This operations planning and control model is a centerpiece of this course
because it shows how supply and demand get aligned.
Demand-side activities include demand management. Demand management includes forecasting but it
and distribution requirements planning are key inputs to the overall process.
Forecasting estimates demand while DRP consolidates distribution center orders.
Demand management involves planning, communicating,
influencing, and managing and prioritizing demand. Demand information is provided at the summary
level for strategic planning, at the aggregate product family level for Sales
and Operations Planning or S and OP, and at the individual unit level for master scheduling.
On the supply side, each planning stage has a capacity check.
Resource planning checks production plan capacity at the S and OP level. Resource planning looks at
long-term capacity needs and may also plan capital investments per the strategic plan.
At the master scheduling level, the master production schedule is validated using rough-cut
capacity planning. This process checks bottlenecks for feasibility. At the material
requirements planning level, capacity requirements planning is a full check of production capacity.
The center column is where alignment occurs. This starts with alignment with
the organization’s strategic plan. S and OP makes a production plan that aligns supply and demand
at the product family level. Master scheduling aligns supply and demand at the end unit level.
The last priority planning step, material requirements planning, involves detailed
planning for materials. Purchasing and production activity control are execution steps.
Part of this process is called master planning. It includes demand management, resource planning,
S and OP, and master scheduling. These last two are discussed more next.
S and OP is a monthly cycle with a 12- to 18-month horizon.
Each month, the most replanning attention is given to upcoming periods.
A product review goes over product performance. Data is gathered to update the forecast.
Next, demand professionals meet to evaluate demand. This is called the
marketing/sales handshake. Agreeing on what to request from supply may be hard,
but it clarifies priorities, such as on marketing spend.
Here we see a demand plan. The prior demand plan, the plan revisions from the current month,
and the annual business plan are shown to enable comparisons.
Here the plan was revised downward due to low actual demand, but they also revise the plan
upward starting six months out to give them time to plan tactics to grow demand.
A request for product is then sent to supply,
who assess whether the demand plan can be executed or if capacity or plan changes are needed.
This is called the operations handshake because agreement may take a few iterations.
Three more meetings help reconcile demand, supply, and financial plans.
The financial review verifies if the plans will be profitable.
The pre-meeting is about finding areas of consensus and exceptions for executives to review.
The executive meeting is where VPs meet to make final decisions.
If supply and demand are in balance, the process ends.
If not, executives might decide to overproduce early or increase short-term capacity such
as by using overtime. As a last resort, they might also reduce the demand plan.
Master scheduling converts the production plan in
product families into a master production schedule for end items.
Here is a master scheduling grid. The horizon is based on the cumulative lead
time for getting and using the raw materials and components, plus a few extra periods.
The planning time fence is based on this cumulative lead time and marks where
the master scheduler needs to approve changes inside this fence to avoid costly rescheduling.
The demand time fence is even closer to production and marks where the materials have been received
and resources have been committed. The master scheduler’s supervisor
approves changes in this area. The first two rows show demand.
The forecast estimates demand while customer orders are orders already received.
The projected available balance is the inventory that should exist in each period.
Available-to-promise shows how many units can be promised to customers. Inside the demand
time fence, this is purely based on customer orders. After this fence, it is based on the
higher of customer orders or the forecast. The master production schedule is the
anticipated build schedule. It may set a batch size such as 50 units per batch.
In the materials, you will learn how master scheduling systems calculate these line items.
We hope you enjoyed this overview of operations planning and control.