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Superior Chemical Company: Production Planning and Scheduling

Superior Chemical Company: Production Planning and Scheduling. Background Business Process Redesign: Process, IT Implications. SUPERIOR: BACKGROUND. The Chemical Industry Faces Increased Global Competition and Flat Growth. Mature Producing Technology. Mature Product. s. s. c. s. c.

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Superior Chemical Company: Production Planning and Scheduling

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  1. Superior Chemical Company:Production Planning and Scheduling • Background • Business Process Redesign: Process, IT • Implications

  2. SUPERIOR: BACKGROUND The Chemical Industry Faces Increased Global Competition and Flat Growth • Mature ProducingTechnology • Mature Product s s c s c c s c s • Global Competition • After-Tax Profits: 8% • Dominates CurrentMarketplace • Growth: • Flat Ô 3% • At expense of competitors

  3. SUPERIOR: BACKGROUND Superior Manufactures Commodity Chemical and High Margin Distinguished Specialty Chemicals • Sales $720 million on 230+ million pounds per year • Five North American production sites manufacture 250 SKUs for 320+ customers • Speciality products have high margins (20-30%), but only account for 3% of volume • Commodity products have low margins, but account for over 97% of volume • 40 key customers generate 95% of sales volume • Significant barriers to competition: • Size • Patents • Goal: • High provision of service to all

  4. SUPERIOR: BUSINESS PROCESS In Materials Management, Superior Had Performed Poorly • Forecast accuracy < 70% • Product yields < 70% • Ship to customer request < 75% • Ship to Superior’s commitment < 85%

  5. Market Forecast Master Schedule Production Schedule Shipped Customer Order Customer Requirement Order Entry MFG Forecast Adjustment Key Customer CEO–Superior Chemical SBU & Marketing Directors Business Director Override SUPERIOR: BUSINESS PROCESS In 1991-92, Superior Re-engineered Its Fractured Planning/Manufacturing Process Before:

  6. Inventory Stocking/ Shipping Plan Production Schedule SUPERIOR: BUSINESS PROCESS In 1991-92, Superior Re-engineered Its Fractured Planning/Manufacturing Process (cont.) After Inventory Strategy Key Customer Market Forecast Near- term Customer Requirements SBU & Marketing Directors Master Schedule Product Line Optimization CEO Superior Chemical Shipped Customer Order

  7. SUPERIOR: BUSINESS PROCESS Key Business Drivers • Supply chain restructuring was guided by the following key principles: • Give customers what they want, when they want it • Foster strategic partnerships by delivering on promises • Be responsive to customer needs and inquiries • Execute the mechanics of business efficiently • Recognize the interdependence of the supply chain functions and address as an integrated unit

  8. SUPERIOR: BUSINESS PROCESS Supply Chain Management • Effective, seamless supplier-customer relationships • Interdependence of suppliers, customers, and service • Professional techniques and resources managing: • Planning • Inventory • Customer services • Cooperative functional excellence: • External • Internal • Streamlined business flows

  9. SUPERIOR: BUSINESS PROCESS Master Scheduling RACI

  10. SUPERIOR: BUSINESS PROCESS Industry Best Practices Classified Segment % Item % Revenue Profit A B C X (obsolete ) 10 15 75 0 60 30 10 0

  11. SUPERIOR: BUSINESS PROCESS ABC Product Segmentation Leads to Differentiated Strategies and Tactics After A B Before A, B, C, D, C D

  12. SUPERIOR: BUSINESS PROCESS Manufacturing Inventory Strategy ProductClass ScheduleTechnique InventoryLevel % ofVolume ServiceLevels Description Continuousrunners(much of time) Dedicated withminimalinterruption Process stock ~40 95% of allocatedproduct “A” “B” Major products(made-to-stock) • Product wheel• Schedule to stock Cycle stockSafety stockProcess stock ~57 95% “C” Low volume/special products • Product Wheel• Schedule to Forecast Make-to-forecast ~3 100% withinquoted lead time “X” Obsolete Not madeafter sunsetday $0 ~0 0%

  13. SUPERIOR: BUSINESS PROCESS Demand Determination: Key Ingredients to Manufacturing Response • Historical Response • Seasonality Tracking Demand Analysis System Key Customer Events Demand Determination • Near-term Marketplace Changes • New Product Introduction • Product Development & Testing Master Schedule Inventory Production Plan Capacity

  14. SUPERIOR: BUSINESS PROCESS Planning Horizon—Key Activities Demand Determination Master Schedule Plant Schedule 90-day projection Forecast & Capability Product Wheels Forecast Forecast Adjustments Minor Adjustment Set Freeze Forecast Updates Master Schedule Week 1 Week 2 Week 3 Week 4 Current Month Current Month +1 Current Month +2

  15. Site 1 Site 2 Site 3 Site 4 Site 5 SUPERIOR: BUSINESS PROCESS Master Schedule: Process Ingredients Competitions to Plan Month-end Reporting Forecast Trend (DAS) Projected Capacity Load Plan Customer Orders (others) Month-end Backlog Major Customer Requests (top 40) Primary/ Secondary Plant Production Options Master Schedule (MO) 13 Week Plan Plant Production

  16. SUPERIOR: BUSINESS PROCESS Product Wheel Design • Begins with matching products to specific asset • EOQs calculated for each product on wheel • Wheel built by linking EOQ days together • Modified to account for: • Asset limitation • Forecast horizon • Interdependence of items on wheel • Safety stock variations • Consideration given to fixed wheel

  17. SUPERIOR: BUSINESS PROCESS Product Wheel Design • Product Wheel: • Set of products made on a given asset • Sequence to facilitate transition • Predetermined run length for each product • Repeated several times during year 1 X Days 2 A Days 5 Y Days B Days 4 Z Days 3

  18. SUPERIOR: BUSINESS PROCESS Key Policies & Impact Potential • Policy: • Marketing is responsible for providing Key Events, Forecast changes, & Briefings to Planning by 18th day of month • Impact: • Inaccurate Forecasts will cause machines to be improperly scheduled • If incorrect Inventory produced, could lead to: • Customer shortages • Service-level deterioration • Inability to build safety stock • Accurate Planning contributes to lowering manufacturing cost, increased yields, higher returns

  19. SUPERIOR: IMPLICATIONS Benefits Attained: Competing to Win • Recaptured 600 idled machine-center days • 30% reduction in machine changeover costs: • Approximate savings of $3 million • Manufactured output increased by 15.0 million pounds • Margin potential increased by $10-12 million

  20. SUPERIOR: IMPLICATIONS Benefits Attained: Competing to Win (cont.) • Ship to customer on requested date 85% of time • Rationalized 50 underperforming products • Manufactured yields 80% • Forecast accuracy approaching 85% • Achieved ’93 PO for first quarter: • First time in 5+ years

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