The Internet Encyclopedia (Volume 3)

P1: JDW

Smith WL040/Bidgolio-Vol I WL040-Sample.cls June 20, 2003 13:19 Char Count= 0

SCM PLANNINGPROCESS 391

Suppliers

Suppliers/

Warehouses

Manufacturing

Mfg/

FG Warehouse

Distribution

Retailers/

Customers

Supply Chain Coordinator

New Manufacturer Positioning

Figure 3: Positioning to control the supply chain.

constitutes demand. The focus shifts from a build-to-stock

mentality, in which managers attempt to maximize the

utilization of production assets, to a build-to-order men-

tality, in which customer needs are the top priority. In

effect, the customer is scheduling the factory.

The objective becomes flexibility in the manufacturing

area so that production can be scheduled based on real

customer orders, instead of forecasts. To achieve this flex-

ibility, more communication is needed downstream, with

distributors and customers, and more control is needed

upstream, with suppliers of the raw materials and other

components needed in the manufacturing process. This

requires a stronger approach to the way a company man-

ages its supply chain. Instead of its former role of “just an-

other link in the chain,” the manufacturer needs to reposi-

tion itself above the chain (Arntzen & Shumway, 2002), to

monitor and control product flow across the entire supply

chain. By managing this correctly, the manufacturer can

provide better visibility for itself and all of the other mem-

bers of the chain. This new model is depicted in Figure 3.

Implementing demand planning requires several of the

supply chain technologies mentioned earlier. Tools for ac-

tive collaboration must be implemented to support the

communication of customer requirements and to forecast

product needs. Technologies supporting vendor-managed

inventory can be used to keep current with informa-

tion on customer consumption and buying habits. That

information can then be used in the demand planning pro-

cess to drive production scheduling. Optimization tools

such as advanced planning and scheduling (APS) software

can be used to establish an optimized production schedule

and provide visibility and control across the supply chain

to all affected participants. Each company’s ERP system

should then be integrated with the information provided

by APS to schedule and control internal operations.

Data warehousing and data mining are other SCM

tools often used to develop input for demand planning.

These techniques analyze large amounts of data for trends

in demand due to customer preferences, seasonality, and

other factors (Carnahan, 1997).

Advanced Planning and Scheduling

The purpose of APS is to plan and develop an optimized

production schedule to meet customer demand based on

the constraints of the materials, production resources,

and logistics of the supply chain. It goes beyond the ca-

pabilities of the scheduling provided by most ERP sys-

tems, by using supply chain optimization techniques that

determine an optimized schedule based on the goals of

management and the constraints of the system.

APS is used for both long- and short-term planning

activities. Long-term planning involves planning over the

entire supply chain and includes the interaction and coor-

dination of all members of the chain. Short-term planning

generally refers to scheduling at the plant floor level. In

both cases, constraints and the optimized goals of the or-

ganization are considered in the planning process.

SCM Execution

These technologies cover a range of solution areas, includ-

ing applications to track customers, the physical status

of goods, the management of materials, and financial in-

formation across the entire supply chain. SCM execution

technologies include systems for demand management,

production execution, materials management, and trans-

portation management.

Demand Management

Demand management attempts to optimize the perfor-

mance of the supply chain by integrating supply and

demand information. To do this, several supply chain

technologies are used. As mentioned earlier, forecast-

ing applications are of primary importance, especially

in collaboration with other members of the chain. De-

mand management during execution focuses on weekly or

monthly horizons, requiring close communication among

supply chain members. The customer relationship man-

agement (CRM) system must also be considered, linking

product requirements to other customer-related activities.

Pricing policies play an important role in managing

demand as well. Seasonal or sales promotions can cause

spikes in demand that are difficult to manage, especially

if those further up the chain aren’t aware of them. Col-

laborative forecasting systems link production and distri-

bution channels with forecasters, improving forecasting

accuracy by helping to determine the impact of pricing

and promotions, new product introductions, and inter-

mittent or declining demand. These sophisticated systems

predict the effect “causal” or “event-driven” factors have

on demand.

Demand management must provide closed-loop inte-

gration with other supply chain systems, providing ac-

curate information for supplier, production, distribution,

and customer management functions. Working together,

these systems have the potential to increase inventory

turns, reduce inventory obsolescence, and increase rev-

enues for all members of the supply chain.

Manufacturing Execution Systems

Manufacturing execution systems (MESs) enable the

optimization of production activities by managing the

information required to launch and complete products in

the manufacturing plant. Production requirements from

the supply chain are communicated via the ERP system to

an MES, which controls and reports on plant activities as

they occur. In turn, the MES provides information about

production activities to the enterprise and other mem-

bers of the supply chain. Using automated data collection

technologies, MES tracks work-in-process, labor report-

ing, and production reporting activities. By monitoring