generate a forecast. Works well when demand is fairly stable over time.
Weighted moving average forecasting modelBased on an n-period weighted moving average

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Time Series Forecasting Models

Exponential smoothing forecasting model-

A weighted moving average in which the forecast for the next periods demand is the current periods forecast adjusted by a fraction of the difference between the current periods actual demand and its forecast. Only two data points are needed.

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Time Series Forecasting Models
Trend-adjusted exponential smoothing model

A trend component in the time series shows a systematic upward or downward trend in the data over time.
Linear trend forecasting model.

The trend can be estimated using simple linear regression to fit a line to a time series.

MANUFACTURING PLANNING & CONTROL Forecasting Techniques

Associative forecasting modelsIn this forecasting model one or several external variables are identified that are related to demand
Simple regression.

Only one explanatory variable is used and is similar to the previous trend model. The difference is that the x variable is no longer a time but an explanatory variable

Multiple regression. Where several explanatory variables are used to make the forecast.

MANUFACTURING PLANNING & CONTROL Forecast Accuracy

The formula for forecast error, defined as the difference between actual quantity and the forecast: Forecast error, et = At - Ft where et = forecast error for Period t At = actual demand for Period t Ft = forecast for Period t

MANUFACTURING PLANNING & CONTROL

Basic approach to demand forecasting
Understand the objectives of forecasting
Integrate demand planning and forecasting Identify major factors that influence the demand

forecast Understand and identify customer segments Determine the appropriate forecasting technique Establish performance and error measures for the forecast

MANUFACTURING PLANNING & CONTROL

PRODUCTION PLANNING
What are we going to make? What does it take to make it? What do we already have? What do we need to get?

MANUFACTURING PLANNING & CONTROL

KEY IS TO MATCH
PRIORITY
What is needed, when and how much

CAPACITY
Capability to produce what is needed and when

MANUFACTURING PLANNING & CONTROL Operations Planning

Operations planning is usually hierarchical & can be divided into three broad categories:
Long-range- Aggregate Production Plan (APP)

It involves the construction of facilities & major equipment purchase. It sets the aggregate output rate, workforce size, utilization and inventory and / or backlog levels for an entire facility.
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MANUFACTURING PLANNING & CONTROL Operations Planning

Master Production Schedule ( MPS) is an

intermediate range plan which shows the quantity & timing of end items that will be produced .
Material Requirement Planning ( MRP) is a short

range plan with detailed planning process for components & parts to support the Master Production Schedule. It is a system of converting the end items from the MPS into a set of timephased component and parts requirements.

Planning Hierocracy
Strategic Business Plan Production Plan

Master Plan
Planning

Master Production Schedule Material Requirements Plan

Production Activity Control and Purchasing

Implementation

MANUFACTURING PLANNING & CONTROL

At each level we need to decide:
What are the priorities
What to produce?

How much?
When?

What is the available capacity? How can the differences between priorities

and capacities best be resolved?

Manufacturing planning and control system

Planning horizon Long Range (more than 1 year) Product groups/families Capacity Plan
Resource Requirement Planning (RRP)

Materials Plan
Aggregate Production Planning (APP) Demand Management

Rough-cut Capacity Planning (RCCP)

Master Production Scheduling (MPS)

Distribution Requirements Planning (DRP)

Capacity Requirements Planning (CRP)

Materials Requirement Planning (MRP)

Bill Of Material + Inventory status

Production Activity control

Purchase Planning and Control

Aggregate Production Plan

A process that translates annual business & marketing plans & demand forecasts into a production plan for all products in a plant or facility and hence referred to as the (APP) Aggregate Production Plan

Planning horizon of APP is at least one year & is usually rolled forward by three months every quarter Costs relevant to the aggregate planning decision include inventory, setup, machine operation, hiring, firing, training, & overtime costs
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ATV Corporations Aggregate Production Plan

Capacity (labor hours)
Period Forecast Demand Needed Planned

January
February March April May June July August September October November December

120
100 300 460 600 700 760 640 580 400 200 140 5,000

Units
Units Units Units Units Units Units Units Units Units Units Units Units

960
800 2400 3680 4800 6600 6080 5120 4640 3200 1600 1120 40000

Hrs
Hrs Hrs Hrs Hrs Hrs Hrs Hrs Hrs Hrs Hrs Hrs Hrs

10
10 12 18 25 25 25 25 25 20 10 10

Workers
Workers Workers + overtime Workers + overtime Workers + overtime Workers + overtime + subcontracting Workers + overtime + subcontracting Workers + overtime Workers + overtime Workers Workers Workers