© the delos partnership 2007 page 1 supply chain management introduction to the basic tools and...

© The Delos Partnership 2007 page 1

Supply Chain ManagementSupply Chain Management

Introduction to the basic tools and techniques


Balancing the objectivesBalancing the objectives

Inventory

Customer Service

ManufacturingCosts

ManufacturingFlexibility


ABC CompanyABC Company

“We want to deliver Quality products to our customers, competitively priced, delivered on time. We will ensure that our employees are satisfied with their work, and we will take care of the environment.” said the mission statement at the entrance.

Marketing is in the middle of a special promotion, which has suddenly been arranged. The artwork – as usual- is having to be arranged at short notice for the packaging. Sales have just quoted for a big contract which will mean significant extra business above the business plan. It is two months until year end, and if they get the order then the Sales and Marketing Director will get a bonus for exceeding her target. Customer Services will be working late tonight to catch up with the backlog of orders.

Operations has heard the rumour about a 'big order.‘ But they've heard about these before. So they are proceeding with their plans to cancel overtime. The Operations Director meets monthly, individually, with the Marketing managers to get a feel for the market. Then he meets with his Production Planner, compares his ideas with past history and they finalise the Forecast and Production Plan, largely based on history.


ABC CompanyABC Company

“Corporate are short on Cash Flow, and hence have told the division to implement a cost reduction programme, and to reduce inventory by 20%. The Finance Director is working on ways to do this, however is reluctant to make any write-offs of current obsolete inventory, so is wanting to restrict any further purchases.

The Manufacturing Manager has just come back from a course. He has come back with ideas on Total Productive Maintenance, and Operating Equipment Effectiveness. He wants a smaller product range and bigger batches. His basic manufacturing philosophy is that lower costs are achieved through maximising utilisation of machines, keeping direct labour at maximum levels of output. The Distribution manager believes that demand is increasing, so is going to open a Central Distribution centre just outside Coventry.

The Development department are in the middle of developing a revolutionary new product, that will dramatically increase market share. However, a minor modification to the product will reduce costs, and enhance the quality. Customer response is excellent. Unfortunately it will delay the launch to Quarter 3 of the next year.

The Chairman and the Chief Financial Officer just met with a key group of Stock-market analysts, and have said that cash-flow will improve this year through a radical cost reduction and inventory management programme. Sales and Profit will rise by 20 % next year, which should mean an increase of 25 % in Earnings per share, due to an exciting new product to be launched in Quarter 4 of this year.


Signs of problems in companySigns of problems in company

• What are the major reasons for failures in providing the customer with what they want and when they want it ?

• What are the major signs of problems in an organisation when looking around a manufacturing site ?


Signs of problems within the companySigns of problems within the company


Reasons for problemsReasons for problems

What are the reasons for the problems that you have identified ?

Classify these as either

• System

• Process

• Cultural/Behavioural


Causes of InventoryCauses of Inventory

What are the main causes of inventory ?


Vertical Functional OrganisationVertical Functional Organisation

MD

SalesSales MarketingMarketing TechnicalTechnical OperationsOperations FinanceFinance HRHR

R& D

R& D

MKTG

MKTG

SALES

SALES

OPS

OPS

ACCTS

ACCTS

HR

HR

Directors

Managers

Supervisors/Team Leaders


The Delos ModelThe Delos ModelFor Business Integration For Business Integration

InnovationInnovation

VisionVision

StrategyStrategy

PrioritisationPrioritisation

DemandDemand

SupportSupport

SupplySupply


Basic FormulaBasic Formula

Item DataBOM’s

And Routes

StockAnd

Capacity

Master Schedule

Forecasts Orders

Suppliers Factories

What do theyActually Want ?

What haveWe got ?

Whatdoes it need ?

What do we need to do ?

What do we thinktheyWant ?


Periods 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 25 25 25 25 25 25 25 25 20 20 20 20

Actual Demand

Proj Avail Balance

75 50 25 0 50 25 0 50 30 10 65 45

Available to Promise

CumulativeATP

Master Schedule

75 75 75

Item Level ForecastItem Level Forecast

Part Number: 12345 Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: 75 On Hand: 100

Part Number: 12345 Lead Time: 2 periods Safety Stock: 0 Min Ord Qty: 75 On Hand: 100


Customer ProfileCustomer Profile

Customer X 50 per month

Customer Y 10 per month

Customer Z 5 per month

Customers A… 35 per month

Total = 100 per month

Forecast at End Item Level


Demand ManagementDemand Management

Horizon

PLANMANAGEEXECUTE

Cumulative Lead TimeCumulative Lead Time

Add or subtractTo capacity

Strong Link to

Integrated Enterprise Planning Process

Capacity andMaterials“firm”

Release Orders

Customer Lead Time ?Customer Lead Time ?


Demand ManagementDemand Management

Strategy

Demand Manager

Sales and Marketing

SystemForecast

Plan

ManufacturingAnd Purchasing

ERPSystem

Consensus ForecastConsensus Forecast


Master Scheduling – what does it replace?Master Scheduling – what does it replace?

• Order point• Throw orders into factory and expedite out• Standard Lead Times• Suppliers must be responsive to our sudden

changes in demands• We say yes to all orders and pray that

manufacturing can respond• Whoever shouts loudest gets what they want• Firefighting and expediting


Objectives of Master SchedulingObjectives of Master Scheduling

1. Provide an achievable plan that drives the company

2. To provide reliable promises to customers

3. Provide stability and efficiency to supply chain

4. Achieve highest possible levels of customer service with optimum inventory


Balance of Supply and Balance of Supply and DemandDemand

Demands Supply


Master Scheduling – what is it?Master Scheduling – what is it?

• Detailed statement of what a company can do by part number in planning system

• Based on realistic material and capacity plans• The basis for promises that customers can rely on, and

advice on when products will be available.• Provides stability to supply chain• People manage; computer calculates• Provides the detailed basis for the SOP process.


Master Scheduling – how is it done ?Master Scheduling – how is it done ?

• The Computer system calculates if demand and supply imbalanced

• The computer generates action messages

• Planner responds to action messages and deals with the art of the possible


Weeks 1 2 3 4 5 6 7 8 9 10 11 12

Forecast 25 25 25 25 25 25 25 25 20 20 20 20

Actual Demand

Proj Avail Balance

75 50 25 0 50 25 0 50 30 10 65 45

Available to Promise

CumulativeATP

Master Schedule

75 75 75

End Item Level ForecastEnd Item Level Forecast

Part Number: 12345 Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: 75 On Hand: 100

Part Number: 12345 Lead Time: 2 weeks Safety Stock: 0 Min Ord Qty: 75 On Hand: 100


Time Fence PolicyTime Fence Policy

Horizon

PLANMANAGEEXECUTE

Cumulative Lead Time

Add or subtractTo capacity

Strong Link to

Sales and OperationsPlanning Process

Capacity andMaterials“firm”

Release Orders

Open SesameFirmNO !


Time Fence PolicyTime Fence Policy

• Should relate to Cum Lt Requires review of CLT by product Could be different by product group

• Should state who can change and when

• Should be clear about “Emergency Changes”


Master SchedulerMaster Scheduler

Strategy

Sales Forecasts

CustomerOrders

ManufacturingPlan

PurchasingPlan

MRPSystem

Balanced PlanBalanced Plan

Master Scheduler


Priority settingPriority setting

The key to determining priorities in any organisation should be the schedule date

• Not red tags• Not three stars, two stars• Not driven by output measures

The only measure is therefore schedule achievement..


The Delos Core MeasuresThe Delos Core Measures

1. Customer Order Delivery – the “Perfect Order”

2. Demand Forecast Accuracy

3. Lead Time Reduction - Demand, Supply and Change

4. Quality, Right First Time – Demand, Supply and Change

5. Schedule Achievement – In-house and outsourced

6. New Product Introduction

7. Velocity – all processes


The Core Measures and Financial The Core Measures and Financial EffectEffect


Result of effective Master SchedulingResult of effective Master Scheduling

• Everyone uses the planning system Planner to plan Manufacturing to make

• Spreadsheets or planning tools disappear• A supply chain that is not jerked around• Customers get what they are promised 100 %• Customers get what they require 98 %• Customers get what they need 100 %


New Product IntegrationNew Product Integration

Design

Purchase

Intermediate Manufacture

Sub-assemble

Finish

Distribute

Cumulative Lead TimeCumulative Lead Time

Insert NewProducts Here

Insert NewProducts Here


Innovations ManagerInnovations Manager

Strategy

Innovation Manager

DevelopmentIdeas

ProjectPlans

DevelopmentPlans

Supply Plans

ProjectSystem

Prioritised PlansPrioritised Plans


Policy on MTS/ATO/MTO/ETOPolicy on MTS/ATO/MTO/ETO

Design

Purchase

Intermediate Manufacture

Sub-assemble

Finish

Distribute

Cumulative Lead Time


Computer Systems

Detailed ExecutionDetailed Execution

Master Scheduling needs to be part of a Master Scheduling needs to be part of a frameworkframework

Aggregate PlanningAggregate Planning

StrategyStrategy

Detailed PlanningDetailed PlanningPROGRAMMES

DEMAND

SUPPLY

MPS

SOP

WTL


Make to StockMake to Stock

Production = Demand Plan + (Inventory Target-

Current Inventory)

= 100 + 75 - 50)

PRODUCTION STOCK


Integrated Enterprise LeadershipIntegrated Enterprise Leadership

-3 -2 -1

Demand Plan 120 120 120

Actual Demand 119 125 132

Difference -1 5 12

Cum Diff 4 16

Months 1 2 3 4 5 6 7 8 9

Last Demand Plan 120 120 120 120 120 120 120 120 120

New Demand Plan

Difference

Cum Diff

Months Q4 Q1

360 360

-3 -2 -1

Supply Plan 125 125 125

Actual Supply 119 118 121

Difference -6 -7 -4

Cum Diff -13 -17

1 2 3 4 5 6 7 8 9

Last Supply Plan 125 125 120 120 120 120 120 120 120

New Supply Plan

Difference

Cum Diff

Q4 Q1

360 360

-3 -2 -1

Stock Plan 71 76 81

Actual Stock 66 66 59 48

Difference -5 -17 -33

1 2 3 4 5 6 7 8 9

Last Stock Plan 86 91 91 91 91 91 91 91 91

New Stock Plan

Difference

Q4 Q1

91 91

Make – To- Stock


Benefits of Integrated Enterprise Benefits of Integrated Enterprise LeadershipLeadership• One set of agreed & realistic numbers Balanced load &

capacity• Plan will be realistic & stable• Customer delivery dates will be achievable• Proactive not reactive planning• Earlier feedback to customers of any changes to the plan• Greater ability to deal effectively with non-routine or

unanticipated situations• A Sound foundation for decisions taken through the IEL

process


IntegrationIntegration

CULTURE/BEHAVIOUR

TECHNO

LOG

YWAYS O

F

WO

RKING

ConsumerAnd Customer

Focussed

SimplicityItself

DeliveringShareholder

Value


Cultural Issues to tackleCultural Issues to tackle

• “Hope springs eternal” – WSBAR• EOMC,EOQC,EOYC• Finger pointing• Feedback early – not just too late• “If it is not Past due then it is not urgent”• Inaccurate data• Addiction to fire-fighting• Priority set by dates and not by shouting loudly

© the delos partnership 2007 page 1 supply chain management introduction to the basic tools and...

Documents

marketing director

year end

major signs of problems

manufacturing manager

operations director

market share

exciting new product

revolutionary new product