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| EXAMPLE 1: How to manage the relationship between sales forecasting, production planning and master production scheduling.
Here are some thoughts on the implementation of sales forecasting, production planning, and master scheduling systems. I have outlined a step-by-step approach to implement each of these, with each of the steps listed in detail. Main Headings:
In many companies, forecasting is a guessing game played by manufacturing management. This appears to be the situation at XYZ Manufacturing. Instead, it should be a marketing/program Management responsibility that involves objective computation rather than subjective prediction. The forecast relates directly to the production plan, which, in turn, is the foundation for the master schedule. Timely updating of the forecast and measurement of actual sales against forecast sales is important. I have listed steps required for effective sales forecasting in Exhibit I, in a suggested order of implementation, and discussed in detail here. Responsibility for most of these forecasting tasks is assigned to the program manager representative on the project team. 1. Identify internal sales factorsThe internal factors that affect product sales include revenue, material cost, labor cost, overhead, return on investment, equipment cost, and support centers. This task requires identification of these and other internal factors, as well as determination of the source of the identified internal factors. Exhibit I 2. Identify external sales factors Political, economic, sociological, technological, and competitive conditions are examples of external factors that can affect product sales. These and other external factors and their sources must be identified. 3. Analyze demand for service parts This task requires that service parts be classified according to the products they support (current, new, phaseout, obsolete); their activity level (high or low volume); and their value (high or low). Next, data should be gathered on the demand (total and by month) during the preceding 36 months for each classification of spare parts. 4. Develop customer profiles To develop customer profiles, the individuals assigned to this task must define the customers (e.g., original equipment manufacturers, distributors, consumers), whether they are domestic or foreign, the products they are buying, and how the company sells to them (directly or through catalogs). Also, they must define what the customer expects from the company in terms of service level, delivery time, quality, and price. 5. Collect sales statistics This task involves compilation of sales statistics that are pertinent to development of the sales forecast (e.g., statistics broken down by product family, stock keeping units, and service parts). XYZ Manufacturing's sales history is one source for these statistics; additional sources, depending on availability and cost to compile, include government, banking, and university data. 6. Develop forecasting methods The development of methods to forecast product sales begins with analysis of the current forecasting methods and review of the various internal and external forecasting techniques (top down, bottom up, delphi, simple moving average, weighted moving average, exponential smoothing, regression analysis). The individuals responsible for the task then define the forecasting models to be used for various products, and revise the forecast as new demand data becomes available. 7. Develop sales deviation tracking This track involves tracking sales detail data according to stock keeping units, service parts, customers, quantity, dollars, frequency, sales representative, and sales territory and developing a method for comparing this data to forecast. 8. Determine stock keeping levels Determining the levels of stock keeping units that will be forecast begins with an analysis of the finished goods bill of material (BOM) for features, options, and packaging. The next step is determining the validity of forecasting sales at various levels in the finished goods BOM. The final step is selection of the best BOM level for maintaining stock keeping units-the level that will provide maximum flexibility in product manufacturing and minimum forecasting errors. The production planning process uses product sales forecast and manufacturing and engineering capacity information to develop a company game plan. The game plan ensures that all functional departments are working toward a common goal. Those who are developing the production plans for each major product line should consider marketing strategies, inventory goals, current forecasts and backlogs, and the company's profit plans. The production plans will be used to establish monthly shipping goals; to project resource constraints, cash flow, inventories, and backlogs; to establish operating budgets; and to set boundaries for the master schedule. Exhibit II lists in suggested order of implementation the steps required to implement effective production planning. These tasks are assigned to a variety of groups as noted in the descriptions that follow. Exhibit II 1. Develop product rationalization methods The development of methods used to rationalize the product's value to the company is the responsibility of the marketing representative on the project team. To fulfill this task, he or she analyzes the current method of rationalizing the production and sale of products; categorizes products into A,B, and C categories according to sales dollars, profit dollars, process capability, customer order frequency, and customer type; and develops planning policies, such as whether to stock small, moderate, or large quantities, assemble to order, or delete from product line. 2. Identify product families The task of identifying the different product families is usually assigned to the marketing representative on the project team. This person is responsible for analyzing the current product family categories, identifying the unique characteristics of each product family, and determining if additional product family categories should be planned. 3. Identify product family subassemblies This task is usually assigned to the project team member who represents the materials function. It involves the identification of the major subassemblies that should be planned for each product family. The steps are: analyze the current product's major subassembly categories; identify the criteria that makes a subassembly unique for the purpose of planning requirements; and identify any additional subassembly categories that should be planned. 4. Develop planning BOMs This task is also the responsibility of the materials representative on the project team. It involves analyzing the current features and options associated with end items, determining the percentage of expected usage of the option related to all other options, determining the percentage of expected demand of additional end-item features, and developing a planning BOM for the end items in the production plan. 5. Identify summary work centers In identifying summary work centers, the engineering representative on the project team identifies those work centers that are similar to each other. The equipment, personnel, capacity, and function of each current work center are analyzed. Where similarities exist, the work centers are consolidated into summary work centers, and the capacity for each summary work center is established. 6. Develop profile routings The engineering representative on the project team is responsible for this task. To complete the task, he or she first analyzes the standard routings that are used to manufacture all levels of the product family end items, then determines in which work center each end item is produced. The operation sequence for each end item is determined, as is the elapsed time-that is, the production time (in days) required in each summary work center. The offset time-the number of days before the item completion date-is also calculated. Finally, the hourly production rate for each operation is determined according to the anticipated input quantity (in units or dollars). 7. Develop product family production plan This task is usually assigned to the materials representative on the project team. Development of a production plan for each product family involves the following tasks: analyze the current method of developing the production plan; determine the strategies to achieve company objectives (e.g., in relation to investment, profits, assets, capital, inventory, backlog, sales); develop the monthly and daily dollar and unit rate of sales, shipments, backlog, inventory, and production; compare the past sales forecast with actual sales bookings; and compare the past production plan with actual production. 8. Develop a rough-cut capacity plan To develop a rough-cut capacity plan, the materials representative on the project team first analyzes the current method used to determine the capacity requirements to satisfy the production plan. The other steps in rough-cut capacity planning are: establish the monthly demand for product families and subassemblies over the sales forecast horizon; develop the rough-cut capacity requirements using the profile routings and monthly demand; define for each profile routing the operation rates, elapsed times, and set up times; refine the summary work center capacity; and develop bills of labor where profile routings are not applicable. 9. Organize production planning meetings The materials representative on the project team is responsible for organizing monthly production planning meetings. In addition to the materials representative, meeting participants should include the president, controller, and representatives from engineering, manufacturing, and sales. Prior to the meetings, the materials representative should assign individual responsibilities for preparing information (e.g., the engineering manager should provide new product development information for consideration in production planning). The materials representative should establish the monthly meeting dates three months in advance; prepare an agenda for each meeting; and, after the meeting, prepare and distribute reports that detail the established production plans. The master schedule cannot be merely a statement of need. The master scheduler must be able to balance, mix, and match the schedule of unique items within the capability of the production facility and in accordance with the established production plan. Implementation of successful master scheduling within a manufacturing planning and control system requires completion of the steps listed in Exhibit III (in suggested order of completion) and detailed here. Exhibit III
1. Analyze production scheduling system In analyzing the current production scheduling system, the materials representative on the project team reviews the current production scheduling procedures and policies and compares them with the features and functions of the new system. Differences between the old and new systems should be reviewed and resolved with the system users. At the end of this process, the final proposed scheduling system should be presented to the users. 2. Define planning time fences Development of the master schedule requires definition of the time fences that will be used in scheduling. This task is usually assigned to the materials representative on the project team. The steps for defining the planning time fences are: determine the cumulative lead times for raw materials and for product manufacture; establish weekly periods in which only customer demand will be used to drive material requirements planning (mrp); establish weekly periods in which the master schedule cannot be increased; establish weekly periods in which the master schedule can be increased only after the capacity and product mix are analyzed; establish weekly periods in which the master schedule can be increased only after the material availability has been checked; designate those individuals who are authorized to approve master schedule changes in each different time fence period. 3. Interface customer order processing The customer order processing system must be interfaced with the master schedule; this task is usually assigned to the marketing representative on the project team. The steps to complete this task are: analyze the current customer order processing system, determine how information should flow so that the customer order processing system is related to the master scheduling system, develop computer programs to interface data from the customer order processing system with the master schedule requirements, review the proposed system with users in customer order processing, and implement the new process. 4. Develop customer order acknowledgments This task is usually assigned to the marketing representative on the project team. It involves the following steps: analyze the current process for acknowledging customer orders; develop a procedure that allows a master scheduler to review customer orders and determine the anticipated shipping date; and review the procedure with users in the marketing, manufacturing, and materials groups. The master scheduler should then use this procedure to determine and assign customer order shipping dates. 5. Develop final assembly schedule This task is usually assigned to the materials representative on the project team. For make-to-order items, the final assembly schedule is developed from customer orders within the constraints of available material and capacity. The current final assembly schedule process should be reviewed and the final assembly scheduling requirements should be determined. The truck schedule restrictions, truck-loading product cube factors, and the assembly line production capacities should also be determined. 6. Establish open customer order files The marketing representative on the project team usually oversees the establishment of system files for open customer orders. The task involves the following steps: identify the source of the required data; specify the data elements that will be changed; specify the data elements that will be converted from existing computer files or added from existing manual files; assign responsibility for data accuracy; and create input data files, forms, and screens to establish the open customer order data in the new system. 7. Enter new customer orders To allow entry of new customer orders into the new manufacturing planning and control system, the marketing representative on the project team should identify the source of the required data; specify the data to be entered from the source documents; assign responsibility for data accuracy; and create input data screens for entry of new orders. D. RESPONSIBILITIES FOR TASK IMPLEMENTATION Responsibility for task implementation is usually assigned to an individual on the project team. However, this individual usually oversees implementation of the task while the detailed steps are performed by various departmental members. Following is a brief summary of the responsibilities of various departments in the implementation of forecasting, production planning, and master scheduling. 1. Marketing / Program Management Forecasting is the primary responsibility of the marketing / program management department and is a critical function used by top management in the production planning function. The forecast relates directly to the production plan, which, in turn, is the foundation for developing the master schedule. Product rationalization is an important marketing function. A complete understanding of how the company "goes to market" is required to develop planning policies. Thus, marketing must gather data on sales dollars, profit dollars, customer order frequency, process capability, and customer type. The marketing group must develop a sales statistics and customer history system that will function with the new manufacturing planning and control system. Product management is responsible for properly defining the product and for monitoring and approving all product changes. 2. Materials management The materials management group is responsible for planning, directing, and controlling activities related to material and production planning and control. As noted previously, the materials manager oversees the development of the production plans and rough-cut capacity plans. Because the focus of a manufacturing planning and control system is materials management, a team of individuals from that group should be organized to concentrate their efforts on the tasks required for successful implementation. One of these tasks is determining manufacturing lead times. Lead times are among the most difficult data elements to gather; very often they are based on best guesses and include safety margins. A simple technique for measuring the accuracy of this information is to have the material planning and control system calculate the cumulative manufacturing lead time by using setup and run time for a specific product and to compare that lead time with the lead times actually experienced by the materials and production people. 3. Engineering This department is responsible for defining the operations required to complete the manufacture of a product and for establishing the sequence of those steps. The standard times and operation sequence presented on the routing must be accurate because they will be used to determine the planned start and due dates of operations of a particular job order. Calculating the capacity requirements of work centers and identifying problem work centers are also dependent on routing accuracy. |
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For more information, please email AMGI Management Group Inc. |
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