Tuesday, May 8, 2012

have your Sales department and Production Scheduling dance to the same song...

Wherever I go to do an optimization, we assemble a supply chain team comprised of all functional areas. Procurement certainly plays a big part and so do the material planners. Then there are the demand planners and the production scheduling people. And there is always talk about including the Sales department but it never materializes. Do you have the same problem or is it a phenomenon that only I experience? Sales is always on the agenda but they never show up. I am not sure why, but it seems that because they are on the downstream side of the value stream, they don't experience the pain caused by a sub-optimized information flow (in a value stream the information flows upstream and material flows downstream) but rather only experience the problems occuring in the material flow. And those problems, so they claim, are not due to false information, but bad execution coming out of the sub optimal material flow. So the sales people are not the problem (?!). It's the other people that need to optimize their workings. I somewhat disagree.

If a sales rep performs an availability check for a make to order product and does not find anything in inventory... what would you say should happen? should we place additional demand on the production line to produce it asap? should we complain to the planning people? should we tell the customer that we will do anything we can to get it to them immediately? No, no and no! An item identified as to be 'Made to Order' has no business to be in stock readily available to be shipped. It will be made to that order and therefore the availability check has to tell the customer that they will get it AFTER the replenishment lead time. And if the sales rep promises anything different, the production scheduler will take the blame for a situation which was "fubar'ed" by someone who didn't know the process or didn't follow it.

Yes, I find it very often (or actually always) that after the implementation there is a lot to learn about master data rules and how better settings can support a better material flow. But all this optimization does not bear any fruit if the result of the availability check is ignored, a false requirements type is transferred or a forecast quantity is consumed that wasn't meant to be consumed by that type of order.


possible misstep number 1: availability check in the sales order
Every time a sales order is entered by a sales representative, an availability check should be carried out.The  availability check should tell the sales rep if and when which total or partial quantity of the product may be committed to the customer. The availability check looks for inventory if the item is MTS. Should it not find inventory, that AV check goes out and looks for the next receipt and confirms according to that date - and does not put additional demand on the line, and therefore create noise. So that;s the MTS check! In case of an item that is MTO, the availability check should always confirm the item after the replenishment lead time. Because we are making this product AFTER the order is received it will take time to make it - the time to replenish the product to the order.

Now you have a committed date for either order, but if the sales rep does not fix the date - and strangely enough I don't see sales reps fix the date anywhere - then today's date will show up as the material availability date in MD04 and all hell breaks loose in the exception monitor (of course only if people aren't desensitized by the amount of red lights and exception messages they receive on a daily basis in the materials planning department)

Whoever enters sales orders into the system needs to understand the implications of MTS vs. MTO or ATO and have a grasp on the planning procedure!

possible misstep number 2: to reduce the forecast or not to reduce the forecast... there shouldn't be a question and it can make the planner look bad
when planning an MTS product, you should generally put out a forecast to which the production scheduler can plan producing inventory to. Usually this is a forecast of the type VSF coming from strategy 40. When entering 40 in MRP3, you can also maintain consumption parameters and let me tell you... I have seen crazy things.

You have the option to consume a forecast (through incoming actual sales orders) going forward, going backward or doing both. Now think about this: let's assume there is a monthly forecast. This would mean there is a VSF with a negative quantity (a demand element) standing at the first working day of every months. The planning run will cover that demand by creating a supply element (usually a planned order) to bring in the quantity just before the first working day of the month. This would ensure that there is enough inventory available at the first so that I can sell (with actual sales orders) that forecasted and produced to - inventory throughout the months (plus a safety stock).

Naturally every sales order coming in during the months is reducing the inventory and should reduce the forecast - but only the forecast that was created for it, right? You achieve that by maintaining a consumption strategy that consumes in a backward direction - no more than 22 working days. If your consumption strategy consumes backard and then forward, you will, after you sell more than what you forecasted, not dip into safety stock alone, but also start consuming the forecast from the next month. That will result in putting less into inventory for the next month and essentially telling the system that because our sales went up this month, they will be less next months

That is most likely not true and makes the forecast planner look bad!

possible misstep number 3: what's made to stock and what needs to be made to order?
please note that I made a difference in tense in the wording of the question. 'what IS made to stock' is present, whereas 'what needs TO BE made to order' is future tense. That is because in a MTS strategy we anticipate and make it available before the orders comes in and in MTO we only make the product after the order is placed. Of course you can't make anything to stock beforehand, if you can't predict it. So MTS items have a forecast and are predictable and MTO items are unpredictably and are not kept in inventory.

It is imperative that you make that distinction and clearly communicate it. If it isn't clear what it MTS and what is MTO, it will be impossible to plan correctly, check availability correctly or tell our customers what they should expect from us. And remember: what is MTS today might be MTO tomorrow. So do an analysis regularly and make sure all your planning is up-to-date