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Supply Chain Planning
Jul 2010
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Supply Chain Planning
1. Demand Planning
2. Product Design Planning
3. Supply Chain Operations Planning
4. Logistics Planning
Supply Demand
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Demand Planning strategicaspects
Bullwhip
Demand Variability Forecasting
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Bull Whip
Magnified Variation acrossthe Supply Chain
Variation from Customer to
Producer
Whats the reason for bull
whip effect?
Whats the solution?
Actual Demand Variation
Induced Variation in Distribution Demand
Felt Variation at Factory/RM/Up stream SC etc.
Bullwhip
Demand Variability
Forecasting
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Increasing Variability of OrdersUp the Supply Chain
Lee, H, P. Padmanabhan and S. Wang (1997), Sloan Management Review
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Coping with the Bullwhip Effectin 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
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Demand Variability
Competition
Seasonality
Product Life Cycle effect External factors
Promotions
Bullwhip
Bullwhip
Demand Variability
Forecasting
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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
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Supply Chain Planning
1. Demand Planning
2. Product Design Planning
3. Supply Chain Operations Planning
4. Logistics Planning
Supply Demand
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Sales and operations
planning
Demand
management
Master productionscheduling
Detailed materialPlanning (MRP)
Shop-floorsystems
Suppliersystems
Supply Chain Operations Planning Framework
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Demand Management
Includes
Forecasting
Order Management
Order processing (entry, book, acknowledgement,confirm)
Customer promising
CRM
Main interaction with Strategic Planning
S&OP
MPS
Demand mgmt should address complete demand aspects incl. spare parts, service levels etc.
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Forecasting
Whats a Forecast?
Whats a Plan?
Forecasts & Plans
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Two Types of Demand
Independent demand
Dependent demand
Which demand that a firm has complete control over?
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Customer Order Decoupling Point
It is the point at which the firm (as opposed tothe customer) becomes responsible fordetermining the timing and quantity ofmaterial to be produced
The point at which demand changes from
independent to dependent
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Forecasting Output
Strategic Planning
S&OP
MPS
for
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Sales and operations
planning
Demand
management
Master productionscheduling
Detailed materialplanning
Shop-floorsystems
Suppliersystems
Forecast
Forecasting
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Forecasting Techniques
Judgment
Market Research
Intrinsic (Time Series)
Extrinsic (Causal)
Other models
Forecasting
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Judgment Methods
Sales-force Estimation
Panels of Experts internal,external, both
Delphi method
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Market Research
Market Survey
Test Marketing Focus groups assembled
Responses tested
Extrapolations made
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Time Series (Intrinsic)
Moving Average
Weighted Moving Averages
Exponential Smoothing
Regression
Trend, Seasonality(Decomposition)
Other Models Holts
Box Jenkins
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Time Series Method Moving Average Weighted Moving Average Exponential Smoothing
Evaluating & Using Forecasts Forecast Error, Bias & MAD Aggregation
Pyramid Forecasts
Time-Series Forecasting
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Time-Series Forecasting
Moving Average Model
Forecast = Average demand of the past N periods
Weighted Moving Average
Trade off : Stability Vs Responsiveness
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Exponential Smoothing
: Alpha, smoothing constant Dn : Demand for nth period
Fn : Forecast of nth period
Forecast(n+1) = Fn + (Dn - Fn )
Forecast(n+1) = . Dn + (1 ) . Fn
Time-Series Forecasting
Trade off : Stability Vs Responsiveness
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Causal Methods (Extrinsic)
Based on data other than the databeing predicted
Examples include
Sales of other products
Inflation rates
GNP
Unemployment rates
Weather
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Forecast Error
Forecast Error = D F
Mean Error (Bias)
Mean Absolute Deviation (MAD)
Average past absolute error
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Pyramid Forecasting
TotalBusinessForecast ($)
Product Lines
Individual items
Roll up
Force down
Level 1
Level 2
Level 3
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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
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How to
choose aforecastingtechnique/
model?
Judgment
Market Research
Intrinsic (Time Series)
Moving Average Weighted Moving Average
Exponential Smoothing
Extrinsic (Causal)
Pyramid forecast
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Choosing a ForecastingTechnique 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 tocombine approaches
JudgmentMarket researchIntrinsic(Timeseries)Extrinsic(Causal)
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Planning Framework with DRP
Sales and operationsplanning
Demandmanagement
Master productionscheduling
Detailed materialplanning
Shop-floorsystems
Suppliersystems
DRP
Logistics
&Transportation
DRP : Distribution Requirement Planning
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Sales and operationsplanning
Demandmanagement
Master productionscheduling
Detailed materialPlanning (MRP)
Shop-floorsystems
Suppliersystems
Sales & Operations Planning
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Supply Chain Operations Planning- Traditional planning sequence
Traditional Operations Planning
Business Planning
Sales Planning
Resource Planning Production Planning
Rough-cut Capacity
PlanningMaster Scheduling
Capacity Planning MRP
Execution System
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S&O Planning-led Approach
Business Planning
Resource PlanningSales & Operation
Planning
Rough-cut Capacity
PlanningMaster Scheduling
Capacity Planning MRP
Execution System
Supply Chain Operations Planning
- S&OP led
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Sales and operationsplanning
Demandmanagement
Master productionscheduling
Detailed materialPlanning (MRP)
Shop-floorsystems
Suppliersystems
Supply Chain Operations Planning Framework
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Master
ProductionSchedule
Period 1 2 3 4
Forecast 20 70 70 20
ProjectedAvailable 50 20 30 50
MPS 40 40 80 40
On Hand=30Safety Stock=20Batch = 40x
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What should be planned in MPS
MTS scenario End-items
ATO scenario Options or modulesfrom which a variety of end
products could be assembled
ATO/ MTO scenario Numbers of units of an average final product
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Sales and operationsplanning
Demandmanagement
Master productionscheduling
Detailed materialPlanning (MRP)
Shop-floorsystems
Suppliersystems
Supply Chain Operations Planning Framework
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BOM Bill of Materials
A
X (3) Y(2)
X Z
BOM explosion to generate material requirements
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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
Typical MRP Record
Lot Size (Q) = 70, LT=2, SS = 20
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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
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=30Safety Stock=0Batch = Any
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Sales and operationsplanning
Demandmanagement
Master productionscheduling
Detailed materialPlanning (MRP)
Shop-floorsystems
Suppliersystems
Supply Chain Operations Planning Framework
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Theory of
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Drum - Buffer Rope Scheduling
15
A
20
B
10
C
18
D
16
E
DRUM
ROPE
BUFFER
B
20
Capacity Constrained Resource
eo y oConstraints
Th f C t i t
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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 turninventory into throughput.
Increase Throughput, Reduce Inv. & Op. Ex.
Theory of Constraints
Fundamentals of Business Redefined
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Planning Framework with Capacity Planning
Resource
Planning
CapacityRequirementPlanning (CRP)
Sales and operations
planning
Demand
management
Master productionscheduling
Detailed materialPlanning (MRP)
Shop-floorsystems
Suppliersystems
Rough-cut CapPlanning
Advanced ProductionScheduling (APS) orFinite Loading,Input/Output Analysis
PAC