some thoughts about lot sizing and what it could mean to production scheduling...

generally speaking, you want to keep the supply chain agile and flexible... and very often I try to convince my clients to do that with a fixed lot size. Now the term might be misleading (because it can convey the notion that the lot size will be fixed - when it actually won't be) but let me explain my thinking:

In the SAP supply chain, the MRP run does not schedule a production program. MRP simply meets demand with supply (driven by the lot size procedure) that is placed just at the date when the demand occurs. It does so without consideration of any resource constraints, So it is necessary to introduce another step to level, sequence and distribute production quantities in a way that they fit into available capacity and produce great service levels with the least possible inventory. 

If you use a periodic lot size procedure, MRP will generate a planned order that meets the total demand of that period. You can then no more split and distribute these quantities within that period (obviously a monthly lot size is worse in that respect than a weekly is).

My thinking behind using a fixed lot size is to generate many supply proposals (planned orders) in the least, feasible production lot, all sitting on top of each other on the demand date. If, for example, you have a weekly demand from a forecast of 10,000 pounds, you would get one planned order with 10,000 pounds sitting for delivery on Monday morning should you use a weekly lot size. But if you use a fixed lot size of 1,000 pounds (if that is the least, feasible quantity), you have now ten planned orders which you can distribute into the previous week. You can still make the entire lot of 10,000 on Friday afternoon, but now you do have the option to make 2,000 every day of the week or 5,000 on Tuesday and 5,000 on Thursday or... you get the idea!

what I see often forgotten, is that there is the need for that extra step of 'production scheduling'. Many people just take as a production program what's generated by MRP and that can cause you many problems in the factory - especially for MTS and it's associated mixed model scheduling with MTO

the importance of the 'Stock Transport Order fix"

as I am spending an awesome time in Australia, I am coming across a very old issue. An issue which is making the production scheduler's job so difficult in so many companies: the lack of a process that fixes Stock Transport Order Requisitions and leaves them unavailable for the MRP run to change any day.

Here is what I'm talking about: very often SAP is setup to support a distribution network where DCs carry a forecast and the resulting demand is transferred to the manufacturing plant via a stock transport order requisition. The STO req becomes a demand in the supplying (manufacturing) plant and the MRP run generates supply in form of planned orders.

so far so good because everybody thinks that when the manufacturing plant just sends out the requested quantities at the time it was requested, we are all good. and then the DC never gets the right quantity at the right time! And everybody questions the production scheduler: "you knew way ahead of time... why didn't you deliver?"

Here is what I think is not working: ... but first a picture of the beautiful outback

It should be clear that inventory responsibility must remain with the place where the forecast resides. That usually is the DC, because that is the place where the sales orders come in as well. And those sales orders are looking for forecasts that they can consume. What happens when sales orders consume forecasts is a netting of inventory. That means that when the sales orders exceed the forecast, the system thinks to brin more in from the manufacturing plant. In revers, when the forecast exceeds what customers actually pick up, MRP will say "stop bringing in more - we have enough".

The latter is a big problem for anyone who received an order to produce weeks or months ago. Because they were told to make 5,000 lbs a long time ago. They bought raw materials, packaging goods and filled the lines accordingly. Now the DC says stop? I don't want it anymore? because the customers changed their mind?

Who's responsibility is it? I believe whoever puts the forecast together must take the inventory. And if the forecast was wrong - as it always is - someone has to take the hit. If you think that it is the production line that has to adjust, then we have a very big difference of opinion. In my mind the production line (the scheduler) has the task to produce to demand as efficient as possible. The DC's (material planner) responsibility is to anticipate MTS demand as close as possible and to deal with deviations using stock policies and replenishment strategies to gain good service levels.

So to make a long story short: if we agree that inventory responsibility remains in the DC, then we will have to convert stock transport order requisitions for at least the replenishment lead time out. Because if you don't, the MRP run will change quantities and dates according to the way customers pick up. And that is definitely a shift of inventory responsibility from the DC to the manufacturing plant.

I'd love to hear your opinion on this as it seems to be a widespread misunderstanding and point of contention.

Mastering supply chain Management with SAP - 10 year anniversary conference in Melbourne, Australia

The Eventful Group invited me to speak at their Mastering SAP supply chain Conference in Melbourne, Australia. It's a wonderful event with great presentations, networking sessions, workshops and a really fun time "down under".

After a very long flight, I arrived at the Crown Hotels in downtown Melbourne on Saturday afternoon. A quick shower, some food and off I went to explore the city. The event was hosted at the Crown Promenade, which is adjacent to the river bank and an array of great shops, restaurants and many things to do and see. It's my first time in Australia so I was very excited to venture out and engage with the culture that I read and heard so many positive things about. And I wasn't disappointed at all.

But the jet lag kicked in early and I decided to rest, so it wouldn't be too grueling to catch up to the timezone that's 16 hours removed from the one at home.

On Sunday the event got kicked off with a supply chain workshop that was hosted and run by UXC Oxygen, a premier SAP consulting company for Australia and New Zealand. Paul Sipos did a fantastic job to guide and connect us through various presentations, discussions and explorations, held by Oxygen experts, about functionality to support the supply chain - in ERP as well as APO. Lots of valuable information and informative discussions by a 30 people audience.

Monday then the main event. A keynote presentation by Mark Vollrath of Colgate Palmolive that dealt with the importance of setting a supply chain strategy. All other presentations were divided into three tracks: Innovation, Fundamentals and People. Of special note on day 1 are John  Fatkin's "19Signs that Your Project's Change Management is in Danger", Pascal Renet adding a very nice presentation around Transportation Management and how it brings upon "Real, Real-Time supply chain Reality", and Simon Vincent with great insights on "The Importance of Building Alignment and Trust into Strategy and Execution".

At night, a wonderful reception where besides the Karaoke performances, the outstanding networking opportunities do deserve special mention. oh... and what about 170 drums?

Day two was kicked off with a very interesting slide show and presentation by Daniel Cameron on "Laser Focused Procurement". A number of memorable slides showing the Goldman Sachs Building in Lower Manhattan fully lit, during the 'blackout' after devastating Hurricane Sandy hit the region in 2012, grabbed my attention.

Marek Kowalkiewicz, a fellow SAP Mentor from SAP Singapore, then revealed some "Super Secret SCM Innovation Stories". Marek put special focus on SAP's strides on Design Thinking which I find extremely interesting. We even had a session on "Right Brain Competencies on Demand", beautifully led by Silvia Demiano.

But there were many other great presentation and I am sorry that I can not mention them all. I wish I could have attended more of the excellent speeches and demonstrations, but I was busy with three of them myself: "Effective Materials Planning", "Alignment between Sales and Production" and "Effective Production Scheduling Methods" were my titles, which I plan to re-record and make available on this blog.

Another great, fun, very informative conference by The Eventful Group, led by a team of very professional and heartwarming organizers... headed up by the wonderful Sophie Sipsma.

Trip report: going to Melbourne as a top tier frequent flyer on United Airlines

When I was invited by the wonderful people from The Eventful Group to speak at their "Mastering SAP supply chain" conference in Melbourne Australia, I was really excited and looking forward to the trip. As it turned out, United Airlines was quick to make sure they put a big damper on my happiness. After all, I fly between 100 and 130k with them... Year by year, mile by mile... for the last 21 years (oops... you think you could expect a little service..,

So...right after The Eventful Group confirmed, I called United to book the flight. I call because I have 6 global upgrades and if you book online you can't use them (you figure out why that is). The rep on the phone gave me the run-around "you can't use an upgrade in that fare class... No, not that day... Uh, not on Australian flights... Maybe later... Maybe earlier".

Ok! I understand, United. You don't want to give away biz class flights to Australia for an economy fare, but then say so. And don't make me book every flight of the year on United with the promise that I get 6 upgrades of which I want to use at least two on the ONE flight that means the most to me - 25 hours in coach? After I spend money on you at least twice a week for the whole year?

Ok... I'm booked... Standby for business first. Which means that in case they don't sell the seats, then they will put me on a waitlist which they prioritize by... 'god only knows how'

A little while later I think about my visa. United tells me they can do it for me... Ok, no need to go online where it's free. I can call a United rep and they do it for me. 75 minutes later I've been told that I have a visa for Australia... for a $60 charge. Unfortunately the Visa isn't there when I check in at the airport. Not only that... But the check-in rep gives me a scolding about why I don't take charge and book my Visa online... "Because I trust United provides me with that service... As promised... For a 1K passsenger... For $60? She gives me that look that makes me feel like I'm a crazy man.

So I thank her for getting me a Visa and spending another $60 and get a 'roll of the eyes' in return. (I wonder how they treat in-frequent flyers).

On to LAX. 5 hours and 35 minutes in flight. I feel like that's enough for today but no dice... the big one is coming up next. At LAX I check on the waitlist for upgrades and I find myself as number 10. Briefly wondering how a 1K, who uses a complementary global upgrade (we get 6 of those a year and usually I have at least 5 of those expire at the end of the year), can be displaced by 9 other travelers (this is not a regular complimentary upgrade I am asking for - it's a global upgrade certificate) I check on the last segment from SYD to MEL. I am not even on the list !

So I go to speak to an agent... "Call the help desk". I do and I ask why I'm not on the list. The phone agent: "Do you want to talk to IT?" I say "No, I want to get on the list"... I hear a click, background music comes on and then I get disconnected. Again: how do they treat their in-frequent flyers?

Now I am boarding for the flight to Sydney. Seat assignment is 19C - bulkhead with extra air conditioning blowing the life out of me. The lady in the middle seat next to me is wrapped up in her and my blanket and a fleece jacket. She's not one of these skinny supermodels, so she takes up about 45% of the three seat... about 27.5% left for me. The airplane must be from the '70s. THEY STILL HAVE SHARED SCREENS FOR THE MOVIES !!! So there are 3 movies "Grown ups", "The Heat", "Planes" and a comedy collection available. They play that over and over for 15 hours. I pop some Melatonin and hope to be able to sleep.

Now comes the food... I really don't want to talk about it. It makes me sick... I didn't eat for the entire flight.

Meanwhile I take a jealous glance at Business First... that makes me feel much better. They have configurations of two and four seats. the seats come down flat - which is great for sleeping on your back - but they seem to be as wide as economy... not one inch wider. If you are in the middle of those four seaters, you must be feeling very similar to what I'm going through... and that for $18,500? Well you've got your own private screen!

It's Saturday morning and we land in beautiful Australia. Surprisingly, I feel ok. Slept about 7 hours, but I am really hungry. It seems that the UA Aussie staff is a lot more friendly. The get me into the New Zealand Air lounge and I get a very good breakfast. Then I stop by the desk to see if I can get an upgrade for the last leg. "No worries, mate" the agent replies, "there are 30 open seats in Business First. Please have a seat. I will look you up". It's only an hour and a half, but I don't mind using my upgrade certificate because it will expire anyway... along with 5 other ones.

there comes the lovely agent "We are so sorry Sir, but United does not allow you to be upgraded. They claim that the agents in LAX should have put you on the list in LA. Once you boarded the plane it's all done". I reply "but I was put on the list six weeks ago when I booked the flight?" "We are so sorry but they scolded us already!"

So the Aussies got scolded for trying to get a 1K his upgrade for the certificate that he deserved for flying 130,000 miles last year. No worries, mates! I sit in economy staring at Business First with 2 passengers and the flight attendants stretching out on those empty seats because they have no one to serve. Nice!

Now that it is all done I know that my life with United is coming to an end. And I am thinking about what was the best and what was the worst. That assessment is easy: the best was when it was still Continental! The worst? It's that feeling when you get off the phone with United or walk away from their check-in booth. It's that feeling of  "I must have done something wrong... I must be a bad person" that you get when you talk to them... Is that what "flying the friendly United skies" is all about?

Next year I will be a 1K again. I will receive those upgrade certificates again and I will use them when I can confirm the upgrade before the flight... without waitlist... as if that will happen? Other than that I will shop around for business class flights on long hauls and if I can give one suggestion as a frequent flyer: It is not worth buying every flight on United just to get a Premier Status. What's in it for me? absolutely nothing. I am much better off to buy a business class ticket on another airline for a better price.

...and the prioritization of that waiting list? I guarantee, that they give it to less frequent flyers who they want to entice to join and hook. Once you're hooked and fly the "friendly skies" all the times, they will treat you like they treat me... and that's not pretty...

Does the forecast HAVE to end up on the finished product?

All too often I see companies using strategy 40 for the finished product and then the forecast ends up as a VSF in every FERT's MD04 and the demand for all lower level BoM items comes from the finished goods. I find this a rather ineffective, cumbersome and downright costly way of planning... especially in the Process Industries where there's a V shaped BoM structure (much more finished product's variety than there are raw materials).

We all know that the forecast is always wrong. So if you forecast 10 liter bottles separately from 5 liter bottles that contain the same liquid, you are exponentially compounding that error when you hand it through to the bulk level.

How about forecasting and pre-manufacturing the liquid (bulk) to inventory and filling it into the bottle as the customer is asking for it?

I am aware that this sounds too easy and isn't practical everywhere. At least you can think about it and take another point of view. Who knows... It might make a big positive difference and may be worth a try