FORECASTING

  • Sources of demand: customers, spare parts, promotions, intra-company, etc.
  • Characteristics of demand: Trend, Seasonality (can be weekly <supermarket> or daily <restaurant>, Random variation, Cyclical variation (economic growth, recession)
  • Demand pattern: stable vs. dynamic, dependant vs. independent
  • Only independent demand should be forecasted.
  • Forecasting principles: rarely 100% accurate overtime, should include an estimate of error, more accurate for product lines and families, more accurate for nearer period of time
  • Data recording principles: record demand not shipments, use same time intervals in planning, forecast items controlled by planning. Record events influencing demand, and different customers
  • Forecasting techniques: qualitative vs. quantitative, extrinsic vs. intrinsic
  • Qualitative techniques: subjective, based on intuition and opinion. It is used for business planning and forecasting for new products. Used for medium-long range planning
  • Quantitative technique: based on historical data and assume what happen in the past will happen in the future. Used for production planning, and data is available from company records.
  • Extrinsic technique: based on external indicators, useful in forecasting total company demand for product family. Based on idea of cause and effect (sometimes called casual technique)
  • Intrinsic technique: based on internal factors and is not always quantitative
  • Moving average: forecast sales as an average of past months. Used to filter out random variation, longer periods smooth out random var., hard to detect trend, manual calculation. (lag actual sales)
  • Exponential smoothing: technique reduces the amount of data needed and makes calculating moving average simpler. Provide routine method of updating items, work well for stable items, satisfactory for short-range forecast, detects trend but lag them.
  • Seasonality: variation in demand based on the season
  • Seasonal index: measures the amount of seasonal variation of demand for a product
  • Seasonal index   =        Period average sales

                                            Average sales for all period

  • Why monitor forecast: to plan around the error in the future, measure actual vs. forecast, improve forecasting method
  • Bias error (or cumulative error): error in forecast of average sales

 

MASTER PLANNING

  • Production planning: is setting the overall level of manufacturing output… and other activities to best satisfy the current planned level of sales … while meeting general business objectives of profitability, productivity …etc., as expressed in the overall business plan.
  • Production planning: concerns (1) planning for each product family (2) meeting desired inventory level (3) determining resources needed (4) comparing with available resources
  • Production plan characteristics: (1) 12-month time horizon (2) fluctuating or seasonal demand (3) plan made for product families (4) variety of management objectives
  • Basic strategies for developing production plan: (1) Demand matching – chase strategy     (2) level production (3) hybrid
  • Chase production strategy: Advantage: (1) stable inventory (2) varied production to meet sales requirement. Disadvantage: (1) costs of hiring, training, overtime, extra shifts (2) costs of layoffs and employee morale (3) possible unavailability of needed work skills (4) maximum capacity needed. à there’s a cost of changing production level
  • Level production strategy: Advantage: (1) smooth, avoid labor and capital costs of demand matching Disadvantage: (1) buildup inventory (2) requires more accurate forecast
  • Combination strategy: (1) produces at or close to full capacity for some part of cycle (2) produces at lower rate during the rest of the cycle (3) makes use of available capacity, yet limits inventory build-up and inventory carrying costs
  • Make-to-stock production plan; goods are put into inventory and sold from inventory. It is used when (1) demand is constant and predictable (2) only a few product options exist (3) delivery times are shorter than time needed to make the product
  • Information needed for MTS production plan: (1) forecast by time period for the planning horizon (2) opening inventory (3) desired ending inventory
  • Methods of meeting demand fluctuation: subcontracting, adding a shift, overtime
  • Resource Requirement planning: production plan must be compared with existing resources (1) are required resources available? (2) if not, how will differences be reconciled
  • Bill of resources: shows the quantity of critical resources needed to make one “average” unit of the product group.
  • Master production schedule: states requirement for individual end items and options by date and quantity. It is limited by the production plan and must “disaggregate” the production plan.
  • MPS objectives: (1) maintain the desired level of customer services (2) make the best use of resources (3) keep inventories at desired level.
  • Inputs to MPS: production plan, forecast, orders from customers, additional independent demand, inventory levels, capacity constraints
  • Production plan: states in months, and MPS states in weeks.
  • MPS steps: (1) make preliminary MPS (2) perform RCCP (3) resolve differences
  • RCCP: checks whether critical resources are available to support the preliminary MPS
  • Resource bill: shows the time required for individual items on a critical resources
  • MPS: is not sales forecast, not a wish list, not a final assembly schedule. MPS should be the anticipated build schedule, realistic and achievable
  • MPS and ATP: any part of the MPS level not consumed is available-to-promise
  • ATP: uncommitted portion of a company’s inventory and planned production, maintained in master schedule to support customer order promising.
  • ATP calculation: assumes that the entire ATP will be sold before the next scheduled receipt.
  • ATP for period 1                     = on hand – customer orders due before next MPS receipt
  • ATP for period 2, …                               = MPS receipt – customer orders before next MPS receipt
    • Planning horizon: the amount of time the master schedule extends into the future. This is normally set to cover a minimum of cumulative lead time plus time for lot sizing low-level components and for capacity changes of primary work centre or of key suppliers.
    • Time fence: a policy or guideline established to note various restrictions or changes in operating procedures take place