1. Managing Business Processes: Demand Management Cheng Li, Ph.D. California State University, Los Angeles January 2002

2. 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

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

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

5. Managing Business Processes: Capacity Management

6. Capacity Planning Strategies Level Strategy Chase Strategy Mixed Strategy

7. 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

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

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

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

11. 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.

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

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

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

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

16. Master Production Schedule

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

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

19. MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 1 230 117 23 120 45 150 6 120 78 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 117 117 0000 000 0000 227 77187 230 Figure 15.11

20. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 123 120 45 150 6 120 78 Planned receipts Planned order releases Week 0000 230 Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 0 1 0 23 0 45678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week 230 0 000 300000 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 0 1 0 23 0 45678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week 230 0 000 0000 Usage quantity: 1 MRP Explosion Figure 15.11

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

22. 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.

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

24. 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.

25. 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

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