All Mids Lecs (PSCM)

PRINCIPLES OF SUPPLY CHAIN MANAGEMENT
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

LECTURE-1: Dated 16-09-2023
PRESENTED BY: RAZI HASSAN – Course Facilitator

Head of Supply Chain Operations
Lucky Core Industries Ltd. (formerly ICI Pakistan Ltd)
BACKGROUND
 Wealth of a country = GNP = Output of goods & services produced in a given
time
 Goods = Physical / Tangible Objects ; Services = Performance of some useful

function
 What is the source of wealth? Where does it come from?
 Natural resources includes farmland, forests and mineral deposits
 Transformation is required to use natural resources
 The transformation which converts natural resources in to useful goods is

called as PRODUCTION
 Production = Value Addition

2
DEFINITION
The Supply Chain Council defines Supply Chain Management as:
“ Managing supply and demand, sourcing raw materials and parts,

manufacturing and assembly, warehousing and inventory tracking, order entry
and order management, distribution across all channels and delivery to the
Customer.”
The institute of Supply Management describes supply chain management as:
“ The design and management of seamless, value-added processes across

organizational boundaries to meet the real needs of the end customer. The
development and integration of people and technological resources are critical
to successful supply chain integration.”
According to APICS dictionary, a supply chain is a

“ global network used to deliver products and services from raw materials to
end customer through an engineered flow of information, physical distribution
and cash”.
IMPORTANT FACTORS IN SUPPLY CHAIN
 The supply chain includes all activities and processes to supply a product
or service to the final customer
 Any number of companies can be linked in the supply chain
 A customer can be a supplier to another customer so the total chain can

have a number of supplier/customer relationship
 The distribution system can be direct from supplier to customer

depending on the products and markets, it can contain number of
intermediaries (distributors) such as wholesalers, warehouses and retailers
 Product or services usually flow from supplier to customer and design, and
demand information usually flows from customer to supplier.
A SHORT HISTORICAL PERSPECTIVE

 1950s – 1960s = Mass Production to reduce cost but supplier partnerships,
process design, flexibility and product quality have given less attention
 1960s – 1970s = MRP 1 material requirement plan introduces and

importance to effective materials management has been given followed by
MRP 2; manufacturing resource plan.
 1980s = Computer capabilities grew with advancement in MRP2. JIT and

TQM strategies have been developed to improve quality, manufacturing
efficiency and delivery time.
 1990s = BPR, ERP, EDI have revolutionize the supply chain management
SUPPLY CHAIN MANAGEMENT IN ACTION

PROFIT-LEVERAGE EFFECT
In terms of profits and revenue generation, an efficient supply chain

management / materials management can do miracles.
Example: An income statement for a manufacturing concern might look like:
Case 1
PKR (Rs.) % of Sales
Revenue (Sales) Rs. 1,000,000 100%
Cost of goods sold (COGS)
Direct Material Rs. 500,000 50%
Direct Labor Rs. 200,000 20%
Factory Overhead Rs. 200,000 20%
Total COGS Rs. 900,000 90%
Gross Profit Rs. 100,000 10%
Direct material and direct labor = Varies with quantity sold (or produced)
Overhead cost = Does not vary with sales/revenue directly
Case 2: If through effective supply chain management, cost of direct materials

can be reduced by 10% & direct labor by 5% , the improvement in gross profit
will be 16% (considering overheads as constant in all scenarios):
Cost of goods sold
Overhead Rs. 200,000 20%
Total COGS Rs. 840,000 84%
Increase in profits = 60% (Rs. 60,000)
Case 3: To get the same increase in profits, sales would have to

increase to PKR 1.2 Million.
Cost of goods sold
Overhead Rs. 200,000 17%
Total COGS Rs. 1,040,000 87%
PRODUCTION PLANNING SYSTEMS
 Manufacturing is a complex operation involves variety of

processes, machinery, equipment, skilled labor and materials.
 In order to get maximum profits a firm must organize all these
factors to make right goods at the right time at the top quality
and as economic or cost effective as possible.
A good planning system must answer four questions:

1. What are we going to make?
2. What does it take to make it?
3. What do we have?
4. What do we need?
 Priority relates to what products are needed, how many are

needed and when they needed. Marketplace establishes the
priorities. Priority = Demand
 Capacity is the capability of manufacturing to produce goods &
services. Capacity is the quantity of work that labor and
equipment can perform in a given period.
man/material/machinery and financial resources.
Capacity = Resources
Priority & Capacity Relationship (Demand VS Resources)

MANUFACTURING PLANNING AND CONTROL SYSTEM-MPC

1. Strategic Business Plan
2. Production Plan (Sales & Operations Plan- S & OP)
3. Master Production Schedule – MPS
4. Material Requirement Plan – MRP
5. Purchasing & Production Activity Control
Each level is further categorize with four factors:

a) Purpose of Plan
b) Time Span or Planning Horizon: From now till future as per creation of plan
c) Level of Detail: Detail about products required for plan
d) Planning Cycle: Frequency with which plan is reviewed
MPC
a) Purpose of Plan
At each level, three questions must be answered:

1. What are the priorities;how much of wht is to be produced & when?
2. What is the available capacity—what resources do we have?
3. How can differences between priorities and capacity be resolved?
ASSIGNED READINGS FOR NEXT CLASS:

1. Production Planning Systems
2. Master Production Scheduling
CORE PROJECT FOR ALL: Let’s discuss and decide!

PART 1: INTERNAL SUPPLY CHAIN FRAMEWORK


Lucky Core Industries Ltd.
 Manufacturing is a complex operation involves variety of

processes, machinery, equipment, skilled labor and materials.
 In order to get maximum profits a firm must organize all these
factors to make right goods at the right time at the top quality
and as economic or cost effective as possible.
A good planning system must answer four questions:

1. What are we going to make?
2. What does it take to make it?
3. What do we have?
4. What do we need?
 Priority relates to what products are needed, how many are

needed and when they needed. Marketplace establishes the
priorities. Priority = Demand
 Capacity is the capability of manufacturing to produce goods &
services. Capacity is the quantity of work that labor and
equipment can perform in a given period.
man/material/machinery and financial resources.
Capacity = Resources
Priority & Capacity Relationship (Demand VS Resources)

MANUFACTURING PLANNING AND CONTROL SYSTEM-MPC

1. Strategic Business Plan
2. Production Plan (Sales & Operations Plan- S & OP)
3. Master Production Schedule – MPS
4. Material Requirement Plan – MRP
5. Purchasing & Production Activity Control

a) Purpose of Plan
MPC
At each level, three questions must be answered:
1. What are the priorities? How much of what is to be produced

& when?
2. What is the available capacity? What resources do we have?
3. How can differences between priorities and capacity be

resolved?
MPC
1. STRATEGIC BUSINESS PLAN
1a) Purpose: The strategic business plan is a statement of the
major goals and objectives the company
1b) Time Span: Next 2-10 years or may be more
1c) Level of Detail: It is a statement of the broad direction of the

firm and shows the kind of business—product lines, markets
and so on—the firm wants to do in the future. Gives general
directions to achieve long range goals. Level of detail is
therefore not high.
1d) Planning Cycle: Strategic business plans are usually reviewed

every six months to a year.
MPC
1. STRATEGIC BUSINESS PLAN IN ACTION
MPC
2. PRODUCTION PLAN
2a) Purpose:
The quantities of each product group that must be produced in
each period.
The desired inventory levels.
The resources of equipment, labor, and material needed in each
period.
The availability of the resources needed.
2b) Time Span: 3-12 months
2c) Level of Detail: Level of detail is higher than strategic business
plan comprises of product groups or families.
2d) Planning Cycle: Every month
MPC
3. MASTER PRODUCTION SCHEDULE - MPS
3a) Purpose:
The master production schedule (MPS) is a plan for the production
of individual end items.
It breaks down the production plan to show, for each period, the
quantity of each end item to be made.
3b) Time Span: 1-month
3c) Level of Detail: Level of detail is higher than production plan.
3d) Planning Cycle: Weekly to fortnightly

MPC
4. MATERIALS REQUIREMENT PLAN - MRP
4a) Purpose:
The material requirements plan (MRP) is a plan for the production
and purchase of the components used in making the items in the
master production schedule.
It shows the quantities needed and when manufacturing intends
to make or use them. (Links with BOM/Mater Formulations)
4b) Time Span: 3-12 months
4c) Level of Detail: Level of detail is high as it contains component-
level details of products extracted from their master
formulations.
4d) Planning Cycle: Monthly
MPC
4. PURCHASING AND PRODUCTION ACTIVITY CONTROL-PAC
4a) Purpose:
Purchasing and production activity control (PAC) represent the
implementation and control phase of the production planning and
control system. (PAC in general means Production Operation). Purchase
plan is extracted from MRP which in turns bring goods to company .
These goods/materials further transformed in to final product through
production operation/PAC.
4b) Time Span: V short – from a day to month
4c) Level of Detail: The level of detail is high since it is concerned with
individual components, workstations, and orders.
4d) Planning Cycle: Plans are reviewed and might be revised daily.
MPC
Relationship among the various planning tools, planning
horizons, and level of detail.
CAPACITY MANAGEMENT
 At each level in the manufacturing planning and control system,
the priority plan must be tested against the available resources
and capacity of the manufacturing system.
 Short term capacity management may involve headcounts
enhancement to some extent, changing no of shifts &overtime.
Long term CM involves purchasing of plant, equipments ,
machineries and subcontracting etc.
 If the capacity cannot be made available when needed, then the
plans must be changed.
 Determining the capacity required, comparing it to available
capacity, and making adjustments (or changing plans) must occur
at all levels of the manufacturing planning and control system.
SALES AND OPERATIONS PLANNING – S&OP

 Sales and operations planning (S&OP) is a process for continually
revising the strategic business plan and coordinating plans of the
various departments. SOP is a cross-functional business plan
that involves sales and marketing, product development,
operations, and senior management.
 Although operations represents supply-side and marketing

represents demand-side. The SOP is the forum in which the
production plan is developed with consensus of supply-side &
demand-side individuals.
MANUFACTURNG/ENTERPRISE RESOURSE PLANNING
NEXT TOPIC: Production Planning Strategies & Few Basic

Calculations + MPS
PRODUCTION PLANNING & INVENTORY
MANAGEMENT
PRODUCTION PLANNING SYSTEMS & MASTER SCHEDULING


MAKING THE PRODUCTION PLAN

 Based on the market plan and available resources, the production
plan sets the limits or levels of manufacturing activity for some
time in the future.
 It integrates the capabilities and capacity of the factory with the
market and financial plans to achieve the overall business goals of
the company.
 The production plan sets the general levels of production and
inventories over the planning horizon.
 Its prime purpose is to establish production rates that will
accomplish the objectives of the strategic business plan.
 These include inventory levels, backlogs (unfilled customer orders),
market demand, customer service, low-cost plant operation, labor
relations, and so on.
ESTABLISHING PRODUCT GROUPS
 Firms that make a single product, or products that are similar,

can measure their output directly by the number of units they
produce.
 Many companies, however, make several different products, and

a common denominator for measuring total output may be
difficult or impossible to find.
 Product groups need to be established based on the similarity of

manufacturing processes from operations-side.
 At the production planning level, where little detail is needed,

identifying product groups, or families, of individual products
based on the similarity of manufacturing process… is a basic
requirement!
BASIC PRODUCTION STRATEGIES
Pre-requisites of Production Strategy

 A time horizon of 12 months is used, with periodic updating perhaps
every month or quarter.
 Production demand consists of one or a few product families or

common units.
 Demand is fluctuating or seasonal.
 Plant and equipment are fixed within the time horizon.
 A variety of management objectives are set, such as low inventories,

efficient plant operation, good customer service & labor relations.
There are three basic strategies that can be used in developing a
production plan:
1. Chase strategy
2. Production leveling
3. Subcontracting
Demand matching strategy curve

1. CHASE STRATEGY:
 Chase strategy means producing the amounts demanded at any

given time. (also known as demand matching strategy).
 Inventory levels remain stable while production varies to meet

demand (peak seasons to cater accordingly)
 Keeping minimum inventories at a given point in time with least

cost associated with it is the core advantage. (JIT/ make to order)
 Examples are Farmers, Restaurants, Industrial manufacturing.

2. PRODUCTION LEVELING STRATEGY:
 Production leveling is continually producing an amount equal to

the average demand.
2. PRODUCTION LEVELING STRATEGY Continues:
 The advantage of a production leveling strategy is that it results

in a smooth level of operation that avoids the costs of changing
production levels.
 Firms do not need to have excess capacity to meet peak

demand.
 They do not need to hire and train workers and lay them off in
slack periods. They can build a stable workforce.
2. PRODUCTION LEVELING STRATEGY Continues:
 The disadvantage is that inventory will build up in low-demand

periods.
 This inventory will cost money to carry. (make to stock )
Total Production = total forecast + back orders+ ending inventory -

opening inventory
 A typical manufacturing industry normally follows this strategy

for its production operations.
3. SUBCONTRACTING:
 As a pure strategy subcontracting means, always producing at the

level of minimum demand and meeting any additional demand
through subcontracting.
3. SUBCONTRACTING Continues:
 Subcontracting can mean buying the extra amounts demanded or

turning away extra demand. The latter can be done by increasing
prices when demand is high or by extending lead times.
 The major advantage of this strategy is cost. Costs associated with

excess capacity are avoided, and because production is leveled,
there are no costs associated with changing production levels.
 The main disadvantage is that the cost of purchasing (item cost,

purchasing, transportation, and inspection costs) may be greater
than if the item were made in the plant.
4. HYBRID STRATEGY:
 An effective mix of basic three production strategies as per

market requirement.
 Production management is responsible for finding the

combination of strategies that minimizes the sum of all costs
involved, providing the level of service required, and meeting
the objectives of the financial and marketing plans.
____________________
MASTER PRODUCTION SCHEDULING - MPS
After production planning, the next step in the manufacturing

planning and control process (MPC) is to prepare a master
production schedule (MPS).
• It forms the link between production planning and what
manufacturing will actually build.
• It forms the basis for calculating the capacity and resources

needed.
• The MPS drives the material requirements plan. As a schedule of

items to be built, the MPS and bills of material determine what
components are needed from manufacturing and purchasing.
• It keeps priorities valid. The MPS is a priority plan for

manufacturing.
 Whereas the production plan deals in families of products, the

MPS works with end items.
 It breaks down the production plan into the requirements for
individual end items, in each family, by date and quantity. The
production plan limits the MPS.
 Therefore the total of the items in the MPS should not be
different from the total shown on the production plan.
 The end items made by the company are assembled from
component and subcomponent parts. These must be available in
the right quantities at the right time to support the master
production schedule.
 The material requirements planning system plans the schedule
for these components based on the needs of the MPS. Thus the
MPS drives the material requirements plan.
MPS – A LINK BETWEEN SALES AND PRODUCTION

The MPS is a plan for manufacturing. It reflects the needs of the
marketplace and the capacity of manufacturing and forms a
priority plan for manufacturing to follow.
The MPS forms a vital link between sales and production as follows:
• It makes possible valid order promises. The MPS is a plan of

what is to be produced and when. As such, it tells sales and
manufacturing when goods will be available for delivery.
• It is a contract between marketing and manufacturing. It is an

agreed-upon plan.
 The MPS forms a basis for sales and production to determine

what is to be manufactured.
 It is a device for communication and a basis to make changes
that are consistent with the demands of the marketplace and the
capacity of manufacturing.
INFORMATION REQUIRE TO DEVELOP MPS

1. The production plan.
2. Forecasts for individual end items.
3. Actual orders received from customers and for stock
replenishment.
4. Inventory levels for individual end items.
5. Capacity restraints.
RELATIONSHIP WITH PRODUCTION PLAN AND DEVELOPING MPS

Suppose the following production plan is developed for a family of
three items:
Opening inventories (units) are:

Product A: 350
Product B: 100
Product C: 50
Total: 500
Item-wise forecast is given below (individual forecast/week)
With these data, the master scheduler must now devise a plan to fit
the constraints as follows:
 This schedule is satisfactory for the following reasons:
1. It tells the plant when to start and stop production of

individual items.
2. Capacity is consistent with the production plan.
 It is unsatisfactory for the following reasons:
1. It has a poor inventory balance compared to total inventory.
2. It results in a stock out for product C in periods 2 and 3.

SAME PROBLEM – DIFFERENT APPROACH

Suppose the following production plan is developed for a family of
three items:
Opening inventories (units) are:

Product A: 350
Product B: 100
Product C: 50
Total: 500
Same item-wise forecast is given below as of pervious case
With these data, the master scheduler can devise a revised plan to
fit the constraints as follows:
 This revised schedule is satisfactory for the following reasons:
1. It tells the plant when to start and stop production of

individual items.
2. Capacity is consistent with the production plan.
3. There are no stock outs for any product in any period.
 It is unsatisfactory for the following reasons:
• It has a poor inventory balance compared to total desired

inventory levels. (in periods of 5 & 6 – inventory pile ups)
____________________
ACTIVITIES OF NEXT CLASS
 A “COMPREHENSIVE” QUIZ FROM LECTURES 1-3.
Topic of next class Introduction to Materials

Requirement Planning-MRP and Brief discussion on Shop-
floor Planning.
PROJECT SUPPLY CHAIN MANAGEMENT
PART 1: INTERNAL SUPPLY CHAIN FRAMEWORK

TIME FENCES / MRP / CAPACITY MGT.

TIME FENCES IN MPS

Reason of Change
Changes to the master production schedule will occur. For example:

1. Customers cancel or change orders.
2. Machines break down or new machines are added, changing

capacity.
3. Suppliers have problems and miss delivery dates.
4. Processes create more scrap than expected.

TIME FENCES IN MPS

Effect of changes to MPS
1. Cost increases due to rerouting, rescheduling, extra setups,
expediting, and buildup of work-in-process inventory.
2. Decreased customer service. A change in quantity of delivery
can disrupt the schedule of other orders.
3. Loss of credibility for the MPS and the planning process.
 Changes that are far off on the planning horizon can be made
with little or no cost or disruption to manufacturing, but the
nearer to delivery date, the more disruptive and costly changes
will be. To help in the decision-making process, companies
establish zones divided by time fences.
TIME FENCES IN MPS
Frozen zone.: Capacity and materials are committed to specific

orders. Since changes would result in excessive costs, reduced
manufacturing efficiency, and poor customer service, senior
management’s approval is usually required to make changes. The
extent of the frozen zone is defined by the demand time fence.
Within the demand time fence, demand is usually based on
customer orders, not forecast.
Slushy zone: Capacity and material are committed to less extent.

This is an area for trade-offs that must be negotiated between
marketing and manufacturing.
Materials have been ordered and capacity established; these are
difficult to change. However, changes in priorities are easier to
change. The extent of the slushy zone is defined by the planning
time fence. Within this time fence the computer will not
reschedule MPS orders.
Liquid zone: Any change can be made to the MPS as long as it is

within the limits set by the production plan. Changes are routine
and are often made by the computer program.
Rough-Cut Capacity Planning
Rough-cut capacity planning checks whether critical resources are

available to support the preliminary master production schedules.
Critical resources include bottleneck operations, labor, and critical
materials (perhaps material that is scarce or has a long lead time).
__________________
MATERIAL REQUIREMENTS PLANNING
 So far we have learned the role of the master production schedule
(MPS) in showing the end items, or major components, that
manufacturing intends to build.
 These items are made or assembled from components that must
be available in the right quantities and at the right time to meet the
MPS requirements.
 What happened if any component is missing???
 The product cannot be produced and shipped on time.
 Material requirements planning (MRP) is the system used to avoid
missing parts.
 It establishes a schedule (priority plan) showing the components
required at each level of Production & based on lead times,
calculates the time when these components will be needed.
MATERIAL REQUIREMENTS PLANNING

Nature of demand
 MPS items are always independent demand items (Forecasted End Product)
 MRP items are always dependent demand items (individual components or
materials used to produce end product – calculated items)
Objectives of MRP
Material requirements planning has two major objectives:
determine requirements and keep priorities current.
a. Determine requirements
The material requirements plan’s objective is to determine what
components are needed to meet the master production schedule
and, based on lead time, to calculate the periods when the
components must be available. It must determine the following:
 What to order.
 How much to order.
 When to order.
 When to schedule delivery.
b. Keep priorities current
Material requirements plan must be able to reorganize priorities

to keep plans current. It must be able to add and delete, expedite,
delay, and change orders.
Where-Used and Pegging Reports

Where-used report
Where-used reports give the same information as bill of material,
but the where-used report gives the parents for a component
whereas the bill gives the components for a parent.
A component may be used in making several parents. Wheels on an
automobile, for example, might be used on several models of cars.
A listing of all the parents in which a component is used is called a
where-used report.
This has several uses, such as in implementing an engineering
change, or when materials are scarce, or in costing a product.
Pegging report
A pegging report is similar to a where-used report. However, the
pegging report shows only those parents for which there is an
existing requirement, whereas the where-used report shows all
parents for a component.
The pegging report shows the parents creating the demand for the
components, the quantities needed, and when they are needed.
Pegging keeps track of the origin of the demand.
VIDEO LIBRARY
 Glass Bottles Manufacturing:

https://www.youtube.com/watch?v=Wh5dyMYU0Wo
 Portable Computers – Laptops:

https://www.youtube.com/watch?v=MGL047HMxSk
 Automobile Evolution:
https://www.youtube.com/watch?v=5cFovJ4HZ8s
14
CAPACITY MANAGEMENT
Capacity is the amount of work that can be done in a specified time
period.
APICS Dictionary defines capacity as “the capability of a

worker, machine, work center, plant, or organization to produce
output per time period.”
Capacity is a rate of doing work, not the quantity of work done.
Three terms are important in capacity management:
Capacity available is the capacity of a system or resource to produce

a quantity of output in a given time period.
Capacity required is the capacity of a system or resource needed to

produce a desired output in a given time period.
Load is the amount of released and planned work assigned to a

facility for a particular time period. It is the sum of all the required
capacities.
Capacity VS Load Relationship

Capacity management is responsible for determining the capacity

needed to achieve the priority plans as well as providing, monitoring
and controlling that capacity so the priority plan can be met.
APICS Dictionary defines capacity management as “the function of
establishing, measuring, monitoring, and adjusting limits or levels
of capacity in order to execute all manufacturing schedules.”
 Capacity planning is the process of determining the resources

required to meet the priority plan and the methods needed to make
that capacity available. It takes place at each level of the priority
planning process.
 Capacity control is the process of monitoring production output,

comparing it with capacity plans, and taking corrective action when
needed.
Capacity Planning Levels
1. Resource planning involves long-range capacity resource

requirements and is directly linked to production planning.
Typically, it involves translating monthly, quarterly, or annual
product priorities from the production plan into some total
measure of capacity, such as gross labor hours.
2. Rough-cut capacity planning takes capacity planning to the next

level of detail. The master production schedule is the primary
information source. The purpose of rough-cut capacity planning
is to check the feasibility of the MPS, provide warnings of any
bottlenecks, ensure utilization of work centers, and advise
anticipatory steps for capacity requirements.
Capacity Planning Levels Cont.
3. Capacity requirements planning is directly linked to the

material requirements plan. Since this type of planning focuses
on component parts, greater detail is involved than in rough-
cut capacity planning. It is concerned with individual orders at
individual work centers and calculates work center loads and
labor requirements for each time period at each work center.
Available time is the number of hours a work center can be used.

For example, a work center working one 8-hour shift for 5 days a
week is available 40 hours a week. The available time depends on
the number of machines, the number of workers, and the hours of
operation.
For Example: A work center has 3 machines and is operated for 8
hours a day 5 days a week. What is the available time?
Available time = 3 * 8 * 5 = 120 hours per week
Utilization is the percentage of time that the work center is active

compared to the available time.
Utilization = hours actually worked / available hours * 100%
ACTIVITIES OF NEXT CLASS
1. INTRODUCTION OF PART 2 – PURCHASING FUNCTION

PART 1/2: CAPACITY MGT / SUPPLY MGT


CAPACITY MANAGEMENT
Capacity is the amount of work that can be done in a specified time
period.
APICS Dictionary defines capacity as “the capability of a

worker, machine, work center, plant, or organization to produce
output per time period.”
Capacity is a rate of doing work, not the quantity of work done.
Three terms are important in capacity management:
Capacity available is the capacity of a system or resource to produce

a quantity of output in a given time period.
Capacity required is the capacity of a system or resource needed to

produce a desired output in a given time period.
Load is the amount of released and planned work assigned to a

facility for a particular time period. It is the sum of all the required
capacities.
Capacity VS Load Relationship

Capacity management is responsible for determining the capacity

needed to achieve the priority plans as well as providing, monitoring
and controlling that capacity so the priority plan can be met.
APICS Dictionary defines capacity management as “the function of
establishing, measuring, monitoring, and adjusting limits or levels
of capacity in order to execute all manufacturing schedules.”
 Capacity planning is the process of determining the resources

required to meet the priority plan and the methods needed to make
that capacity available. It takes place at each level of the priority
planning process.
 Capacity control is the process of monitoring production output,

comparing it with capacity plans, and taking corrective action when
needed.
1. Resource planning involves long-range capacity resource

requirements and is directly linked to production planning.
Typically, it involves translating monthly, quarterly, or annual
product priorities from the production plan into some total
measure of capacity, such as gross labor hours.
2. Rough-cut capacity planning takes capacity planning to the next

level of detail. The master production schedule is the primary
information source. The purpose of rough-cut capacity planning
is to check the feasibility of the MPS, provide warnings of any
bottlenecks, ensure utilization of work centers, and advise
anticipatory steps for capacity requirements.
Capacity Planning Levels Cont.
3. Capacity requirements planning is directly linked to the

material requirements plan. Since this type of planning focuses
on component parts, greater detail is involved than in rough-
cut capacity planning. It is concerned with individual orders at
individual work centers and calculates work center loads and
labor requirements for each time period at each work center.
Available time is the number of hours a work center can be used.

For example, a work center working one 8-hour shift for 5 days a
week is available 40 hours a week. The available time depends on
the number of machines, the number of workers, and the hours of
operation.
For Example: A work center has 3 machines and is operated for 8
hours a day 5 days a week. What is the available time?
Available time = 3 * 8 * 5 = 120 hours per week
Utilization is the percentage of time that the work center is active

compared to the available time.
Utilization = hours actually worked / available hours * 100%
SUPPLY MANAGEMENT: PURCHASING FUNCTION
 Purchasing function can be defined as the act of obtaining
merchandise; capital equipment; raw materials; services;
or maintenance, repair and operating (MRO) supplies in exchange
for money or its equivalent.
 The purchasing profession can be broadly classified into two
categories: merchants and industrial buyers.
 Merchants includes the wholesalers and retailers, who primarily
purchase for resale purposes.
 Industrial Buyers mainly purchase raw materials for conversion
purposes. They also purchase services; capital equipment; and
MRO supplies.
 The typical industrial buyers are the manufacturers, although
some service firms such as restaurants, landscape gardeners and
florists also purchase raw materials for conversion purposes.
PART 2: SUPPLY MANAGEMENT


There are two categories of industrial purchase:
 Direct Material Purchasing includes purchasing of all materials
which has a direct contact with the end product.(Raw & Packing
Materials )
 Indirect Material Purchasing refers to the rest. (all materials
other than direct includes MROs, CAPEX, projects & services etc)
 Manufacturing planning and control (MPC) must decide when to
order which raw materials so that marketplace demands can be
satisfied. Purchasing is then responsible for placing the orders and
for ensuring that the goods arrive on time.
 The purchasing department has the major responsibility for
locating suitable sources of supply and for negotiating prices. Input
from other departments is required in finding and evaluating
sources of supply and to help the purchasing department in price
negotiation.
Purchasing Objectives
Purchasing is responsible for establishing the flow of materials into
the firm, following up with the supplier, and expediting delivery.
Missed deliveries can create chaos for manufacturing and sales,
but purchasing can reduce problems for both areas, further adding
to the profit.
The objectives of purchasing can be divided into four categories:
1. Obtaining goods and services of the required quantity and
quality.
2. Obtaining goods and services at the lowest cost.
3. Ensuring the best possible service and prompt delivery by the
supplier.
4. Developing and maintaining good supplier relations and
developing potential suppliers.
Prerequisites of purchasing objectives
To achieve purchasing objectives, some basic functions must be
performed:
A. Determining purchasing specifications: right quality, right
quantity, and right delivery (time and place).
B. Selecting supplier (right source).
C. Negotiating terms and conditions of purchase (right price).
D. Issuing and administration of purchase orders.
Purchasing Cycle
The purchasing cycle consists of the following steps:
1. Receiving and analyzing purchase requisitions.
2. Selecting suppliers. Finding potential suppliers, issuing requests
for quotations (RFQs & RFPs), receiving and analyzing quotations,
and selecting the right supplier.
3. Determining the right price.
4. Issuing purchase orders.
5. Following up to ensure delivery dates are met.
6. Receiving and accepting goods.
7. Approving supplier’s invoice for payment.
The Request for Quotation and the Request for Proposal
 If the material is not available in the warehouse, the material

requisition is routed to the purchasing department.
 If there is no current supplier for the item, the buyer must

identify a pool of qualified suppliers and issue a request for
quotation (RFQ).
 A request for proposal (RFP) may be issued instead for a

complicated and highly technical component part, especially if
the complete specification of the part is unknown. An RFP allows
suppliers to propose new material/service.
The Purchase Order
 When a suitable supplier is identified, or a qualified supplier is
on file, the buyer issues a purchase order (PO) in duplicates to the
selected supplier.
 Generally, the original purchase order and at least a duplicate

are sent to the supplier.
 An important feature of the purchase order is the terms and

conditions of the purchase.
 The purchase order is the buyer’s offer and becomes a legally

binding contract when accepted by the supplier. Therefore, firms
should require the supplier to acknowledge and return a copy of
the purchase order to indicate acceptance of the order.
 Once an order is accepted, purchasing personnel need to ensure
on-time delivery of the purchased material by using a follow-up or
by expediting the order.
 A follow-up is considered a proactive approach to prevent late
delivery, whereas expediting is considered a reactive approach that
is used to speed up an overdue shipment.
 A Blanket or Open-ended Purchase Order covers a variety of
items and is negotiated for repeated supply over a fixed time
period, such as quarterly or yearly.
 The subtle difference of an open-end purchase order is that
additional items and expiration dates can be renegotiated.
Price and estimated quantity for each item, as well as delivery
terms and conditions, are usually negotiated and incorporated in
the order. (small value, large quantity, frequent consumables)
International & Global Sourcing
International procurement
 International procurement is the purchasing, from another

country, of the products and/or services required for the
organization.
 In other words International procurement is importing.
 It does not require or involve in the global integration and co-

ordination of the buying organization’s demand with the
supplier’s global ability to supply.
 global procurement requires a globally located purchaser and a

globally located supplier.
LETTER OF CREDIT – LC
 A documentary letter of credit is a promise in writing by a bank

to an exporter that the goods will be paid for providing that the
exporter complies exactly with the terms and conditions laid
down.
 The promise is, of course, made on behalf of the importer.
 The bank will naturally need to be sure that the importer has the
necessary funds.
PART 2: SUPPLY MANAGEMENT


E-Procurement or Reverse Auction
 A PRACTICAL APPROACH USED IN INDUSTRY
 USAGE OF INTERNET PORTAL FOR SUPPLIERS FOR BIDDING
 TARGET PRICE MAY BE SET FOR MAKING EFFECTIVE

COMPETITION
 DIFFERENET TERMS AND CONDITIONS MAY BE INCLUDED
 CONFIDENTIALITY IS THE KEY

SUPPLIER SELECTION
The process of selecting a group of competent suppliers for
important materials which can potentially impact the firm’s
competitive advantage is a complex process and should be based on
multiple criteria. In addition to cost and delivery performance, firms
should also consider how suppliers can contribute to product
and process technology.
Factors that firms should consider while selecting suppliers include:

1. Process and product technologies: Suppliers should have
competent process technologies to produce superior products at a
reasonable cost to enhance the buyer’s competitive edge.
SUPPLIER SELECTION
2. Willingness to share technologies and information: It is vital that
firms seek suppliers that are willing to share their technologies and
information. Suppliers can assist in new product design and
development through early supplier involvement (ESI) to ensure
cost-effective design choices, develop alternative conceptual
solutions, select the best components and technologies and help in
design assessment.
3. Quality: Quality levels of the purchased item should be a very

important factor in supplier selection. Product quality should be high
and consistent since it can directly affect the quality of the finished
goods.
SUPPLIER SELECTION
4. Cost: While unit price of the material is not typically the sole
criterion in supplier selection, total cost of ownership is an
important factor. Total cost of ownership or total cost of acquisition
includes the unit price of the material, payment terms, cash
discount, ordering cost, carrying cost, logistical costs, maintenance
costs and other more qualitative costs that may not be easy to
assess. (Performance of product through its life cycle)
5. Reliability: Besides reliable quality level, reliability refers to other
supplier characteristics. For example, is the supplier financially
stable? Otherwise, it may not be able to invest in research and
development or stay in business. Is the supplier’s delivery lead time
reliable? Otherwise, production may have to be interrupted
due to a shortage of material.
SUPPLIER SELECTION
6. Order system and cycle time: How easy to use is a supplier’s
ordering system and what is the normal order cycle time? Placing
orders with a supplier should be easy, quick and effective. Delivery
lead time should be short, so that small lot sizes can be ordered on a
frequent basis to reduce inventory holding costs.
7. Capacity: The firm should also consider whether the supplier has
the capacity to fill orders to meet requirements and the ability to fill
large orders if needed.
8. Communication capability: Suppliers should also possess a
communication capability that facilitates communication between
the parties.
9. Location: Geographical location is another important factor in
supplier selection, as it impacts delivery lead-time, transportation
and logistical costs.
SUPPLIER SELECTION
10. Service: Suppliers must be able to back up their products by
providing good services when needed. For example, when product
information or warranty service is needed, suppliers must respond
on a timely basis.
HOW MANY SUPPLIERS TO USE
Theoretically, firms should use single or a few sources whenever
possible to enable the development of close relationships with the
best suppliers. However, by increasing reliance on one supplier, the
firm increases its risk that poor supplier performance will result in
plant shutdowns or poor quality finished products.
Sole sourcing typically refers to the situation when the supplier is
the only available source, whereas single sourcing refers to the
deliberate practice of concentrating purchases of an item with one
source from a pool of many potential suppliers.
REASONS FAVORING A SINGLE SUPPLIER

1. To establish a good relationship: Using a single supplier makes it
easier for the firm to establish a mutually beneficial strategic alliance
relationship with the supplier, especially when the firm can benefit
from the supplier’s technologies and capabilities.
2. Less quality variability: Since the same technologies and
processes are used to produce the parts when using a single source,
variability in the quality levels is less than if the parts are purchased
from multiple suppliers.
3. Lower cost: Buying from a single source concentrates purchase
volume with the supplier, typically lowering the purchase cost /unit.
4. Proprietary product or process purchases: If it is a proprietary
product or process, or if the supplier holds the patents to the
product or process, the firm has no choice but to buy from the sole
source. (exclusive distributorship)
5. Transportation economies: Because single sourcing concentrates

volume, the firm can take advantage of truckload (TL) shipments,
which are cheaper per unit than the less-than-truckload (LTL) rate.
By moving up to full truckloads, the firm has the option of using
both rail and motor carriers. Rail carriers are more efficient for
hauling heavy loads over long distances.
6. Volume too small to split: If the requirement is too small, it is not

worthwhile to split the order among many suppliers. Single sourcing
is a good approach for acquiring supplies and services that do not
contribute to the firm’s core competencies.
REASONS FAVORING MULITIPLE SUPPLIERS

1. Need capacity: When demand exceeds the capacity of a single
supplier, the firm has no choice but to use multiple sources.
2. Spread the risk of supply interruption: Multiple sources allow the
firm to spread the risk of supply interruptions due to a strike, quality
problem, political instability and other supplier problems.
3. Create competition: Using multiple sources encourages
competition among suppliers in terms of price and quality. While
modern supplier management philosophy opposes the use of
multiple sources simply to create competition, this may still be the
preferred approach for sourcing non-vital items that do not affect
the firm’s competitive advantage. Using a single source to develop
alliances for these types of purchases may not be cost-effective.
4. Information: Multiple suppliers usually have more information

about market conditions, new product developments and new
process technologies. This is particularly important if the product
has a short product life cycle.
5. Dealing with special kinds of businesses: The firms, particularly

government contractors, may need to give portions of their
purchases to small, local or minority-owned businesses, either
voluntarily or as required by law.
CENTRALIZED AND DECENTRALIZED PURCHASING

Centralized purchasing is where a single purchasing department,
usually located at the firm’s corporate office, makes all the
purchasing decisions, including order quantity, pricing policy,
contracting, negotiations and supplier selection and evaluation.
Decentralized purchasing is where individual, local purchasing
departments, such as at the plant level, make their own purchasing
decisions.
Advantages of Centralization
1. Concentrated volume: An obvious benefit is the concentration of
purchase volume to create quantity discounts, less-costly volume
shipments and other more favorable purchase terms. This is often
referred to as leveraging purchase volume.
2. Avoid duplication: Centralized purchasing eliminates the

duplication of job functions. A corporate buyer can research and
issue a large purchase order to cover the same material requested
by all units, thus eliminating duplication of activities. This also
results in fewer buyers, reducing labor costs.
3. Specialization: Centralization allows buyers to specialize in a
particular group of items instead of being responsible for all
purchased materials and services. It allows buyers to spend more
time and resources to research materials for which they are
responsible, thus becoming specialized buyers.
4. Lower transportation costs: Centralization allows larger
shipments to be made to take advantage of truckload shipments,
and yet smaller shipments still can be arranged for delivery directly
from suppliers to the points of use.
5. No competition within units: Under the decentralized system,
when different units purchase the same material, a situation may be
created in which units are competing among themselves, especially
when scarce materials are purchased from the same supplier.
Centralization minimizes this problem.
6. Common supply base: A common supply base is used, thus
making it easier to manage and to negotiate contracts.
Advantages of Decentralization
1. Closer knowledge of requirements: A buyer at the individual unit
is more likely to know its exact needs better than a central buyer at
the home office.
2. Local sourcing: If the firm desires to support local businesses, it is
more likely that a local buyer will know more about local suppliers.
The proximity of local suppliers allows materials to be shipped more
frequently in small lot sizes yet developing closer supplier
relationships.
3. Less bureaucracy: Decentralization allows quicker response, due

to less bureaucracy and closer contact between the user and the
buyer. Coordination and communication with operations and other
divisions are more efficient.
Vendor-managed inventory. In recent years there has been a
growth in the purchasing approach known as vendor-managed
inventory. In this concept, a supplier maintains an inventory of
certain items in the customer’s facility. The supplier “owns” the
inventory until the customer actually withdraws it for use, after
which the customer then pays for that use. The customer does not
have to order any of the inventory, as the supplier is responsible for
maintaining an adequate supply in the facility for customer use. This
approach is most commonly used for lower-value products that have
a relatively standard design, such as fasteners, standard electrical
equipment, etc.
SUPPLY MANAGEMENT: SRM
SUPPLIER PARTNERSHIP
According to the Institute for Supply Management, a supplier
partnership is defined as: “A commitment over an extended time to
work together to the mutual benefit of both parties, sharing
relevant information and the risks and rewards of the relationship.
These relationships require a clear understanding of expectations,
open communication and information exchange, mutual trust and a
common direction for the future. Such arrangements are a
collaborative business activity that does not involve the formation of
a legal partnership.”
DEVELOPING SUPPLIER RELATIONSHIPS
Building strong supplier partnerships requires a lot of hard work and
commitment by both buyers and sellers. Developing true
partnerships is not easily achieved, and much has to be done to get
the partnership to work. Several key ingredients for developing
successful partnerships are discussed below.
1. BUILDING TRUST
Trust is critical for any partnership or alliance to work. It must be
built not just at the senior management level but at all levels of the
organization. Trust enables organizations to share valuable
information, devote time and resources to understand each other’s
business, and achieve results beyond what could have been done
individually. With trust, partners are more willing to work together;
find compromise solutions to problems; work toward achieving long-
term benefits for both parties; and in short, go the extra mile.
DEVELOPING SUPPLIER RELATIONSHIPS CONT.

2. SHARED VISION & OBJECTIVES
All partnerships should state the expectations of the buyer and
supplier, must share the same vision and have objectives that are
not only clear but mutually agreeable. Many alliances and
partnerships have failed because objectives are not well aligned or
are overly optimistic. The focus must move beyond tactical issues
and toward a more strategic path to corporate success. When
partners have equal decision-making control, the partnership has a
higher chance of success.
3. PERSONAL RELATIONSHIPS
Interpersonal relationships in buyer-supplier partnerships are
important since it is people who communicate and make things
happen.
4. MUTUAL BENEFITS AND NEEDS
Partnering should result in a win-win situation, which can only be
achieved if both companies have compatible needs. Mutual needs
not only create an environment conducive for collaboration but
opportunities for increased innovation. When both parties share in
the benefits of the partnership, the relationship will be productive
and long lasting. An alliance is much like a marriage: if only one
party is happy, the marriage is not likely to last.
5. COMMITMENT & TOP MANAGEMENT SUPPORT
Commitment must start at the highest management level.
Partnerships tend to be successful when top executives are actively
supporting the partnership. The level of cooperation and
involvement shown by the organization’s top leaders is likely to set
the tone for joint problem solving further down the line.

6. CHANGE MANAGEMENT
With change comes stress, which can lead to a loss of focus. As such,
companies must avoid distractions from their core businesses as a
result of the changes brought about by the partnership. Companies
must be prepared to manage change that comes with the formation
of new partnerships.
7. INFORMATION SHARING & LINES OF COMMUNICATION
Both formal and informal lines of communication should be set up to
facilitate free flows of information. When there is a high degree of
trust, information systems can be customized to serve each other
more effectively. Confidentiality of sensitive financial, product and
process information must be maintained. Any conflict that occurs
can be resolved if the channels of communication are open.

8. CAPABILITIES
Organizations must develop the right capabilities for creating long-
term relationships with their suppliers. One of the two best practices
for top-performing companies is using cross-functional teams to
achieve common objectives. Key suppliers must have the right
technology and capabilities to meet cost, quality and delivery
requirements. In addition, suppliers must be sufficiently flexible to
respond quickly to changing customer requirements. Before entering
into any partnership, it is imperative for an organization to conduct a
thorough investigation of the supplier’s capabilities and core
competencies. Organizations prefer working with suppliers who have
the technology and technical expertise to assist in the development
of new products or services that would lead to a competitive
advantage in the marketplace.

9. PERFORMANCE METRICS
It is a famous saying that “You can’t improve what you can’t
measure” is particularly true for buyer-supplier alliances. Measures
related to quality, cost, delivery and flexibility have traditionally
been used to evaluate how well suppliers are doing. Information
provided by supplier performance will be used to improve the entire
supply chain.
SUPPLIER EVALUATION AND CERTIFICATION

Only the best suppliers are targeted as partners. Companies want to
develop partnerships with the best suppliers to leverage their
expertise and technologies to create a competitive advantage. In this
regard, A supplier evaluation and certification process must be in
place so that organizations can identify their best and most reliable
suppliers.
The Weighted Criteria Evaluation System
One approach toward evaluating and certifying suppliers is to use
the weighted criteria evaluation system described below:
1. Select the key dimensions of performance mutually acceptable to
both customer and supplier.
2. Monitor and collect performance data.
The Weighted Criteria Evaluation System Cont.

3. Assign weights to each of the dimensions of performance based
on their relative importance to the company’s objectives. The
weights for all dimensions must sum to 1.
4. Evaluate each of the performance measures on a rating between
zero (fails to meet any intended purpose or performance) and 100
(exceptional in meeting intended purpose or performance).
5. Multiply the dimension ratings by their respective importance
weights and then sum to get an overall weighted score.
The Weighted Criteria Evaluation System Cont.

6. Classify vendors based on their overall scores, for example:
• Unacceptable (less than 50)—supplier dropped from further
business
• Conditional (between 50 and 70)—supplier needs development
work to improve performance but may be dropped if performance
continues to lag
• Certified (between 70 and 90)—supplier meets intended purpose
or performance
• Preferred (greater than 90)—supplier will be considered for
involvement in new product development and opportunities for
more business.
7. Audit and ongoing certification review.
ISO 9000
In 1987 the global network of national standards institutes called the
International Organization for Standardization (ISO) developed ISO
9000, a series of management and quality assurance standards in
design, development, production, installation and service.
The European Union in 1992 adopted a plan that recognized ISO

9000 as a third-party certification; the result is that many European
companies prefer suppliers with ISO 9000 certifications. Thus, U.S.
companies wanting to sell in the global marketplace are compelled
to seek ISO 9000 certifications.
ISO 14000
In 1996, ISO 14000, a family of international standards for
environmental management, was first introduced. In 2004, it was
revised to make the standards easier to understand and emphasized
compliance and compatibility with ISO 9000 for businesses that
wanted to combine their environmental and quality management
systems (and again for simplicity, we will stick with the term ISO
14000, even though the actual number has changed slightly due to
the revisions). Companies that implemented ISO 14000 benefitted
from cost savings (conserving materials, reduced water and energy
use), better public image and decreased liability due to reduced
waste cleanup costs. The benefits of investing in an Environmental
Management System (EMS) based on ISO14000 standards include
reduced energy and other resource consumption, decreased
environmental liability and risk, reduced waste and pollution and
improved community goodwill.
SUPPLIER DEVELOPMENT
Supplier development is defined as “any activity that a buyer
undertakes to improve a supplier’s performance and/or capabilities
to meet the buyer’s short- and/or long-term supply needs.
A seven-step approach to supplier development is outlined below:
1. Identify critical goods and services. Assess the relative importance
of the goods and services from a strategic perspective. Goods and
services that are purchased in high volume, do not have good
substitutes or have limited sources of supply are considered
strategic supplies.
2. Identify critical suppliers not meeting performance requirements.
Suppliers of strategic supplies not currently meeting minimum
performance in quality, on-time delivery, cost, technology or cycle
time are targets for supplier development initiatives.
SUPPLIER DEVELOPMENT CONT.

3. Form a cross-functional supplier development team. Next, the
buyer must develop an internal cross-functional team and arrive at a
clear agreement for the supplier development initiatives.
4. Meet with top management of suppliers. The buyer’s cross-
functional team meets with the suppliers’ top management to
discuss details of strategic alignment, supplier performance
expectations and measurement, a time-frame for improvement
and ongoing professionalism.
5. Rank supplier development projects. After the supplier
development opportunities have been identified, they are evaluated
in terms of feasibility, resource and time requirements, supply base
alternatives and expected return on investment. The most promising
development projects are selected.
SUPPLIER DEVELOPMENT CONT.
6. Define the details of the buyer-supplier agreement. After

consensus has been reached on the development project rankings,
the buyer and supplier representatives jointly decide on the
performance metrics to be monitored such as percent improvement
in quality, delivery and cycle time.
7. Monitor project status and modify strategies. To ensure continued

success, management must actively monitor progress, promote
exchange of information and revise the development strategies as
conditions warrant.
ETHICAL SOURCING
• Determining where all purchased goods come from and how they are
made. Showing compliance with tax and custom laws of Govt.
• Knowing if suppliers promote basic workplace principles (such as the

right to equal opportunity and to earn a decent wage, the prohibition of
bonded, prison or child labor, and the right to join a union)
• Use of ethical ratings for suppliers alongside the other standard

performance criteria.
• Use of independent verification of vendor compliance
• Reporting of supplier compliance performance to shareholders
• Providing detailed ethical sourcing expectations to vendors

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PRINCIPLES OF SUPPLY CHAIN MANAGEMENT

INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

PRESENTED BY: RAZI HASSAN – Course Facilitator

 Goods = Physical / Tangible Objects ; Services = Performance of some useful

 What is the source of wealth? Where does it come from?

 Natural resources includes farmland, forests and mineral deposits

 Transformation is required to use natural resources

 The transformation which converts natural resources in to useful goods is

 Production = Value Addition

The Supply Chain Council defines Supply Chain Management as:

“ Managing supply and demand, sourcing raw materials and parts,

The institute of Supply Management describes supply chain management as:

“ The design and management of seamless, value-added processes across

According to APICS dictionary, a supply chain is a

 Any number of companies can be linked in the supply chain

 A customer can be a supplier to another customer so the total chain can

 The distribution system can be direct from supplier to customer

A SHORT HISTORICAL PERSPECTIVE

 1960s – 1970s = MRP 1 material requirement plan introduces and

 1980s = Computer capabilities grew with advancement in MRP2. JIT and

SUPPLY CHAIN MANAGEMENT IN ACTION

In terms of profits and revenue generation, an efficient supply chain

Case 2: If through effective supply chain management, cost of direct materials

Case 3: To get the same increase in profits, sales would have to

 Manufacturing is a complex operation involves variety of

A good planning system must answer four questions:

 Priority relates to what products are needed, how many are

Priority & Capacity Relationship (Demand VS Resources)

MANUFACTURING PLANNING AND CONTROL SYSTEM-MPC

Each level is further categorize with four factors:

At each level, three questions must be answered:

ASSIGNED READINGS FOR NEXT CLASS:

CORE PROJECT FOR ALL: Let’s discuss and decide!

PART 1: INTERNAL SUPPLY CHAIN FRAMEWORK

PRESENTED BY: RAZI HASSAN – Course Facilitator

 Manufacturing is a complex operation involves variety of

A good planning system must answer four questions:

 Priority relates to what products are needed, how many are

Priority & Capacity Relationship (Demand VS Resources)

MANUFACTURING PLANNING AND CONTROL SYSTEM-MPC

Each level is further categorize with four factors:

At each level, three questions must be answered:

1. What are the priorities? How much of what is to be produced

2. What is the available capacity? What resources do we have?

3. How can differences between priorities and capacity be

1b) Time Span: Next 2-10 years or may be more

1c) Level of Detail: It is a statement of the broad direction of the

1d) Planning Cycle: Strategic business plans are usually reviewed

3b) Time Span: 1-month

3c) Level of Detail: Level of detail is higher than production plan.

3d) Planning Cycle: Weekly to fortnightly

SALES AND OPERATIONS PLANNING – S&OP

 Although operations represents supply-side and marketing

NEXT TOPIC: Production Planning Strategies & Few Basic

PRODUCTION PLANNING SYSTEMS & MASTER SCHEDULING

PRESENTED BY: RAZI HASSAN – Course Facilitator

MAKING THE PRODUCTION PLAN

 Firms that make a single product, or products that are similar,

 Many companies, however, make several different products, and

 Product groups need to be established based on the similarity of

 At the production planning level, where little detail is needed,

Pre-requisites of Production Strategy

 Production demand consists of one or a few product families or