S1 – S5 Notes

6/7/24 12:22 PM

1. Capacity (Manufacturing-driven) Vs Priority (Market-driven)

Capacity Priority
Capacity of manufacturing to meet market demand What product, Quantity, When
Depend on available resource (machine, labor, financial resource, raw
material from supplier)

Capacity = Priority Capacity > Priority Priority > Capacity

Long-term objective Waste factory resource: machines producing Loss of Sales: Manufacturing unable to meet
more than needed market demands
2.
Purpose Planning horizon Level of details
Strategic Business Planning Longest-term (10 – 25yrs) Least details
Production Planning Focused on product families
Translate market demands to
manufacturing capacity
Master Production Schedule: To show the quantity of each end model 3 – 18 months
reviewed and changed weekly or to be produced
monthly depending on the changing
environment (forecast demand,
available resource)
Material Requirement Plan: A plan for production and purchase of Short-term: combined lead- High
components needed to make the end times of manufacturing &
items in MPS purchasing
Production Activity Control & PAC: control the flow of work through Short: a day or a month Highest details
Purchasing factory
Purchasing: control the flow of Raw
Materials

3. Sales & Operations Planning (S&OP)

▪ Continually revising SBP – coordinate plans among departments
▪ High level plan – focused on the use of resources
▪ Benefits: 1. Updated SBC
2. Mean of Managing Change – Better management of production, inventory, backlog
3. Regular revising – if the departmental objectives realistic? Support the SBP?
4. Capacity management steps:
1.Understand market priority (demand) and capacity required.
2.Compare the required capacity with available capacity.
3.Make adjustment to available capacity to meet market priority.
4.Short term capacity adjustment from production plan to PAC - through over time, shift change,
sub-contracting, etc.
5.Add or remove equipment and plant: require longer planning horizon with complex planning
details
5. Manufacturing Resource Planning Systems
MRP Enterprise Resource Planning Advanced Resource Planning
Effective planning of all resources Large IT enterprise system: expensive, difficult to Suppliers & Customers get involved
implement To optimize the entire supply chain
Coordination & Feedback between Organize, define, control, standardize processes Create a feasible schedule rapidly to
departments Use internal knowledge to Seek external advantages satisfy the customer demand rapidly
Use applications for planning, scheduling, costing for
all departments
6. Marketing Vs Manufacturing

Marketing Manufacturing
Customers' POV: functionality & application of product Products are grouped based on:
probably not related to Manufacturing • Ease of measuring outputs (Multi-model making)
• Similar manufacturing processes
• Specific type of Capacity needed to produce the product
7. Strategies for Production Planning

Chase Strategy: production rate = demand

Advantages Disadvantages
• Stable inventory: low inventory cost • Peak demand: extra manpower, enough
• Minimum cost for obsolete product/service capacity
• Low demand: layoff manpower, low
equipment utilization

Production leveling: Production rate = Avg(Market demand)

Not for Seasonal/Cyclical demand, For Consumer products (electronic)
Advantage Disadvantage
Smooth production: no cost of changing production rate Inventory cost: built inventory, obsolete products
No excess capacity: equipment fully utilized, no hiring/ layoff

Subcontracting: Produce at minimum demand

▪ Buy extra amount of demand from vendors
▪ Turn away the extra demand – raise the price/ delay the delivery
Advantage Disadvantage
No excessive investment in production capacity Difficult to maintain: confidential info leakage to vendors
Focus on its own expertise – competitive pricing (possible competitors)
Higher cost of Purchasing

Hybrid: Combination of any two of the above

Objectives: - minimize overall cost
- meet the desired service-level
- meet the objectives of each department
Choosing the best fit: Facts to consider
• Resource flexibility (Quality & Response time)
• Inventory availability to meet demand
• Impact on customers when cyclical demand causes shortage
• Potential profit & loss due to customers' buying behaviour
• Impact on workers: Hiring & Laying off

8. Make-to-Stock: Sales & Delivery are made from Inventory

Conditions – Fairly constant demand, fewer product options, long shelf-life, Manufacturing lead time > Delivery
Objectives – minimize cost of inventory managing (maintain the required level) & changing production rates
Backorder = Due Order (late for delivery)

9. Make-to-Order: Make the product only when the order is received

Conditions – attend to customer specification, customers willing to wait, products expensive to store/make, few options
Objectives – Control & plan backlogs for the sake of good customer service
Backlog = Unfulfilled order

10. Production Plan Calculation

• Total production units
MTS: TFU – Opening inventory + Ending inventory
MTO: TFU + Opening backlog – Ending backlog
• Planned production per period
TPU / number of periods
• Inventory for Period-t
MTS: Planned inventory (t-1) + Planned production (t) - Forecast demand (t)
MTO: Backlog (t-1) + Forecast demand (t) - Planned production (t)
11. Resource & Capacity Planning
Resource Bill: determine the required quantity of critical resources per unit product

Master Production Schedule

Manufacturing plan reflecting both Market Needs and Manufacturing Capacity
• Priority Plan for Manufacturing
• Contract between Manufacturing and Marketing
• Valid order promises to Sales & Production
Objectives: Achieve desired customer service level – maintain finished inventory at required level, schedule manufacturing
MPS must be – within manufacturing capacity, within production activities guideline, satisfy demand
1. 4 Functions of MPS
• Link between PP & MRP
• Basis for calculating Resources & Capacity needed
• MPS + BOM = MRP
• Keep Priority Current
2. MPS and PP: Total units in MPS – not exceed total units in PP
3. 3 Steps in Preparing MPS
• A preliminary MPS Plan – Total units of MPS = Total Production Units
• Roughcut Capacity Planning – if critical resources available, Check others (inventory, lead time, existing production, capacity)
• Resolve any differences between the Preliminary & the Roughcut
4. Roughcut: Reducing Bottleneck impact
• Balance the flow – Control the rate of feeding
• Capacity depends on Bottleneck
• Time saved at non-bottleneck – not increase capacity
• Splitting loads – loading different models during the change model phase
5. Effectiveness of MPS
• Resource used – within capacity constraint for each period?
• Customer service – meet demand? Delivery performance?
• Cost efficiency – Economical Plan? Extra cost?
6. Planning Horizon – Lead time
Longer lead time – Greater visibility – Better management & planning
*Unnecessary to include time to manufacture components
*Follow the longest path
7. Time Fence: for Decision Making Process
Liquid Zone (Planning) Slushy Zone (Demand) Frozen Zone (Due Date)
Any change is Possible –as long • Change is Difficult – require senior • M &C – committed to specific order
as it is within the production approval • Any change – impact customer service,
plan limits • Material & Capacity – less committed manufacturing capacity, cost
to specific order • Based on customer demand – Not on
• Trade-off must be negotiated forecast
between Marketing & Manufacturing
• Ignore forecast

MRP – Material Requirement Plan

Objectives
1. Determine Requirements: Types of Components, Quantity, Leadtime to order, When to Schedule delivery
2. Keep Priorities Current: by Adding, Deleting, Expediting, Delaying, Changing order

Nature of Demand
1. Independent – Forecasted – not related to demand to any other components
2. Dependent – Calculated – directly related to higher-level assemblies
Vertical – depend on its Parents
Horizontal – depend on each other (Any part delay/ shortage – others to be rescheduled)

Bill of Materials (BOM)

• Show ALL required parts, *Not Process
• Unique Part Numbers assigned each part
• Part – defined by Form , Fit, Function
• Indented BOM – a type of BOM
Major Uses of BOM
• Define the product – Grouped by similarity of parts
• Engineering Change Control – Change components for improvement
• Service parts – parts Replacement
• Order entry
• Manufacturing – special process/ machine for special parts
• Costing – change to lower cost components

MRP Processes
1. Low-level coding & Netting: Start from Top to determine Level code
Assign Part Number
2. Exploding: Requirement * Usage Quantity
Offsetting: Place the explored requirement in proper periods
Gross Requirement Quantities needed to meet requirement
Schedule Receipts Open Order Unit scheduled to be received at a period
Projected Available Net inventory units at a period
Net Requirement Units needed to order to meet gross requirement
Planned order receipt To prevent (-) inventory – lot-for-lot or lot-size
Planned order release Same unit as PO-Receipt – based on lead time – authorization at
Purchasing

MLS Notes
1. Getting the Best out of Resource
• Production processes – designed to produce products efficiently & economically
• Control the use of resource (labor, equipment, material, capital)
• Flow of Material control Process Performance
2. Factors affecting Operation Management
• Government regulation: Global trade, Safety, Taxation, Product liability
• Economy: Birth rate, Aged population, Recession/Bull market
• World Wide Competition: communication, transport & movement
• Customer Expectation, Quality: Fair price, High quality, Delivery lead time, Pre/Post sale service, product & volume flexibility
3. Order-Winner Vs Order-Qualifier: Dynamic due to change of tech, competitors, customers' need

Order-Winner Order-Qualifier
Traits of Product/Service that persuade Customer Needs & Requirements – must strive
customer to buy – must strive to be the BEST to meet the MINIMUM acceptance level of
order
4. Product life cycle & Winning Strategies
Development Introduction – Growth – Maturity – Price Decline
design & quality & & Delivery
availability delivery (Order Winner)

5. Manufacturing Strategies
• Engineer-to-Order: Longest lead time
Process specification needs Design & Customization, Parts are purchased Only when needed
Design Purchase Manufacture Assemble Ship
• Make-to-Order: Start making once the order is Confirmed – No/Little components as Inventory
Inventory Manufacture Assemble Ship
• Configure-to-Order: Features & Options configured by Customers – Little design time
• Assemble-to-Order: Assemble according to Order – No design or customization, Use standard parts
Manufacture Inventory Assemble Ship
• Make-to-Stock: Shortest lead time
Manufacture Assemble Inventory Ship

6. Postponement: Application of "Assemble-to-Order"

= Shifting product differentiation closer to customer – Postpone identity change to the latest possible supply chain location

Supply Chain
Objectives of Supply Chain
▪ Maximize cost efficiency & effectiveness
▪ Optimize responsiveness to customers – shortest lead time
Includes all parties directly / indirectly in fulfilling customers' orders
Maximize overall value – Efficient Planning for Material & Info Flow along each chain
Critical issues & Focus of Supply Chain
▪ Flow & Sharing of Info – order, inventory level, material flow, part inventory,…
▪ Flow of material through the whole chain
▪ Transfer of Fund – Revenue collection & Payment methods, Duration, Exchange Risk
5 Important Supply Chain Factors
1. Include ALL activities & processes to supply product/service to customer
2. *A customer may become a Supplier to another customer
3. Has Intermediaries: Distributors – wholesalers, warehouses, retailers
4. Any company can be linked to supply chain
5. Design & Demand – from Customer to Supplier
6. Product & Service – from Supplier to Customer
Past: organizations – internal focus, Customers, Suppliers, Distributors – adversaries (Outside entities)
JIT: Focused on Supplier Partnership results in: No more incoming inspection or extra quality check
Mutual analysis for cost reduction
Mutual product design between supplier and firm
Tech-advancement enhance the info flow
Challenges Approaches
Demanding customers Understand Network of Supply Chain, Customers
Managing Large supply chain Plan material & info flow efficiently
Shorter product life cycle due to tech Integrated into systems and set of performance measure
Vast amount of data Rapid flow of accurate info
Focus on Profit Increased organizational flexibility
Increased numbers of Alternatives
Conflicts among Departments
Objectives Marketing Vs (Production, Finance) Production Vs (Marketing, Finance Vs (Marketing,
Finance) Production)
Marketing: Flexible / High mixed-model High inventory, High mixed-
High Revenue production capacity model, Extensive distribution
Responsive to Market systems
Production: Long production run with few High inventory of RM & WIP to
Low cost models prevent disruptions
High-level, Long run
Finance: cost-efficiency Reduce inventory, Decrease no. Of Low inventory
Plants & Warehouses, produce
limited models with long run,
Manufacture only to customer
order

Resolutions: Material or Supply Chain Management that can closely coordinate among SC activities to meet Priority and
Capacity
Balance conflicts through 1)Cost-effectiveness 2) Responsiveness
Balanced integrated approaches for Supply, Production, Distribution
Warehousing
1. Objectives
1) Minimize overall cost 2) Maximize customer service
3) Efficient warehouse operations – timely customer service
- Inventory tracking: Items to be found easily & correctly
- Minimize physical efforts & cost of moving goods in and out
- Provide communication link to customers
2. Costs
Capital investment for Items
• Material Storage Conditions: a. Temperature & Humidity Control – Air-conditioning
b. Perishable products – meat, fish
• Infrastructure: building, shelving, tanks, containers, IT systems
• Material handling Equipment: forklift, trucks, conveyor system
• Warehouse space: depend on PEAK quantities stored, Storage Method, Need for Ancillary space
Operating Costs
• Labor: order processing, order picking, material handling, stock check, transportation
• Electricity
3. Warehousing Activities
• Receive goods: from Outside Transportation/ Attached factory
Check goods against order/ bill of lading, Verify quality & quantity, Good inspection
• Identify goods: Quantity & Part Number, SKU (Stock Keeping Unit)
• Dispatch goods to storage: Store goods, Put away – Record the storage location
• Hold goods: To protect goods from goods' storage specification – temp, humidity, explosives
• Order Processing: Order fulfilment system – Factory/ Warehouse – Inventory availability there? - Allocation (if enough stock)–
Generate picking list
• Order Picking: pick from storage based on Pick List, SKU must be accessible, location must be recorded, brought to Marshaling
area
• Marshaling: Bring together all goods for an order – check missing/ incorrect items, Change order info if required
• Dispatch shipment: load on the right vehicle – protective packing, prepare documents, loaded & secured
• Operate an Information System: Support info – Quantity on Hand, Exploding & Offsetting, Quantity picked
- Track & Trace
- Billing, Invoicing, Collection
- Inventory adjustment, Cus info, Shipping mode, Customs clearance document
4. Warehousing: Effectiveness & Productivity
Complexity of Warehouse Management: 1) Quantity of each SKU to be handled 2) No. Of orders received & handled
Productivity & Effectiveness
1) Maximum use of Space: Cube utilization and Accessibility (Stock on Floor & Space above)
Stock location, Order Picking & Assembly, Packing
2) Effective use of Labor & Equipment
Best mix of the two, Ready access to labor & equipment, Move goods & SKUS efficiently
5. Locating Stock
Location: 1.type of goods stored 2. storage facilities needed (i.e. refrigeration) 3. throughput (volume of items picked) 4. size of
the orders
Management consideration: 1. Customer service level 2. Item tracking and traceability 3. Total effort required to handle SKUs
Basic System of Locating Stock
1. Group Functionally Related Items
• Items that are similar in their use or characteristics - I. warehouse staff become familiar with the items II. similar order
processing needs III. often ordered together • hardware items, bulk items, security • PC Motherboard, RAMs, Cables, etc.
2. Group Fast Moving Items i. Close to receiving or shipping ii. Reduces travel time iii. Slower moving items can be further away
3. Group Physically Similar Items i. May have similar storage requirements – Refrigeration (temperature control), shelving
(maximum weight) ii. Use similar handling equipment – drums vs. small items, steel tubing vs. Cartons
4. Group Working Stock & Reserve Stock
i. Working Stock – stock withdrawals are made (order picking) a) pick orders from single “home” location with smaller
quantities. b)It allows more compact picking area • closer to marshalling and shipping area (ease/fast order picking) • reduces
order picking travel time
ii. Reserve stock – support working stock. – Store remotely, replenish working stock in bulk (pallet, container)
6. Warehouse Storage Location Method
(1) Fixed Location
1. SKU is assigned via permanent & specific locations 2. Store and retrieve same items using small and manual systems.
Minimum record keeping is required. 3. Enough space must be designated for full-order quantity 4. On overage, 50% of cube
utilization (average 50%) 5. Suitable for small warehouse with small throughput, and fewer SKUs.
(2) Floating/ Random
1. Goods are stored whenever appropriate space available. 2. It requires good record keeping with up to date information on
items and availability of storage locations. 3. Warehouse MUST be supported by computerized warehousing IT system. 4. Often
used for reserved stock. 5. Cube utilization and warehouse efficiency improve greatly.
(3) Zone Random Storage
1. Hybrid of zone and random storage. 2. It is fairly efficient with good cube utilization.
3. Design methods i. Establish a zone. ii. Within zone, material can be randomly located as if floating system. iii. Example:
establish zone for all fasteners, to locate a particular fastener, search in the zone for the items
(4) Point-of-Use
1. Applicable for just-in-time (JIT) and repetitive manufacturing where inventory is stored close to where it will be used. 2.
Inventory records are adjusted when stock is issued and not when it is used. 3. Advantages: a. Inventory records are adjusted
when stock is issued and not when it is used. b. Materials are readily accessible to users and accessible at all time. c. It
eliminates or reduces material handling d. The central storage cost is reduced.
(5) Central Storage
1. All inventory in one central location 2. Central Storage is opposite to point-of-use
advantages: 1. Ease of control 2. Inventory record accuracy is easier to maintain 3. Specialized storage can be used 4. Reduce
safety stock, since users don't need to carry their own safety stock
7. Three types of order picking and assembly
(1) Area System
1) The order pickers circulate throughout the warehouse to select items on an order, much as a shopper in a supermarket. 2)
After items are picked, picker sends goods to shipping area and performs self-marshalling. Order fulfillment is completed after
picking. 3) For small warehouse operations where goods are usually stored in fixed location with low throughput rate. 4) simple
to control and manage
(2) Zone System
1)Zones by related items: similar material handling equipment/ special storage or handling requirement 2)An order: broken
down into smaller parts by Zones 3)Order picker – work in their zone 4)Order is assembles at Marshaling area
(3) Multiple Order System: for many items / many small orders with few items
• Similar to Zone: Picker circulate through their area – Bring the parts to Marshaling
• *orders are gathered together – items divided by zones
8. Warehouse Physical Control & Security
A system to prevent Mistake or Dishonest
Good Practices: 1) Good part-numbering 2) Simple, well-documented transaction system – identify items (traceability for
purchase order, quantity, part-number, storage location, stock picking) , verify quantity - physical count/ standard container,
Record transaction – Inventory tracking, Physically execute transaction
Warehouse Management System
1) A transaction system 2) Physical Control & Security 3) High accuracy of inventory
4) Main causes of Inventory Error 5) Measure the accuracy of inventory record 6) Physical count & Cycle Count 7) Use of Tech
Physical Control & Security
1) Limited access – locked, ensure transaction completed. 2) Well trained workforce - familiar with processes and procedures to
ensure transactions are completed.
High Inventory Record Accuracy
1) It helps to avoid shortage, maintain schedule, avoid excess inventory (of wrong goods,) provide good customer service.
2) To achieve the goals: develop an effective material management system, maintain service level, operate effectively and
efficiently, analyze inventory, accurate data input.
3)Impacts of Inaccurate inventory: Lost sales, disrupt schedule, excess inventory of wrong parts, low productivities, poor
delivery performance, excess spending.
Causes of Inaccurate Inventory
Poor Record-keeping system + Poorly Trained Personnel: 1) Unauthorized withdrawal of material 2) Unsecured facilities –
Storerooms, Cages 3) Inaccurate transaction recording 4) Lack of Audit capabilities
Measuring the Accuracy of Inventory Record
1) Establish Tolerance (Allowable Discrepancy)
Common criteria to determine tolerance: value, safety, measurability, lead time, critical nature of item
2) Audit Inventory Records Vs Actual Inventory
• Periodic inventory: Correct on hand inventory, meet financial guideline, annual count
3 Factors for Annual Inventory Count
1) Housekeeping – sort, segregate, precount items 2) Identify – identify & tag items 3) Training
Annual Count Process
1) Count & Record on ticket left on items 2) Verify the count 3) Collect ticket, list items in each department 4) Reconcile
records – physical count Vs actual inventory
Challenges: 1) May Shut down Production (Productivity cost) 2) Labour-intensive, Paper-intensive 3) Pressure to get the
complete inventory (Time limit) 4) Training – poorly understand items 5) Cycle count errors are possible
• Cycle Counting: weekly/daily/monthly, find causes of errors & eliminate them
To correct errors timely and reduce cost, Predetermine the schedule based on their importance, Establish frequency of count
based on value, critical value, transaction/year
Methods of Cycle Counting
(1) ABC Method: for fast-moving part – Part A counted daily, Part B weekly, Part C yearly
(2) Zone Method: grouped by zones for more efficient counting, for fixed-location system – WIP and transit inventory are
counted
(3) Location Audit: for floating location system, audit a predetermined stock location – verify physical items vs system record
*Floating system = ABC + Location Audit
Cycle Counting – When to Count – When an error is likely to have occurred
1. when an order is placed - detects errors when stock is low 2. when an order is received - stock is at its lowest level 3. when
inventory reaches zero – zero unit left; ease to verify 4. when an error occurs - inventory shows negative or there is no stock
when there should be.
Technology Application – to improve transaction, reduce recording errors
1) Bar codes 2) RF Tags – Radio frequency
Typical Cycle Counting Process
1) Create cycle counting rules – How to select parts, When to count, Which method to be use
2) Star the process – highlight discrepancy3) Take action – RCA, Highlight & Reconcile inventory records

Warehousing: Accessibility and Cube Utilization

Accessibility: 100% (No mixing of different SKUs) or non-100% - ability to reach goods with a minimum effort – without moving
others, Multiple SKUs affect accessibility
Cube Utilization: Measure of Vertical & Horizontal space usage
1) Racking system: (+) good accessibility & cube utilization, (-) capital investment in racks & equipment
2) Floor Stacking: (+) No capital investment, (-) Poor accessibility & Poor cube utilization
Pallet Floor Stacking and Position
• Maximum stacking height – ceiling height, weight restriction of pallet and package design, safety
• Side clearance space needed – prevent damage when moving the pallets
• Space utilization affected by – package or pallet design, accessibility (100% or non-100%)