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Sales
and Operations Planning Across the Supply Chain
Jack
Gips, President
Jack Gips Inc.
For many years, sales and operations planning has proven
to be one of the processes most critical to the success
of manufacturing systems. It is management's means of
driving the sales and manufacturing organizations toward
their goals for customer service, financial results,
resource utilization, human resources, and inventories.
It is a monthly forum for discussing the state of the
business and for comparing the operating plans with
the annual business plans. It is a mechanism for bringing
together the right people and the right information
to make good business decisions on a timely basis.
In
recent years more and more companies have begun to view
their businesses in a different way. The supply chain
view considers not only manufacturing, but the distribution
and sales organizations it feeds and the purchasing
and other internal manufacturing organizations that
deliver materials and goods to it. A complete supply
chain view would also extend out to the external customers
and to the suppliers of the suppliers. For purposes
of our discussion here, we will limit ourselves to a
discussion of the internal supply chain starting with
the primary suppliers and ending with our sales organization's
performance for our customers.
Prior
to adopting the supply chain view, many management teams
made independent decisions and applied independent measurements
to sales organizations and manufacturing plants. The
annual planning exercise and informal management decision
processes were the means of bringing all the sites into
alignment. The importance of the supply chain view rests
in its ability to give management a way to blend all
these internal goals and decisions into the best set
of drivers for the whole enterprise. It surfaces conflicting
objectives and allows management to trade off performance
in one node of the supply chain for the benefit of the
entire chain. It brings to light redundant inventories
and activities to more efficiently position inventories
and resources. It leads to shorter cycle times and increased
flexibility for the customers.
Sales
and operations planning across the supply chain requires
great coordination. All sales organizations must deliver
their demand plans at the same time for the distribution
centers and/or manufacturing plants to start their planning
activities. Manufacturing feedback to the sales groups
must arrive quickly to ensure they make valid promises
and allocation decisions to satisfy the customers. Executive
management's role is to provide strategy and direction
at the start and approve the plans at the end of the
sales and operations planning flow. The entire flow
must take place within the period of a month and mesh
with the master scheduling processes at each of the
supply sites.
Supply Chain Example
For purposes of our discussion we will assume a global
supply chain consisting of fifteen sales groups fed
by three distribution centers which are in turn supplied
by ten manufacturing plants. Assume that the sales groups
have local warehouses and maintain inventories of the
finished goods that are sold in their locations. The
distribution centers carry the main supplies of these
inventories and are the consolidation point for all
of the demands that are sent to the manufacturing plants.
Some goods can be sold into multiple markets while some
are made specifically for individual markets.
Supply
Chain Questions
In order to determine the sales and operations planning
flow and responsibilities, the day-to-day planning responsibilities
must be defined. The following questions must be answered:
- Who
creates the sales plans that drive replenishments?
- Who
maintains the on hand inventory balances at each level?
- Who
is responsible for the levels of inventory at each
site?
- Who
plans the replenishments for each level?
- Are
finished goods shipped to the sales groups from distribution
centers, manufacturing plants, or both?
- Do
the distribution centers sell any products directly
to external customers or always ship to a sales affiliate?
- Who
determines the shipping schedules to the sales affiliates
and distribution centers?
- Are
products made only at one plant or can they be sourced
from several plants?
- How
are safety stocks determined and are they maintained
at each level?
- How
is customer service measured at each level and who
is responsible for it?
The
answers to these questions will vary from company to
company. In our example we will assume that the sales
organizations are responsible for the forecasts and
sales plans. The distribution center planners receive
all the demand statements and plan the replenishments
to both the sales groups and to the distribution centers
from manufacturing.
Supply
Chain Issues
Consider some of the issues these questions
raise.
At
the top of the S&OP structure there must be a sales
plan to drive the process. This may start out as a pure
sales forecast, but it should also take into account
management's goals and budgets for the sales organizations
and actions like promotions, price changes, and discounts
to make them happen. Should manufacturing or distribution
people set these plans or second guess and change them?
Where
in the supply chain should sales and operations plans
be created? Should S&OP meetings be held at each
manufacturing site monthly, or should there be S&OP
meetings at the distribution sites as well? Should there
also be S&OP meetings at the sales affiliates? If
so, what would they discuss?
What
about the timing of the meetings? If one feeds information
to another should their timing be coordinated in a single
global sales and operations plan calendar?
Should
critical resource issues at one site be considered in
the initial planning of a site that is their customer
in the supply chain before demands are passed down the
chain? Or, should all demands be sent down and feedback
returned once the supplier site reviews its resources
against the total set of demands?
Should
the executive sales and operations planning meetings
occur at the start of the supply chain process to drive
it, or at the end to accumulate the results and review
them?
Some
companies initially want to keep sales and operations
planning as a completely independent activity. They
want the S&OP output at one level of the supply
chain to become direct input to the S&OP the next
level down. This ignores the detailed decisions, policies,
and inventory adjustments that are made between the
levels. It also ignores the exaggerating affects of
lot sizing, lead-times, and safety stocks at each level.
It may not seem like a big assumption, but by the time
you get from the top of the supply chain to the bottom,
requirements and supply plans can be very different
in both quantity and timing. It has been demonstrated
in many cases that driving the sites at the bottom of
the supply chain directly with the forecasts at the
top does not lead to good supply chain performance.
For that reason, planning should follow the pattern
of S&OP to MPS to MRP (if required) at one node
of the supply chain to S&OP to MPS to MRP (if required)
at the next node. Figure 1 shows a Supply Chain S&OP
Flow.

FIGURE
1
Guidelines
for Supply Chain S&OP
Here are some guidelines for the
supply chain process:
- The
sales and marketing organizations should bear the
ultimate responsibility for providing an accurate
and timely demand statement. They are closest to the
customers and the competition, and have the best knowledge
to ensure the accuracy. They know their own local
market issues and decide on actions to satisfy their
own goals and measurements.
- All
challenges to the demand statement they provide should
be made before it is "officialized" in the
affiliate demand meetings. Some companies have created
demand management organizations, or forecasting councils,
to challenge and validate the demand statements within
the sales organizations before they are passed to
the suppliers.
- Once
the official demand statements are generated, no one
else should adjust them at any point in the supply
chain. Only executive management and the sales/marketing
people should change these plans.
- The
sales and marketing organizations should be measured
on and held accountable for the accuracy of the demand
plans.
- The
demand statements must be completed and consolidated
early in the month (first or second week) to support
the needs of the rest of the supply chain.
- If
the planners who plan the replenishments to the sales
affiliates' inventories are part of the sales organizations
and located at the affiliate sites, then a full S&OP
process including supply planning meetings is warranted.
These meetings should set the supply plans that drive
the affiliate master schedules. These master schedules
are, in turn, sent to the distribution centers as
demands on their inventories. Other things that might
be considered in these meetings are the local financial
plans, inventory levels and warehouse labor and space
requirements to support these plans.
- If
these planners reside at the distribution centers,
then the affiliate processes may be limited to demand
planning activities only and not require a full S&OP
process. If this is the case, a distribution requirements
planning activity or (affiliate master schedule) should
be created to plan material shipments from distribution
and arrivals at the affiliates. If there is a standard
shipping arrangement (like one delivery by ship per
month), this should be accounted for in the planning
of this master schedule. This schedule should be visible
at all times to the affiliates even though it is planned
for them by planners at a central distribution point.
- Central
distribution centers are excellent points in the supply
chain to consolidate demands and schedules, apply
controls to manage capacities and inventories, and
stabilize the orders that drive the manufacturing
sites. Customer service and manufacturing performance
can be greatly affected by the planning that is done
at this level. If the planners use good judgments
in reacting to exception messages calling for schedule
change, respect time fences and capacity constraints,
and manage their inventories well, the entire supply
chain will perform better.
- A
distribution center S&OP should consolidate the
requirements from the affiliate master schedules and
treat these as the demands on the DCs. This will account
for lot sizing, safety stocks, and container loads
that determine the shipments to the affiliates and
make them different from the forecasts. This demand
is the input to the S&OP meetings and a supply
plan is the output.
- If
a single distribution center is the single source
of demand for a product family that is produced in
a dedicated work center, that resource can be considered
in the DC's resource requirements planning and S&OP.
If demands come from more than one distribution center,
or the product family is produced in multiple plants
or in a work center that is shared by multiple families,
it is better to do the resource planning at the plants
and feed back problems to the DCs.
- The
supply plan should drive the DC master schedules that
call for replenishments from the plants. These master
schedules may be delivered to the DCs, or the shipments
may go directly to the sales affiliates if the products
are unique to a particular market. These master schedules
become the demands that are consolidated for sales
and operations planning at the plants. They are also
the demands that consume the production forecasts
in the plants' master schedules.
- S&OP
at the plants should not be focused on challenging
the demands. It should be heavily concentrated on
creating production plans to satisfy the demands and
resolving resource constraints. If these constraints
cannot be resolved, immediate feedback should be provided
to the DC planners to adjust the demands.
- The
production plans resulting from the plant S&OP
meetings should be disaggregated from the family level
to the end item or SKU level to drive the plant master
schedules.
- If
the plants are customers of other plants, or if there
is another level of plants in the supply chain that
supply them with components or raw materials, another
level of S&OP and master scheduling may follow.
Management's
Role
Executive management plays a critical role in this supply
chain process. They obviously have to review the aggregate
results of all these plans and agree that they satisfy
the goals of the business. If not, they should drive
adjustments to the plans through the supply chain in
the next round of planning. This is a variation of a
role with which most executive management teams are
comfortable. It is common for them to review last month's
actual results against their objectives and business
plans, and react to unacceptable situations. The difference
in the supply chain S&OP approach is that they can
now look at projections and take actions in advance
to avoid these unacceptable results. It is the difference
between being proactive and reactive managers.
The
best management teams take this proactive stance a step
farther. Instead of reviewing the projections of the
supply chain planning at the end of the process, they
become the drivers and influence it at the beginning.
They begin to do their planning earlier. They will inform
the organization that they will be asking for increased
year-end or end of the quarter sales volumes sooner
than the month before they are required. They set policies
for adjusting inventory levels before they become too
high rather than after. They relax measurements on one
part of the supply chain to get better performance from
the rest of the chain. They sort out measurements that
cause behaviors that are detrimental to the overall
performance of the chain.
For
example, there are businesses in which every plant is
held to the same standards of plant utilization and
efficiency. This may cause a raw material site to produce
large quantities infrequently to maximize their efficiencies
and lower their costs per unit. The impact on the rest
of the supply chain may be slow turning inventories,
larger than necessary lot sizes, and inflexibilities
for their customers. The next tier of plants may have
difficulty achieving their own efficiencies because
of the way their supplies are delivered. The net result
is that, instead of the customers determining what the
plants should produce, the raw material suppliers determine
it.
The
most important management issue is whether they see
their role as one of making decisions, driving the business,
and measuring performance to plan, or one of reviewing
results and reacting to them after the fact?
Synchronizing
Supply Chain S&OP
This type of communications flow causes the need
for highly synchronized planning and a supply chain
planning calendar to time the S&OP activities. A
typical supply chain calendar may look as follows:

FIGURE
2
It
is important to separate sales and operations planning
decisions from master scheduling decisions. Most of
the time S&OP decisions are family level decisions
and relate to longer term resource constraints. Master
scheduling decisions are more likely to be item level
decisions or decisions on individual orders. They may
be tied to the availability of specific materials or
shorter term capacity constraints in individual work
centers. Inside the time fences, it is a good idea to
keep changes to S&OP's production plans and supply
plans to a minimum. It should take a conscious decision
in an S&OP meeting to change these plans. Master
schedule changes inside the time fences can be based
on individual customer demands or manufacturing problems.
Master schedulers make these decisions whenever it is
possible to satisfy the customers. Sometimes this causes
a trade-off of one schedule for another, so one change
can actually result in several master schedule changes.
There
are two key measurements on this planning that affect
the supply chain. One is the master schedule summary
which tests whether the sum of the master schedules
for a family equals the production plan or supply plan
for that family over a specific period of time. This
tells you whether all the daily master scheduling decisions
are causing a violation of the S&OP plans. The second
measurement is master schedule stability. This tests
the amount of schedule change that is being passed down
the supply chain.
S&OP
Meeting Topics
There are a number of sales and operations planning
issues that cross the levels of the supply chain and
should be communicated through this information flow.
Some examples are:
- New
product launches and product changes
- Major
process changes and start-ups
- Products
with seasonal demands
- Price
changes
- Promotions,
one time deals, discounts
- Supplier
capabilities and limitations
- Allocations
of limited production items to customers
- Inventory
reduction programs
- Plant
sourcing and outsourcing decisions
In
some of these cases, executive management should provide
directions to the supply chain. In other cases the decisions
should be worked out within the supply chain S&OP
processes. Whenever decisions are made that affect multiple
nodes of the supply chain, they should not be made unilaterally
at one node without consideration for the others and
the supply chain as a whole.
The
ultimate measures of supply chain performance such as
customer service and financial results to plan are dependent
on the quality of the plans that are created from the
top down in this S&OP flow. They also depend on
everyone's execution of the plans from the bottom up.
Measurements such as production plan achievement and
master schedule conformance are critical to ensuring
delivery to the plans at all levels. If the goals are
well coordinated and everyone treats them seriously,
the teamwork in the supply chain will bring excellent
results to these very complex businesses.
The
supply chain view adds new perspective to the way management
views and manages a business. Sales and operations planning
is management's tool to manage the business. The combination
of these makes the decisions, information, measurements,
and systems work together to achieve better performance
than ever before.
BIOGRAPHY
Jack
Gips is President of Jack Gips, Inc., a firm that provides
high quality consulting and education to manufacturing
companies.
Jack
has spent 33 years in Manufacturing, as both a practitioner
and a consultant. He has helped companies in many diverse
industries improve their performance in manufacturing.
Jack
has a B.S. and an M.B.A. degree from Case Western Reserve
University. He served as Chairman of the 1977 APICS
International Conference. He has served as a member
of the APICS Curricula & Certification Council,
Subcommittee for Production Activity Control, and the
JIT Subcommittee. He is certified at the fellow level
and speaks at numerous professional society meetings.
He
has authored numerous articles and was Editor of the
"Capacity Planning" chapter in The Production
and Inventory Control Handbook.
How
to Resurrect a Failing System
(Manuscript
for upcoming presentation at the APICS Congress for
Progress Conference in Baltimore)
Jack
Gips, President
Jack Gips Inc.
There
are thousands of manufacturing systems running on the
worlds computers today. Since the 1970s,
a large percentage of the systems have been built on
standard software purchased from a wide variety of vendors.
Over these years, the technology has changed and improved
dramatically and the software has become increasingly
sophisticated. So, it would be logical to assume that
most of these systems in place would be successful in
operation. In fact, there are many more successful systems
operating today than there have been at any time in
the past. This is a tribute to both the quality of the
software and the knowledge of what it takes to be successful
that has developed through time. Unfortunately, there
are also a great number of systems that run on our computers,
but whose output is ignored in actual practice. This
paper is dedicated to the companies trying to deal with
these ineffective systems.
What
determines success and failure?
There
are many symptoms that can make success or failure evident.
- The
bottom line for any system is whether the people in
the organization trust it enough to make daily decisions
directly from the systems information and tools.
 |
Are
they processing a lot of data in, but using only
a little of the information coming out? |
 |
Are
there many non-system tools and reports in place
that substitute for the formal systems tools
and reports? |
 |
Do
key people have their own unique sources of information
to make decisions? |
 |
Is
the data accurate enough for the system to make
valid recommendations? |
- Are
many of the modules that were originally purchased
actually not in use?
- Is
the system used to "track and transact"
but not to "plan and execute"?
- Does
Management use the sales and operations planning tools
to make their business decisions?
- Are
the scheduling and capacity planning tools used in
daily practice?
- Do
the users like working with the system and believe
that it really helps them, or do they feel like "slaves
to the system"?
How
did it get this way?
A
system can be a rousing success or a dismal failure
right from the start.
- If
its beginnings were a "software only" implementation,
with little attention paid to the data, policies,
practices, measurements, and preparation of the users,
it was headed in the wrong direction from day one.
- If
it was installed in six months under the pressures
of a Y2K or similar deadline, chances are that the
implementation was incomplete.
- If
the initial focus was on software modifications to
support the current way of operating, the users may
have automated non-working processes. This is often
the result when "software selection" is
the first step taken in implementation.
Other
systems start off successfully, but fade over time because
the structure to maintain and sustain them was not established.
- If
a strong training and education program is not in
practice, people moving in and out of key positions
may not receive the knowledge to keep the concepts
intact.
- If
there is no organization in place to protect the integrity
of the concept, the users may ask for changes that
violate its original intentions.
- If
they ask for improvements and the IT organization
does not respond, they may build a new set of informal
systems using spreadsheets to get what they want.
If
these are the symptoms, how can we determine the problems?
The
best way to determine the real problems is to assess
and measure the systems performance. The standards
for measurement have been well established over the
years. There are many checklists available to evaluate
the performance of manufacturing systems. Most of these
focus on many of the same practices, measures, and goals.
The best of these checklists evaluate processes like
sales and operations planning, master scheduling, and
purchasing through interviews, reviews of reports and
on-line screens, and watching the actual practices.
They also apply the results of basic measurements against
their goals. These measurements should address data
accuracy (like inventory accuracy), quality of planning
(like master schedule stability), and quality of execution
(like on-time delivery of supply orders). The measurements
must be at the diagnostic level and not the bottom line
measures (like inventory turnover) if you wish to identify
the real problems.
The
existence of these measurements is, in itself, one measure
of the status of the current system. If the measurements
are already collected, even if they show poor results,
it is an indication that many things were done well
in the initial implementation. If they do not exist,
it raises a big question about the start.
The
measurements lead to the improvement project.
Once
you review the processes and take the measurements,
the major tasks to improve the systems performance
can be defined. If inventory, bill of materials, or
routing accuracy is below par, there will be a task
to attain the required levels. If plans are past due,
overloaded, unstable, or inconsistent at different levels
of the planning structure, there will be task teams
assigned to do root cause analysis, design the solutions,
and implement them with the users. Schedules that are
valid but not followed, output hours that do not meet
capacity plans, and schedules and orders that are not
delivered on time also lead to major tasks. The checklists
and measurements determine the targets of these task
teams and later become proof that the problems are getting
resolved and the system is becoming successful.
Why
does it have to be "a project"?
Why
not take the measurements and just make it the users
jobs to reach the goals as part of their daily activities?
In most cases when a system goes bad, even the good
parts are dragged down by the rest. It is not unusual
for people to give up on a failing system. It typically
takes a concerted effort to create an atmosphere of
change and make it happen. Sometimes these projects
turn out to be as comprehensive as the initial implementation
minus the selection and implementation of the software.
So we make it a project to give it the structure, importance,
and emphasis that it needs to get everyone involved
and accomplish the goals in a reasonable timeframe.
How
is the project organized?
This
is a big project that is worthy of a full project organization.
A Management steering committee is needed because
the project requires their attention. The steering committees
role is to:
 |
Set
priorities |
 |
Provide
the core team with clear direction |
 |
Provide
resources to ensure the program is a success |
 |
Hold
the core team accountable for accomplishing the
implementation on time and within budget |
 |
Review
core team proposals on a regular basis and judge
the feasibility of the plans in relation to all
other operational activities , as well as to the
vision of the results |
 |
Ensure
all levels of management maintain a high level of
commitment and enthusiasm throughout the lifetime
of the project |
 |
Gain
sponsorship from all other functional groups , divisions
, vendors and customers |
 |
Mentor
specific teams |
There
is a core team or project team that is responsible
for the overall activities of the project. Their role
is to:
 |
Develop
and implement the project plan |
 |
Track
key implementation issues through each phase of
the change |
 |
Use
a set of ongoing measurements to determine the effectiveness
of the implementation |
 |
Identify
implementation problems |
 |
Report
progress to Steering Committee |
 |
Define
education and training requirements |
 |
Review
and present policies, procedures and performance
measures for approval |
 |
Coordinate
task team activities and assure consistency between
teams |
 |
Participate
as team members/facilitators |
 |
Assure
user participation and cultural change |
The
task teams are managed by the project leader
and the core team. Their job is to do the data gathering,
root cause analysis, solution design, implementation
of the solution with the users, handoff to the users,
and follow-up to assure success. A typical set of task
teams may include teams for:
 |
Inventory
Accuracy |
 |
Bills
of Material Structure and Accuracy |
 |
Demand
Management |
 |
Sales
and Operations Planning |
 |
Master
Scheduling/Materials Planning |
 |
Purchasing
Data Accuracy |
 |
Routings/Time
Standards/Lead-time Accuracy |
 |
Shop
Floor Control/Capacity Planning |
 |
Product
Changes/New Product Introductions |
 |
MRP
II Performance Measurements |
 |
MRP
II Education/Training |
The
initial measurements discussed above usually determine
which teams are necessary for a given company.
The
task teams follow a basic task structure to fulfill
their roles:
- They
are given team education that covers
 |
ERP
concepts related to the project |
 |
Their
specific team charter |
 |
The
current status of their part of the system based
on the measurements |
- They
are given the high level project plan and are asked
to develop a detailed implementation plan for their
task including sub-tasks for Logic-Data-Policy-Process-Performance-People
issues
- They
design and develop the systems and process solutions
for their task
- They
gain design approval from
 |
Core
team |
 |
Steering
committee |
- They
develop the supporting policies and procedures
- They
provide education and training for the users
- They
implement the systems, policies and procedures
- They
implement missing performance measures and automate
manual ones
- They
handoff their task and results to the users
- They
work with the users to validate that the new design
is working and to achieve Class A results
The
core team and task team are also responsible for creating
an infrastructure to sustain and improve the system
for the long term. This may involve:
- On-going
performance measures and a measurement management
process
 |
Regular
performance measurement meetings |
 |
Annual
audits |
- Setting
up a system integrity group to review...
 |
System
changes and additions |
 |
Growth
of informal systems |
- An
on-going education and training process that assures
a high level of knowledge among the users into the
future including...
 |
Education
and training policy |
 |
Matrix
of positions and training topics that relate to
them |
 |
Training
documentation and measurements |
 |
Development
of training materials |
 |
Qualification
of instructors |
 |
Exposure
to new ideas |
What
are the critical success factors?
The
greatest obstacle to bringing a system back from the
brink is the attitudes of the people in the organization.
If they dislike the system because of its past performance,
or if they believe it can never be made to work, it
will be a great struggle to convert their thinking.
The idea of resurrecting it must be sold rather than
delivered by edict. If they like the informal systems
they have authored to supplant the system, they must
be convinced to give them up. If they take a passive
"wait and see" stance, they must be convinced
to join the effort as active participants. Without the
support of the users there is no chance to succeed.
Another
obstacle is the temptation to make this another "software"
project. The whole idea of this project is to make an
existing system succeed, not to buy a new system. Certainly,
there may be software tasks to fill the gaps or modify
some features of the system. This will be especially
true if the original system has been modified drastically
because of its past performance or the lack of understanding
of the organization. However, the focus must not
be primarily on the software. It must be on the data,
policies, practices, performance measurements, and people
because these are the areas of opportunity.
A
final obstacle is the approach to the performance measurements
themselves. Some organizations feel threatened by these
measurements. This happens because measurements may
have been misused in the past. If they were used to
cast blame on individuals rather than to constructively
improve performance of the business, there may be a
fear of the same happening again. If so, Management
has to convince the organization by word and deed that
this is not the case.
The
measurements are also the true test of commitment in
the improvement process. When the new practices are
in place, the scores will not necessarily be at their
goals. Then it is time for the users to dig in and raise
the scores through hard work and additional changes
to practices. If they are not committed, they will challenge
the measurements and the goals. It will be important
for the steering committee, the core team, and the task
teams to hold their ground and help them move to the
next level. The measures are relatively standard and
there are many other companies that achieve these goals.
There is no reason to lower the goals, loosen the tolerances,
or change the measurements. After all, the objective
is not to get a certification. It is to become a better
business by developing a successful system.
Successful
results lead to more successful results
Once
the project is over, the view of the system is quite
different from the original view. The organization has
learned to trust and use the information from the system.
The informal replacement reports and data are gone.
The users are committed to maintaining timely and accurate
information in the system because they understand the
importance of doing so. There is a structure in place
to continue the measurements and assure that performance
does not deteriorate in the future. There is usually
a new attitude toward formal systems and greater ownership
among the users.
In
addition to the improved performance on the diagnostic
measurements, the bottom line measures will have improved
dramatically as well. If customer service was poor,
it will have improved. If it was already good, it will
still be so, but operating costs and inventory turns
will have improved. If there was chaos in the organization
and an inability to predict results, there will now
be order and predictability.
The
best indicator of the results is the large number of
companies in which these improvements were accomplished
by one plant or division with such remarkable results
that the others have decided that it is worth their
efforts to do the same. Good results that spread up
and down the supply chain can have compounded benefits
for any business.
The
Truth about Capacity Planning and Scheduling Systems
Jack
Gips
President, Jack Gips, Inc.
INTRODUCTION
The
emotional debates wage on. Optimal (finite) scheduling
zealots demonstrate the amazing calculation capabilities
of their software and how it automatically does things
that traditional scheduling modules can not. Members
of the traditional sect ridicule the optimizers for
their high cost, over use of precision, and constant
need for recalculation to arrive at the "perfect"
plan. Unfortunately, these debates are focused on the
negatives and do little to help practitioners gain positive
ground on this area of historical weakness.
The
strengths of the traditional scheduling systems are
their top down approach and their ties to management's
philosophies on the relationships between customer service,
revenue driving, and internal capacity utilization.
Their weaknesses are tied to their lack of good visibility
into the capacity relationships between work centers,
their inability to simulate changes before they are
made, and their lack of tools to realign schedules.
The
strengths and weaknesses of many of the finite scheduling
systems are in many ways the exact opposites of those
of the traditional systems. Their calculation and 'drill
down' capabilities are superb. Their simulation and
schedules provide outstanding visibility. However, their
ties to management's thinking are tenuous and their
focus on detail at the lowest levels limits the value
that they add to our decision processes.
Instead
of bickering over the negatives and arguing over which
is the best, why not combine the best of both and take
a step forward in scheduling and capacity planning?
We finally have the software capabilities to
create schedules and capacity plans that users can trust.
Why not apply those capabilities to support the users
in their decision making?
CAPACITY
PLANNING FUNDAMENTALS
Our
history of capacity planning is filled with examples
of companies that installed software with the right
intentions, but whose mind sets and informal policies
were so different from the rules that guided the software
that they were never free to properly utilize the tools.
Agreements on the limits of capacity have usually taken
a back seat to the need to service the customers, and
rightfully so. Simply loading customer orders into a
schedule, however, provides no guarantee of delivery.
This guarantee can only come from assuring the availability
of material and capacity and then producing the products
on schedule. Disregarding capacity limits leads to poor
customer service, higher manufacturing costs, higher
inventories, and less flexibility. The assumption that
capacity is so elastic that it can be stretched to satisfy
almost any level of demand has gotten numerous companies
into trouble. The perceived solution to these problems
often is overly simplistic . . . If we just had a
better set of tools; everyone would be willing to use
them. So, instead of addressing the policy and rules
conflicts, the endless search for the perfect logic
becomes the direction. Some people even believe that
the right software will force management and others
to change their thinking and conform to the system's
rules.
When discussing capacity planning, it is usually better
to begin with fundamentals and leave the software solutions
to the end. Here are some basic issues that determine
the effective use of the capacity planning tools. How
well the software helps us deal with these issues determines
its success.
Is
there a plan? Do we make every effort to validate
the plan? Is it based on a complete and accurate statement
of customer demand? Does it consider the availability
of materials and capacities? Is it doable? Do we make
every effort to achieve the plan? Do we measure performance
in meeting the capacity plans, material plans, and customer
promises? Is our actual performance against the plan
taken into consideration when we create tomorrow's plan,
thereby validating its integrity?
When
planning capacity, is the objective to meet the plans
or change the plans quickly and conveniently? There
has been a great deal of attention paid to creating
systems that automatically and instantaneously change
plans. If the same efforts were made to measure and
manage excellence in meeting the plans, the results
would undoubtedly be more beneficial.
When
it is necessary to change plans, is capacity considered
before the changes are approved and promised to the
customers? Is there an implicit assumption that
if material is available, capacity will be made available
somehow? Is each decision made on it own merits or is
the overall impact on capacity reviewed?
Do
people make the decisions to change or is it done automatically
by the computer? In most companies, compromises
must be made between maintaining perfectly precise schedules
and maintaining schedule stability by avoiding unnecessary
changes.
What
is the value of maintaining precise schedules when they
are based on imprecise data and assumptions? Lead-times,
time standards, queues, demonstrated and finite capacity
numbers, loss factors, productivity ratios, and routing/work
center relationships are all based on estimates, averages,
and historical trends. They are all used to plan future
schedules and capacity plans. They are all subject to
variations, changes in performance levels, and choices
made by manufacturing people. Should the schedules be
changed every time there is a variation? Or, should
these schedules be targets for manufacturing and changed
only when the tolerances set around them are exceeded?
What is the value of a plan that continuously changes
when it is missed? Should it result in a new plan or
actions to meet the original one?
If the original plans are set based on one set of
guidelines (i.e., demand statements and customer service
goals), but intentionally violated based on a second
set of guidelines (manufacturing objectives to optimize
productivity), have you set yourself up to fail?
Why not determine the real guidelines and priorities
before planning and then stick closely to them during
execution?
Does
your business try to accommodate last minute customer
orders? If so, do you reserve capacity and material
for these so that you will not have to violate capacity
plans or displace other customers? Is the compromise
between reserving capacity, safety stocking inventories,
and providing quick response to the customers well understood
and backed by sound policies?
Is
there agreement that schedules and capacity plans that
are overloaded, front loaded, and scheduled past due
are not valid? Will actions be taken to avoid these
conditions and to fix them if they occur? Is there a
structured approach to these actions? Are there rules
that define what actions to take to adjust capacity
levels and who makes them? Is it clear when to change
the capacity and when to change the plans?
Is
the system's data accurate and trustworthy? Is there
a good definition of the capacity available in each
work center? Are the time standards complete and set
consistently? Is shop reporting timely and accurate?
Are
manufacturing's issues factored into the plan? If
you overlap operations, perform simultaneous operations,
campaign batches, sequence orders a certain way, run
items with similar setups together, etc., does the scheduling
account for these and create initial plans that do not
have to be violated and realigned once they reach manufacturing?
Are
there good performance measurements on the delivery
of hours of work into the work centers and output of
hours from the work centers compared to the plans? Performance
in capacity can only be improved if there are measurements
in place to identify problems and fix them. If actions
are taken to adjust capacities, are there measurements
that review whether those actions provided the predicted
results? If hours are delivered on time, then component
orders can be delivered on time, and products can be
delivered on time.
Is
there a structured process for planning capacities and
reviewing the performance measurements? Are there
regular meetings to discuss work center capacities and
loads? Is there a formal way to evaluate schedule changes
and the actions necessary to meet them?
It
is important to recognize that our systems built with
sound logic have never been able to override management's
decisions even when they seemed irrational. It is therefore
critical to deal with the philosophy issues above before
determining the approach to capacity planning and the
tools that should be implemented. Many companies have
proven that buying the tools to force the philosophy
on management results in unused tools and wasted time
and dollars.
TRADITIONAL
SYSTEMS
The
capacity planning tools that have been offered as part
of MRP II systems over the past thirty years are Resource
Requirements Planning, Capacity Requirements Planning,
and Input/ Output Reporting. Resource Requirements Planning
is linked with Sales and Operations Planning. It is
Management's tool to assure there is enough capacity
available to support their proposed production plans.
It ties capacity to product families for critical work
centers. Its purpose is to identify the actions necessary
to get load and capacity reasonably in balance with
each other and prevent "infinite" loading.
Once capacity is in the "ballpark", the production
plans drive the master schedules and material requirement
plans.
Capacity
Requirements Planning is a more detailed planning tool.
It is used to validate the manufacturing schedules.
It considers specific items' schedules, nets out existing
inventories and work in process already completed, and
accounts for lead-time offsets. It employs assumptions
based on history and current measurements for lead-times,
time standards, productivity factors, queues, etc. It
matches capacity requirements with planned capacity
availability, usually in graphical form, to highlight
time periods of over or underloading that require smoothing
or actions to raise or lower capacity. It provides information
about the detailed orders that create the capacity requirements
in specific periods for realignment.
Input/Output
Reporting measures the flow of capacity requirements
into a work center and the flow of output from the work
center. These are compared to the plans for input and
output to separate capacity problems from other problems
that cause missed schedules. Proper use of Input/Output
Reporting leads to quick reactions to capacity problems
to avoid late deliveries. It also measures whether actions
taken achieve their expected results.
Basic
Concepts
Any
approach to capacity planning has to be based on a general
philosophy supported by consistent concepts. Some of
the basic concepts behind the traditional approach to
capacity planning are:
- The
planning has to be driven from the top. Management's
high level sales and operations plans must assure
the availability of resources to give manufacturing
a chance to succeed. Resource Requirements Planning
tools give management the information they need to
assure resources are in the "ballpark".
- The
company's objective is to satisfy its customers' demands
as often as possible. If customer demands exceed available
capacity, the first course of action is to find ways
to expand capacity. If these demands cannot fit within
the limits of the available capacity, or if adding
capacity is impractical, the customer demands will
be prioritized and realigned to fit.
- Plan
the master schedules to support the forecasts and
customer demands. Then make the component schedules
support the master schedules.
- Schedule
to customer needs first, and then adjust the schedules
to optimize manufacturing.
- Schedules
are targets that must be met within a tolerance. It
is not necessary to react every time a schedule is
not precisely met. It is desirable to stabilize the
schedules and react only when tolerances around the
targets are exceeded.
- Create
schedules using standards. Measure actual performance
compared to these standards. React to variances that
exceed the tolerances. The key performance measurements
to monitor are:
- Input/Output
vs. plan
- Actual
queues vs. planned queues
- Actual
delivery vs. scheduled dates
- Allow
the computer to schedule orders outside the time fences
and lead-times. Planners must manage the schedules
inside these lead-times to assure validity and stability.
It is not necessary to smooth the capacity plans outside
these lead-times. It is only necessary to be in the
"ballpark".
Weaknesses
The
major weaknesses of the traditional approach are:
- Realignment
of individual schedules to maintain schedule validity
and smooth short-term capacity plans is usually a
manual operation. In companies with complex scheduling
relationships or many orders, this can become overwhelming.
- When
the plan is to meet the due dates by expediting and
re-prioritizing individual operations, there is a
need to compress queues to maintain schedule validity.
Only a few of the traditional systems provide automated
help in queue compression.
- The
logic to optimize manufacturing efficiency and combine
similar setups is missing from most traditional systems.
They require complicated modifications to enable sequencing.
- Although
most have developed logic to plan overlapping and
parallel operations, the logic to plan campaigns is
another modification that is generally not available.
- There
is little automated assistance to do capacity smoothing
even for short-term schedules.
- There
are limitations in planning for multiple constraints
such as equipment, labor, and tooling simultaneously.
- When
manual changes are proposed to deal with capacity
problems in one work center, there is little capability
to see the impact of these changes on other related
work centers until after the changes are made.
- Traditional
systems do not prevent overloading in individual time
periods. Resource planning prevents overloading in
total over extended periods. Although this approach
does not allow "infinite" scheduling, it
does create "lumpy" schedules that must
be smoothed.
OPTIMAL
(FINITE) SCHEDULERS
These
are, in many ways, the exact opposites to the traditional
methods of scheduling and planning capacity. Their logic
is designed to eliminate schedule delinquency and prevent
overloading. The earliest versions were strictly finite
schedulers and were automatically calculated with little
human intervention once their rules were set. They often
failed because they had to be shut off to override their
decisions.
Today's
new technologies have paved the way for the development
of "optimal" schedulers. These systems can
use finite scheduling logic, capacity requirements planning
logic, or both applied in different time frames.
They
allow human intervention in the form of manual overrides
to individual orders, the ability to freeze schedules
in specified parts of the horizon, or changes to the
scheme of priorities.
They
are very flexible in their rules and constraints. They
can simulate results before changes are made. They provide
graphical views of the schedules and capacity plans,
display the relationships between orders and loads and
between work centers. "Drag and drop" graphical
capabilities make their schedules easy to manipulate.
Many
of these have also been designed to handle the sequencing,
overlapping operations, parallel operations, campaigning,
etc., that have been missing from many of the earlier
systems.
Basic
Concepts
Despite
all the desirable features described above, optimal
schedulers will fail to satisfy their users if they
are applied without a philosophy supported by consistent
concepts. Some of these are listed below:
- "Finite"
scheduling loads manufacturing orders into the work
centers in a pre-determined priority sequence until
the load hours in any time period reach a "finite"
level of capacity. Once this level is reached, additional
orders must be loaded into the next time period with
available capacity. It "forward schedules"
from the current date until all orders are scheduled.
This approach eliminates past due schedules and prevents
overloading work centers in any time periods.
- "Optimal"
scheduling may start with a finite method, but allows
a planner to override the decisions of the finite
scheduler when necessary. It allows adjustments to
the "finite" capacities, the priority scheme
for loading orders, and even the time periods and
work centers in which the finite logic is applied.
- The
focus is on capacity and the optimization of manufacturing.
Deliveries are promised only when there are enough
materials, lead-times and capacities available to
do so.
- Many
of the assumptions and averages used in the traditional
methods are replaced by calculated numbers based on
current schedules. Lead-times and queues, for example,
are calculated based on the predicted loads and priorities
each order will face as it moves through the plant.
- More
emphasis is placed on manufacturing's considerations
like sequencing. The objective is to create a set
of schedules that manufacturing really will follow.
- If
the capacity available in a work center changes, it
is important to realign the orders to maintain the
validity of their dates and to utilize capacity well.
- Schedule
stability is secondary in importance to schedule accuracy.
Frequent realignment is key to maintaining this accuracy.
- The
computer should do as much of the scheduling as possible.
A great amount of manual intervention significantly
reduces the value of the tools.
Weaknesses
The
major weaknesses of the optimal schedulers are:
- In
many situations, capacity is not "finite".
It is extremely flexible. Management is often more
inclined to stretch capacity than to risk disappointing
a customer with a promise date later than the requested
date. Under these conditions, it is difficult to treat
precisely calculated schedules as real objectives.
- It
is difficult to determine the real priority schemes
to apply to the orders. In many companies, there are
a number of people who set and override these priorities
on a case-by-case basis.
- Like
the traditional methods, these systems rely on assumptions
such as time standards, productivity factors, available
capacities, etc. Even the calculations that replace
the lead-time and queue assumptions are based on these
factors.
- These
systems calculate their plans very precisely. If their
data is not accurate or if the plans are not followed,
they re-calculate another set of precise plans that
are different. Plans that change every day are not
really plans at all. This approach may be useful for
realigning very short-term schedules, but it is questionable
when applied longer term.
- These
systems schedule using calculated queue times based
on orders predicted to be in the queues. Unreliabilities
in manufacturing, such as equipment downtime or absenteeism,
cannot be absorbed when queues are planned this way
with no tolerances. The system reacts by rescheduling,
making schedules unstable and changing delivery dates.
- The
ability to manually intervene is both an advantage
and a weakness. If there is too much intervention,
these tools cannot serve their purpose. This makes
users carry the burden of scheduling at a very detailed
level. It violates the basic concepts. Some companies
have even converted their "finite" schedulers
into "infinite" schedulers by overriding
their finite capacities with larger numbers to accommodate
more customers.
- The
rules and data that must be maintained in the "optimal"
schedulers can easily become too complex and confusing
to the users. Once this happens, they are likely to
set aside these "sophisticated" tools for
ones they can understand that require less effort.
CONCLUSION
The
dilemma facing most users is how to take advantage of
the capabilities of the tools and technologies available
to us. Installing capacity planning systems is not the
goal. Using them to make better decisions is. We believe
it has to start with an internal discussion about the
company's philosophy related to capacities and customer
service. There must be agreement on the rules and policies
from Management down through the manufacturing people
who assign orders and people to work centers. Management,
instead of being the primary violators of the capacity
plans, must become the leaders and enforcers of the
new philosophy.
There
must also be agreement on the data to be used and responsibilities
for keeping them timely and accurate. Responsibilities
for setting plans, overriding them, and executing them
must be clarified. Performance measurements must be
generated to assure conformance to these agreements.
Once
all of these agreements are made, then it is time to
determine the best tools to fit the company's needs.
Between the traditional and optimal methods, there are
certainly enough good tools to support these needs today.
A combination of the two applied to different products
or different periods in the planning horizon may certainly
be appropriate. The key is to first understand and adopt
the philosophy, and then apply only those tools that
best support the philosophy.
A
Master Scheduler's Dozen - 12 Keys to Master Scheduling
Success
Jack
Gips
President, Jack Gips Inc.
The
master schedules are the main links between most companies'
long-term plans and short-term schedules. They are the
point at which forecasts meet actual customer orders,
where manufacturing budgets meet customer service requirements,
where management bravado meets capacity limitations.
They are the few driving schedules that lead to the
many detailed activities of production, purchasing,
and all their support services. If the master schedules
are well managed, the component schedules, and work
center capacities will usually be under control.
When
you structure your master planning system, you make
some key decisions that determine how well it will work
in the future. We will describe 12 key features that,
when properly applied and linked together, create a
master scheduling process that fits an individual company
well. Attendees will learn about the 12 features, the
implications of ignoring them, and what happens if they
are used properly.
Master
scheduling has long been the cornerstone of the decision
making, responsiveness, and management of our manufacturing
systems. In the earliest manufacturing systems, we attempted
to manage all the detailed parts. This led to heavy
expediting, poor inventory control, and customer service
problems. We learned over time that the best results
came from managing the master schedules and reacting
by exception to the need to manage individual component
parts. We also learned that our scheduling systems must
support the logic master schedulers want to use. They
must be set up to drive the activities of master scheduling,
not to create obstacles for the planners.
The
issues that follow are some of the keys to effective
master scheduling.
- Production
Plan - Master Schedule Link
Sales and Operations Planning is the process for creating
a game plan at a family level to reach the "best"
blend of customer service levels, inventories, capacities,
financial performance, and human resources in the
overall results of a plant, division, or company.
The outcome of Sales and Operations Planning is a
formal sales plan and a formal production plan. The
importance of S&OP is now well recognized and
many companies have adopted it as a key monthly planning
activity.
Problem
Once the S&OP plans are created, the key is to link
them directly to the master schedules. This is the crucial
point at which many manufacturing companies and software
vendors have a missing link. Instead of driving their
master schedules with production forecasts disaggregated
from their S&OP production plans, they load their
end item sales forecasts into the top lines of their
master schedules. If the production plans are exactly
equal to the sales forecasts, this approach works well.
When S&OP decisions are made to level production,
raise or lower inventories, or build anticipation inventories
for seasons, promotions, or shutdown periods, the production
plans should drive the master schedules.
Implications
Loading the sales forecasts causes the advice of the
system to plan master schedules that ignore the S&OP
decisions. The exception messages tell the planners
to move orders to dates that match the customer orders
rather than the production decisions that were made
in the Sales and Operations Planning meetings. To plan
according to the decisions that were made, the planners
have to ignore the messages and firm plan MPS orders
against the system's advice. Now the system is fighting
the needs of the planners rather than supporting them.
This can result in master schedules that violate the
S&OP decisions, extreme effort on the part of master
schedulers to use the system, and switching off the
exception messages.
Solution
Create the system links and scheduling practices to
drive master schedules with the production plans. Make
the master scheduling system work for you. This requires
a place to store the production plans (usually in the
forecasting module or at the family level in an S&OP
module) and a method for disaggregating them and loading
into the master schedules.
- Time
Fence Rules
Good planning at the master schedule level means adherence
to time fence policies. Time fences are among our
most misunderstood concepts. They are supposed to
represent the time it takes to produce a given product
including the purchase of raw materials and components,
the manufacture of components and subassemblies, and
final production or assembly. These time fences can
be reduced by shrinking the lead-times of the items
on their critical paths or by stocking them in significant
quantities. Edicts or wishful thinking cannot shorten
them.
The
purpose of maintaining time fences is to give warning
when scheduling decisions are needed that will affect
manufacturing or purchase orders already in motion.
They set the boundaries between orders that need schedulers'
judgements and those that the computer can automatically
plan. The rules that are generally applied are that
master schedules inside the time fences are firmed and
manually planned based on exception messages. Orders
outside the time fences can be left to the computer
based on the planning policies that have been loaded.
This allows the master schedulers to concentrate on
the most important orders that have the greatest impact
on manufacturing and the outside suppliers.
Problem
Many companies ignore time fences, artificially shorten
them, or take shortcuts in calculating them. It is common
for companies to understate their time fences because
long fences imply inflexibility for sales and customers.
This does not fix the problem. It simply removes the
warning and creates a false sense of capability and
loss of control of the outcome.
Some
of the software has rules that do not respect the boundaries.
It is not unusual to see automatic scheduling inside
the time fences or system-planned orders inside of firm
planned orders.
Implications
These problems lead to master schedules that are not
valid because the computer logic is very literal. It
will schedule the impossible, drive delinquent component
orders, or expedite orders to replenish small quantities
of safety stock. Master schedulers spend inordinate
amounts of time undoing what the system has created.
Customer service and bottom line results are not dependable.
Solution
Lead-times should be measured for manufacturing and
purchasing. Time fences should be calculated from these
lead-times and adjusted based whether actions have been
taken to make long lead-time items readily available.
Each master scheduled item should have its own, independently
calculated time fence. Orders must be firmed to cross
into the period inside the fences. The system must not
automatically plan orders inside the time fences or
earlier than orders that have been firmed or released.
- Ability
to Reject Exception Messages
One important feature of our manufacturing systems
has been the capability to plan by exception. Items
that have been planned and require no further changes
need not be reviewed. Those that have possible availability
changes are identified to the planners by exception
messages from the system for review.
Problem
In most systems if a planner accepts a recommendation
by taking the recommended action, the message does not
reappear in the next planning cycle. If a message is
ignored or no action is taken, it reappears. The problem
comes when a planner reviews an item and rejects the
message or intentionally decides to take a different
action than the system recommends. Many systems treat
a rejected message as one that has been ignored. They
repeat the message continually until another change
occurs or the order closes.
Implications
This means the planners receive messages they have already
handled in addition to new messages. It becomes difficult
to sort the new messages from the old ones and the pile
grows larger. This can result in switching off the exception
messages and reviewing all the items instead of just
the exceptions.
Solution
There are two common methods of dealing with this problem.
You can run net change MRP instead of regeneration.
Most net change logic involves the creation of an activity
file that determines which items are reviewed. Removing
the item from the activity file eliminates the message
from the next planning cycle. It will take a new change
to put the same item in the activity file for review
again. The problem with this is that net change does
not work properly in many of the software packages.
Although it is offered as a feature during the software
selection process, many vendors recommend that you do
not actually use it. They suggest that regeneration
is safer and that it plans differently than net change.
The
second method is to create a suspense file that stores
the rejected messages. When MRP regenerates, the system
reviews the new exception messages against those in
the suspense file. If they are identical, the messages
are suppressed.
- Forecast
Consumption
In most of today's master scheduling systems, demands
consume forecasts over a period of time. Since they
are usually the result of monthly plans broken into
daily or weekly increments, it is important to avoid
reacting when short-term demands do not exactly match
these incremental forecasts. Forecast consumption
serves the purpose of stabilizing master schedules
by assuming that forecasts are more likely to be accurate
over a month or two rather than on a specific day
or in a specific week.
Problem
Most software consumes all items over a globally set
forecast interval. There is no allowance for different
items' forecasts to be consumed over different periods
of time. Some items may have better accuracy over a
one-month interval and others over a two-month period.
In some cases demands that exceed the forecasts are
consumed into the future, but demands that are below
the forecasts are dropped immediately.
Implications
The basic idea is to ensure that forecasts are consumed
over the period of time that represents the most accurate
forecast even though the master schedules may be scheduled
to a precise date. If this does not happen the demand
will change too frequently and, in turn, drive excessive
master schedule changes. Consumption rules should work
in both undersell and oversell conditions because push
out reschedules are not necessarily less costly than
pull-ups.
Solution
The interval for forecast consumption should be set
by item rather than globally. Forecast accuracy should
be measured for each item at one, two, and three-month
intervals to determine which yields the highest levels
of accuracy. System logic should be set up to consume
both over and undersell conditions over this interval.
- Replenish
Safety Stocks at the Time Fences
Safety stocks are planned to cover for demand and
supply variability. In most companies it is acceptable
to drop below safety stock levels to some degree.
If a company performs so well that they never drop
below the safety levels, then there is no need for
safety stocks in the first place. If only a small
portion of the planned safety stock has been utilized,
there is no need to panic and replenish by expediting
except in unusual cases.
Problem
Standard logic in many systems treats safety stocks
as requirements in the first time period of the planning
horizon. This creates exception messages to expedite
very short-term orders when projected inventories drop
below safety stock levels.
Implications
Planners must reject these messages and determine where
to place the replenishment orders to avoid expedite
situations and schedule instability.
Solution
Safety stock replenishment orders should be planned
at the time fences and allowed to progress at full lead-time.
Planners should manually expedite exceptions such as
critical items or items whose safety stocks have been
depleted by unacceptable percentages. This can be accomplished
via system logic or by temporarily reducing the safety
stock planning factors and setting up safety stock replenishment
requirements at the time fence.
Problem
There are some situations in which companies wish to
forecast the sale of end items to drive manufactured
and purchased components to stock, but do not want to
convert the product to its finished, packaged, or final
assembled configuration until a customer order is in
hand. They may do this to keep their inventories in
the most flexible position or in a more stable state
until the last moment. Standard master schedules either
drive products to stock against a forecast or wait for
an order to be entered before buying or making anything
other than safety stocks.
Implications
Customers may not be willing to wait the full lead-times
for delivery. Converting products to finished goods
too soon may make the company less flexible for its
customers while raising total inventories.
Solution
Setting a demand fence at the lead-time of the finishing
operations allows you to bring all components to stock
based on a forecast, but only convert the finished goods
for which you have orders. Some companies also use demand
fences to bring in long lead-time raw materials, but
not convert them to manufactured components until they
have customer orders.
- Two-Level
Master Schedules
Problem
If there are so many final configurations that it is
impossible to forecast accurately at that level, it
may be better to forecast at a semi-finished level that
has fewer choices that can be converted to many different
end items. This been recognized as an issue in assemble-to-order
products for a long time and has been the source of
much of the logic behind product configurators. There
are also many companies that offer a wide variety of
end items made from a smaller number of semi-finished
items that do not need a configurator because they are
not assemblies. They may offer already configured end
items in a catalog, but not wish to stock them. They
also want to keep inventories of the semi-finished items
flexible and minimized.
Implications
Stocking all the catalog items would require significant
safety stocks to achieve high levels of customer service.
Total inventories would be high because the semi-finished
items would be included in all of the finished item
inventories. Producing only to order would not satisfy
the customers' expected lead-times. Customer service
would be negatively affected by the company's ability
to forecast each of the end items.
Solution
Two-level master scheduling allows a company to forecast
at the semi-finished level, but still retain already
configured end items. The end items are initially planned
for no demand and no supply orders. The semi-finished
items are planned to satisfy their forecasts with lot
sized master scheduled orders. When orders are entered
for the end items, master schedules are created to drive
the finishing processes. These master schedules drive
component demands to the semi-finished master schedule
level and consume the semi-finished forecasts. Available-to-promise
information is captured by checking the semi-finished
ATP and adding on the finishing lead-times.
- ATP
for Line Items
Customer service people are important users of ATP
information along with the master schedulers. The
way in which ATP is presented to these users often
determines their ability and willingness to use the
data.
Problem
Most systems present the information to everyone the
same way . . . at the bottom of individual items' master
schedule reports. Many customer service organizations
take large numbers of orders for multiple line items.
They need ATP in a form that helps them deal with these
orders in a quick and efficient manner.
Implications
It takes too long for many of these people to look up
ATP for items they are entering one at a time. If they
cannot do this while the customer is on the telephone
or at their computers, there will be little chance of
negotiating deliveries before promises are given. The
value of ATP will be wasted and customer service levels
will be affected.
Solution
It is possible to move the ATP calculation to the customer
service representatives' desks. Their order entry screens
can automatically check ATP for each line item as orders
are entered and provide valid promise dates to the customers
immediately. Whole orders can be reviewed to determine
if they can be delivered at the customers' requested
ship dates, the need for partial deliveries, or the
need to check with master schedulers to see if delivery
dates can be improved.
- Multiple
ATP
When a manufacturing plant produces products that
are sold in several markets it is often beneficial
to sort the products that have been planned for each
market into separate categories of ATP.
Problem
If two different marketing or sales organizations provide
forecasts for an item, and one forecast is accurate
while the other is not, the error in one has the potential
to create poor customer service in the other.
Implications
Manufacturing may produce enough to satisfy both forecasts,
but over-selling in the market with the poor forecast
is likely to result in shifting products away from the
market with the accurate forecast. If the inventory
is treated in a first-come-first-serve manner, the poor
forecasters may be rewarded while the good ones suffer.
Manufacturing usually ends up with the blame.
Solution
Separate the ATP information for the two markets based
on what they have planned. As orders are entered, consume
the ATP for the market from which they originate. If
one over-sells, ATP will show there is no planned product
available, but they can negotiate for more product with
the marketing organization that still has ATP quantities.
This becomes a non-manufacturing decision. It puts emphasis
on improving the forecasts to get better service. It
reduces the chances of poor service in the market that
is well forecasted.
Problem
Production plans created in Sales and Operations Planning
drive the master schedules. At the master schedule level,
detailed decisions are made about specific situations
on specific items. The aggregate result of all these
decisions may call for more resources than were originally
budgeted in the resource planning during S&OP.
Implications
This opens the door for a disconnect between annual
business plans, high level operating plans, and the
detailed plans that actually drive sales, manufacturing,
and purchasing.
Solution
A simple check on the variance between production plans
and master schedules is to aggregate the master schedules
into monthly quantities by family and compare to the
family production plans that were created in Sales and
Operations Planning. If the sum of the master schedules
varies by more than an acceptable tolerance in a specific
month or cumulatively over time, the master schedules
should be brought back in line or the production plans
changed to accommodate the difference.
Problem
The master schedules are the key to creating high quality
schedules at all levels. They must be valid in terms
of lead-time, capacity, and stability. On-time delivery
of the master schedules leads to excellent customer
service and conformance to budgeted costs. It is not
good enough to just practice master scheduling and make
MPS decisions in the framework of a system. To get these
benefits, it is important to measure performance in
planning and executing the plans. Unfortunately, many
companies practice master scheduling, but do not apply
good measurements to their process.
Implications
It is not unusual for companies to report high levels
of customer service. After all, there is an extreme
focus on this measurement at all levels of the organization
and even personal involvement in some customer relationships.
There is a difference in the means of attaining this
service from company to company. Some do it by planning
well and executing their plans. Others do it by carrying
high inventories to cover for poor planning and execution.
Still others do it with heavy expediting and overtime
costs. The difference between the first approach and
the others is often a result of their measurements.
When the focus is entirely on the final customer service
measurement and not on the factors that contribute to
excellent performance and eventually lead to excellent
service, the result can be chaotic and costly.
Solution
Apply a few key measurements to the master schedules
and you can achieve excellent service at a reasonable
cost. These measurements are:
- MPS
Stability - The number of MPS orders that change
compared to the total number of MPS orders.
- MPS
Summary - Does the sum of the master schedules for
a family equal the production plan for that family?
(Have we diverged from the resource plan?)
- MPS
Lead-times - What percent of the master schedules
are scheduled at less than lead-times (time fences)?
- MPS
Execution - What percent of MPS orders are delivered
on time and at full quantity?
- Master
Scheduling Campaigns
Problem
Master schedulers in those companies that campaign products
for process reasons often spend a great deal of time
aligning and realigning campaigns, and orders or batches
within campaigns, to deal with the needs of their customers
and to utilize their capacities. It is difficult in
many systems to make these moves without a lot of manual
effort. Campaign planning often requires a more distant
look into the future than planning individual orders.
This often causes these planners to firm orders far
out in the horizon, which also increases the maintenance
burden. Some of the advanced planning and execution
systems do a good job of campaign planning, but many
of the traditional ERP systems do not.
Implications
Without some system logic to support campaign planning,
the effort to manage the long horizons and many detailed
orders may discourage planners from using the formal
master scheduling system. It is not unusual to find
that campaigned products are managed on spreadsheets,
thereby depriving other system users of the information
about the campaigns. This weakens their ability to use
system information for forecasting, budgeting, and to
track status of these orders through manufacturing.
Solution
Many companies have added logic in their master scheduling
systems to handle campaigns, trains, product clusters,
super-batches, etc. This logic separates the orders
for the individual products or batches, but allows schedulers
to plan and reschedule the whole campaign as if it were
a single order. By incorporating this logic into the
standard planning logic, the system can be trained to
create planned orders for campaigns instead of firm
planned orders. The computer can manage these when they
are beyond the time fences. If this is unacceptable
for some reason, or if the time fences are very long,
at least the whole campaign, instead of individual orders,
can be managed by the planners.
Keeping
the Promise of Available to Promise
Jack
Gips
President, Jack Gips Inc.
Master
scheduling is the meeting point for sales forecasts,
order entry, and manufacturing planning in most manufacturing
companies. One feature contained in the master scheduling
modules of many MRP II and ERP software packages is
a calculation that is descriptively named "available
to promise". Its purpose is
- to
provide information for promising valid delivery dates
to customers,
- to
reserve or allocate products for customer orders in
advance of delivery,
- to
provide warnings that supplies are getting low so
remaining products can be allocated to satisfy the
greatest number of customers or the most important
ones,
- to
prevent unusually large demands from reducing inventories
unexpectedly to levels that cause stockouts for customers
who have placed steady demands and/or provided good
projections of their needs,
- to
provide sales organizations with information about
what is available based on previously planned product
schedules so they can sell what has been planned rather
than take orders at random levels,
- to
differentiate quantities of products that have been
produced to satisfy the forecasts of different markets,
customers, or sales organizations and assure that
each gets its fair share.
A-T-P
must be applied differently to products that are make-to-stock,
assemble-to-order, and make-to-order. In all cases it
compares current and future supplies against existing
customer orders to determine what supplies are not yet
allocated. When a new order is entered or reviewed,
the customer's request is matched with the unallocated
supplies to determine when it can be satisfied.
On
make-to-stock products, A-T-P can be used to determine
the following:
- if
products are available at the time of order entry,
- if
all line items can be shipped immediately or at the
customer's requested date,
- when
every item on an order will be available for a single
shipment, or
- when
partial shipments can be made.
On
assemble-to-order items, A-T-P can be used to determine
when a configured product can be promised based on the
availability of the options and features that have to
be assembled.
Deliveries
of make-to-order products can be promised based
on A-T-P for critical raw materials, components, or
capacities of critical work centers.
Obstacles
to the use of A-T-P
In
truth, many of the companies whose systems are capable
of calculating available to promise information have
failed to use it in actual practice. For some, available
to promise does not fit the dissociation that exists
between sales and manufacturing. Sales may forecast
to give manufacturing a driver, but has no obligation
to sell into that plan. Customer orders are often accepted
and promised with "standard delivery lead-times"
or simply entered for immediate delivery without any
comparison to the plans or available to promise. Sales
people may in fact be rewarded for overselling the forecasts
or for selling the dollar volume even though the mix
bears no resemblance to the forecast. If this approach
continues to exist once a system is installed, available
to promise is usually switched off or ignored.
Some
companies would like to use their available to promise
information, but it is not accurate enough to use or
not presented in the right form to use it. If the supplies
(on hand inventories or supply orders) cannot be trusted
or the demand data contains errors or false demands,
available to promise information calculated from these
will also be untrustworthy. If many customer promises
based on these data are not met, available to promise
will not be used for very long.
If
available to promise is not presented to the people
who enter the orders in an easily useable form, the
same will be true. Sales and customer service people
usually do not want to see available to promise as one
line on a multi-line master scheduling worksheet. They
want it to appear on their order entry and quotation
screens. If the orders call for multiple line items,
they usually want to enter the whole order and review
available to promise for the entire order rather than
one line at a time.
A-T-P
Calculation
Calculating
A-T-P is relatively simple. The formula is as follows:
- AVAILABLE
TO PROMISE = Total Supply - Total Actual Demand
- where,
Total Supply = Quantity On Hand + Quantities On
Order
- and,
Total Actual Demand = Quantity on Customer Orders
The
Quantity On Hand includes any safety stock since safety
stock is not allocated to any particular customers and
is therefore available to promise. The Total Actual
Demand excludes sales forecasts since they are a prediction
of future demand and the inventories to cover them are
not allocated to any customers. Figure 1 shows the calculation
of A T P for a make-to-stock item.

FIGURE
1
There
are some problems with the A T P calculation in some
of the newer ERP software packages. Several of these
packages deduct safety stocks from the on hand quantities
before calculating A T P. Their argument is that safety
stocks are for emergency use only and not normally available
for sale. Since most of these safety stocks have been
calculated based on the variability of demand against
the forecasts, they are planned to cover those expected
variations and not just for emergencies. The users of
those packages can often be found either manually adding
back the safety stocks to the A T P or ignoring A T
P altogether.
Another
common problem is the exclusion of system planned orders
from the calculation. These systems only consider released
and firm planned orders. The argument in this case is
that system planned orders change frequently and are
therefore not reliable enough to base promises on. The
result for companies that take orders now for delivery
at customer requested dates in the future is that the
calculation runs out of supply before it satisfies all
the demand. Manual calculations show that the order
can be covered by the planned orders that are being
ignored. In fact, the planned orders are the plan. The
system will always cover demand if there is demand to
be satisfied. They should become firmed as they approach
the item's time fence and released at the lead-time.
This problem becomes much more serious if the software
does not provide for time fences and firming messages
when system planned orders cross them. If the system
is allowed to plan orders inside the time fence and
in the first few weeks of the horizon, available to
promise will show very little if any supply to satisfy
the customers if these orders are excluded. It will
show A T P that is impossible to meet if it includes
planned orders when the system is allowed to plan them
inside the time fences.
There
have also been arguments that supply order deliveries
often cannot be trusted because the components to produce
them are frequently not available. Or, if a supply order
is to be pulled up to an earlier date, it is important
to be able to drill down to see the availability of
the components before moving it. There has been much
ado about the need for "drill down" capabilities
in the software. In reality, however, only a small percentage
of companies are in a position to use this kind of information.
As an example, take a company whose product has 100
components and four levels in its bill of materials.
A customer requests a quantity greater than is currently
planned. We drill down to look at all these components
and find twenty of them would be short if the next order
is pulled up to satisfy this request. This is to be
expected since the order is greater than the original
plan. What do we do now? Call ten suppliers and check
on availability? Analyze the work centers for capacity
and the raw materials for the manufactured items to
see if it can be done? Do we do all this before promising
delivery to the customer? And what if this scenario
happens many times every day? Is all this detail really
better information than we can receive from A T P? Do
we have time to analyze it?
It
may be practical to drill down to the details in companies
whose products have small bills of material and whose
processes have a few short paths. We learned a long
time ago that it was not practical in many companies
to manage our plants at the detailed component levels.
It was one of the reasons we emphasized the need to
manage our master schedules and drive the decisions
made there to the component levels. Having the technology
to manipulate the details does not necessarily make
it the right thing to do.
A-T-P
Scenarios
When
a customer order is ready to be entered, there are a
number of situations and decisions that A T P can prompt.
The actions taken and decisions made may vary by company
or product. One factor may be the degree of importance
of the item to the
customer (such as a life saving drug). The fierceness
of the competition or the importance of controlling
costs may also come into play. Available to promise
does not make products available. It simply tells you
if they are planned to be available when a customer
requests them. If not, there are usually two options
. . . change the plan and make them available or promise
delivery at a different time when they will be. Anything
else is wishful thinking.
Scenario
#1 - The customer asks for 100 units of an item
at a particular date and there are 100 or more available.
Action
- Promise the delivery as requested.
Scenario
#2 - The customer asks for 100 units of an item
at a particular date and only 50 units are available
to promise.
Possible
Actions - Ask the customer if a partial delivery
at the requested date and a second delivery when A-T-P
shows more available will be acceptable. If this is
not acceptable, contact the master scheduler to see
if there is a way to adjust the schedules to satisfy
the customer.
Scenario
#3 - The customer asks for 100 units of an item
at a particular date and the system shows that there
are exactly 100 available to promise. However this is
a new customer and the 100 have been planned based on
forecasts from important existing customers. After checking
with the master scheduler, it is determined that if
they are given to the new customer, the replenishment
cannot be available for several weeks.
Possible
Actions
- Give
them to the new customer and take the heat from the
rest.
- Call
the existing customers and check on their needs. Negotiate
with both to split the quantity until more can be
made available.
- Buy
the product from another customer who has it or from
a competitor to satisfy both customers.
- Save
the product for the customer who gave you the forecast
and turn down the new business.
Scenario
#4 - The US marketing organization has worked diligently
to provide a reasonably accurate forecast for the domestic
demand. The International marketers provide a very inaccurate
forecast and sometimes forget to forecast at all. They
assume that the plant can make whatever they need. So
the manufacturing planners forecast International demand
based on history. There are 100 units available to promise.
They were produced to satisfy a US forecast of 80 units
and an International forecast of 20. An International
order comes in for 75 units. A replenishment order cannot
be available for several weeks.
Possible
Actions
- Give
them to the International customer and hope US marketing
understands the situation.
- Call
the US marketing and ask them if they are willing
to share. Negotiate with both to split the quantity
until more can be made available.
- Have
International marketing call the US marketing and
ask them if they are willing to share. Let them negotiate
and keep manufacturing out of the middle.
- Save
the product for the US customer who gave you the good
forecast and tell International that it is important
to provide a good forecast if they want product availability
at short notice.
Scenario
#5 - There are 100 units in inventory in the finished
goods warehouse. A customer requests 65 but the system
shows only 50 are available to promise. This is because
another customer previously ordered 50 but requested
delivery three weeks later. The next supply order is
not due until week 5.
Possible
Actions
- Ship
65 on the new customer order and assume that manufacturing
will be able to respond.
- Call
the master scheduler before shipping and assure that
manufacturing can respond. Then ship the 65 on the
new order.
- Try
to make a partial shipment on the new customer order
and deliver the remainder in week 5.
The
changing business model
The
scenarios above are based on the traditional customer
service model with a customer on the phone talking to
a customer service representative (CSR) during normal
business hours. However this model is changing quickly,
especially in a make to stock environment. Industry
consolidation and information technology is mutating
customer service processes at the speed of light. Three
trends will force us to reconsider how our ATP 'toolkit'
should be deployed to engage and inform customers in
the future.
The
first trend is customer segmentation. No longer does
one set of service rules apply to every customer. The
level of responsiveness required of your business may
vary based on the industry your customer serves, or
the importance of that customer to your business strategy.
For example, if your customer serves one of the mass
merchandisers like Home Depot or Wal-Mart rest assured
that you will be required to adjust to variations in
their demand with very little lead-time. If you want
the business, the mass merchandisers and the mass merchandisers'
customers set the rules of the game. Your only decision
is whether to play or not. However, you will not likely
plan on offering Wal-Mart type lead-times to all of
your other customers. Customer service is becoming an
increasingly strategic discipline, counterbalancing
the other critical procurement variables, price and
quality. For each customer segment the business leaders,
not operations, must define the level of service and
service features that will give your business competitive
advantage. Over-serving with no clear goal is a waste
of shareholder value. So is under-serving if there is
market advantage to leverage. Differentiating customer
service strategy by customer or customer group will
impact the way you manage many factors: standard lead-times,
inventory, capacity and logistics. Available-to-promise
is a means of managing these differentiated strategies.
For example, you could create a group of mega customers
with their own dedicated available-to-promise to assure
that they get preferred access to planned supplies over
non-members of that group. Within that group, however,
the mega customers who place their demands first will
get priority access to that supply over their fellow
mega customers. Likely business rules will cause whoever
provides the best forecast to earn the right to a preferred
level of service over their short lead-time peers.
The
second trend is asynchronous communication enabled by
advances in information technology. Much service activity
that used to be conducted by telephone and fax is migrating
to other communication channels like true EDI and Internet.
The term 'true EDI' implies real data interchange between
supply partners' information systems not 'mock EDI'
that needs to be re-keyed. Customer limited access to
their order information through the Internet, often
referred to as an Extranet, is evolving to include computer
to computer communication that is mutating and merging
with our traditional definition of EDI. The benefits
to both the customer and the supplier are enormous.
Customers can access up-to-date information any time
of the day or night, a particularly powerful advantage
as the sun never sets on many global industry leaders.
Suppliers benefit as well, as the costs of serving customers
drop dramatically as proportionately fewer staff are
required to process orders and distribute information.
Again,
there are profound implications for available-to-promise.
While the traditional scenario suggests that customer
service wants ATP info to appear on order entry and
quotation screens, or after multiple order lines have
been entered, what are the ramifications if the customer
is now in the driver's seat? All of the ATP user issues
mentioned earlier are intensified when you visualize
your customer accessing the information directly without
the filter of a customer service representative deciding
whether they can trust, and how they should present,
the information.
- Is
the inventory accurate?
- Will
the supplies really appear when planned?
- Do
planned orders provide a sufficient picture of supply
into the future?
- Does
the demand data contain false demands like safety
stocks?
- What
are the business rules for dealing with unusual spikes
in demand?
- How
can you assure that ATP adapts to differentiated service
levels among customers?
- How
should the information be presented to the customer
in a user friendly way?
An
additional issue arises as well. What happens if the
customers' requested lead-times cannot be met? Likely
you web site will need to allow the customers to indicate
their preference by noting whether they will accept
the alternative promised dates, whether they want to
trigger a human intervention to expedite the delayed
item, or whether they want to cancel the request for
that item.
The
third trend, vendor managed inventories (VMI), takes
the customer out of the picture altogether for routine
supply chain management. In a VMI environment the supplier
has access to the customer's inventory and usage data
and is responsible for maintaining the inventory level
required by the customer. Now ATP technology comes full
circle, as the supplier's customer service representative
or planner becomes a surrogate buyer. Technology and
business rules developed to support trend two, true
EDI and Internet commerce, will greatly enhance the
efficiency of handling the customer's purchasing activity
in house.
Conclusion
Available
to promise has proven to be a very effective tool to
coordinate the efforts of sales and manufacturing in
both make-to-stock and make-to-order environments when
it is used correctly. As we look into the future, we
see that it will become even more important because
it is exactly the type of information required to streamline
the supplier-customer interface our high speed world
will demand. It is usually discarded quickly if the
right conditions are not in place when it is started
up. This means that we must get it right the first time.
Our inventories must be accurate and our supply orders
must be delivered on schedule. We must clearly define
the target levels for customer service and the rules
for prioritizing our customers and for handling the
scenarios. We have to determine the roles of the customers
and the suppliers in utilizing the systems and A-T-P
if we are to eliminate middlemen and bureaucratic delays.
Once this is accomplished, A T P promises to link manufacturing
and sales to a single plan, reduce unnecessary schedule
changes, improve the quality of promise dates to the
customers and on-time delivery to those promises, and
simplify our customer relationships. It will help create
an environment in which our customers will not be inclined
to look elsewhere when they need our products.
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