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Table of Contents

Instructor Guide

© 2016 APICS Confidential and Proprietary

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Session 1—Introduction to Supply Chain Management
Introduction to Manufacturing ........................................................................................ 1-9
Role of Manufacturing................................................................................................................ 1-9
Global Citizenship ....................................................................................................................... 1-11
Manufacturing Business Model................................................................................................. 1-15
Business Environment ............................................................................................................... 1-23
Manufacturing Environment and Process Choices ....................................................... 1-27
Manufacturing Environments .................................................................................................... 1-27
Product Life Cycle and Manufacturing Environments .............................................................. 1-33
Choice of Processes and Layouts.............................................................................................. 1-35
The Manufacturing Supply Chain .................................................................................... 1-45
The Supply Chain Concept ......................................................................................................... 1-45
Views of the Supply Chain.......................................................................................................... 1-47
Supply Chain Organizational Issues .......................................................................................... 1-51
Performance Measures.............................................................................................................. 1-53
Role of Materials Management ................................................................................................. 1-55
Manufacturing Planning and Control ............................................................................. 1-57
Objectives of Manufacturing. ..................................................................................................... 1-57
Priority and Capacity Planning ................................................................................................... 1-57
Manufacturing Planning and Control Hierarchy ....................................................................... 1-59
From MRP TO ERP ............................................................................................................ 1-61
From MRP to ERP ....................................................................................................................... 1-61
From MRP to MRP II ................................................................................................................... 1-61
From MRP II to ERP. ................................................................................................................... 1-63
Impact of New Systems and Philosophies ..................................................................... 1-65

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Session 2—Demand Management

Demand Management Processes ................................................................................... 2-7
Marketing Management ............................................................................................................. 2-7
Customer Relationship Management ........................................................................................ 2-11
Demand Planning ....................................................................................................................... 2-11
Characteristics of Demand .............................................................................................. 2-13
Independent Versus Dependent Demand ................................................................................. 2-13
Sources of Demand .................................................................................................................... 2-13
Demand Patterns and Stability .................................................................................................. 2-15
Forecasting ....................................................................................................................... 2-19
Purposes and Uses of the Forecast ........................................................................................... 2-19
Principles of Forecasting ............................................................................................................ 2-21
Data Collection and Preparation Principles .............................................................................. 2-23
Forecasting Techniques ................................................................................................... 2-25
Qualitative Techniques ............................................................................................................... 2-25
Quantitative Techniques: Extrinsic............................................................................................. 2-25
Quantitative Techniques: Intrinsic ............................................................................................. 2-27
Moving Average Forecast ........................................................................................................... 2-27
Exponential Smoothing............................................................................................................... 2-35
Seasonal Forecast ...................................................................................................................... 2-39
Tracking the Forecast ...................................................................................................... 2-43
Bias .............................................................................................................................................. 2-43
Random Variation (Error) ............................................................................................................ 2-43
Measuring Forecast Error ........................................................................................................... 2-45

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Session 3—Master Planning

Purpose and Scope of Master Planning ......................................................................... 3-7
Priority Planning.......................................................................................................................... 3-7
Planning Horizon and Level of Detail ........................................................................................ 3-7
S&OP and Production Planning ....................................................................................... 3-9
Sales and Operations Planning ................................................................................................. 3-9
Production Planning ................................................................................................................... 3-11
Master Scheduling and Master Production Schedule................................................... 3-37
Purpose ....................................................................................................................................... 3-37
Objectives ................................................................................................................................... 3-37
Inputs .......................................................................................................................................... 3-39
Relationship to the Production Plan.......................................................................................... 3-39
Developing a Master Schedule.................................................................................................. 3-41
Projected Available Balance ...................................................................................................... 3-41
Preliminary MPS ......................................................................................................................... 3-43
Planning Horizon ........................................................................................................................ 3-47
Time Fences and Zones ............................................................................................................. 3-49
Aggregating the Master Schedules ........................................................................................... 3-49
Rough-Cut Capacity Planning .................................................................................................... 3-51
Resolving Differences and Publishing the MPS ....................................................................... 3-51
Master Scheduling and Sales .......................................................................................... 3-53
MPS and Delivery Promises ....................................................................................................... 3-53

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Session 4—Material Requirements Planning (MRP)

Material Requirements Planning Environment ............................................................. 4-7
Nature of Demand ...................................................................................................................... 4-7
Linkages with Other Manufacturing Planning and Control Functions ..................................... 4-7
Objectives of MRP ....................................................................................................................... 4-9
MRP Process Inputs and Outputs .............................................................................................. 4-11
Planning Software ....................................................................................................................... 4-13
Bill of Material .................................................................................................................. 4-15
Introduction ................................................................................................................................. 4-15
Summarized Bill of Material and the Indented Bill ................................................................... 4-15
Single-Level Bill of Material ........................................................................................................ 4-17
Multilevel Bill of Material ............................................................................................................ 4-17
Parent-Component Relationship ................................................................................................ 4-17
Bill of Material: Summary ........................................................................................................... 4-19
Planning Bill................................................................................................................................. 4-23
Where-Used and Pegging Data .................................................................................................. 4-25
Uses of the Bill of Material ......................................................................................................... 4-27
Material Requirements Planning Logic.............................................................. 4-29
Approach to this Section ............................................................................................................ 4-29
MRP Logic Overview.................................................................................................................... 4-29
Lead-Time Offsetting and Exploding .......................................................................................... 4-31
Gross and Net Requirements ..................................................................................................... 4-37
Basic MRP Record ...................................................................................................................... 4-41
Capacity Requirements Planning ............................................................................................... 4-47
Using and Managing the Priority Plan ............................................................................ 4-49
Role of MRP Software ................................................................................................................. 4-49
Order Control ............................................................................................................................... 4-51
Releasing Planned Orders .......................................................................................................... 4-53
Maintaining Priorities and Replanning ...................................................................................... 4-55

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Session 5—Capacity Management and Production Activity Control

Introduction ...................................................................................................................... 5-7
Manufacturing Planning and Control Hierarchy. ..................................................................... 5-7
Transition from MRP to CRP and PAC ...................................................................................... 5-7
Capacity Management .................................................................................................... 5-9
Phases of Capacity Management ............................................................................................. 5-9
Definition of Capacity ................................................................................................................ 5-11
Capacity Planning Process ........................................................................................................ 5-11
Determining Capacity Available ................................................................................................ 5-13
Rated Capacity........................................................................................................................... 5-21
Demonstrated Capacity ............................................................................................................ 5-25
Capacity Requirements Planning ................................................................................... 5-27
Introduction................................................................................................................................ 5-27
Key Inputs .................................................................................................................................. 5-27
CRP Process............................................................................................................................... 5-33
Production Activity Control ............................................................................................. 5-41
Objectives .................................................................................................................................. 5-41
Functions ................................................................................................................................... 5-43
Information Requirements ........................................................................................................ 5-45
Data Requirements ................................................................................................................... 5-47
Scheduling. ....................................................................................................................... 5-49
Introduction................................................................................................................................ 5-49
Scheduling and Loading Techniques ....................................................................................... 5-49
Bottleneck Scheduling .............................................................................................................. 5-53
Implementation ................................................................................................................ 5-55
Shop Order Packet .................................................................................................................... 5-55
Order Release Process .............................................................................................................. 5-55
Control............................................................................................................................... 5-57
Goals, Objectives, and Control Levers ..................................................................................... 5-57
Priority Control ........................................................................................................................... 5-59
Input/Output Control ................................................................................................................. 5-61
Flow Control ............................................................................................................................... 5-67

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Session 6—Aggregate Inventory Management

Introduction to Inventory................................................................................................. 6-7
What is Inventory? .................................................................................................................... 6-7
Aggregate and Item Inventory Management. .......................................................................... 6-9
Aggregate Inventory Management ................................................................................ 6-11
Inventory and the Flow of Materials ........................................................................................ 6-11
Reasons for Carrying Inventory ................................................................................................ 6-13
Functions of Inventory .............................................................................................................. 6-15
Inventory Objectives.................................................................................................................. 6-17
Inventory Costs ................................................................................................................ 6-21
Item Costs ................................................................................................................................. 6-21
Carrying Costs ........................................................................................................................... 6-23
Ordering Costs ........................................................................................................................... 6-25
Stockout Costs .......................................................................................................................... 6-29
Capacity-Related Costs ............................................................................................................. 6-29
Financial Statements and Inventory .............................................................................. 6-33
Balance Sheet and Income Statement Accounts ................................................................... 6-33
Balance Sheet ........................................................................................................................... 6-35
Income Statement .................................................................................................................... 6-37
Aggregate Inventory Management and Financial Statements ............................................... 6-39
Cash Flow Analysis .................................................................................................................... 6-43
Inventory Valuation ................................................................................................................... 6-45
Financial Inventory Performance Measures ........................................................................... 6-47

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Session 7—Item Inventory Management

Order Quantities ............................................................................................................... 7-7
How Much to Order.................................................................................................................... 7-7
Lot-Size Decision Rules ............................................................................................................. 7-9
Economic Order Quantity (EOQ)................................................................................................ 7-13
Economic Order Quantity Formula ........................................................................................... 7-21
Validity of EOQ Assumptions.................................................................................................. 7-25
Independent Demand Ordering Systems ....................................................................... 7-27
Order Point System.................................................................................................................... 7-29
Safety Stock. .............................................................................................................................. 7-35
Determining When the Order Point is Reached....................................................................... 7-43
Periodic Review System ............................................................................................................ 7-47
ABC Inventory Control ..................................................................................................... 7-55
ABC Principles............................................................................................................................ 7-55
ABC Classification...................................................................................................................... 7-57
ABC Process ............................................................................................................................... 7-57
Sample Calculation ................................................................................................................... 7-59
Control Based on ABC Classification ........................................................................................ 7-63
Auditing Inventory Records ............................................................................................. 7-65
Periodic Inventory Audit ............................................................................................................ 7-65
Cycle Counting ........................................................................................................................... 7-67

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Session 8—Purchasing and Physical Distribution

Purchasing ........................................................................................................................ 8-7
Types of Purchased Items ........................................................................................................ 8-7
Purchasing Objectives .............................................................................................................. 8-9
Purchasing Activities and Participants ......................................................................... 8-11
Purchasing Activities ................................................................................................................. 8-11
Physical Distribution........................................................................................................ 8-29
Scope and Value ....................................................................................................................... 8-29
Global Distribution .................................................................................................................... 8-29
Influence of Marketing.............................................................................................................. 8-31
Interface with Production and Finance.................................................................................... 8-33
Other Factors: Distribution Channels .. .................................................................................... 8-37
Scope of Physical Distribution Factors .................................................................................... 8-37
Distribution Inventory ...................................................................................................... 8-39
Purpose of Distribution Inventory ............................................................................................ 8-39
Objectives .................................................................................................................................. 8-41
Distribution Inventory Planning Systems ................................................................................. 8-43
Push System .............................................................................................................................. 8-45
Distribution Requirements Planning (DRP) ............................................................................. 8-45
Transportation .................................................................................................................. 8-49
Introduction ............................................................................................................................... 8-49
Reverse Logistics ...................................................................................................................... 8-55
Basic Transportation Modes .................................................................................................... 8-55
Costs of Moving Goods ............................................................................................................. 8-65
Warehousing .................................................................................................................... 8-71
Purpose of Warehousing .......................................................................................................... 8-71
Warehousing Process and Activities ........................................................................................ 8-71
Stock Location Systems ........................................................................................................... 8-73
Public Versus Private Warehousing ......................................................................................... 8-75

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Session 9—Lean and Quality Systems

Product and Quality Systems .......................................................................................... 9-7
Product and Quality Cycle ......................................................................................................... 9-7
Objectives................................................................................................................................... 9-7
Systems and Methodologies..................................................................................................... 9-9
Principles, Practices, and Tools ................................................................................................ 9-11
Focus on the Customer.................................................................................................... 9-13
Value of a Product to the Customer ......................................................................................... 9-15
Quality Functional Deployment ................................................................................................. 9-15
Lean ................................................................................................................................... 9-17
House of Toyota ......................................................................................................................... 9-17
Why Implement Lean?............................................................................................................... 9-17
Waste ......................................................................................................................................... 9-19
Continuous Flow Production ..................................................................................................... 9-21
Pull Systems............................................................................................................................... 9-21
Work Layouts ............................................................................................................................. 9-23
Process Flexibility ...................................................................................................................... 9-25
Total Productive Maintenance .................................................................................................. 9-27
Process and Continuous Improvement .................................................................................... 9-29
Employee Involvement and Empowerment ............................................................................. 9-31
Lean Tools and Techniques ...................................................................................................... 9-33
Supplier Partnerships. ............................................................................................................... 9-35
Total Quality Management .............................................................................................. 9-37
Product Quality .......................................................................................................................... 9-37
Quality-Related Costs ................................................................................................................ 9-41
Quality Control Tools.................................................................................................................. 9-43
Six Sigma.................................................................................................................................... 9-57
Summary .................................................................................................................................... 9-63

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Session 10—Theory of Constraints

Introduction to Theory of Constraints ............................................................................ 10-7
Philosophy and Basic Principles .............................................................................................. 10-7
Types of Constraints ................................................................................................................. 10-9
Problem-Solving Tools .............................................................................................................. 10-9
General Applications ....................................................................................................... 10-11
VATI Analysis.............................................................................................................................. 10-11
Drum-Buffer-Rope Planning and Scheduling .......................................................................... 10-13
Simplified Drum-Buffer-Rope (S-DBR) ..................................................................................... 10-27
Throughput Accounting............................................................................................................. 10-29
Critical-Chain Method ............................................................................................................... 10-31
Distribution ................................................................................................................................ 10-33

Appendix
Progress Check Answer Sheet. ...................................................................................... A-1
Bibliography ..................................................................................................................... A-2

Index
Index.................................................................................................................................. Index 1

Instructor Guide Version 4.4 x © 2016 APICS