COORDINATION ISSUES IN SUPPLY CHAIN
• Outbound and Transportation Planning modules (short term distribution planning / deployment, vehicle scheduling),
• Order Fulfilment modules and
• Collaboration and Internet Planning modules.
A Demand Management or Forecasting module is supposed to estimate and determine future demand. The level of detail at which a forecast is made depends on the type of business: it may be on a product level, or it may be on an aggregate level such as a product group. Statistical forecasting methods like univariate forecasting methods or causal methods provide support to the planner in determining forecasts of the future.
Demand Planning is mainly concerned with long term and medium term planning.
The main task of a Supply Network Planning module is to propagate the demand to the factories, make sourcing decisions, generate production proposals (while taking the capacities of the various factories into consideration), and generate distribution plans. Supply Network Planning mainly focuses on a medium term planning horizon and considers the entire supply chain. Due to the complexity of the task and due to the planning horizon, Supply Network Planning usually does its planning in time segments (buckets) using simplified master data (for example, ignoring sequence dependent set-up times). Supply Network Planning may be considered as the main coordination tool in a supply chain planning solution as it considers the entire supply chain and creates an overall production and distribution plan proposal. These planning activities are the first steps in the scheduling process of a supply chain.
After the Supply Network Planning module has produced an allocation of the overall demand to the various factories and has generated a rough cut production plan, the main task of a Production Planning and Scheduling module is to come up with a feasible short term production plan for each one of the factories. Whereas the Supply Network Planning Module considers the entire supply chain, the production planning and scheduling modules focus on the individual factories. Because the objective is to create a feasible and executable production plan, a Production Planning and Scheduling Module does its planning in continuous time on a detailed product level as well as on a resource level using detailed master data as inputs. While production planning focuses mainly on products and lot sizes, the subsequent production scheduling process focuses on resources and operations.
An Outbound and Transportation Planning module is responsible for the distribution/replenishment in the short term period. It updates the proposed distribution plan generated by the Supply Network Planning module using actual production and inventory figures. In case of shortages
or excess production, decisions have to be made on how to split the available quantities between the different customers and locations. The result of the Outbound Planning is a short term distribution plan that is fixed for subsequent medium term planning runs. The transportation planning process generates shipping orders between the locations based on the established distribution plan and/or on different objectives and constraints such as the cost of different carriers, full truck loads or delivery windows at the different locations.
The main task of an Order Fulfillment module is to set a date and a quantity for the customer during the sales order entry. The confirmation of the sales order is based on the check for available quantities (usually referred to as an ATP check, where ATP stands for Available-to-Promise). An ATP check can, for example, verify the amount of available stock (i.e., stock that is free to use and not reserved for any other customer) and if the available stock is higher than the sales order from the customer, it can confirm the sales order to the customer. If there is no stock available, the ATP check could look at the planned production and verify when the desired product will become available. The final production date can then be confirmed to the customer.
Customers
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Suppliers
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Figure 8-1. Supply chain structure
A Collaboration and Internet Planning module may be used in various different planning areas. They are used in VMI (Vendor Managed Inventory) for outbound sales and SMI (Supplier Managed Inventory) for inbound procurement scenarios as well as collaboration in the forecast calculation (Seifert, 2002; Chopra and Meindl, 2003).
The configuration of a supply chain may depend on the type of industry, the value of the products, and of course the type of company. Figure 8-1 shows a generic supply chain with two levels of production (i.e. the assembly groups are produced in a different plant than the finished products), alternative suppliers including subcontractors and two levels of distribution centers to be able to optimize the physical distribution and react quickly to changes in market demand.
Some customers - usually those with a very high and regular demand - are supplied in a collaborative manner (Vendor Managed Inventories or VMI, with the vendor being responsible for the inventory at the customers' site) based on his gross demand information. This kind of collaboration is getting more and more popular and may also apply in a company to the purchasing processes (Supplier Managed Inventories or SMI).
Typically, the consumer product industries, the chemical industries, and the pharma industries come closest to such a 'full blown' supply chain.
Manufacturing industries on the other hand often have supply chains that are centered around main production sites with the distribution processes being of lesser importance. In what follows we assume a full blown supply chain and focus on the problem of coordinating two different planning processes:
Supply network planning with the focus of covering the demands throughout the entire supply chain and while taking into account the conflicting targets of service levels and inventory costs on the one hand and of production planning and scheduling which focuses on an optimal performance (i.e., high resource utilization, high output and low set-up costs) on the other hand.
In Section 2 we describe the supply network planning process in detail, while in Section 3 we focus on the short term production planning and scheduling processes. In Section 4 we discuss the general issues and problems that are of importance in the coordination of network planning, production planning and production scheduling. Section 5 describes how different companies are coordinating and scheduling the supply chains over medium term and short term planning horizons. Section 6 describes a real- live supply chain planning implementation focusing on the coordination and scheduling of the medium and short term planning. Section 7 provides a summary of the paper.