successful planning in an unpredictable supply ... - apics tz 0220 demand driven mrp - carol... ·...
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Copyright © Demand Driven World, 2012
Successful Planning in an Unpredictable Supply Chain
Carol Ptak, CFPIM, CIRM, Jonah, CDDP
Partner – Demand Driven Institute
Copyright © Demand Driven World, 2012
New Pressures
• Pressure for leaner inventories
• More regulatory requirements
• SKU proliferation
• Long lead time materials
• Rising forecast error
• Shorter product life cycles
• Shorter customer tolerance times
• More product and packaging complexity
Worldwide there are more complex planning and supply
scenarios than ever – the past is NOT an predictor for the future
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Copyright © Demand Driven World, 2012
How do you Know if Your Demand and Supply System is Broken?
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Two Universal Point of Inventory
Too MuchToo Little
A B
0
Optimal RangeWarning Warning
Note: “Optimal” is from an on-hand perspective
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The MRP “Bi‐Modal” Distribution
Too MuchToo Little Optimal Range
# o
f p
art
s o
r S
KU
Warning Warning
0
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The Legacy Tactics – Planning Today
1. Demand input to MRP and DRP = Forecast
2. Focus on forecast accuracy improvement
3. Aggregate demand into weekly buckets
4. Dependency throughout the bill of material
5. Use Safety Stock to cover forecast error
6. Freeze production scheduling (longer than CTT)
7. Most batch decisions based on unit cost performance rather than agility
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The Legacy of Our Planning Processes
Inside most modern ERP systems is MRP
79% of ERP Buyers implement MRP
Conceived in the 1950’s
Codified in the 1960’s
Commercialized in the 1970’s and…
…it hasn’t changed
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The MRP Oscillation
Too MuchToo Little Optimal Range
# o
f p
art
s o
r S
KU
Warning Warning
0
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Effects at Most Companies
• Persistent Unacceptable Inventory Performance
– High Stocks resulting in mandated cuts or periodic refusal of inventory receipts
• Service Level Challenges
– Consistent service challenges in the markets that can least afford it – the mature ones (NA and Europe)
• High Expedite and Waste Related Expenses
– Premium freight in
– Schedule break‐ins
– Unnecessary shipments to and from warehouses
Copyright © Demand Driven World, 2012
Polling question
Which of the following describes your company?
a. We have persistent unacceptable inventory performance
b. We have service level challenges
c. We experience high expedite and waste related expenses
d. We have none of the above problems
e. We have more than one of the above problems
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Copyright © Demand Driven World, 2012
We Have a Choice
Keep Doing What We Have Always Done or…Make a Fundamental Change
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MRP
MRP
MRPMRP
MRP
MRP
MRPMRP
MRP
MRP
MRP
Complex Supply Chains Today
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Copyright © Demand Driven World, 2012
Output Lead time
Variability Wave
The Law of Variability“The more that variability exists in a process, the less
productive that process will be.” APICS dictionary
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Protecting Against Variability
• The accumulation and impact of variability is the enemy of flow
• Variability can be systematically minimized and managed but not eliminated
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The Effects of Variability – Supply Chain
Bull‐Whip Effect: “An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain.” (APICS Dictionary, 12th Edition)
OEMFoundry ComponentSub-
Assembler
The more parts – the worse the effect!
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The Effects of Variability ‐ Planning
Nervousness: “The characteristic in an MRP system when minor changes in higher level (e.g. level 0 or 1) records or the master production schedule cause significant timing or quantity changes in lower level (e.g. 5 or 6) schedules or orders.” (APICS Dictionary 12th
Edition, Blackstone, 86)101
201 203 204
302 303P
403P 404P
301
401P 402
304P
501P
101
201 203 204
302 303P
403P 404P
301
401P 402
304P
501P
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Sources of Variability
Management Variability
Supply VariabilityDemand Variability
Operational Variability
Organizational Output
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Mitigating Variability
• Stop variation from being passed
• First “decoupling” the wave
• Then “buffer” the “decoupling point”
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3 Types of Buffers to Combat Variation
Stock
Time
Capacity 80%20%
Time
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Where to Focus First – Capacity or Materials?
• World capacity now exceeds demand
• Highly efficient resources without materials are idle resources
• Highly efficient resources with the wrong materials build unnecessary inventory
• Material synchronization issue is now primary
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The Effects of Stock Buffering
OEMFoundry ComponentSub-
Assembler
Decoupled Lead Times
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What does being Demand Driven mean?
• Does not mean
– Make to order everything
– Simple pull
– Inventory everywhere
• Does mean
– Sensing changing customer demand, then adapting planning and production while pulling from suppliers – all in real time!
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What is Demand Driven MRP?
Material Requirements Planning
(MRP)
Distribution Requirements Planning
(DRP)Lean
Theory of Constraints
Innovation
Demand Driven MRP(DDMRP)
A multi-echelon materials and inventory planning and execution solution that enables a company to become demand driven.
Six Sigma
Copyright © Demand Driven World, 2012
DDMRP Key Solution Component Summary
Demand Driven MRP (DDMRP Critical Components)
5 Zone Buffers Provides easy status and relative priority visibility for planning and execution at all levels
Dynamically Adjusted Buffers “Flexes” buffer positions based on changes to consumption
Planned Adjustments to Buffers Accounts for seasonality, product introduction/deletion/transition
Globally Managed Buffer Profiles Parts/SKU are grouped by like attributes for ease of management
Decoupled BOM Explosion Creates a unique blend of dependence and independence for planning
ASR Lead Time Calculation Lead time determination based on the BOM’s longest unprotected sequence
Order Spike Protection Highlights and accounts for problematic sales orders based on a threshold and horizon
Material Synchronization Alert Identifies specific misalignments between child supply and parent demand
Multi-Location Buffer Status Visibility Relative status visibility across a distribution net for like parts/SKU
Lead Time Managed Parts Managing critical non-stocked items through timed alert zone
Matrix BOM + ASR Lead Time Analytics A revolutionary lead time and working capital compression approach across all BOMs
Demand Driven MRP (DDMRP Critical Components)
5 Zone Buffers Provides easy status and relative priority visibility for planning and execution at all levels
Dynamically Adjusted Buffers “Flexes” buffer positions based on changes to consumption
Planned Adjustments to Buffers Accounts for seasonality, product introduction/deletion/transition
Globally Managed Buffer Profiles Parts/SKU are grouped by like attributes for ease of management
Decoupled BOM Explosion Creates a unique blend of dependence and independence for planning
ASR Lead Time Calculation Lead time determination based on the BOM’s longest unprotected sequence
Order Spike Protection Highlights and accounts for problematic sales orders based on a threshold and horizon
Material Synchronization Alert Identifies specific misalignments between child supply and parent demand
Multi-Location Buffer Status Visibility Relative status visibility across a distribution net for like parts/SKU
Lead Time Managed Parts Managing critical non-stocked items through timed alert zone
Matrix BOM + ASR Lead Time Analytics A revolutionary lead time and working capital compression approach across all BOMs
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Copyright © Demand Driven World, 2012
Demand Driven Material Requirements Planning
Strategic Inventory
Positioning
1
Buffer Profiles and Levels
2
Dynamic Adjustments
3
Demand Driven Planning
4
Visible and Collaborative
Execution
5Modeling/Re-modeling the Environment Plan Execute
The Five Components of DDMRP
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Raw
Pack
Mix Room
Pack 1
Pack 2
Pack 3
DC
DC
DC
DC50+ Days
Planned Orders (MRP)Purchase Orders
Manufacturing Orders
Expedites/ Schedule Break-ins
Before Demand Driven – FMCG Example
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Copyright © Demand Driven World, 2012
Immediate Results for Materials ‐ FMCG
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
5-Over ToG 4-Low 3-Medium 2-High 1-Critical
300 Materials are buffered without increase in RPW inventory. Lead‐times de‐coupled
Dampened the bull whip, now operating more effectively, and inventory optimized
Before
After
Replenishment lead time has been reduced 82% to 9 days from 50 days
Raw and pack inventory down 17%Finished good inventory down 45%
99.7% customer service
Copyright © Demand Driven World, 2012
Summary
FLOW
Sales Orders
Decoupling Points
Lead Time
Order Minimums
Lower Inventory
High Service
Fundamental Principal
Fundamental Planning Changes
New Operational Equation Elements and Emphasis
Bottom Line Benefits Without Tradeoffs
DDMRP
Fewer Expedites
Buffer Status
ROCE▲
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Copyright © Demand Driven World, 2012
Carol Ptak, CFPIM, CIRM, Jonah, CDDP
Carol Ptak is the co-author of the third edition of Orlicky’s Material Requirements Planning and a partner at the Demand Driven Institute. Previously, Carol was at Pacific Lutheran University as Visiting Professor and Distinguished Executive in Residence after years of executive management experience at PeopleSoft and IBM Corporation. Ptak served as the vice president and global industry executive for manufacturing and distribution industries at PeopleSoft. Carol is a past APICS President and CEO.