Supply Chain Planning Integration

You may only use and print one copy of this document for private study in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accentu

Trang 1

Supply Chain Planning: Integration

Introduction

Why is Integration Important?

Companies manage their supply chains by connecting the functions in the supply chain—

Procurement, Manufacturing, and Fulfillment—via supply chain planning (SCP) processes Supply chain planning processes coordinate and share information among the other supply chain functions to create an integrated supply chain Supply chain functions must be integrated for companies to ensure that material is available for manufacturing, manufacturing resources are available when required, and customer orders are fulfilled on time

Companies must also integrate the different SCP processes—demand planning, supply planning, and production planning—to ensure that demand does not exceed supply, or vice versa, and that customer orders get fulfilled Companies must coordinate the different supply chain planning processes so that all the plans are synchronized The Sales and Operations Planning process, referred to as S&OP, is normally responsible for coordinating this integration

Companies make decisions at different operational levels, including the strategic, tactical, and execution levels, to facilitate their supply chain processes SCP allows companies to plan and integrate the supply chain functions across all entities at all operational levels

Trang 2

in connection with your personal, non-commercial use of a Supply Chain Academy course validly licensed from Accenture This document, may not be photocopied, distributed, or otherwise duplicated, repackaged or modified in any

way

Note: interactive elements such as activities, quizzes and assessment tests are not available in printed form

How Does a Company Achieve Integration?

An integrated supply chain passes information back and forth between the business functions and planning processes The diagram below shows an example involving supply and production planning Press the arrow below to see additional information

Trang 3

Objectives

After completing this module, you will be able to:

• Identify the interrelationships between supply chain planning (SCP) processes and the related business functions

• Describe the basic process performed by each business function

• Describe how each function can be integrated with SCP

• Explain why it is critical for SCP to receive and send information to support both strategic and execution functions

• Describe how Sales and Operations Planning (S&OP) integrates planning processes

Trang 4

During SCP, planners model lead-times for materials procurement assuming that the material will

be available when needed But if a supplier's lead-time performance is erratic; i.e., sometimes they deliver on time, at other times they are late; this variability will require them to carry more safety stock, resulting in additional cost Companies strive to work with suppliers who have little lead-time variability Quality is also an important criterion for working with suppliers If a supplier frequently supplies inferior product, the manufacturer has to discard the low-quality product and re-order, which has an adverse impact on manufacturing

We will explore other such procurement issues that either impact SCP or are impacted by it Although procurement is used to procure both direct material, which is used for manufacturing goods, as well as indirect material, like pens, pencils, and paper, we will limit our discussion to the procurement of direct materials because indirect materials have no impact on supply chain plans

Trang 5

Decisions in Procurement

Procurement has moved from the traditional model of buying products at the lowest possible price

to developing strategic relationships with suppliers to streamline lead-times A supplier with erratic delivery lead-times forces a manufacturer to carry excess safety stock If the manufacturer can purchase from another supplier who guarantees delivery times, the manufacturer will not have to carry as much safety stock While this second supplier may not provide the lowest price, the long-term cost benefit may outweigh that of the lowest-cost supplier

Typical Procurement Decisions

• Who - decide on which suppliers to use

• What - decide on what to purchase from which suppliers

• How much - decide on the product volume to purchase from each supplier

• What price - negotiate pricing strategy with each supplier

• Terms and conditions - decide on lead-times, lead-time variability, inventory levels,

frequency of deliveries, etc

Since companies don't change such decisions frequently, they are generally considered strategic Once strategic decisions are made, manufacturers need to make execution decisions involving:

• Buying the product

• Managing the confirmations and receipt of goods, i.e., schedule receipts

• Tracking the status of material, i.e., in-transits

SCP, integrated with strategic and execution activities, provides the highest level of benefit to a company

Trang 6

How SCP Supports Strategic Procurement

Strategic procurement decisions, such as identifying suppliers and negotiating price terms and conditions, require input from SCP activities Procurement relies on a long-term demand plan that

has been disaggregated into a long-term materials plan to decide on what and how much to buy Deciding on who (what suppliers) to buy from is significantly more complex because decision

makers must know suppliers' past performance, e.g., reliability, lead-time variability, service level Companies obtain this information from their planning systems to help determine and manage the best suppliers Companies also identify primary suppliers and secondary suppliers—secondary suppliers are used when the primary supplier is unable to meet requirements

The price negotiated with each supplier also takes into account terms and conditions—e.g.,

service levels, delivery frequency, and delivery lead-time required—as well as the variability of the demand pattern Some companies are now entering into dynamic pricing agreements with suppliers in which both parties agree to some pricing rules, and the actual price depends on volume, lead-time, frequency, demand pattern stability, and materials expediting

way

Trang 7

How Strategic Procurement Supports SCP

Just as planning supports strategic procurement, strategic procurement supports planning by providing key inputs to SCP During SCP, companies identify and associate every relevant variable with the planning model—primary and secondary suppliers, available materials, and delivery lead-time Manufacturers must also understand suppliers' volumes and/or constraints that could impact the receipt of materials needed for production Finally, they must know the product price to optimize any cost decisions they may make during SCP

Trang 8

How SCP Supports Procurement Execution

Procurement execution activities that require supply chain planning inputs include:

• Buying the product

• Managing the confirmations and receipt of goods, i.e., schedule receipts

• Tracking the status of material, i.e., in-transits

To buy the product, companies must issue purchase orders or draw material against a blanket purchase order The purchase orders recommended by SCP are based on the short-term

materials plan generated during production planning

way

Trang 9

How Procurement Execution Supports SCP

Procurement execution includes managing the confirmation and receipt of goods as well as

tracking the status of material These functions provide valuable input to SCP, e.g.,

confirmation of the receipt of goods implies that material is available and manufacturing can proceed as planned After the suppliers confirm their commitment to delivering the product when needed, the procurement function must ensure that the goods are received and placed in

inventory to be used by manufacturing

Procurement also provides planners with a delivery schedule and the status of the material on order This can provide early warning signs to SCP—if planners know early enough that some material is going to be delayed, i.e., exceptions to the plan, they may be able to alter production plans to account for the delay Early visibility also allows planners to consider expediting the material from an alternate or secondary supplier if needed

Trang 10

Integrated Example

A manufacturer generates a long-term demand plan

Procurement uses that plan to identify Ultra as the

primary supplier for a certain item, and Supra as the

secondary supplier for the same item Ultra is to

supply 520,000 units during the year—approximately

10,000 units per week While generating the

appropriate supply plans, using 10,000 units per

week from Ultra, supply planners ensure a

demand/supply match for the company.

In February, however, the manufacturer's executive

team increases its revenue targets; Marketing plans

to run a promotion during April that will lead to

increased demand of 15,000 units per week for eight

weeks during May and June Procurement discusses

the increased material requirements with Ultra, and

Ultra responds by saying that they can supply 12,000

units per week during that time period The secondary supplier, Supra, agrees to supply the additional 3,000 units per week Procurement agrees to the price and delivery terms with both suppliers

way

Trang 11

Integrated Example - Continued

In the second week of May, Ultra informs

Procurement that, due to a manufacturing problem,

they cannot supply 5,000 units during the third week

of May Procurement then contacts Supra who

confirms that they can air-ship the 5,000 units to

arrive in time for production The manufacturer

agrees to purchase the units from Supra and absorb

the additional transportation cost

At the end of the year, the manufacturer analyzes

Ultra's performance and realizes that Ultra has forced

them to expedite material several times during the

year due to manufacturing problems at their end

Using this information, the manufacturer negotiates

an additional contractual term with Ultra to carry a

higher safety stock to avoid this situation in the

future

What strategic procurement decisions did the manufacturer make? Show answer

Strategic Decisions:

• Identify Ultra as the primary supplier and Supra as the secondary supplier

• Ultra will supply 520,000 units during the year—approximately 10,000 units per week

• Negotiate an additional contractual term with Ultra to carry a higher safety stock to avoid excessive expediting of materials in the future

What procurement execution decisions did the manufacturer make? Show answer Procurement Execution Decision:

• Purchase an extra 5,000 units from Supra during the third week of May

Trang 12

Strategic Procurement • Long-term materials plan

• Supplier performance

• List of primary suppliers

• List of secondary suppliers

• Expected lead-times

• Expected volumes

• Contract terms and conditions

Procurement Execution • Recommended purchase orders

• Short-term materials plan

• Purchase order confirmations

• Delivery schedule

• Material status

• Exceptions

Trang 13

Manufacturing

Overview

Organizations that manufacture products invest a large amount of capital in manufacturing assets

To maximize this investment, they must balance two goals: ensuring that enough material and machines are available when needed while avoiding idle machines and/or labor resources

SCP helps manufacturing organizations develop the capability to increase their return on assets

by maximizing throughput, minimizing machine downtimes, or maximizing asset utilization

Trang 14

cannot meet demand, companies must evaluate several options Known as strategic

manufacturing decisions, companies consider issues such as:

• Should manufacturing be outsourced to a subcontractor or vendor?

• Should we increase the manufacturing capacity by building or acquiring new plants?

• Can we increase the manufacturing capacity by increasing the workforce and/or the hours of operation of the facilities?

• Are our suppliers capable of providing the required material for new product

introductions?

Once these strategic manufacturing decisions are made, planners must think about

manufacturing execution, and make decisions such as:

• When should we take down a machine for routine maintenance?

• How do we move material from its inventory location to the workstation where it is

needed?

Trang 15

How SCP Supports Strategic Manufacturing

Companies make two strategic manufacturing decisions that require SCP inputs—deciding whether to outsource manufacturing of certain components or products, and determining the material to use when designing a new product

Outsourcing Decisions Materials Decisions

To make outsourcing decisions, manufacturers must know whether they have a shortage of

capacity To determine this, SCP provides the demand plan as well as the supply plan—which is made up of the sourcing, inventory, and distribution plans—to satisfy that demand A review of these plans will highlight the variance between the two, i.e., a variance that shows a shortage of capacity or a surplus of capacity The manufacturer can then evaluate multiple demand and supply plans to see if they can develop a plan that eliminates capacity variance while satisfying the business objectives of the company

If they do decide to outsource a portion of their manufacturing, they will need information to evaluate the subcontractors in terms of cost, quality, and reliability They could use some of the supplier performance information (from manufacturing or procurement as appropriate) combined with the relevant business planning rules from SCP—e.g., lead-time, and lead-time variability—to evaluate if certain contract manufacturers are likely to be more reliable than others, and award the contract based on the above factors

When organizations design a new product, they must first ensure material availability and

identify potential suppliers to manufacture it and introduce it into the market To accomplish this, they again need the demand plan and the materials plan, both generated during SCP, for the new product To determine the best vendors, they use the performance information to identify the more reliable vendors, and then work with procurement to develop the procurement terms from the suppliers

Trang 16

How Strategic Manufacturing Supports SCP

Strategic manufacturing supports supply and production planning with the following key inputs:

• Bill of Material - Manufacturing will determine the bill of materials (BOM) and work with Procurement to finalize the terms and conditions with material suppliers Planners use this information during SCP to create the appropriate plans The materials plan generated during supply planning is at a higher level of granularity while the plan generated during production planning is more detailed

• Manufacturing Capacity - Manufacturing capacity is a key input during the supply

planning and the S&OP processes The capacity constraints applied during supply planning are less detailed than the capacity constraints during production planning For example, the capacity constraints during supply planning may be the capacity of a

manufacturing line, whereas during production planning, the manufacturing capacity constraint would be for each resource

way

Trang 17

How SCP Supports Manufacturing Execution

Manufacturing execution decisions include issues such as:

• When should we take down a machine for routine maintenance?

• How do we move material from its inventory location to the appropriate workstation?

The manufacturing facility uses the detailed production schedule and the materials plan as inputs

to determine how and when material should be moved from its inventory location to the

appropriate workstations Robots, or people, are then scheduled to move the material If sufficient material is not available, suppliers may be notified to expedite the material to ensure continuous production Many organizations use safety and other kinds of buffer stocks to cover for such eventualities—by first using up safety stock for production and then using the expedited material

to replenish the safety stock SCP helps companies to determine the appropriate level of safety stock to carry

Trang 18

How Manufacturing Execution Supports SCP

Three manufacturing execution activities that impact SCP include:

Actual Build - As manufacturers produce goods, SCP systems are updated Future production

plans must be adjusted if the amount of goods produced either exceeds or is less than the planned quantity For example, suppose a production schedule calls for the assembly line to produce 150 motorcycles during the first four days of the week and 180 more on Friday by using some overtime If the factory actually produces 160 motorcycles every day for the first three days

of the week, the overtime on Friday must be adjusted

Maintenance Scheduling - As manufacturing takes down machines for maintenance, they

provide the maintenance schedule to the planning systems Machine maintenance typically reduces the factory's manufacturing capacity, and decision makers should reflect this in the planning systems, i.e., as constraints

Product Design Changes - At times, the BOM must be updated, e.g., due to different parts or a

minor product design change Manufacturing execution usually tracks such changes and updates the planning systems to reflect the new BOM SCP can then determine the material requirements more accurately

way

Trang 19

he

ndependence Day falls on a Wednesday

may

Integrated Example

A manager has just learned in a monthly S&OP

meeting that his company has subcontracted some

of its manufacturing capacity to external vendors

Management has decided that the optimal way to

satisfy increased demand for products is as follows:

Vendor A will provide 2,000 units per week and

Vendor B will provide 1,000 units per week, while t

factory will continue to produce 15,000 units per

week Since the manager has not used

subcontractors before, he is skeptical and wonders

about vendor reliability

In addition, Independence Day is near and he is

concerned for several reasons First, the vacation

schedule for employees is rather ad-hoc at this time; I

this year, and a large number of employees have taken the remainder of the week off Second, one senior engineer has informed him that a critical machine is not functioning optimally andneed unexpected maintenance soon

Trang 20

Integrated Example - Continued

The machine in question does fail and must be sent for

maintenance and repairs Given these constraints, the

manager realizes that they cannot meet this week's

manufacturing commitments, which will result in a

shortfall of 2,000 units, so he works with supply

planners and contacts the new manufacturing

subcontractors While Vendor A is unable to provide

any extra units this week, Vendor B can provide the

extra 2,000 units at a five percent price increase Given

the circumstances, the manager agrees to the higher

terms in order to meet demand

As the manager hangs up the phone, his senior

engineer informs him that the critical machine just sent

in for maintenance and repairs requires new parts The

parts will not be available for at least two weeks, and the repairs will require at least a week to complete, making the machine unavailable for the next three weeks Therefore, he updates the machine availability appropriately in the system SCP then creates a new supply plan for the next three weeks by reducing the manufacturing commitments of the factory and ordering more products from the vendors

What is the manufacturing capacity? Show answer

15,000 units per week

What is the impact of the critical machine "going down"? Show answer

It reduces the manufacturing capacity and forces the manager to order more units from the subcontractors and at a higher price

Were any strategic sourcing decisions made in this example? Show answer

The strategic sourcing decision was:

• Source 15,000/week internally

• Source 2000/week from vendor A

• Source 1000/week from vendor B

way

Trang 21

Topic Summary

Manufacturing and SCP must be integrated to ensure that the product is manufactured at the right time to satisfy customer demand We identified two main manufacturing functions—strategic manufacturing and manufacturing execution Each of these functions uses specific information from SCP as well as sending some information back to SCP

Trang 22

To efficiently fill customer orders while adhering to acceptable customer service levels, planners must model the supply chain network with the associated lead-times and costs to move the product between different locations Then they develop a fulfillment model that satisfies customer demand at the lowest cost within acceptable service levels

Định dạng
Số trang	44
Dung lượng	510,47 KB