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Planning and Scheduling Improves Customer Service
Charles
J. Murgiano, CPIM, Waterloo Manufacturing Software Introduction
In today’s highly competitive environment,
product manufacturing companies are continually looking for an edge.
One way to gain an edge is to outsource production to vendors.
Developing outsourcing relationships can give the company technology,
cost, quality and delivery advantages it might otherwise not have.
These relationships can begin early in the life cycle of the outsourced
product or component and take on different characteristics as the product
matures. This paper focuses on one key area in the
outsourcing relationship, delivery.
This paper proposes the method of advanced
finite capacity planning and scheduling for handling the delivery problem.
The method explicitly considers the limited capacity of a company and
its vendors and also the demands placed upon that capacity. The paper
discusses:
Advanced finite capacity planning and scheduling
can model available capacity and order demands.
Its what-if features show the impact of dynamic changes and proposed
actions on delivery. Its
visibility features provide insight so that the best management actions
are taken to improve delivery and company-vendor relationships. Why
outsource?
Companies outsource, purely and simply, because
it makes them more successful. Successful
companies develop and manage business relationships with vendors, which
over certain time periods can perform some aspect of manufacturing better
than they can. There are
two trends in today’s climate influencing companies to increase their
level of outsourcing.
Companies tend to outsource more in the face
of stiff competition to gain an edge on their rivals.
If outsourcing can benefit a company, chances are it can benefit
its competitors. If a competitor
can outsource sooner and more effectively than other firms in its industry,
it stands to significantly improve its profitability and market share. Current technology and management techniques
have increased the frequency of outsourcing because they make it easier
to execute and increase the odds of its success.
For example, techniques such as JIT and vendor participation in
concurrent engineering have helped companies understand the mutual responsibilities
and potential benefits of closer company-vendor partnerships.
Programs such as Total Quality Management and Statistical Process
Control have helped companies manage the quality issues that are one of
the keys in company-vendor relationships.
Technologies such as Electronic Data Interchange have helped vendors
and companies better communicate.
Other new technologies, such as finite capacity management discussed
later in this paper, draw vendors and companies closer together and make
outsourcing even more widespread. How
do companies choose vendors?
A company chooses to outsource because it
can get a competitive advantage through improving its technology, cost,
quality or delivery. The
company chooses to outsource to a particular vendor, because that vendor
can do better than it in at least one of these four key areas.
However, the vendor’s advantage in one of the key areas is meaningless
if it doesn’t perform at least at market levels in the other areas.
The company should continuously monitor the vendor and take action
if it slips in technology, cost, quality or delivery. The ultimate and final corrective action is for the company
to take its business elsewhere. The
role of product life cycle
The task of managing vendors is complicated
by the evolution of a product throughout its life cycle.
This evolution can have an impact on which vendors are chosen and
managed. For instance, early in a product’s life cycle,
production volumes are typically low.
Many adjustments are usually made to get the product in a form
that will gain widespread market acceptance.
In the early stages, the company needs vendors who can help with
technology and who have the flexibility to react to numerous engineering
changes while still meeting quality and delivery commitments.
Vendors who specialize in job shop style production might make
the best partners for the company early in a product’s life cycle. As a product matures, typically technological
problems are worked out. The
product then gains market acceptance and production volumes rise.
At this stage, the company needs vendors who can provide competitive
lead-times and meet their delivery commitments. These vendors also need to deliver the product at low cost
and with consistently high quality.
Vendors who produce in a repetitive mode might make the best partners
for the company later in the product’s life cycle. Where’s
the company-vendor risk?
The risk in any outsourcing relationship is
that a vendor will hurt a company through poor technology, cost, quality
or delivery, before problems are fixed or before the company can re-source
the business. Of the four key variables, cost is the easiest
to manage and is usually handled contractually.
The vendor usually eats cost overruns until the contract is renegotiated.
The time frames are such that the company usually has sufficient
chance to react to cost problems. Vendor technology, quality and delivery problems
are much harder to deal with. They
can crop up on a daily basis and can severely disrupt the company’s business.
The only way to deal with such problems is proactively.
Only vendors who are capable of meeting company requirements should
be chosen. Procedures and management mechanisms must
be put in place to ensure that as business conditions change, including
changes brought about by changes in the product’s life cycle, vendors
can still meet their commitments. In the area of technology and quality, much
has already been done. Vendor’s
design and production processes are certified to ensure that they are
capable of producing product that conforms to company requirements.
Procedures such as concurrent engineering and statistical process
control help monitor design and production processes to make sure that
they remain in control over time. In the author’s opinion, much work remains
to be done in the area of delivery.
Strides have been made through JIT, which has enhanced expectations
that vendors should provide competitive lead times and then deliver on
time. Supplier certification programs have also helped companies
understand, at least initially, their vendor’s capacity.
However, companies are still plagued by long vendor lead-time and
on-time delivery problems. In addition, these problems seem to crop up at a moments notice
and can have a ripple affect on a company’s own on-time delivery and lead-time. Why
is delivery a problem?
Delivery will always be a problem because
change always occurs, sometimes very rapidly, in a manufacturing environment.
A vendor that has sufficient capacity today to meet a company’s
needs may not have sufficient capacity a few weeks from now.
These changes occur both in the availability of capacity and in
the production requirements that consume capacity.
Capacity varies based on factors such as machine
breakdowns, labor availability, material availability and quality problems.
While much can be done to reduce the variability in manufacturing
processes, to some degree, these problems will always be with us. Production requirements vary due to changes
in both order quantity and order mix.
A vendor may have adequate capacity early in a product’s life cycle
but insufficient capacity as volumes increase over time.
In the short term, a vendor may receive a new order or have delivery
requirements suddenly moved up.
A vendor may see its mix of orders change from those that require
little capacity in an area of the plant where capacity is tight, to those
that require large amounts of scarce capacity resources.
Changes in company requirements are something
over which most vendors have little control.
Consequently, all organizations must learn to effectively manage
the impact of changing conditions on delivery.
Effective management of delivery is crucial
both for vendors looking to keep their delivery at acceptable levels,
and for companies looking to ensure that vendors are able to meet lead-time
and on time delivery requirements.
The first step in managing the delivery problem is in understanding
it. Understanding
delivery
Understanding delivery requires understanding
available capacity and the loads placed upon that capacity.
Key to this process is in understanding that capacity is limited
or finite. If production
requirements are accepted that exceeds available capacity, delivery will
be pushed out in time. Understanding available capacity is a relatively
simple task. It involves
understanding when resources are available to add value to product and
how much of the resource’s time each product requires.
Specifically, the time periods (shop calendars and shifts) when
production capacity is available should be understood. Understanding the loads placed upon capacity
requires knowledge of current and projected orders.
It also requires understanding the paths that individual products
or product types take through a plant (routings), and how much time on
production resources these products consume at each operation step (operation
standards). Managing
delivery
Managing delivery requires an understanding
of the dynamics of the organization and its business.
This situation is described in the diagram below. The diagram depicts the three broad divisions
within the organization, management, engineering, and operations, which
influence delivery. It also
depicts orders entering into and out of the organization.
Finally, it shows the changes and constraints that affect delivery
within the organization over time. The operations group takes in orders.
In the short term, it has the responsibility of judiciously managing
existing capacity so that delivery requirements are met.
To perform this task, the operations group must develop good production
schedules. This type of scheduling
involves determining the sequence or priority that orders will start running,
the dates that production will commence, and the quantities to produce. The operations group is also responsible for
managing around the problems that can rob the operation of its available
capacity. These problems include new orders, order changes, material shortages,
breakdowns, labor problems, vendor problems, and quality problems. Three factors or constraints influence how the operations group
performs its function and ultimately meets or misses delivery requirements.
Visibility is the key
The key to better managing delivery is visibility.
Changing conditions require that the plans of management, engineering
and operations be constantly modified.
Every modification and accompanying action has a cost and a result.
Unfortunately, costs are not always as small as anticipated and
results are not always as good as desired.
Increased visibility helps companies predict, with greater certainty,
the costs and results of their actions, thus ensuring that the best decisions
are made. In today’s complex and dynamic manufacturing
plants, this visibility is almost impossible to obtain manually.
For instance, no company or vendor has the time to manually calculate
the amount of capacity for production requirement and the effect on delivery
of multiple requirements competing for limited capacity. No company or vendor has the time to factor in all unforeseen
events affecting available capacity or to consider multiple alternatives
to improve delivery. Advanced
planning and scheduling provides visibility
The solution to the visibility dilemma is
to harness the computer’s power to do multiple calculations quickly and
to show results in easily understandable formats.
There are now commercially available advanced finite capacity planning
and scheduling systems that let companies and vendors see the impact of
planning and scheduling decisions made today on their plants tomorrow. Advanced finite capacity planning and scheduling
starts with a detailed model of a manufacturing plant.
The model includes resources, routings and standards, and production
requirements, and it explicitly considers the limited capacity and material
of the plant on an operation-by-operation basis.
If capacity is unavailable to perform a particular operation, that
operation is pushed out in time and the resulting violations shown.
Therefore, both the impact of capacity constraints on a company’s
requirements and the inability of a vendor to meet delivery dates become
clear. In addition, advanced
finite capacity planning and scheduling is used to perform what-if’s,
which show the ramifications of proposed actions to generate more capacity
or to better manage existing capacity under changing business and market
conditions. Advanced
planning and scheduling provides benefits
Because advanced planning and scheduling can
show the impact of changes in capacity and requirements on delivery, the
various groups within the organization, and also companies and vendors,
can use it to see the impact of proposed actions. Advanced planning and scheduling provides
the management group a way to judge the impact of changing market conditions
on delivery, a method for seeing the impact of changing soft policy constraints,
and a method to evaluate the impact of hard policy constraints.
Management can use it to help answer the following types of questions:
Advanced planning and scheduling provides
the engineering group a way to test the impact of changes in hard policy
constraints on delivery. Engineering
can use it to help answer the following types of questions:
Advanced planning and scheduling provides
the operations group a way to manage the company’s resources in the short
term to meet delivery requirements.
The operations group can use it to help answer the following types
of questions:
Advanced planning and scheduling provides
companies a way to manage vendor deliveries.
Companies can use it to help answer the following types of questions:
Summary
Delivery is one of the most crucial aspects
of the company-vendor relationship.
The first step toward managing company-vendor delivery is in understanding
how available capacity and order requirements are influenced within the
organization. Once the impact of capacity and orders on
company-vendor delivery is understood, it can be modeled with advanced
planning and scheduling technology.
The technology can show the impact of changes on delivery and can
be a very valuable tool in managing and improving outsourced delivery.
Readers are urged to learn specifically how the technology can
be applied and can be of benefit to their organizations. About
the author
Charles J. Murgiano is a principal with Waterloo
Manufacturing Software. He
has had more than ten years experience helping clients apply manufacturing
decision support software. Mr.
Murgiano received his MBA, Masters in Engineering in Operations Research
and BS in Mechanical Engineering from Cornell University.
He is active in the American Production and Inventory Control Society
and is certified in production and inventory management by this organization. About
the paper
This
SME Technical Paper, MS92-349, was presented at the AUTOFACT Conference. It is being provided with compliments from Waterloo Manufacturing
Software. © Society of Manufacturing Engineers, All Rights Reserved. |
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