Robust Sales and Operations Planning

Transcription

1 Robust Sales and Operations Planning All contents copyright 2016 Institute, all rights reserved. 1 Complex and Volatile is the New Normal Supply Chain Characteristics 1965 Today Supply Chain Complexity Low High Product Life Cycles Long Short Customer Tolerance Times Long Short Product Complexity Low High Product Customization Low High Product Variety Low High Long Lead Time Parts Few Many Forecast Accuracy High Low Pressure for Leaner Inventories Low High Transactional Friction High Low Today s supply chains look VERY different from 1960 s supply chains when conventional planning rules were formulated but Conventional planning rules have not appreciably changed since the 1960s. MRP still plans today the way it did 50 years ago! All contents copyright 2016 Institute, all rights reserved. 2 1

2 The New Normal and Inventory Implications Supply chains have elongated and fragmented while customer tolerance times have dropped dramatically. This disparity means holding stock at some strategic point is a must to keep and/or grow sales. This also means that planning horizons are more remote from actual demand realization (longer range forecast). Also, there are more products with shorter life spans to manage many use common components and resources. This means managing stock positions effectively is a must for effective capital and resource management. This also means that detailed item level forecasting is much more difficult. The three rules of forecasts: 1. They start out wrong 2. The longer the range, the more wrong they are 3. The more detailed, the more wrong they are How is the conventional approach fairing with all of this? All contents copyright 2016 Institute, all rights reserved. 3 Conventional Failure Operational Tactical Strategic date and quantity synchronization MRP planned orders MPS forecast S&OP Relevant Ranges Convention fails to manage ranges properly. Flow Based Operating Model Many flow based models have been proposed (e.g. Lean and TOC) but most have remained compartmentalized with only pockets of success. Flow Based Metrics Any conventional flow based metrics (e.g. due date performance) come into conflict with and are countered by the proliferation of cost based metrics. Tactical Reconciliation Reconciliation is not bidirectional it is a one way street. Reconciliation is also painful by introducing nervousness with every new MRP run and monthly S&OP updates. 4 2

3 Mismanagement of Relevant Range Using Fully Absorbed Cost Metrics Fully absorbed unit cost = direct material cost + labor cost + overhead costs. Direct material costs are VARIABLE costs. Labor and overhead costs are FIXED costs in the short range. Combining VARIABLE and FIXED costs creates the false impression that fixed costs vary within the short range. They do not and that is why they are called fixed costs. Using Forecast for Supply Order Generation Forecasts drive planned orders in the MPS. These planned orders generate supply orders in MRP. There are three rules about forecasts: 1. They start out wrong. 2. The more remote in time the extend the more wrong they are 3. The more detailed they are the more wrong they are. Capacity, capital, materials and space are committed to signals that have significant rates of error associated with them! 5 No Flow Based Operating Model Many flow based models have been articulated but Conventional S&OP, MPS and MRP are configured to be a push based model. This means that flow based operating models like Lean and TOC typically remain compartmentalized and limited and most often conflict with the conventional system Is there a flow based model that can be implemented at the system level? 6 3

4 Conflicting Metrics Convention has some flow based metrics in use. Their effectiveness is limited by conflicting cost based metrics. These conflicting metrics obscure what is relevant and introduce selfimposed variability within organizations as personnel oscillate between protecting flow and protecting cost performance. When flow is promoted and protected, costs are under control. The inverse, however, is not true. Flow Cash Velocity Cost Cash Velocity ( ) ROI Due Date Performance Fill Rates Net Profit Investment ( ) ROI OEE Net Profit Investment 7 Inventory Turns Fully Absorbed Unit Cost Painful Reconciliation Tactical reconciliation is not bi directional it is a one way street. New MRP Runs MRP run results in massive cascading schedule changes as date and quantity changes at higher levels effect all connected lower level components. Monthly S&OP Update Monthly S&OP updates create massive shifts at the beginning of every month. System Nervousness and Bullwhip Tactical Demolition and Reconstruction 8 4

5 Thoughtware These four prerequisites allow an organization to think, communicate and behave systemically for flow. When these prerequisites are in place an organization has the proper thoughtware installed for flow. Now we need a framework to utilize this thoughtware. 9 Four Prerequisites for Relevant Information 1. Understanding Relevant Ranges 2. Implement a Flow Based Operating Model 3. Tactical Reconciliation (bidirectional) between Relevant Ranges 4. Implement Flow Based Metrics 10 5

6 Adaptive Enterprise TM 11 Adaptive Enterprise Model Model Configuration Business Plan Parameters Variance Analysis Model Projections, & Strategic Recommendations 12 6

7 Adaptive Enterprise Model 1 RELEVANT RANGES Operational Tactical Strategic 2 4 Tactical Reconciliation 3 FLOW BASED METRICS SUITE Operational Tactical Strategic Relevant Ranges in the DDAE Model RELEVANT RANGES Operational Tactical Strategic (hourly, daily, weekly time buckets) (blends the present, shortrange past and future) (annual, quarterly monthly time buckets) Up to the longest Decoupled Lead Time At Least the Cumulative Lead Time of the Product (Past and Future) Cumulative Lead Time of the Product and Beyond 14 7

8 2. The Flow Based Operating Model Combines elements of MRP, DRP, Lean, Theory of Constraints, Factory Physics and Six Sigma. Paces operations to actual demand Strategically places decoupling points for lead time compression and variability (bullwhip) mitigation. Strategically places control points for schedule synchronization Protects decoupling and control points through stock, time and capacity buffers The Flow Based Operating Model Variance Analysis Return Loop (supply order generation and stock management) On Hand & Synchronization Alerts POs & STOs MRP (Supply Order Generation) MOs w/ Request Dates Model Configuration MO w/ Promise Dates Variance Analysis Return Loop (scheduling, resources and execution) Execution (Buffer Management) Released MOs MO Progression Scheduling (Finite Control Point Scheduling) 16 8

9 Example of a Operating Model Design Lead time = 3 weeks Lead time = 1 week C Control Point Decoupling Point (Stock) Buffer Control Point (Time) Buffer Capacity Buffer Raw stocks C shear C saw C laser weld machining C assembly paint purchased component stocks configure C Customer 17 Adaptive Enterprise Model Model Configuration Business Plan Parameters Variance Analysis Model Projections, & Strategic Recommendations 18 9

10 3. Flow Based Metrics Model Configuration Business Plan Parameters FLOW BASED METRICS SUITE Variance Analysis Model Projections, & Strategic Recommendations Operational Tactical Strategic 19 Flow Based Metrics in the DDAE Model Tactical Operational Strategic Metric Objectives System Reliability System Stability System Speed/Velocity System Improvement & Waste Reduction (Opportunity $) Local Operating Expense Control Strategic Contribution Contribution Margin (cash generation rate) Working Capital (inventory & cash & credit) Customer Base (market share, sales & service & quality) The Message Behind the Objective Execute to the model, plan, schedule and market expectation; Pass on as little variation as possible; Pass the right work on as fast as possible; Identify and prioritize obstacles/conflicts to flow Spend minimization to capture the market opportunity Maximize system return according to relevant model factors (volume and rate) Drive innovation (internal and external) and growth to increase cash generation capability (RATE) Ensure proper levels of working capital to protect and promote flow in the short and long term Ensure and grow a solid base of business for the enterprise (VOLUME) 20 10

11 4. Tactical Reconciliation Model Configuration Tactical Reconciliation Business Plan Parameters Variance Analysis Model Projections, & Strategic Recommendations 21 Tactical Reconciliation The elements of DDS&OP Tactical Configuration/Reconciliation (shaping model to the evolving business strategy) Tactical Review ( Variance Analysis) Tactical Exploitation (short range supplements to flow when necessary) Tactical Projection (projecting model performance under different scenarios) Strategic Recommendation (ideas for better model performance needing senior level approval) 22 11