Material Management 2 (a)

7/30/2019 Material Management 2 (a)

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MANUFACTURING PLANNNG & CONTROL

MATCHING SUPPLY AND DEMAND

Manufacturing firms must find ways toadequately match supply and demand to achieveoptimal levels of cost, quality, and customerservice to enable them to compete

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


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1. Supplier holding plenty of available stock

for delivery at any time.2. Use of flexible pricing

3. Using sub-contracting & overtime to

increase capacity to meet the demand forproducts.

4. Accurate forecasting of demand


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Success of material management depends on the

firm being able to accurately forecast the demandof products so that it can produce and deliver theright quantities demanded by their customers in atimely and cost effective manner.

Factors that influence demand and whether thesefactors will continue to influence demand shouldbe considered when forecasting.


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FACTORS DETERMINING DEMAND

Internal factors:

The brand; market segment; product mix; corporate culture; sales

performance; geographic presence, customer satisfaction levels

Economic factors:

The industry, the business climate, market share, financialperformance, unemployment rates and IT expenditures

Technological factors:

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


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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. Sub-

assemblies, components, & raw materials are examples ofdependent demand items.

Independent Demand

The demand for final products & has a demand pattern

affected by trends, seasonal patterns, & general marketconditions.


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Better forecasts result in lower inventories,reduced stock-outs, smoother productionplans, reduced costs, and improvedcustomer service.

The aim is to minimize the forecastingerror as much as possible.


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Demand Forecasting

A projection of past information and/orexperience into expectation of demand in thefuture. Levels of detail may include:

Individual products

Product families

Product categories Market sectors

Resources


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FORECASTING

Forecasting is the basis for all strategic andplanning 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


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MANUFACTURING PLANNING & CONTROL

Forecasting Techniques

Qualitative forecasting is based on

opinion and intuition.

Quantitative forecasting usesmathematical models and historical

data to make forecasts.


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Qualitative forecasting methods

Generally used when data are limited,unavailable, or not currently relevant.Forecast depends on skill & experience

of forecaster(s) & available information


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Four qualitative models in use are:

Jury of executive opinion

Delphi method Sales force composite

Consumer survey


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Forecasting TechniquesQuantitative Methods

Time seriesforecasting- based on the assumption

that the future is an extension of the past.Historical data is used to predict future demand.

Associative forecasting- assumes that one ormore factors (independent variables) predictfuture demand.

It is generally recommended to use a combinationof quantitative and qualitative techniques


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Components of Time Series-

Data should be plotted to detect for thefollowing components:

Trend variations:

Either increasing or decreasing

Cyclical variations:

Wave like movements that are longer than a year


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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


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Demand Over Time Example

Figure 8.2 Demand over time


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Time series forecasting models

Simple moving average forecasting model.

Simple moving average forecasting method useshistorical data to generate a forecast. Works wellwhen demand is fairly stable over time.

Weighted moving average forecasting model-Based on an n-period weighted moving average


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Time Series Forecasting Models Exponential smoothing forecasting model-

A weighted moving average in which theforecast for the next periods demand isthe current periods forecast adjusted bya fraction of the difference between thecurrent periods actual demand and itsforecast. Only two data points areneeded.


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MANUFACTURING PLANNING & CONTROLForecasting Techniques

Time Series Forecasting Models

Trend-adjusted exponential smoothing model

A trend component in the time series shows asystematic upward or downward trend in thedata over time.

Linear trend forecasting model.The trend can be estimated using simple linear

regression to fit a line to a time series.


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Associative forecasting models-

In this forecasting model one or several external variables areidentified that are related to demand

Simple regression.

Only one explanatory variable is used and is similar to theprevious trend model. The difference is that the xvariable isno longer a time but an explanatory variable

Multiple regression.

Where several explanatory variables are used to make theforecast.


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Forecast Accuracy

The formula for forecast error, definedas the difference between actual

quantity and the forecast:Forecast error, et

= At

- Ft

where

et= forecast error for Period tA

t= actual demand for Period t

Ft

= forecast for Period t


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MANUFACTURING PLANNING & CONTROLBasic approach to demand forecasting

Understand the objectives of forecasting

Integrate demand planning and forecasting

Identify major factors that influence the demandforecast

Understand and identify customer segments

Determine the appropriate forecasting

technique

Establish performance and error measures for

the forecast


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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?


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KEY IS TO MATCH

PRIORITY

What is needed, when and how much

CAPACITY Capability to produce what is needed and when


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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 backloglevels for an entire facility.

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Operations Planning

Master Production Schedule ( MPS) is anintermediate range plan which shows thequantity & timing of end items that will be

produced .

Material Requirement Planning ( MRP) is a shortrange plan with detailed planning process for

components & parts to support the MasterProduction Schedule. It is a system of convertingthe end items from the MPS into a set of time-phased component and parts requirements.


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Planning Hierocracy

StrategicBusiness Plan

Production

Plan

Master Production

Schedule

Material

Requirements

Plan

Production Activity

Control and

Purchasing

Master

Plan

Planning

Implementation


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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 prioritiesand capacities best be resolved?


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Manufacturing planning and control system

ResourceRequirement

Planning (RRP)

Long Range(more than 1 year)

Productgroups/families

AggregateProduction

Planning (APP)

DemandManagement

Rough-cutCapacity

Planning (RCCP)

Master ProductionScheduling (MPS)

Distribution

RequirementsPlanning (DRP)

Capacity

RequirementsPlanning (CRP)

Materials

RequirementPlanning (MRP)

Bill Of Material

+Inventory status

ProductionActivity

control

PurchasePlanning and

Control

Planning horizon Capacity Plan Materials Plan


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Aggregate Production Plan

A process that translates annual business &

marketing plans & demand forecasts into aproduction plan for all products in a plant or facilityand hence referred to as the (APP) AggregateProduction Plan

Planning horizon of APP is at least one year & isusually rolled forwardby three months every quarter

Costs relevant to the aggregate planning decisioninclude inventory, setup, machine operation, hiring,firing, training, & overtime costs

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ATV Corporations Aggregate Production PlanCapacity (labor hours)

Period Forecast Demand Needed Planned

January 120 Units 960 Hrs 10 Workers

February 100 Units 800 Hrs 10 Workers

March 300 Units 2400 Hrs 12 Workers + overtime

April 460 Units 3680 Hrs 18 Workers + overtime

May 600 Units 4800 Hrs 25 Workers + overtime

June 700 Units 6600 Hrs 25 Workers + overtime + subcontracting

July 760 Units 6080 Hrs 25 Workers + overtime + subcontracting

August 640 Units 5120 Hrs 25 Workers + overtime

September 580 Units 4640 Hrs 25 Workers + overtime

October 400 Units 3200 Hrs 20 Workers

November 200 Units 1600 Hrs 10 Workers

December 140 Units 1120 Hrs 10 Workers

5,000 Units 40000 Hrs

Material Management 2 (a)

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