Tuesday, May 6, 2008

Effective Planning for SCM Efficiency

Effective planning for SCM efficiency

It is generally acceptable to assume that with good forward planning, execution and control of operations will be much easier.

In the early 70’s, Dr. Joseph Orlicky developed the Theory of Dependant Demand, that led to the materials requirements planning (mrp) system. MRP has evolved over the years to Manufacturing Resource Planning (MRP II) in the 80’s. This holistic manufacturing planning and control system was extended into the process framework of supply chain management. The planning system has not changed very much in the push system environment, but the execution has been transformed into either a push or a pull system.

The push system that is schedule-driven is effective for the job shop and batch production manufacturing environments. However, when the manufacturing layout can be transformed from the process layout to the product layout or cellular manufacturing, then the mrp-centric push system become less suitable because the pull system methodology becomes more efficient.

However, in the job shop and batch production environment it is not so easy to implement the Kanban pull system. The mps-driven MRP II system is still the best fit, but can be made to execute more easily with the high performance master production schedule (mps). Without high mps performance, expediting and fire-fighting on a day to day become the norm rather the exception. In a stressed working environment, the quality of production may be compromised.

As a trade-off, some factories begin to load actual customers into the MRP system, resulting in nervousness in the workplace as well as excessive reactive mode of operations chasing for the parts that are in shortage. Using the MRP to generate the shortage report and have planners and buyers busy on the daily basis to chase for materials become a working culture though not a fruitful and conducive one. If some of the materials cannot be delivered on time, then production stoppages and delivery delays to the customers will happen. In order to mitigate the frequent material shortages and last minute expediting, factories begin to resort to consignment inventory in the name of VMI (Vendor Managed Inventory) agreement, to put pressure on the suppliers to ensure material availability even though there may not be accurate visibility of materials requirements across the planning horizon. The so called VMI arrangement is a glorified form of Vendor Owned Inventory or consignment, and not the truly VMI collaboration.

That means in practice it is possible to forego formal planning by having suppliers to be responsible for the availability of materials however bad the forecast has been. The suppliers may be living under immense pressure and stress trying to have the best guess for the customer’s materials requirements. The wild goose chase becomes a way of life.

For companies that have achieved the significant repeatable volume then it is possible to even change from the process layout to the product layout, and begin to implement just-in-time manufacturing or lean manufacturing. This transformation is possible if the volume of production for the product or product family is high and repeatable.

If the planning is effective, then there will be less material shortages and poor customer service due to late deliveries. The planning hierarchy starts from business planning, sales & operations planning, master planning and material planning. Each level of the priority planning is validated by resource or capacity planning to ensure feasibility. This structures level by level planning can be cumbersome but sometimes unavoidable. Ever imagine planning without taking into consideration of resource or capacity constraints.

1 comment:

tax lien properties said...

Most companies especially the SME's have poor or fractured planning system leading to huge inventories and erratic production. There is a great scope of improvement in this area.