Managing Business Processes: Demand Management Cheng Li, Ph.D. California State University, Los Angeles July 2000

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Review Assumptions Convert assumptions into numbers Sales Plan by Product Family Sales Plan by Item Proactive Sales Plans Measure Actuals against Plans SALES PLANNING PROCESS

Forecasting Forecasting Techniques: –based on history –based on causal relationships –based on people’s opinions

Strategies for Managing Demand Partitioning Demand Offering Price Incentives Promoting Off-Peak Demand Developing Complementary Services Use Reservation Systems and Handling Overbooking Problem

Managing Business Processes: Capacity Management

Capacity Planning Strategies Level Strategy Chase Strategy Mixed Strategy

Workforce Scheduling Capacity of i  Requirement of i –What is the requirement when there is uncertainty? –What is the basic time window? Capacity constraints –availability constraints –work schedule constraints

Workforce Scheduling Solution Techniques –queuing theory –linear programming –spreadsheet

Linear Programming Minimize: Total Cost Subject to: Capacity availability Work schedule constraints Capacity requirements etc.

Issues in Scheduling Overlapping shift schedules Part-time workers Days-off schedules

Inventory Management What is inventory? –delay in work flow Why keep inventory? –Reduce ordering cost –Deal with demand uncertainty –Deal with uncertainty in the work process –etc.

Input/Output Analysis Change in inventory = Input - Output Average throughput time is proportional to the level of inventory.

Input flow of materials Inventory level Scrap flow Output flow of materials Flow and Inventory Figure 11.1

MRP A general framework for MRP Inputs: Bill of Materials, Inventory Files and Master Production Schedule MRP Processing

A General Framework of MRP Aggregate Plan Master Production Schedule MRP Capacity Requirements Planning Production Scheduling

Master Production Schedule

Bill of Materials C (1) Seat subassembly H (1) Seat frame I (1) Seat cushion J (4) Seat-frame boards Figure 15.10

Inventory Files On-Hand Open Orders Lead Times Vendor Information Quality records, etc.

MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Figure 15.11

Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week Usage quantity: 1 MRP Explosion Figure 15.11

Issues in MRP Two basic concepts: –Net requirements –Lead time offset Lot size Safety stock/Safety lead time Inventory records Validity of the schedules

JIT and Inventory Management Inventory as delay in work flow Why inventory? –Dealing with fluctuations in demand –Dealing with uncertainty –Reducing transaction costs –Taking advantage of quantity discount –Hedging against inflation, etc.

JIT and Inventory Management Inventory costs: –Holding cost –Long response time –Low flexibility –Slow feedback in the system

JIT and Inventory Management The objective of JIT: –General: reduce waste –Specific: avoid making or delivering parts before they are needed Strategy: –very short time window –mixed models –very small lot sizes.

JIT and Inventory Management Prerequisites: –Reduce set up time drastically –Keep a very smooth production process Core Components: –Demand driven scheduling: the Kanban system –Elimination of buffer stock

JIT and Inventory Management Core Components: (cont.) –Process Design: Setup time reduction Manufacturing cells Limited work in process –Quality Improvement