SCM Workshop, TU Berlin, October 17-18, 2005

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1 H.-O. Günther Dept. of Production Management Technical University of Berlin Supply Chain Management and Advanced Planning Systems A Tutorial SCM Workshop, TU Berlin, October 17-18, 2005

2 Outline Introduction: The concept of SCM and APS APS modules Strategic Network Design Supply Network Planning Demand Planning External Procurement Production Planning / Detailed Scheduling Transportation Planning / Vehicle Scheduling Order Fulfilment ATP / CTP

3 Lesson 1 There is an ongoing g change of paradigm from ERP / MRP towards APS.

4 Generations of PPC software 1960s 1970s 1980s 1990s 2000s Predecessors of PPC systems Focus on inventory control Basic order processing Material requirements planning (MRP) Bill of material files Calculation of net requirements Manufacturing resources planning (MRP II) Enhanced planning functions Integration of financial accounting and management functions Integrated systems CIM: Integration of manufacturing ERP systems covering the whole enterprise Advanced Planning and Scheduling systems Integration into Supply chain management concept Use of true optimization techniques

5 Lesson 2 SCM needs sophisticated planning systems.

6 Change of view Plant specific view Holistic view More efficient network-wide wide planning needed Development of APS

7 Supply chain management Definition A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. the supply chain includes all functions involved in receiving and filling a customer request. Demand element (customer order or forecast) Transportation order Production order Replenishment order Customers, distribution centres Transporters Manufacturing stages Tiers of suppliers (Chopra and Meindl, 2004)

8 Types of supply chains (networks) Inter-company supply chains Internal supply chains

9 Lesson 3 APS employ hierarchical planning, consider the availability of resources, and apply optimization.

10 Characteristics of Advanced Planning Procurement Production Distribution Sales Analysis of the decision problem Integral planning of the entire supply chain Definition of the objectives True optimization Forecasting future developments Hierarchical planning e.g. APS from SAP, i2 technologies, Manugistics, Oracle, Aspen Tech (Fleischmann et al. 2002) Feasible alternatives Selection of solution

11 Architecture of Advanced Planning Systems Procurement Production Distribution Sales long-term Strategic Network Design mid-term Supply Network Planning Demand Planning short-term External Procurement Production Planning / Detailed Scheduling Transportation Planning / Vehicle Scheduling Order Fulfilment ATP / CTP Companies rarely use the entire suite of modules. Even APS from different software vendors are used in a company. Various industry specific solutions offered

12 Classical MRP systems P S M1 Customer orders C M3 Routing M2 Material requirements Capacity requirements A1 A2 A3 A4 Scheduling

13 Lesson 4 Forget BOMs and routings. Learn PPM.

14 Production-process-model P Operation: Component C Operation: Sub-assembly S Operation: Product P S C M3 M1 M2 act. C1 mat. M3 res. a act. S1 mat. M2 comp. C res. b act. P1 act. P2 mat. M1 res. c res. d sub-a. S act. P3 res. e res. f C S P M3 C M2 S M1 Assign resources and materials to each activity Assign resources and materials to each activity. Alternative modes (resources, routings) can be defined for an activity.

15 APS planning cycle Strategic network design Demand planning Supply network planning Transportation planning / vehicle scheduling Order fulfilment and ATP / CTP Production planning / detailed scheduling External procurement The APS planning cycle represents the logical order of planning tasks The APS planning cycle represents the logical order of planning tasks. Planning tasks differ by the frequency by which they are called up.

16 Outline Introduction: The concept of SCM and APS APS modules Strategic t network design Supply network planning Demand planning External procurement Production Planning / Detailed Scheduling Transportation ti Planning / Vehicle Scheduling Order Fulfilment and ATP / CTP

17 Lesson 5 Strategic t network design is a powerful, but the least utilized module of APS.

18 Strategic network design Strategic Network Design Decisions Number of plants and DCs Locations and capacities Assignment of products to plants Assignment of locations to each other e.g. customers to DCs Determination of transportation links Mathematical methods Heuristics, MILP, Clustering techniques es

19 Strategic network design Planning frequency low high Planning horizon long short Degree of aggregation high low Management level high low

20 Strategic network design Exercise: Modelling Nutricia s supply network design by use of SAP APO 3.1 (based on Wouda et al., 2003) Supplier Plant Customer Distribution centre

21 Lesson 6 Forecasting is essential at all planning levels. Pure forecasts can cause ampli- fication of demand.

22 Demand planning Use of forecast Strategic level: design of the supply network Operational level: production, distribution, and procurement decisions Demand Planning Short-term: update of production orders Demand planning Most essential in make-to-stock environment, e.g. in the consumer goods industry Collaborative forecasting between partners in the supply chain Mathematical methods Statistical forecasting techniques Tools for incorporating human judgement

23 Lesson 7 Supply network planning is a core module of SCM. Huge cost savings can be gained.

24 Supply network planning Mathematical methods LP and MILP, heuristics Supply Network Planning Decisions Allocation of production quantities between plants Supply from the plants to DCs and from the DCs to customers Smoothing out seasonal cycles in demand Consideration of production, transportation, and handling capacities as hard constraints Consideration of demand, due dates, and safety stocks as soft constraints

25 Supply network planning Planning frequency year day Planning horizon year day Degree of aggregation high low Management level high low

26 Supply network planning Supply chain engineer in SAP APO 3.1 Set-up of fthe network configuration Integration of suppliers and transporters Assign and modify master data, e.g. product portfolio and capacities, costs, safety stocks, demand figures, modes of transportation etc

27 Lesson 8 Generic model formulations show pros and cons.

28 Supply network planning Generic model formulation Storage and handling capacity at DCs α y SC p P(i) p pjt j Production capacity at plants a x PC p P( i) j J ( i) pi pijt it α x + p pijt p P( i) i I ( j) p P( i) k K ( j) α p z pjkt HC j Storage and handling costs per DC Transportation capacity per link α x TC h p y pjt + c p p P(i) pijt ijt p P j J t T p P j J k K( j ) t T pjk z pjkt Aggregate demand per DC z pjkt = b pkt j J (k) Production costs per plants c x p P( i) i I j J ( i) t T pij pijt Assigning attributes to pre-defined entities

29 Supply network planning Planning books offer user-defined views of the solution Additional features of SAP APO 3.1 Safety stock planning Lot-sizing and production campaign planning

30 Lesson 9 PP/DS is the module most difficult to adapt to the application-specific features.

31 Production Planning / Detailed Scheduling Decisions Generation of production orders Allocation of resources according to a finite scheduling policy Mathematical methods Genetic algorithms Constraint programming Rules and heuristics Application specific algorithms Production Planning / Detailed Scheduling Lot-sizing, sequencing, and procurement proposals Consideration of the availability of resources as hard constraints Consideration of due dates, time windows etc. as soft constraints

32 Production Planning / Detailed Scheduling Planning frequency year day Planning horizon year day Degree of aggregation high low Management level high low

33 Production Planning / Detailed Scheduling Case study: Production of hair dyes Final Product Box Dye Cream Cream Liquid Cream Processing Chemicals line cream Tube Dispersion Dispersion Liquidid Dispersion Chemicals Bottle Shampoo Shampoo Liquidid Shampoo Chemicals Tube Processing line dispersion Filling shampoo Processing line shampoo Filling cream and dispersion and packaging final product

34 Lesson 10 Most scheduling problems are NP-hard. However, practical solutions are often easy to obtain.

35 Production Planning / Detailed Scheduling Case study: Production of hair dyes Solutions obtained from the PP/DS module of SAP APO 3.1 within 2 minutes GA superior to CP Alternative solvers can be integrated t via Optimization i extended workbench Additional features of SAP APO 3.1 Characteristics based planning Shelf-life consideration Model mix planning

36 Production Planning / Detailed Scheduling Complete pegging (dynamic or fixed) Customer orders Deficit Transportation ti orders Surplus Production orders Surplus Purchase orders

37 Lesson 11 Procurement requires a high degree of collaboration between partners in the supply chain.

38 External procurement Decisions Determination of the purchase quantity Selection of the supplier External Procurement Mathematical methods Rule-based and heuristic procedures MILP In-house or external supply? Release of deliveries for JIT goods

39 Lesson 12 ATP / CTP provide simple, but very effective tools.

40 Order fulfilment and ATP / CTP Decisions Matching customer orders against available quantities Quick response to customer requests (Available to Promise: ATP) Capacity check for new or enhanced production orders in response to customer requests (Capable to Promise: CTP) Order Fulfilment ATP / CTP Mathematical methods Rule-based ATP Batch mode ATP (MILP)

41 Order fulfilment and ATP / CTP Rule-based ATP: Bayer AG, Germany Query from customer EXC1, for product P1, amount Q1, date T1 Preliminary quick check with availability chart for P1, T1 Query for commitment from inventory for EXC1, P1, Q1, T1 Yes Commit order for EXC1, P1, Q1, T1 No Earliest date available for P1, 1 T2 EXC1 satisfied? No Yes Commit order for EXC1, P1, Q1, T2 using query for commitment from inventory Query for commitment from inventory or production for EXC1, P1,,Q Q1, T1 No Yes Commit order for EXC1, P1, Q1, T1; create campaign(s) for production Place order for EXC1, P1, Q1, T1; commitment after optimization run if capable to produce

42 Order fulfilment and ATP / CTP ATP decision cube of SAP APO 3.1 Original order Customer order / end item Same product/ alternative location Alternative product Alternative product/ alternative location Production Change of location Alternative component

43 Lesson 13 Customer satisfaction finally depends on the timely execution of transportation activities.

44 Decisions Transportation planning and vehicle scheduling Choice of the transportation mode (e.g. truck or rail) Integration of external logistics service providers and offering of own logistics services (e.g. VMI) Determination of regular freight frequencies between locations and of the unit transportation size Vehicle loading and scheduling considering time windows for delivery Collaboration between locations and with external logistics service providers Mathematical methods Heuristics Local Search Transportation Planning / Vehicle Scheduling

45 Concluding remarks Huge cost savings can be gained through efficient use of APS. APS have been adopted in many industries. Collaboration between partners in the supply chain including share of information and transparency of business processes is seen as a major driver of SCM performance. No global optimize SCM button provided by APS. Expertise needed. Optimization models often require large computational effort. APS, especially at the detailed scheduling level, do not sufficiently consider application specific features. APS are most successful for intra company supply chains APS are most successful for intra-company supply chains with centralized logistics control.

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