Protectionism and Trade Barriers
As the US and China impose reciprocating tariffs on select items traded between the two countries, businesses try to predict the net impact on their global supply chains. As this rolls out, third countries are watching for opportunities arising from the ensuing conflict, as they might find price margins on non-affected routes or origins.
If extended, such trade conflicts, can potentially have negative impact on environmental policies, as push for short term gains and protectionism take precedence over global cooperation on environment.
Author: Aftab A. Khan, Executive Director, BRASI
Supply Chain Planning
Supply chain environment comprises the following elements:
Sustainable supply chains thrive on current market opportunities, while continuously enhancing their capabilities for future growth. Today’s professionals have an ever increasing role to learn and implement skills and practices that promote business interest alongside socio-economic considerations, such as growth in wages in relation to growth in corporate profits, corporations’ role towards environment and social needs, and other thoughts and action that lead to a sustainable and equitable growth platform for all to share. We must not leave for our future generations to deal with what can be fixed today.
Supply Chain Planning represents the processes and activities that help assess the current state, determine the desired state, and a course of action (the Plan) to attain the desired state over a specified period of time, defined by certain specifications such as cost and quality. It is important that all concerned parties and stakeholders are involved in developing the plan for it to be realistic and acceptable. The agreed plan as well as any changes and updates should be readily visible to all concerned in order to keep the resources aligned and avoid waste.
Business Research And Service Institute has developed a model for proactive operations planning, called Threshold Planning or TPlan. The objective of TPlan is to facilitate achieving operational goals in line with the strategic objectives through better visibility, on-time decision making and improved resource utilization. TPlan combines selected features from the following topics:
• Use of binomial probabilities in decision making
• Net Present Value (NPV) or Time Value of Money (TVM)
• Lead Times
The steps in the TPlan process are as follows:
1. Identify a future event which requires a decision
2. Identify the lead times associate with each of the inputs
3. From the latest start date, apply the probabilities to determine the Best Case, Worst Case and Most Likely scenarios
4. Use the NPV approach to evaluate the alternate options
5. Apply additional evaluation such as alignment with strategic objectives, social responsibility, customer, environment or other considerations
6. Construct a weightage table
7. Arrive at a potential decision and the time (threshold) when the decision must be finalized – no sooner and no later.
8. Run the model if there are any changes prior to the decision threshold in order to keep the analysis current.
9. Make the decision on the threshold date, authorizing the action plan
Some core concepts and differentiating elements are listed below:
1. Inputs to the supply planning process include the following:
a. Demand information (sales forecast, internal demand, project/development, etc). These are termed as Independent Demand, meaning demand external to the planning process such as Material Requirements Planning)
b. Inventory on hand
c. Target inventory at the end of the plan period
d. Supply capabilities
2. Output of the supply planning process include the following
a. The supply plan, aiming at meeting the demand in the desired fashion, with respect to quality, time and cost. The plan indicates for each period the demand, supply schedule, and ending inventory.
b. Basis and assumptions on which the plan is founded.
c. Scenarios showing the probability of change in the listed assumptions and impact on the plan. Usually, the number of scenarios are limited to two or three, representing a most likely scenario, a worst case and a best case.
3. Sales & Operations Planning process (S&OP) comprises monthly meetings between Sales, Production, Engineering/Product Development, Finance, Quality, and any other concerned function. In this forum, the sales forecast for the rolling 36 months is reviewed, with respect to the inventory and supply capacity, actual sale in tracked and any issues and concerns potentially affecting supply and/or demand is reviewed.
4. Plans and decisions made in the S&OP meetings become binding to all concerned partied and constitute the authorized ‘build plan’ for the respective supply units.
5. S&OP process is owned by the Business Unit (BU) or Commercial Operations, with participation from all the supplying units and outsourcing managers, among others.
6. Master Production Scheduling (MPS) is the process that converts the demand into the net requirement for the finished goods (i.e., gross demand minus inventory on hand), with specific information such as part number, catalogue number, customer item number, etc. which becomes the input for the ensuing Material Requirements Planning, Capacity Requirements Planning and other related processes.
7. Output of the Master Production Scheduling process is the Master Production Schedule, usually with a plan horizon covering the longest lead time of manufacturing or sourcing.
8. The Master Production Schedule is an input to the following processes:
a. Material Requirements Planning
b. Capacity Requirements Planning
c. Production Scheduling
9. Material Requirements Planning (MRP) process converts the net demand for the specific finished goods into its component parts, including chemicals, raw materials, packaging and any MRO’s (Maintenance, Repair and Operating supplies) that would be required to manufacture or source the required quantity of the finished goods. This is done through the Bill Of Materials (BOM) for each finished product, in pretty much the same way as a recipe lists the ingredients to cook a meal. The BOM may include materials required for testing the product, as applicable. The MRP Process consists of the following three steps:
a. Netting: Subtracting inventory from the gross demand in order to obtain the net demand. If the answer is below zero, then there is no net demand until depletion of the inventory.
b. Exploding: Splitting the parent item into the component parts, through the Bill Of Materials.
c. Offsetting: Subtracting the supply lead time (manufacturing or procurement) from the need date in order to determine the date when the process (manufacturing or procurement) should be initiated.
10. Inputs of the MRP process include inventory on hand of each ingredient, dependent demand through Bill Of Materials (requirement for the parent item times the number of components per unit), any independent demand for the component, and the replenishment lead time.
11. Outputs of the MRP processes include the proposals for production orders (for items made in-house) or purchase orders (for purchase items), and the date of issuing the orders advanced by the amount of lead time from the date the material is needed. The output may include exceptions or warnings in case the action to make or buy is behind schedule and needs to be expedited or ahead of schedule and needs to be moved out.
12. Order proposals generated by the MRP run do not generate purchase orders or manufacturing orders, unless authorized by a person upon review of the proposal. However, these may generate delivery orders as a part of the Vendor Managed Inventory system.
13. Parameters for the planning run include the following:
a. Lot size: This is based on the economic order quantity for a production run or a purchasing, and may be influenced by packaging or transportation considerations.
b. Lead Time: The time from initiating the production order or purchase order until the material is available for use. Components of lead time are as follows:
i. Manufacturing Lead Time: Queue (waiting for the production resource to become available), Set-Up, Run (processing time per unit multiplied by the number of units in the batch), Wait (for pick-up), Transport to the next process or storage.
ii. Procurement Lead Time: Order communication and confirmation, Vendor manufacturing lead time (includes scheduling time based on capacity for Make To Order items, or order picking if supplying from inventory, for Make To Stock items), Transit Time including customs clearance, Receipt and Inspection/ Release for use.
c. Safety Stock: Safety stock is the minimum amount of inventory that must be maintained at all times, in order to avoid stock-out in case of a delay in replenishment or unforeseen increase in demand. Projected inventory levels for future periods include safety stock.
d. Reorder Point: When inventory drops to Re-order point, the next supply order is generated. The reorder point is determined such that it is sufficient to meet the demand until next replenishment. i.e., supply lead time in days multiplied by average demand per day, including cushion in order to absorb variability in supply and/or demand.
14. Cycle Time: It is the length of time from the initiation of a process to its completion and can be applied to any business process, including manufacturing. The term ‘cycle’ refers to the repetitive nature of most processes. Applying statistical measures, the average cycle time and the variability can be determined in order to predict future service level.
15. Most consumer goods are made to stock, against a predetermined inventory target, and shipped from inventory when a customer order is received. Some products, especially with a wide variety of options, are manufactured to a pre-finished stage and assembled or finished to the order specification. These products may range from lose-stitched suiting and wedding dresses to customized vehicles and menu at a fast food restaurant.
16. Capacity Requirements Planning (CRP) process matches the work load from each product to the machine and staffing capacity, in order to determine the plan feasibility. The capacity planning exercise may be conducted at two levels or stages:
a. Rough Cut Capacity Planning (RCCP) with aggregate demand matched to the historical or demonstrated capacity, in order to make sure that there are no significant imbalances.
b. Secondly a Capacity Requirements Planning (CRP) is conducted specific to items and resources, which becomes the blueprint for production scheduling.
17. Input of the capacity requirement planning process include capacity profile (machines and staffing), holidays and maintenance schedules (shop calendar), strategies for increasing or reducing capacities, machine specs for certain capabilities, etc.
18. Output of the CRP process includes the load profile, showing load imbalances and the opportunities to balance the load where possible by phasing-in or phasing-out the work (scheduling), adding or removing shifts/overtime, etc.
19. Once the overall plan is reviewed by all concerned, it is published for implementation and maintained to keep it current as and when any changes take place. However, since changes in the short-term are usually disruptive and may increase cost, it is agreed not to make any changes within a given period of time, for the sake of schedule stability and operational efficiency.
20. The time horizon of the Master Production Schedule spans the longest lead time for manufacturing or sourcing, whereas the time horizon for execution depends on the ability to change set-ups and components availability without disruption or additional cost.
21. Planning process occurs in all areas of business. Some processes are closer to the company’s supply chain than others. However, directly or indirectly they support the core purpose of the business, i.e., serving the current and future market needs.
22. Distribution Requirements Planning (DRP) is the converse of the MRP process, in that it converges demand from various distribution center and customers into a central demand for the supplying plant(s), instead of exploding the finished goods into component parts through the MRP process.
23. Manufacturing Resource Planning (MRPII) was the first extension of the traditional MRP system, by including Capacity and other direct resources such as Quality, to make sure that the plan can be supported and is available.
24. Advancement in information technology make it easier to extend the planning beyond the immediate manufacturing environment, giving birth to Enterprise Resource Planning (ERP), which encompasses all processes related to the production, storage, quality control and delivery of the product or service. Today, there are many ERP software are in use, making it possible to manage operations in real time and provide information for decision making.
25. Since capacity is finite, here may be occasions when demand exceeds capacity in a given period of time. Priority Planning is a process which helps utilize resources to the maximum benefit.
26. Planning horizons may be sub-divided into smaller units for finite scheduling and tracking. These sub-divisions are called ‘time buckets’ and are proportionate to the overall planning horizon, for example:
a. Long Range Business Planning: 4 to 10 years, time buckets = years and quarters.
b. Sales and Operations Planning: 3 years, time buckets = months
c. Master Production Schedule: 12 months, time buckets = Weeks
d. Shop Floor Execution Plan: Two to three Weeks, time buckets = Days, Shifts and Hours.
27. The planning process serves as a means to deliver value to the customer, as promised in the company’s marketing or promotion campaign.
28. Value may be defined as the set of product features compared to the price. More features at a low price represent greater value for the customer.
29. Strategic planning is the vehicle by which a company implements product differentiation and delivers superior value.
30. Since strategy is all about how a product is differentiated to gain customer preference, planning plays a key role in building the features and benefits in a product through appropriate design, sourcing and manufacturing execution.
31. Every product involves some element of service and every service involves some degree of physical product. For example, a Do-It-Yourself product may include on-line help (service) and a courier service may involve shipping materials. Planning process combines the various aspects of product and service, coordinating the various processes such as Product Development, Sales and Marketing, Finance, Quality Systems, HR and others.
BRASI is pleased to announce that Technology and Management Services (TMS) Bangladesh are its Affiliate for Bangladesh and adjoining countries.
Also, Pakistan Institute of Management (PIM) is the Authorized Training and Exam Center for BRASI programs.
BRASI has launched its Industry Outreach Program in collaboration with Pures College in Toronto, Canada. The objective is to feature outstanding students and CISCOM certificate holders for internship and job placements in the industry.
BRASI is looking for instructors and affiliates to conduct CISOCM program on a franchise basis. Interested parties may kindly contact Sarah Khan, Registrar BRASI, at e-mail address email@example.com
The next CISCOM Online Course will begin on Saturday, July 14, 2018 and end on Saturday, September 15, 2018.
CISCOM Classes are also offered in North York, Ontario, Canada. Please contact firstname.lastname@example.org
Full course calendar is published on BRASI web site www.brasi.org
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