Daily Archives: November 30, 2010

You Cannot Overlook SSDO And Optimize Your Supply Chain

I was taken aback at this recent article in SupplyChainBrain on Supply Chain Optimization in the New Analytics Economy which outlined five analytics-enabled objectives which did not include strategic sourcing decision optimization, which is the next logical step in the sequence. Consider the objectives:

  • Supply Chain Visibility
    Step one is to understand how much the supply chain is costing you.
  • Demand Forecasting and Inventory Optimization
    Step two is to segment the supply chain, forecast demand, and then optimize inventory for each segment.
  • Network Optimization
    Step three is to periodically perform TCO assessments on the different segments of the existing supply chain network to identify the optimal performance configuration.
  • Predictive Asset Maintenance
    Step four is to perform preventative maintenance to minimize downtime and maximize uptime.
  • Spend Analytics
    Step five is to understand how much is being spent on each procurement category and identify those with the most savings opportunities.

The next natural step is:

  • Strategic Sourcing Decision Optimization
    Once the categories with the biggest savings opportunities are identified, it’s time to optimally source them so the overall TCO is minimized and the utilization of the current networks, optimized in step three, is maximized.

How could you possibly stop at step five?

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Is It Really APS If It Uses EOQ?

While I’m not an expert in MPS, I am an expert in optimization, so, needless to say I was taken aback by a statement in this recent TEC bog post on Sorting Through the ERP, Lean MFG, APS, and MES Clutter that quoted experts as saying that ERP and APS systems force companies to make runners in EOQs. Now, while I am quite sure that your average ERP will apply EOQ to production scheduling, even though it’s often dead wrong to do so, I would think that a true APS would not be so foolish.

      For those of you who aren’t manufacturing experts, here’s a brief guide to the terminology:

  • APS: Advanced Planning and Scheduling – a system or methodology designed to plan plant floor operations to maximize throughput and resource utilization
  • EOQ: Economic Order Quantity – the inventory level expected to minimize total inventory holding and ordering costs
  • ERP: Enterprise Resource Planning – a system used to coordinate all planning and production processes
  • Lean MFG: Lean Manufacturing – a production practice that attempts to eliminate all waste from the production process
  • MES: Manufacturing Execution Systems – a set of systems used to control the manufacturing process on the shop floor
  • MPS: Manufacturing Planning Systems – a set of systems used to plan the manufacturing process with the intent of creating a manageable schedule
  • runner: a product that accounts for the majority of manufacturing workload; on average, 6% of products create 50% of the work
  • WIP: Work in Process – refers to all (raw material) inventory that is currently in the production process

Given that so few products account for so much workload, you would think that these systems would recognize that

  • it’s a must that each production run produce enough of a runner product to meet the total demand for the production period, but
  • producing more runner product adds no relevant value unless enough product is produced to cover the next set of orders (as the line would need to be set up again anyway and it takes time to set up and tear down a production line) and
  • EOQ, which is a measure designed for buyers, is not guaranteed to produce a number anywhere close to an appropriate value, even when order costs are replaced with production-line set-up costs.

As the article states, runners must be produced in optimal order quantities, as this is the only way to maximize the amount of time free to produce the remaining 94% of product. Other products can be scheduled based on a modified EOQ, as order quantities in any given period might not be sufficient to guarantee a profitable run otherwise, but runners and other high-volume runs must be treated differently. And if an “APS” system cannot differentiate between the two types of products, and optimize the run for each type appropriately, I’d argue it’s not an APS at all!

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