production planning scheduling

Pinnacle Strategies http://pinnacle-‐strategies.com

6 5 0 5 P A R K B L V D . , S U I T E 3 0 6 -‐ 3 3 5 P L A N O , T E X A S 7 5 0 9 3 ( 9 7 2 ) 4 9 2 -‐ 4 9 2 -‐ 7 9 5 1

W W W . P I N N A C L E -‐ S T R A T E G I E S . C O M

A Planning and Execution System That Works

Improving the Order Fulfillment Process to Consistently Deliver On Time with Less Inventory

© 2008 Mark Woeppel

Make a Plan

Execute the plan

Receive feedback about the

plan

Adjust the model or reality


6 5 0 5 P A R K B L V D . , S U I T E 3 0 6 -‐ 3 3 5 P L A N O , T E X A S 7 5 0 9 3 ( 9 7 2 ) 4 9 2 -‐ 4 9 2 -‐ 7 9 5 1

W W W . P I N N A C L E -‐ S T R A T E G I E S . C O M

Table of Contents Introduction ....................................................................................................................................... 3

The System Benchmark ..................................................................................................................... 3

Business Planning .............................................................................................................................. 4

Demand Planning ............................................................................................................................... 4

Sales Order Management .............................................................................................................. 4

Capacity Planning ............................................................................................................................... 5

Managing the Constraints .............................................................................................................. 6

Master Scheduling ......................................................................................................................... 6

Supply Chain Planning .................................................................................................................... 7

Scheduling/Planning .......................................................................................................................... 7

Execution Management ..................................................................................................................... 9

Tactical Measurements .................................................................................................................. 9

Process Integration .......................................................................................................................... 10

Supporting Structure ................................................................................................................... 10

Global Measurements .................................................................................................................. 11

Implementation Strategy / Summary .............................................................................................. 12

Managing the changes ................................................................................................................. 12

Summary .......................................................................................................................................... 12



Introduction Manufacturers often struggle with managing the order fulfillment process, integrating the production, supply chain and demand management processes. Essentially, the problem is a lack of synchronization and effective process decision making, resulting in:

• Late deliveries • Frequent expediting and associated costs • Excessive overtime costs • A feeling that “we’re out of control” • Unhappy customers

This report is a discussion of an integrated production, supply chain, and demand management process that works.

The System Benchmark The generally accepted model of manufacturing planning is a sequential, top-‐down process that translates business objectives into activity. Beginning with the top level, decisions are made at succeeding levels.

Below is a diagram of the process. Each step is responsible for a level of detail and a group of decisions that cover a specific time span and decision authority. The system controls the decisions within time spans – and is the key to its success. Each process step aims to identify areas of risk and take appropriate action within the span being managed.

Execugon Management Vendor & Producgon

Management Schedule compliance Buffer management Days/Weeks

Producgon Scheduling

Supply Chain Management Shop floor scheduling Vendor scheduling Weeks/Months

Capacity Planning

Operagons Management Master scheduling Supply Chain planning Weeks/Months

Demand Planning

Sales Team (Product Managers) Customer sales targets Product family

forecasts Months/Years

Business Planning

Senior Management Team

Revenue & Profit Targets Market Plans Months/Years



Business Planning

The goal of the business planning process is to provide clear direction to the organization in the form of business objectives and establishing key performance indicators. Measurements of this process are at the P&L and market share percentage levels. We should also consider customer service measurements, such as on time delivery, and cash to cash cycle time.

Demand Planning

The goal of this process is to communicate customer requirements to the operations organization and make adjustments to bring the demand plan in line with available resources; capacities and capabilities. In case there is not enough demand or capacity to support the business plan, feedback is given to the top level to adjust the business plans.

This process is owned by the sales / marketing team (or product managers) and is primarily concerned with planning sales for specific customers and specific product families. The planning granularity is typically broken into monthly buckets, but also may be managed in smaller intervals, at individual order details if necessary.

Overstating the demand has three effects:

1. Inventory is purchased too early 2. Capacity is used to produce parts that are not needed immediately (at suppliers and internally) 3. The priority management system breaks down, creating chaos in execution

The operations team must have accurate demand information without filters. Often, a lack of confidence leads to “buffering” to protect customer deliveries, but this behavior is self-‐defeating.

Sales Order Management Sales order delivery dates drive the supply chain and your plant. All ordering and priorities are driven from the sales order. Therefore, there must be strict controls on your sales order dates. Firm policies on how these dates are managed and clear ownership of the order dates must be established.

The results of this lack of clarity:

• Too many past due line items • Sales order due dates do not get changed when it’s clear the order will not be completed when

originally promised. • Front-‐loading the supply chain, overstating demand

The sales order information should be “owned” by the planners. They should be responsible for managing the dates in the system and on-‐time completion of the order. The key performance indicator for planning should be the on-‐time completion of these orders; % line items completed on-‐time (to commitment) and % dollars completed on time.

Business Planning

Senior Management

Team Revenue &

Profit Targets Market Plans Months/Years

Demand Planning

Sales Team (Product Managers)

Customer sales targets

Product family

forecasts Months/Years



Managing Change

Changes to sales orders (scope and delivery) should be controlled using a system of time (planning) fences that require different levels of management to approve. This allows changes to be made at the appropriate level of control and authority.

For example, changes within manufacturing and purchasing lead time require approvals of Senior Management, with input of Operations, Engineering, Sales, Manufacturing, and Supply Chain. Within the design lead time, a different level of management and approval may be used. During the order integration (scope specification), a different level of approvals is required.

Planning fences ensure that changes that affect the customer and business performance are made at the appropriate level of management and with proper analysis. They are essential to reliable delivery and profitability. They bring stability to your order fulfillment process.

Capacity Planning

The purpose of the capacity planning process is to ensure you have the resources to satisfy your market demand at the time it’s needed. The process communicates capacity availability to the entire organization. The process is owned by operations (whoever owns the resources) management and is typically done using the master scheduling and some form of supply chain planning process. The time horizon that is managed is typically over the order fulfillment lead time, plus the time to acquire capacity. Typically, it’s 6 months to a year. The planning granularity is broken into weeks for the next period of time covering the order fulfillment lead time and then months beyond that period.

Capacity should be treated similar to the way you treat your cash account. Each sales order is a “check” against your capacity account balance. The effect of capacity management on the business is significant. When you don’t have enough, you cannot take advantage of market opportunities and may not be able to satisfy your customers, resulting in a loss of market share. If you have too much, capital may be misallocated to resources that do not improve business performance, operating expenses are too high, resulting in lost profits and limited market flexibility. A managed capacity process is essential to your business.

In order to manage your capacity, you need:

Manufacuring Lead Time

Purchasing Lead Time

Design Lead gme

Order Integragon

Forecast Demand

Major disrupgon, senior management

involvement

Customer and supplier

disrupgon, senior staff approvals

Customer disrupgon, possible changes to capacity,

senior staff approvals

Customer disrupgon, sales and engineering staff

approvals

Revenue and business changes, sales and top managment involvement

Capacity Planning

Operagons Management

Master scheduling

Supply Chain planning

Weeks/Months



• Statements of available capacity at various resources • Statements of consumption of capacity by various orders • A reconciliation process to ensure balance between supply and demand • A reconciliation process to confirm the validity of the demand and supply data

In a dysfunctional process, several people are writing checks, and no one is certain of the account balance. No one is responsible for managing the account(s). No one is accountable for maintaining a positive balance in the account.

Managing the Constraints The key to understanding capacity is to understand the capacity constraint resources (CCRs); implementing a strategic constraint or control point is critical to the success of planning and execution. This includes understanding and managing the capacities of key suppliers.

Typically, the responsibility for capacity management rests with the production manager and the purchasing manager. They are supported by analysts in production control and vendor management that monitor the capacity account balances and provide information to management about the current state of affairs. If you don’t have these positions, the first thing to do; assign someone to be in charge of capacity management and provide the support to make good decisions.

This involves chartering the production and purchasing managers to be accountable to maintain adequate capacities and establishing measurements of capacity. Management must establish policies to govern how much capacity and where it is located. The scheduling/planning functions typically provide the analytical support to make the decisions.

After the accountability is assigned and the support to do an analysis is provided, then a capacity model must be built. This model doesn’t have to be very detailed. I suggest you start with a spreadsheet. With the amount of variation that exists in most processes, constructing a detailed model will be a large undertaking with limited return. Use a rough-‐cut capacity model and you can get most of the benefits you need. As long as the tool is validated1, it can be useful to identify areas of risk and improve the timing and quality of decision making. I want to emphasize – keep it simple. The amount of variation in most order fulfillment processes precludes the use of a precise capacity management tool.

Regarding managing the capacity, you should strive to keep all resources loaded to approximately 80% of net available capacity, with the exception of the capacity constraint resource (CCR), which should be loaded to approximately 95%. This ensures you have capacity to respond to peak loads and variation at non-‐constraint resources and allows for some reserve capacity at the CCR to respond to changes in demand.

If you want to use an Advanced Planning & Scheduling (APS) tool, use it. However, such a tool is better suited to mature planning system implementations. In order for your company to use APS, a project must be created and this project will distract you from the main purpose (ship on time!) and delay achievement of measurable business results. I recommend keeping it simple until the organization has a demonstrated proficiency with the basic processes.

Master Scheduling The master scheduling process performs an important process integration function, reconciling, at an aggregate level, the demand plan with the capacity plan. The master schedule document is the (as in the only one) plan for operations – what is going to be built and when. It contains all existing and forecast demand. It is the product of the decisions management makes on accepting demand and capacity acquisition. The main measure of master schedule effectiveness is achievement. Is the organization capable of conceiving and meeting the plan?

1 To validate such a tool, one must test it against reality, adjusting the data or assumptions, in order to improve its accuracy.



Using a capacity model, an end-‐item plan should be created to drive demand. The master schedule is what drives the ERP system. The master schedule drives all other execution schedules and activities.

Sales order completion dates should be owned and managed by the master scheduling function. The commitment dates (that do not drive demand) should be owned by the sales organization. As the owner of the scheduled completion dates, master scheduling should be responsible for promising delivery dates of new orders.

Supply Chain Planning The supply chain planning process, just as the master scheduling process, performs a process integration function, reconciling, on an aggregate level, the capacity of the supplier base with the demand plan. In many organizations, supply chain capacity planning is hampered by the vendor base resisting such efforts and the limitations on the buyer’s time to do the work required to build such a tool.

Often, suppliers are blamed for poor delivery performance, but frequently, many orders are placed in less than the lead time required to produce them (rush!); this is due to a lack of a credible tool to demonstrate that the delivery requirements are unrealistic. How can purchasing push back on aggressive promises when all the buyers have is their own intuition to rely upon? How can management treat the push back that does occur as credible when, in the past, the seemingly impossible (orders delivered in record time) has been accomplished? It is clear what must be done; construct a credible capacity planning model for the key suppliers.

Again, this model should be simple, modeling only the loads on key resources, using time buffers to compensate for process, mix, and data variation.

When you have many (> 50%) of the part numbers are common to all products, you can reduce the amount of work for the purchasing staff by implementing a “configure to order” model of manufacturing, mixing “make-‐to-‐stock” and “make-‐to-‐order” philosophies. If half of your components are put on a reorder point system, the amount of purchasing activity can be reduced significantly, freeing up capacity to focus on important issues. A “Make to Stock, Assemble to Order” approach has a great deal of promise to improve delivery performance with fewer inventories.

Scheduling/Planning

Like master scheduling, production scheduling is a process integration function, working on shorter time scales and with more constraints on the actions that can be taken to deliver product on time. Like master scheduling, the production schedule reconciles the demand with supply of capacity, with the added dimension of priority control.

The purchased part and production schedules are the detailed plans of what will be worked on and finished in the next few weeks or months, covering only the work that has been released (within the lead time). The time increments being managed for capacity constraint resources is days; for other resources, weeks. The production schedules are derived from the master schedule in both content and priorities. The process is owned by either the supply chain manager or master scheduler.

In many companies, the process synchronization mechanism used most frequently is face to face expediting meetings. This consumes a great deal of time, addressing only the symptoms of problems created higher in the process. It also requires an army of production control expediters. To be effective, the scheduling system requires a center to align priorities during the product realization process.

Producgon Scheduling

Supply Chain Management

Shop floor scheduling

Vendor scheduling

Weeks/Months



The production scheduling process need not be complicated. The plant can be scheduled, again, with a spreadsheet, using the capacity constraint, buffers, and proper policy management. Use the Toyota Production System example by establishing a takt time for production, based on the capacity constraint capacity.

12-‐Apr 19-‐Apr 26-‐Apr 3-‐May 10-‐May 17-‐May 24-‐May 31-‐May

Integration Testing /Ship

Product A Product C

Product B Product D

Final Assembly

Product A

Product B

Product C

Product D

Buffer

Product A

Product B

Product C

Product D

Subassembly

Product A Product C

Product B Product D

Machining Product A

Product B

Product C

Product D

This scheme has the advantage of focusing all resources to the end point, the shipment of a completed unit. By only scheduling what is needed, it exposes the true capacity requirements, allowing managers to move resources where there are peak loads (temporary bottlenecks), rather than keeping machine operators occupied. The production control staff activities could be then be redirected to ensuring the plan is executed; resolving quality issues, working to get product to the next stage, maintaining work order dates in the ERP system, and identifying and resolving peak load situations.

Just as there is accountability for the capacity management process, the schedule is owned by the group responsible for accomplishing it. That group or groups is/are supported by analysts (schedulers) who manage the data and ensure the plans are reliable. There are no real reasons for favoring the organizational location of the schedulers or production control support staff. The important thing is that the schedules are a useful tool for operations – plans can be conceived and achieved.



Execution Management

During the execution management process, the product is realized. Parts are being produced; reality meets the plan. This process deals with handling the near term synchronization issues of moving product out the door. The two key processes are schedule compliance, attempting to meet the plan, and buffer management, dealing with risks before they affect the production schedule.

In the machine shop (and welding), there are very good schedule management disciplines in place. These can be easily duplicated throughout the shop.

Buffer management processes control priorities. The essence of buffer management is schedule management, where you deal with tomorrow’s planned activities today to ensure smooth execution. The key is to get the team working on problems that are in the future. The main recommendation is to apply the processes you’re using in welding and machining to assembly, purchasing and engineering. The only difference is to deal with what will be done in the future.

In the area of accountability, production should be accountable for completing the sales orders. They own the resources. This accountability goes even to purchased parts. Although production does not have control of the vendors, they own the product. The idea is that there is a single entity responsible for completing the sales order, not six of them, and that entity has resources to accomplish its task.

Tactical Measurements While the global measurements tell you how well you’re doing and if your process is under control, they do little to alert you to problem areas before they affect delivery performance.

An emerging bottleneck might disrupt the performance of the entire production organization. Typically, we would promise delivery dates based on the planned load plus 1/2 of the buffer. Therefore, an important measurement is planned load.

Planned load (released to work) must be shown at all major work centers, but lead times are determined by the constraint resource. Therefore, the planned load for the constraint resource, even at those that reside at the supplier, must be measured and reported. When lead times become unacceptable, management can decide to add capacity. Moreover, the planned load helps identify emerging bottlenecks.

How can we know ahead of time when to take effective actions? We watch the pace at which planned load increases. The rule is to play safe. When it appears that planned load is approaching about 80% of the longest tolerable lead time actions should be taken.

We see the attempts to manage planned load, but the front loading of sales orders and inaccurate data destroy the credibility of this effort. Therefore, its usefulness for decision making is nullified. In order to deliver on time, creating alignment of the planning and execution systems should be a top priority.

Execugon Management

Vendor & Producgon Management

Schedule compliance

Buffer management Days/Weeks



Process Integration The glue that holds this all together is the reconciliation processes. At the top level, the sales and operations planning (S&OP) process integrates the demand and capacity planning for the business. At lower process levels, such as production scheduling, the schedule approval process is the key to getting buy-‐in, ensuring the decisions are made and action is taken to satisfy the customer.

The two processes are generally owned by the process owners – production for the execution schedules and the general manager for the sales and operations plan. The schedulers coordinate the processes, being accountable to the process owners.

In the case of the production schedules, the review and approval of these schedules should be done by the production (plant) manager.

Supporting Structure We envision an organization structured around these proposed processes, where planning, execution, and reconciliation are clearly defined and accountability can be emphasized.

Furthermore, the reporting to customers or project managers can be simplified by having a single point of contact and accountability. When there are issues the escalation process can be clarified. Problems go first to the planning manager, then to the operations manager. This reduces the amount of effort to manage customer (project managers) expectations, provides better visibility to senior management, and allows the organization to speak with one voice to the customer.

A word about the Master Scheduling function shown below: in many organizations, the ownership of the planning process is unclear. Who should undertake planning process initiatives is unclear. It’s assumed by some that Supply Chain Management owns the process, but what we find is that there is often is a lack of clarity about how the planning process works, who owns it, and how to get things done. In the proposed structure, the charter for the master scheduling function is to own the planning process. How well it functions (can the organization conceive and execute plans) can be monitored and a single individual may be held accountable for ensuring it does.

Reconciliagon

Capacity Planning & Execugon

Demand Planning & Execugon



Global Measurements The primary measurement of the operations organization must be on-‐time delivery. Expense control is a secondary consideration. The integrity of the customer requirement and the organization’s promise must be paramount. In most organizations, few people really believe the scheduled completion dates will actually be achieved. This lack of credibility leads to a lack of urgency. The on-‐time measurement is meaningless, because the commitment dates are not the result of a transparent process, but established by estimation (guessing might be too strong, but there is a lot of wishful thinking going on).

In terms of measurement priority, there seems to be so many different things that are measured, that there is no primacy of a single measure that expresses the mission of the organization or the units of the organization. This is analogous to a football team that is confused about the main purpose of being on the field. We agree that the main objective is to score more points than the other team. If we do, we win. The offense scores, the defense prevent scoring. Each sub-‐group has its own measurements, but the game objective is always foremost. In addition, the score is obvious to all participants.

The objective of operations is to deliver product to the customer; to specification, on time. While this may seem obvious, it is often not translated into the day-‐to-‐day behavior of the team. Therefore, you must make an extra effort to make the objective and your status relative to the goal obvious to the entire organization; the scoreboard should be conspicuous.

We suggest that the key operations performance measure is on time delivery (units shipped on time to commitment), with operating expense controls treated as a secondary priority. In other words, the operations group is not a profit center. It is a support center. The organization has little control over pricing, so the main

General Manager

Producgon

Machine shop

Assembly

Mfg Engineering

Welding

Purchasing & Logisgcs

Product A Purchasing

Product C Purchasing

Product C Purchasing

Whse

Logisgcs

Master Scheduling & Planning

Product A Planning

Product A Scheduling

Producgon Control

Product B Planning

Product C Planning

Quality Assurance

Inspecgon

Receiving

Faciliges Management HS & E



way for Operations to contribute to the global performance of the company is to deliver on time2. Once the organization has established consistency in this area, then you may turn to expense and product cost controls.

Major supporting KPIs are:

• Supply chain management -‐ shortages to assembly at scheduled assembly start • Production (all departments) -‐ on-‐time delivery to schedule • Master Scheduling – on time delivery to commitment • Planning -‐ on-‐time completion of sales order lines; % line items completed on-‐time (to commitment)

and % dollars completed on time.

Implementation Strategy / Summary We suggest that the following sequence be followed, with the exception of the skills development, which should proceed in parallel with the process reengineering efforts.

1. Develop the supporting structure – process ownership, communication of the mission • Single point of accountability for delivery promises • Accountability for completions • Sales order delivery date ownership

2. Capacity management accountability 3. Develop the Capacity model 4. Master scheduling policies & processes

• Sales Order management polices & processes • Planning Fences

5. Implement measurements 6. Sales & Operations planning processes 7. Education / Skills development

• Planning i. S&OP – senior management team and staff ii. APICS Fundamentals – everyone in the planning and execution role

• ToC i. Fundamentals ii. Simplified Drum Buffer Rope iii. Supply Chain Management iv. Thinking Processes

Managing the changes An effort should be undertaken to ensure the organization understands the planning and execution management process. Many times, shortcuts are invented simply because people don’t know how to achieve the results they want to achieve. Creating a broad based understanding of how things get done reduces the effort of doing them.

The initiative must be led by the general manager, but can be facilitated by a member of the staff. The Master Scheduling function is the natural place to lead this effort, since most of the work is there. However, without the entire staff’s commitment and leadership, walking the walk through the inevitable hiccups through implementation, the initiative will struggle.

Summary Delivering on time is about having processes that are connected. Start with a plan, try to execute the plan. When you do, you learn what assumptions you made were wrong, so you adjust either your assumptions or

2 We assume the quality and conformance to customer specifications to be necessary conditions that do not require additional emphasis.



the reality of the situation. Then make a new plan and repeat the process.

These steps are the foundation for reliable delivery and customer satisfaction.

What we have proposed is not technically difficult and is proven to work. You have a capable team. You have the information technology. You just need a push in the right direction. Implement these recommendations to get reliable shipping performance.

production planning scheduling

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