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Introduction to Materials Management Chapter 2

Introduction to Materials Management Chapter 2. Planning System Questions. What are we going to make? What does it take to make it? What do we already have? What do we need to get?. Key is to match. Priority What is needed, when, and how much Capacity

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Introduction to Materials Management Chapter 2

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  1. Introduction to Materials ManagementChapter 2

  2. Planning System Questions • What are we going to make? • What does it take to make it? • What do we already have? • What do we need to get?

  3. Key is to match • Priority • What is needed, when, and how much • Capacity • Capability to produce what is needed and when Priority (Demand) Capacity (Resources)

  4. Major levels of Planning and Control • In order of time span (long to short) and detail (general to detailed): • Strategic business plans • Sales and Operations Plans (Production Plans and Marketing Plans) • Master Production Schedules • Material Requirements Plans • Purchasing and Production Activity Control

  5. At Each Level, Need to Decide • What are the priorities • What to produce? • How much? • When? • What is the available capacity? • How can the differences between priorities and capacities best be resolved?

  6. Planning Hierocracy Strategic Business Plan Master Plan Production Plan Planning Master Production Schedule Material Requirements Plan Implementation Production Activity Control and Purchasing

  7. Production Plan • Quantities of each product group to be produced each period • Projected/desired inventory levels • Resources needed • Equipment • Labor • Material • Availability of needed resources

  8. Master Production Schedule • Shows, for each period, the quantity of each end item to be made. • Level of detail is higher than the Production Plan • End items versus groups of items • Time periods usually shorter (e.g., weeks versus months)

  9. More Detailed Planning and Control • Material Requirements Plan • End item requirements broken down into specific components – what to make or buy, and when • Production Activity Control • Execution plan, detailing specific orders to produce items from the Material Requirements Plan • Purchasing • Similar to Production Activity Control, only includes items to be purchased rather than produced.

  10. Capacity Management • At each level of the planning and control system, reconciliation with resources must be made • Must obtain the right resources or change the plan • Inadequate resources = missed production schedules • Resources significantly exceed planned production = idle resources and extra cost

  11. Sales and Operations Plan Strategic Business Plan Annual SALES AND OPERATIONS PLAN Monthly Marketing Plan Production Plan Weekly or Daily Detailed Sales Plan Master Production Schedule

  12. Sales and Operations Planning • Can be used to update the strategic plan • Provides a tool to manage change • Enforces functional plans to be realistic and coordinated • Represents a plan to achieve company objectives • Provides management visibility of production, inventory, and backlogs.

  13. Developing the Production Plan • Some key questions that must be answered to develop an effective planning strategy: • How flexible are the resources, both in quantity and timing? • Are “outside” resources available (subcontracting)? • Can we utilize inventory to meet demand?

  14. Basic Production Plan Strategies • Chase – vary production rates to meet changes in demand • Often used when inventory cannot be used or when resources are flexible and inexpensive to change • Level – establish average demand level and set production rate to that level • Often used when resources difficult or very expensive to change • Hybrid – use a combination of some chase and some level

  15. For Example: No. of Units Demand Time

  16. Chase Production: No. of Units ChaseProduction Demand Time

  17. Level Production: No. of Units Level Production Demand Time

  18. Level Production: No. of Units USE Inventory Level Production CREATE Inventory Demand Time

  19. Hybrid: No. of Units Hybrid Demand Time

  20. Numerical Example: Suppose the forecasted demand for a product family looks like the table below. Assume the product family is a Make-to-Stock family with a starting inventory of 100.

  21. Production Plan Using a Level Strategy

  22. Production Plan using Chase Strategy

  23. Production Plan using a Hybrid Strategy

  24. Make-to-Order Production Plans • Products made to customer specifications • The customer is willing to wait for completion • Generally products more expensive to make and/or store • Often several options offered • Company often uses a backlog of unfilled customer orders rather than inventory

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