Transcription of “Manufacturing Planning and Control System” by Dr Suri Talluri, PhD
Welcome to Manufacturing, Planning and Control class. I’m Dr. Sri Talluri, faculty in the department of supply chain management at Michigan State University. My research interests are mainly in the areas of purchasing and supply chain management with specific emphasis on supply chain design, supply chain contract, supply chain performance evaluation and process improvement.
I've been at Michigan State University for about 12 years now and taught a variety of courses at the graduate and undergraduate levels in the areas of supply chain management, decision-making, and management science.
Now, this course introduces you to concepts in manufacturing planning and control with specific emphasis on different modules in the areas of manufacturing and broader supply chain context as well.
So if we go through the first set of slides here, I've got a framework for manufacturing planning and control systems, as you can see here, which contains a variety of modules. And while we are not going to focus on all of these modules, I just wanted to kind of give you a brief introduction to what the course is about and what the important modules are, and then we can actually get into some of the main topics that this course actually emphasizes on.
So first, if we look at this framework here on the top right-hand corner, we've got the demand management module, which basically deals with forecasting, which is one of the things that we are going to focus in this lecture.
So demand management is how to understand the market; that is, how to understand the demand for your product or service based on using some tools and techniques for both long-term and short-term demand management.
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So we focus on long-term forecasting models, which are going to be used as inputs for long-term planning, which is if a company wants to expand its capacity in terms of building new plants or, you know, in terms of, you know, expanding an existing plant so that they can increase capacity to be able to effectively meet the demand of the product in the long run.
So this has more to do with planning for the next five to 10 years or so. But we also do planning in medium-term or short-term, which basically use tools and techniques for short- to medium-range forecasting methods. And we focus on a different type of models there which look at short- to medium-range forecasting that is going to have a direct impact on production planning type of decisions, which has basically to do with once you estimate or predict the demand for the product or service, then we take that as an input into production planning, which is another topic that we’re going to discuss in this course.
And in production planning, what you basically do is to be able to take this demand and figure out what is the optimal way we can actually satisfy this demand.
So we may have a variety of options, such as, you know, how much to produce in regular-time production; how much to produce using overtime option, how much to subcontract, do we want to use backorders; how much of inventory do we want to carry in each of the different time periods so that maybe produce more than what is needed in time periods where the demand is less and then carry that for extra time periods so that we can satisfy the demand for the product during the peak period.
So these are all different options that a production manager can actually use to be able to effectively satisfy the demand for the product. So production planning basically does that for us, and we look at some tools and techniques that will help us come up with methods of figuring out how much of each of these options to use so that we are able to fulfill the demand in a low-cost manner, which is basically cost optimization.
And once we go through production planning decisions, then we – the next step is to get into production scheduling, which is basically to build a schedule for the product.
And I also want to kind of, you know, emphasize that when we do production planning, we’re not doing production planning for each product separately. So if a company is producing two or three different types of products, then production planning is basically done by converting the demand – that is the forecasted demand – for each of these products into a common unit, which is like you know, labor hours required or machine hours required, you know, things like that.
And we try to do that production planning at an aggregate level because it's just, you know, easier for us to do capacity planning at the aggregate level so that we can offset some of the errors that may occur in the forecasting process.
That is, you may have a product where you’re, you know, over-forecasting, you may have a different product where you’re under-forecasting. So if you combine the demand into an aggregate sense then it's actually, you know, easier for you to forecast the demand without too much of an error in the process because some of those errors that I've just mentioned can be offset.
But production planning takes this, excuse me, the mass production scheduling, takes the input from production planning and then it goes back to the product level, which is basically the bill schedule for each of the different products.
Like, for example: you know, if you're producing TVs, DVD players, then each of those is a separate product and each of those products actually has a different set of bill of materials, which means the product structure that actually goes into the final production and assembly of the product.
So in mass production scheduling, we are taking the aggregate plan and we’re going to disaggregate it to come up with a bill schedule for each of the different end products.
And from mass production scheduling we go into material department planning because as I said, for each of the different products you’re going to have a different bill of material. So the bill of material that is part of the product structure for a TV is going to be very different from a bill of material in a product structure for a DVD player.
So in material requirement planning, which is one of the other topics that we’re going to discuss in this course, we are basically going to take the demand and take the mass production schedule and then explode that into the material planning, which is how much of different, you know, components and subcomponents and parts do you need to be able to produce the end product?
And for that, as you can see from the framework here, the material requirement planning takes into account different inputs. So there's an input from mass production schedule, which is obviously the bill schedule, which is the demand for the end product.
And then there's information from bill of materials because you need to have a product structure and the relationships between the end product and the different components and parts that go into the production of that end product, so that we can go through and mark the explosion process and come up with what are the exact numbers of materials, and you know, components that we need, and when we actually need them to be able to satisfy the demand for the product.
And also another, the third input here, is the inventory status data which you also want to look at how much, you know, what stock levels do you have of these different components and parts that you have currently in the inventory, because that's going to have an impact on how much you're actually going to, you know, order or to produce them, you know, in-house if there's something that is a part of your production, you know, process.
So basically the MRP is taking into account three inputs: the mass production scheduling, the bill of materials, the inventory status data, and then we're coming up with material plans. And this is where we actually do some more detailed capacity planning because we are interested in figuring out, you know, how much of a capacity is needed to be able to satisfy the requirements.
Then the final, or the back end of the system, is when you come up with the material and capacity plans. There’s obviously some components and parts that you produce within your production facility.
That's when we have the shop-floor control tools and there is obviously some materials and components that you may get from external suppliers, so we have to go through the purchasing system and the vendor follow-up systems for that.
So if you're looking at shop-floor control, and I'm not going to emphasize too much on that, you know, in this specific course. We’re going to stay more in the strategic and tactical levels for most of the course topics, but if you're looking at shop-floor control then the different types of tools and techniques that we want to use here are going to be focused on, like, sequencing, how to sequence a specific set of, you know, components or parts for production at the work center and how to schedule work, you know, and things like that.
But if you look at the purchasing, you know, aspects and how to coordinate with your suppliers, how to select your suppliers, and how to, you know, order the right components at the right time. Do we want to take some quantity discounts and things like that? Those are the different things that come up when we deal with the purchasing component.
So this just gives you an overall description of what manufacturing planning control system basically looks like, but in terms of this course, we are going to be focusing on these topics.
First we will look at forecasting models, and as I talked about this, within this area of forecasting I'm going to do a time series forecasting where time is used as the independent variable and demand is used as the dependent variable.
And we are also going to look at causal modeling where, you know, that certain variables are going to impact demand; like if you look at the product price, that's going to have an impact on what the demand for the product or service is going to be. Similarly, advertising expenditure, so that's going to have an impact on what your sales is going to be.
So we are going to look at both the time series forecasting models and we are also going to look at causal models. And within a time series forecasting, we are going to look at static models, where we actually build the model, and based on some historical data, we build the model and then we use the model to be able to predict the demand for future time periods. But we are not going to be revising the model as new data actually comes in.
Whereas if we look at the adaptive models, we build the model and then as new data comes in, we actually revise the model. So these are the different types of things that we’re going to do within the rubric of forecasting models.
And also, one of the things that I'd like to, you know, point out here, is that within forecasting we are also going to focus on incorporating the error terms into the forecasting process.
Because forecasting, as you will see in some of my lectures, is not going to be very accurate because there are so many factors that can affect the demand forecast, so we're going to use some error measures to be able to, you know, incorporate them into the overall forecasting process.
From forecasting we are going to be moving into aggregate planning which again, as I said, we take aggregate planning as a method that that plans for the capacity or plans for the optimal way to satisfy the demand for the product by taking our forecasting as an input.
So here we are going to look at decisions like, you know, how much to produce using regular-time option, how much to produce using, you know, subcontracting, and how much of backorders to use, how much of inventory to hold in different time periods and things of that nature.
So we've got various options, and how does a manager go about using these options in the most effective manner, i.e., to compound the costs to be able to satisfy the demand for the product?
Then we’re going to go into cycle and safety inventory systems, where cycle inventory mainly focuses on methods for managing the inventory that is being replenished on a frequent basis.
This is, you know, something that that you order on a frequent basis, how much should be ordered, when do we have to place the order, you know, and things of that nature.
And again, the models that we do here are going to not only be helpful in a manufacturing setting, but also if a retailer wants to manage their stock, keeping units in a more effective manner, then how do you go about some of these concepts?
So we will discuss some tools there to be able to manage cycle inventories in an effective manner. Then we're actually going to safety inventory, which focuses on situations where companies deal with demand uncertainty and supply uncertainty, so if you do not have any uncertainty then if everything is deterministic then it's pretty easy for us to plan for the system.
But in real life, you know, we have these different types of uncertainties that we have to deal with and that's one of the reasons why we plan for some safety stock. So we look at different types of models and tools to manage safety inventory in an effective manner.
And then we're going to network design, which is a little bit more, you know, I guess not specific to a specific manufacturing facility itself, but you know, it's more of a supply chain kind of a tool where we're looking at designing the broader supply chain and kind of coming up with a different strategy to effectively distribute the product.
And so we are going to look at some transportation models, trans-shipment models network, you know, supply chain network design models where we go from suppliers to plants, plants to warehouses, and warehouses to customer locations.
How do we design these networks in the most effective manner to be able to satisfy the demand for the product?
And then we are, we are going to go through the material requirement planning systems and enterprise resource planning systems, and as I mentioned, when we do the mass production scheduling then we need to go through the explosion process in trying to figure out how much of materials and components do you need in different time periods to be able to satisfy the demand for the end product.
So we’ll go through some of those calculations and then expand those tools, which is the material requirement planning tools, to, you know, the current ERP-type of systems which have better visibility for data across the entire supply chain, and hope we could use the data to do some, or to make some effective decisions in managing supply chain systems.
And finally, I’m going to briefly also talk about just-in-time systems which basically is a tool that is more for the execution. So for planning we can focus on material requirement, planning type of systems, but in the execution process we do have to focus on just-in-time systems so that we can cut down on the inventory levels and cut down waste in the system so that we’ll be able to better meet the requirements of the customer.
So those are the kinds of topics that we’re going to discuss in this course and the next chapter will be, with, you know, will be starting with forecasting.