Case Study 1: AOP(Production Side) of a mid-size FMCG company. Building the Plan.

4.Production side of the AOP (Annual Production Plan).

4.1.Objective.

 At this point we have all the necessary prerequisites to start planning.

Here is a brief review:

  1. An Annual Sales Plan in Year, Half Year, Quarterly, and Monthly Time Buckets for the Year 2015 submitted by the Sales and Marketing Department.
  2. An Annual Target Stock Levels Plan in Year, Half Year, Quarterly, and Monthly Time Buckets for the Year 2015 which is supposed to provide flawless execution of the Annual Sales Plan.
  3. A complete description of SKUs manufactured on the various Production Lines along with Production Rates, Efficiencies and Minimum Lot Sizes defined in the Basic.WorkCentersAndSkus table.
  4. A complete list of Available Times per Production Line, per Time Bucket kept in the Basic.WorkCentersConstraints table.
  5. Demanded Quantities and Target Stock Levels defined per SKU per Time Bucket in the Basic.Demand worksheet.
  6. Initial On Hand Balances per SKU for the Key Time Buckets stored in the Open Stocks column of the Basic.OpenStocks table.
  7. Estimated Standard Costs per SKU for the Key Time Buckets which can be found in the Param.Values column of the Basic.Param table, and
  8. Inventory Position Targets per Time Bucket submitted by the Financial Department, and entered in the Param.Constraints column of the Basic.ParamConstraints table.  

Our main objective is: to build a reasonable Annual Production Plan (or production side of the AOP) based on the Annual Sales Plan, and the Annual Target Stock Levels Plan in Year, Half Year, Quarterly, and Monthly Time Buckets. The Annual Production Plan must consider both Capacity Constraints, and Inventory Position Targets.

In order to meet the objective, we will apply a Top-Down Approach.  In other words, we will decompose the planning job into smaller tasks, and we will start planning by looking at the most general problems, first. Gradually, we will reach the required level of detail.


4.2. Building the Annual Production Plan in various types of Time Buckets.

Download Case_Study-1(2).xlsx

4.2.1. Zero Closing Stock Plans in Year, Half Year, Quarterly and Monthly Time Buckets.

In general, Zero Closing Stock Plans are made of quantities sufficient to cover the Demand. They will show us instantly whether Fine FMCG Industries, ltd. has enough capacity to meet the requirements of the Annual Sales Plan.

We will start from building a Planning Grid in Year Time Buckets by selecting the Main.RollingPlan worksheet, and clicking on the Build “Rolling Plan Template Button” located in the Rolling Plan Section of the Rolling Plan Ribbon Tab:

Build a Rolling Plan Template in Year Time Buckets

Once the template is built, we will use Automated Planning with no selected parameters to create the Zero Closing Stocks Plan:

Create a Zero Closing Stocks Plan in Year Time Buckets

Here what the Planning Grid is supposed to look like:

A Zero Closing Stocks Plan in Year Time Buckets

By filtering Remaining Capacity rows (SKU ID Column), we can find immediately that there is a relatively small capacity shortage on “Production Line CW”, and a serious capacity shortage on “Production Line UCB”:

A Zero Closing Stocks Plan in Year Time Buckets Filtered

We can try to rectify the problem by imposing Capacity Constraints on the plan:

Create a Zero Closing Stocks Plan in Year Time Buckets with Capacity Constraints

When there is a tick in the Capacity Constraints Check Box, Automated Planning tries to find alternative ways to produce Demanded Quantities in order to overcome shortages in Production Capacity.

Here what happens after constraining the capacity:

A Capacity Constrained Zero Closing Stocks Plan in Year Time Buckets Filtered

Let us take a more detailed look at the problematic Production Lines:

A Capacity Constrained Zero Closing Stocks Plan in Year Time Buckets Detailed View

It can be seen that Automated Planning managed to redistribute the load between “Production Line CW”, and “Production Line CW1” by utilizing part of the excessive capacity on “Production Line CW1”. The algorithm moved some of the Planned Quantities of “Product 1” and “Product 2” from “Production Line CW” to “Production Line CW1”. Another thing to be noticed is that the problem with manufacturing of Demanded Quantities of “Product 82”, “Product 83”, “Product 84”, and “Product 85 MT” on “Production Line UCB” could not be alleviated, as there are no alternative Routings for these items.

If we repeat the steps above for Half Year Buckets:

Build a Rolling Plan Template in Half Year Time Buckets

We will find out that one more Production Line (“Production Line UCB1”) will  experience capacity shortage in the second half of the Year 2015 (2015-H02):

A Zero Closing Stocks Plan in Half Year Time Buckets Filtered

And, this shortage cannot be reduced by redistributing Planned Quantities:

A Capacity Constrained Zero Closing Stocks Plan in Half Year Time Buckets Detailed View

It can also be seen that  there is capacity to spare on “Production Line UCB1” in the first half of the Year 2015 (2015-H1).

If we rebuild the Planning Template in Quarterly Time Buckets:

Build a Rolling Plan Template in Quarterly Time Buckets

A Zero Closing Stocks Plan in Quarterly Time Buckets Filtered

We will discover that capacity problems on “Production Line UCB” will start in the first Quarter of the Year 2015 (2015-Q01), and in Quarter 3 (2015-Q03) situation will become critical. “Production Line UCB1” will also experience capacity shortage in Quarter 3 (2015-Q03), but this problem could possibly be resolved by utilizing Available Time in Quarter 1. Finally, since there is some capacity to spare on “Production Line CW1” there might be an opportunity to overcome capacity shortages on “Production Line CW” in Quarter 2 (2015-Q02) and Quarter 4 (2015-Q04).

After imposing Capacity Constraints on the Zero Closing Stocks Plan, situation changes the following way:

A Capacity Constrained Zero Closing Stocks Plan in Quarterly Time Buckets Detailed View

There are no improvements on “Production Line UCB”, and “Production Line UCB1”. Capacity shortage on “Production Line CW” in Quarter 2 (2015-Q02) is resolved, but even if Planned Quantities of “Product 1”, and “Product 2” are redistributed between “Production Line CW”, and “Production Line CW1”, the shortage on “Production Line CW” remains.

If we create a Zero Closing Stocks Plan in Monthly Time Buckets:

Build a Rolling Plan Template in Monthly Time Buckets

A Zero Closing Stocks Plan in Monthly Time Buckets Filtered

We may notice that January,2015 (2015-M01) is the only period when there is no expected capacity shortage on “Production Line UCB”. Situation will become critical between 2015-M06 and 2015-M09. It can also be seen that “Production Line UCB 1” will also experience problems in the middle of the Year 2015 (from 2015-M06 till 2015-M09), while “Production Line CBS” will not be able to cover the Monthly Demand at the end of the Planning Horizon (2015-M11, and 2015-M12). In addition to this, there will be a problem on “Production Line UCW” in June, 2015 (2015-M06), and “Production Line CW” (2015-M01 till 2015-M06, and 2015-M09 till 2015-M12).

Running Automated Planning with Capacity Constraints on the Zero Closing Stocks Plan in Monthly Buckets reveals the real scale of the problem:

A Capacity Constrained Zero Closing Stocks Plan in Monthly Time Buckets Detailed View1


A Capacity Constrained Zero Closing Stocks Plan in Monthly Time Buckets Detailed View2


4.2.2. Plans Driven by Target Stock Levels in Year, Half Year, Quarterly and Monthly Time Buckets.

Zero Closing Stock Plans are artificial abstractions assuming that all the Demanded Quantities are manufactured and consumed in the periods of Demand. In reality, this is not the case. If we take a look at the rules the Annual Target Stock Levels Plan is built on, we will find that in the case of Fine FMCG Industries, Ltd.,these assumptions are valid for Exported Products only. All other items require each of the Planned Periods to be opened at certain stock levels. In some of the cases (Limited Edition Products, New Products, Giraffe Products) Open Stocks must be sufficient to cover entirely the month of Demand.   

In order to achieve a more realistic planning result, in the section below, we will incorporate the Annual Target Stock Levels Plan into the Rolling Production Plan.   

Again, we will start with a plan in Year Time Buckets. Once the template is built, we will use Automated Planning with the following parameter settings to generate Planned Quantities:

Create a Target Stock Levels Driven Plan in Year Time Buckets

 Here what the automatically generated Planning Grid is supposed to look like:

A Target Stock Levels Driven Plan in Year Time Buckets

By filtering on Remaining Capacity (SKU ID Column), again, we will find that there is a relatively small capacity shortage on “Production Line CW”, and a serious capacity shortage on “Production Line UCB”:

A Target Stock Levels Driven Plan in Year Time Buckets Filtered

Like in the previous case, we will try to rectify the problem by imposing Capacity Constraints on the plan:

Create a Capacity Constrained Target Stock Levels Driven Plan in Year Time Buckets

After constraining the capacity, situation changes the following way:

A Capacity Constrained Target Stock Levels Driven Plan in Year Time Buckets Filtered

Let us take a more detailed look at the problematic Production Lines:

A Capacity Constrained Target Stock Levels Driven Plan in Year Time Buckets Detailed View1

It can be seen that Automated Planning managed to redistribute the load between “Production Line CW”, and “Production Line CW1” by utilizing part of the excessive capacity on “Production Line CW1”. The algorithm moved some of the Planned Quantities of “Product 1” and “Product 2” from “Production Line CW” to “Production Line CW1”. Another thing to be noticed is that the problem with manufacturing of Demanded Quantities of “Product 82”, “Product 83”, “Product 84”, and “Product 85 MT” on “Production Line UCB” could not be alleviated, as there are no alternative Routings for these items.

If we repeat the steps above for Half Year Buckets:

A Target Stock Levels Driven Plan in Half Year Time Buckets Filtered

We will find again that one more Production Line (“Production Line UCB1”) will experience capacity shortage when trying to meet Target Stock Levels, this time, in the first half of the Year 2015 (2015-H01).

After running Capacity Constrained Automated Planning:

A Capacity Constrained Target Stock Levels Driven Plan in Half Year Time Buckets Detailed View

we may notice that problems on “Production Line CW” were resolved, and in order to meet the capacity constraint, Planned Quantities on “Production Line UCB 1” were reduced. Latter led to a slight decrease in the Closing Stocks, but did not cause stock-outs in 2015-H01.

If we rebuild the Planning Template in Quarterly Time Buckets, and run Automated Planning:

we will immediately spot capacity problems on “Production Line UCB”. They are going start in the first Quarter of the Year 2015 (2015-Q01), but situation in Quarter 3 (2015-Q03) will become critical. On the other hand, “Production Line UCB1” will experience capacity shortages in Quarter 2, and Quarter 3 (2015-Q02, 2015-Q03), and “Production Line CBS” will not be capable of producing Demanded Quantities in 2015-Q04. Finally, there will be lack of Available Time on “Production Line CW” in 2015-Q01,2015-Q2, as well as in 2015-Q4, but considering the spare capacity on “Production Line CW1”, no stock-outs are expected.

After imposing Capacity Constraints on the plan, situation changes the following way:

A Capacity Constrained Target Stock Levels Driven Plan in Qrterly Time Buckets Detailed View2

“Production Line UCB” did not improve at all. In Quarter 2 (2015-Q02), due to the lack of capacity on “Production Line UCB 1” Closing Stock Levels were lowered, but no stock-outs are expected. In 2015-Q03, however, stock-outs on “Production Line UCB 1” are quite evident. It can also be seen that insignificant Backlog is going to be built on one of the items manufactured on “Production Line CBS” in the last quarter of the Year 2015. Problems on “Production Line CW” were resolved with no negative effect on Closing Stocks.


Planning in Year, Half Year, and Quarterly Time Buckets gives us heads up on difficulties we may experience through the year. In order to resolve them in a reasonable way, however, we must build a plan in Monthly Time Buckets.


Here what the Annual Target Stock Levels Driven Plan in Monthly Time Buckets is supposed to look like:

A Target Stock Levels Driven Plan in Monthly Time Buckets Filtered1

The filtered Planning Grid shows that if we try to comply with the Annual Target Stock Levels Plan, in some of the months we are going to experience capacity shortages while in other periods we will have excessive capacity. To get the possible stock-outs, we have to run Automated Planning with both Stock Constrains, and Capacity Constraints activated. 

Let us analyse Production Lines one by one: 

A Capacity Constrained Target Stock Levels Driven Plan in Monthly Time Buckets Detailed View A

Production Line CW: According to the Annual Sales Plan, two New Products (“New Product 1”, and “New Product 2”), and a Limited Edition Product (“Limited Edition 1”) manufactured on this Production Line will be introduced in the Year 2015. In spite of the volume distribution between “Production Line CW”, and “Production Line CW1”,  there are several months in which Available Times will be fully utilized (or almost fully utilized). These are:2015-M06, 2015-M09, 2015-M10, and 2015-M12. It should be mentioned that in 2015-M06 Available Time will be much lower due to the nine Company Holidays. In 2015-M09, 2015-M10, and 2015-M12 introduction of the “New Product 2” will put additional load on the line, and almost complete consumption of the available capacity is expected.

Production Line CW1: As stated in the Annual Sales Plan, “Product 26”, and “Product 27” will sustain nearly constant Demand through the Year 2015. However, due to the capacity limitations on “Production Line CW”, part of the quantities of “Product 1”, and “Product 2” will be moved for manufacturing to “Production Line CW1”. This increased load will require running “Production Line CW1” at 100% in some of the planning periods(2015-M06, 2015-M10, 2015-M11, and 2015-M12), but no Backorders are expected over the Planning Horizon. Like in the previous case, in 2015-M06, Available Time will be fully utilized thanks to the large number of Company Holidays.

Production Line UCW: This line presents an interesting case because of the expected re-branding of “Product 35”, “Product 38”, and “Product 40”. According to the Annual Sales Plan, Fine FMCG Industries, Ltd. will start offering “Rebranded Product 1”, “Rebranded Product 2”, and “Rebranded Product 3” instead of “Product 35”, “Product 38”, and “Product 40” in May,2015 (2015-M05). Meaning that manufacturing of the old products must end in March, 2015(2015-M03), and starting from April, 2015(2015-M04) the new items must be put in production. It is not desirable to produce or to leave any quantities of old products in the Finished Goods Warehouse, after March,2015 (2015-M03). However, it can be seen that Automated Planning scheduled for manufacturing 923 boxes of Product 35 in 2015-M04, and 64 more in 2015-M05 to cover a stock-out. Latter does not make much sense, and is probably due to improper setting of the Target Stock Levels. We may also notice that in the month the first quantities of the new products are supposed to be manufactured (2015-M04), 100% of the Available Time is utilized. Situation is similar in 2015-M06.

Production Line CB: In most of the months (except for 2015-M01 and 2015-M02 when “Limited Edition 3” is planned for production, and 2015-M08 when “Giraffe Product 7 +15%” is expected to be manufactured) there is enough capacity to spare on this Production Line.

A Capacity Constrained Target Stock Levels Driven Plan in Monthly Time Buckets Detailed View B

 Production Line CBS: There are several important details to be noticed in the Sales Plans of the items manufactured on this line: two Giraffe products (“Giraffe Product 1 +10%”, and “Giraffe Product 2 +10%”) will be offered in February,2015 (2015-M02), a Limited Edition Product will be sold from May till July(2015-M05 till 2015-M07), and then from October till December (2015-M10 till 2015-M12), and increased sales of “Product 122” are expected from September till December (2015-M09 till 2015-M12). “Product 122”, “Product 123”, and “Product 144” will not be sold in February (2015-M02). In spite of this complexity, “Production Line CBS” will experience some capacity shortages in 2015-M06, and then from 2015-M09 trough 2015-M12, but Backorders are expected only in the last two months of the year.

Production Line UCB: It is evident that this Production Line does not have sufficient capacity to manufacture quantities stated in the Annual Sales Plan. Differences between Required Times to Produce Demanded Quantities, and Available Times are significant in every Time Bucket over the Planning Horizon. Under these circumstances, every planning period will close with Backorders, and neither Monthly, nor Annual Sales Targets will be met.

Production Line UCB1: “Product 114″, “Product 115”, “Product 118”, and “Product 119 MT” made on this Production Line are expected to have ramping demand through the year. Sales volumes are planned to reach a maximum in September (2015-M09), and then to get back close to the initial levels. Except for 3 months (2015-M02 till 2015-M04), production capacity is fully utilized. And due to the peaking Demand in September, the periods from 2015-M09 through 2015-M12 will close with Backorders.

 Production Line SC: No significant problems are expected on this Production Line. According to the Annual Sales Plan, “New Product 13” will be introduced in May,2015 (2015-M05), and “Limited Edition 8” will be sold from May till July (2015-M05 till 2015-M07), and after that from October till December (2015-10 till 2015-M12).  Synchronous introduction of the New Product, and the Limited Edition Product in May,2015 will cause a significant increase in the load in 2015-M04 which will cause an almost complete utilization of the available capacity. 


4.3. Fixing Problems Caused by Capacity Shortages.

Insufficient production capacity is related to inability to produce desired quantities, and closing planning periods below Target Stock Levels. Latter makes companies vulnerable to Demand variations,and in the most severe cases leads to lost sales due to stock-outs, or building of Backlogs. On the other hand, running Production Lines at almost 100% capacity is a risky business, as production delays caused by technical break-downs or lack of materials may put execution of the Production Plan, and the Sales Plan in jeopardy.

There are many ways to overcome problems caused by capacity shortages. In this Case Study, we will mention just a few of the techniques in relation to the expected issues on various Production Lines.

4.3.1. Upfront production.

This is the most straightforward method for resolving capacity problems in a given period. It consists in manufacturing of the quantity necessary to cover a shortage of a given product (or a group of products) in a Time Bucket preceding the problematic period. The idea is to utilize excessive capacity in the preceding period, and to stock the product (or products)  in advance in order to free some time in the period we expect to have manufacturing issues in. In spite of its simplicity, this approach has drawbacks. Increased inventory takes space in the Finished Goods Warehouse, affects negatively the cash flow, and requires careful stock management (FIFO, or FEFO), especially when we deal with FMCG products.

To apply this method, we must select Production Lines, items, and periods for upfront production. Ideal products for manufacturing “in advance” must be compact (in order not to take a lot of space in the warehouse), with long shelf life (so they could be stored for a long time), cheap (in order not to cause a significant increase in the Inventory Position), with low Production Rate (i.e. they must consume a great deal of the Production Capacity), with stable Demand (as Demand Variations may lead to stock-outs, lost sales, and Backorders) , etc.

The first draft of the Capacity Constrained Target Stock Levels Driven Annual Production Plan shows that there are no expected significant capacity shortages on “Production Line CB”, and “Production Line SC” only. For the rest of the lines, we may find periods in which Required Times to manufacture Planned Quantities are close to, or exceed Available Times.

Capacity Constrained Target Stock Levels Driven Annual Production Plan for Production Line CW & CW1

For the purpose of this example, we will choose “Production Line CW”, and “Production Line CW1”. They are interesting because:

1.Both lines can produce highly demanded “Product 1”,and “Product 2”. 

2.Due to the introduction of the “New Product 2”, their production capacities are almost completely consumed from September,2015 till December, 2015 (2015-M09 till 2015-M12).

It can be easily seen that there is excessive capacity on “Production Line CW1” in 2015-M07, and 2015-M08. It can also be noticed that in addition to “Product 1”, and “Product 2” there are just two more items manufactured on this line namely “Product 26”, and “Product 27”. “Product 26” is relatively cheap while “Product 27” is quite costly to make. Both products have comparatively low, almost constant Demand:

Annual Sales Plan for Product 26 and Product 27

Production Rates are not very high either:

Production Rates, Efficiencies, and Minimum Lot Sizes of SKUs produced on Production Line CW & CW1

To make the necessary changes in our plan, we must go to the Planning Grid located on the Main.RollingPlan worksheet, and modify Planned Quantities of the selected products in the period from 2015-M08 till 2015-M12. For simplicity, we will add manually 4000 boxes to the Planned Quantities of both items in 2015-M08, and then we will subtract 1000 boxes from the Planned Quantities in each of the Time Buckets in the period 2015-M09 till 2015-M12. The final result is supposed to look like this:

Capacity Constrained Target Stock Levels Driven Annual Production Plan for Production Line CW & CW1 manually fixed1

As we can see, some of the capacity was freed on “Production Line CW1”, values of the Inventory Position went up, but in the most of the periods we are still below the Inventory Position Targets.

At this point, we can save our plan by giving it a unique name (“Rolling_Plan_CW_CW1”), and clicking on the “Save Plan” button located in the Rolling Plan section of the Rolling Plan Ribbon Tab.

4.3.2. Increasing Available Time.

As mentioned before, there is a period (2015-M06) within the Planning Horizon in which most of the Production Lines experience capacity shortages. The reason for that is that in this particular month there are more Company Holidays, and hence there is less time left for manufacturing. The simplest thing to do would be to make Production Lines work on one or two of the holidays in order to add some Available Time to the period. As this decision is made well in advance, it is not supposed to ignite any negative reactions in the workforce.

rollingPlan allows us to implement changes like this for each Production Line in the Basic.WorkCentersConstraints worksheet, but to make it real quick, we will decrease the number of holidays for all the lines in the Available Times table:

Increased Available Times in 2015-M06

This modification of Time Constraints can be followed in the Basic.WorkCentersConstraints table:

Available Times Compared

Increased capacity can also be seen in the Planning Grid:

Increased Capacity in 2015-M06

 

 4.3.3. Capacity redistribution.

When planning, we may run into situations in which production capacity is not properly distributed, i.e. some of the items are manufactured in big quantities while others are expected to be on stock-out. We can find a case like this on “Production Line CBS” in 2015-M11:

Inappropriate capacity distribution on Production Line CBS

 

This kind of problem can be solved either by manually redistributing Planned Quantities, or by using the “No Stockouts” option of Automated Planning:

No Stockouts on Production Line CBS

Here how the end result may look like:

Solution of Inappropriate capacity distribution on Production Line CBS

 After making these changes, we can save another version of our plan by giving it a unique name (“Rolling_Plan_CW_CW1_1”), and clicking on the “Save Plan” button located in the Rolling Plan section of the Rolling Plan Ribbon Tab.

 

4.3.4. Substitution of Demanded Quantities.

Inability to produce Demanded Quantities due to capacity shortages on Production Line UCB

“Production Line UCB” is a good example of mismatch between intentions of the Sales and Marketing Department, and manufacturing capabilities of Production. Sometimes, Sales Plans cannot be executed in full because Production Lines simply do not have capacity to produce Demanded Quantities. In cases like this, Sales Plans have to be modified to accommodate the difference. This is not impossible as there are many ways to achieve a given Sales Target, but most of the companies are driven by sales, and, in general, customers do not perceive such actions positively. Thus, before asking Sales and Marketing to substitute any volumes of “Product 82”, “Product 83”, and “Product 84” with quantities of items manufactured on Production Lines with capacity to spare, we have to make sure that all technical, and organisational options to overcome capacity shortages on “Production Line UCB” are exhausted.

As a first step, we will make “Production Line UCB” work 24×7 by adding Available Times to the values in the Time Constraint column of the Basic.WorkCentersConstraints worksheet:

Then, we will rebuild the Capacity Constrained Annual Production Plan for “Production Line UCB” by using Automated Planning:

Create a Capacity Constrained Target Stock Levels Driven Plan in Monthly Buckets on Production Line CB & UCB

Recalculated Capacity Constrained Target Stock Levels Driven Plan in Monthly Buckets for Production Line CB & UCB

As a result, we have an improved situation on “Production Line UCB”, but in order to meet the Annual Sales Targets, Sales and Marketing Department still has to modify the Annual Sales Plan. Having in mind expected monthly shortages of “Product 82”, “Product 83”, and “Product 84”, as well as available capacities for the rest of the products, they may come up with a solution like this:

Revised Annual Sales Plan

In the revised version of the Annual Sales Plan, some of the quantities of “Product 82”, “Product 83”, and “Product 84” are substituted with equivalent demands of “Product 53” manufactured on “Production Line CB”, as well as with “Product 146”, “Product 147”, “Product 148”, and “Product 149” made on “Production Line SC”.

In order to utilize available capacity, Annual Target Stock Levels Plan must be modified also:

Revised Annual Target Stock Levels Plan

After all changes in the Sales Plan, and Target Stock Levels are made, we can rebuild the Capacity Constrained Target Stock Levels Driven Annual Production Plan by applying Automated Planning on “Production Line CB”, “Production Line UCB”, and “Production Line SC”. The final result may look the following way:

There are several things to be noticed in the revised Production Plan:

1. There are no more stock-outs, and Backorders on “Production Line UCB”.

2. Production Capacity of “Production Line UCB” in the period 2015-M08 till 2015-M11 is almost fully utilized.

3. In order to take advantage of the spare capacity on “Production Line UCB” in the first half of the year, Target Stock Levels of “Product 82”, “Product 83”, and “Product 84” were increased, resulting in high stock coverage, and increased Inventory Position values.

4. There is plenty of spare capacity left on “Production Line CB”, and “Production Line SC”.


Let us make a quick review on what has been done to improve the Capacity Constrained Target Stock Levels Driven Annual Production Plan, so far:

1.We fixed the improperly set Target Stock Levels of “Product 35”, “Product 38”, and “Product 40” manufactured on “Production Line UCW” in 2015-M03.

2.We planned for upfront manufacturing 4000 boxes of “Product 26”, and “Product 27” on “Production Line CW1” in 2015-M08.

3.We increased Available Times on all Production Lines in 2015-M06, and set “Production Line UCB” for 24×7 operation through the year.

4.We redistributed production capacity on “Production Line CBS” in 2015-M11, and finally

5.We revised the Annual Sales Plan by substituting some of the quantities of “Product 82”, “Product 83”, and “Product 84” manufactured on “Production Line UCB” with equivalent volumes of “Product 53” made on “Production Line CB”, as well as with quantities of “Product 146”, “Product 147”, “Product 148”, and “Product 149” produced on “Production Line SC”. 


 As a result, the Capacity Constrained Target Stock Levels Driven Annual Production Plan of Fine FMCG Industries, ltd. looks much better, but there are two Production Lines that still need work:

Capacity shortages on Production Line CBS and UCB1

Production Line CBS: Even though capacity was redistributed in 2015-M11, it is evident that this solution does not satisfy the requirement for full month coverage of Limited Edition Products. In addition to this, some Backlog is expected to be built in 2015-M12.

Production Line UCB1: We can spot expected capacity shortages in most of the planning periods except for 2015-M02 till 2015-M04, and 2015-M06. Situation will be critical in September, 2015 due to the spike in Demand.

In order to resolve the Backlog on Production Line CBS, we will try to redistribute capacity in 2015-M12: 

No Stockouts on Production Line CBS 2015-M12

Solution of Inappropriate capacity distribution on Production Line CBS 2015-M12

It is obvious that capacity redistribution does not help much to fix the Backlog. Because of the lack of Available Time, Backorders are spread among all the items manufactured on “Production Line CBS” which makes the situation even worse. 

The second option we can explore on this Production Line, is to produce upfront some of the quantities in 2015-M08. To accomplish this, we have to increase Target Stock Levels in the period 2015-M08 through 2015-M10 like this:

Solution of Inappropriate capacity distribution on Production Line CBS 2015-M12-TSL

Then, by using Automated Planning we may reach the following solution:

Solution of Inappropriate capacity distribution on Production Line CBS 2015-M12-Final

It can be seen that in the period 2015-M08 through 2015-M11 production capacity was almost fully utilized, Target Stock Level requirements for the Limited Edition Product were fulfilled, and no stock-outs are expected. As a consequence of the increased Closing Stock Levels, Inventory Position values also went up.

Solution of the capacity issues on “Production Line UCB1” is more challenging as the problem is a bit more complex:

Capacity shortages on Production Line UCB1

Even the most superficial inspection of the Annual Production Plan reveals capacity shortage leading to Backlogs in 2015-M09, 2015-M10, and 2015-M11.

As a first step, similar to “Production Line UCB”, we will try to increase Available Times by scheduling “Production Line UCB1” for 24×7 operation year-wise in the Basic.WorkCentersConstraints table:

Setting Production Line UCB1 for 24x7 operation

Then, we can use Automated Planning to quickly asses the effect of this change on the Annual Production Plan, as follows:

Solution for capacity shortages on Production Line UCB1-assesment

It is not difficult to notice that upfront production combined with slight modification of Target Stock Levels in the period from 2015-M02 till 2015-M06:

Fixing Target Stock Levels on Production Line UCB1

may deliver a reasonable solution like this:

Solution for capacity shortages on Production Line UCB1-final


Here is what we finally came up with:

Rvised Capacity Constrained Target Stock Levels Driven Plan in Monthly Time Buckets Detailed View1

Rvised Capacity Constrained Target Stock Levels Driven Plan in Monthly Time Buckets Detailed View2


 

4.4. Adjusting the plan to meet Inventory Position Targets.

No matter how good our plan is, there is always room for improvement. In the sections above, we solved capacity shortages by using upfront production, and adjustment of Target Stock Levels. It can be easily seen that in most of the cases these adjustments increased the Inventory Position values beyond Inventory Position Targets:

Inventory Position Values and Inventory Position Targets 

Making our finely tuned Capacity Constrained Target Stock Levels Driven Annual Production Plan comply with the Inventory Position Targets over the Planning Horizon is a challenging task. It requires some skill, and may eventually lead to a massive rework of the planning solution. There are several ways to handle this problem: we may try to adjust manually Planned Quantities for some of the items in order to get the right values of the Closing Stocks, or we may activate the “Top Line Constraints” option of Automated Planning. Another thing that can be done is to use some combination of both as the planning algorithm is not perfect.

In order to take into consideration “Top Line Constraints” in Automated Planning, we must set Planning Parameters like this:

Activate Top Line Constraints

After imposing the complete set of constraints on the Annual Production Plan, the solution changes. Let us take a more detailed look at it:

Top Line Constraints imposed on the Annual Production Plan Detailed View A1

 Production Line CW: Planned Quantities of the Limited Edition Product in 2015-M03 are not sufficient to cover the Demand in 2015-M04. Planning algorithm found an opportunity to produce the missing volumes in 2015-M06 which is not acceptable. In order to met the sales target we have to produce these quantities either in 2015-M03, or in 2015-M04. In the first case we will have to reduce Planned Quantities of some other product (or group of products) in order to stay below the Inventory Position Target. Another thing to be noticed is that Inventory Position Targets seize the opportunities for upfront production, and in some of the periods (2015-M06,2015-M10,2015-M11,and 2015-M12), “Production Line CW” must be run at full capacity. 

Production Line CW1: Imposing Top Line Parameter’s Constraints on the Annual Production Plan does not cause significant disturbances on this Production Line. The only visible effect is that Production Capacity is poorly utilized in some of the periods while in others all Available Time is consumed. 

Production Line UCW: The Annual Production Plan on this line looks good, except for the period 2015-M03 when “Product 35”, “Product 38”, and “Product 40” are not planned in sufficient quantities to ensure smooth transition to Rebranded Products. Automated Planning tried to compensate material shortages in 2015-M06, and 2015-M10 which is not reasonable, as according to the Annual Sales Plan, only Rebranded products are supposed to be offered to customers starting from 2015-M05. An easy fix in this case would be to remove Planned Quantities from 2015-M06, and 2015-M10, and to set them for production in 2015-M04. 

Production Line CB: There are 5 items manufactured on this Production Line, and each of them is of a different kind: “Product 53” is a typical Traditional Product, “Product 54 MT” is the Modern Trade version of “Product 53”, “Product 55 Exp” is an Exported Product, while, logically enough, “Limited Edition 3” is part of the Limited Edition “family”. Here, we can also find a Giraffe Product (“Giraffe Product 7 +15%”) which is an “extended” version of “Product 53” to be sold in both Traditional Trade, and Modern Trade channels. This variety of items comes with a variety of stock management rules, and ,not surprisingly, we can see so many glitches in the automatically generated plan. Let us try to find simple solutions to these problems. For example, “Product 55 Exp” is missing one unit  in 2015-M02. Adding one box to the Planned Quantities 2015-M02, and subtracting one box from 2015-M03 will not cause any trouble. According to the Annual Sales Plan, “Limited Edition 3” is supposed to be offered in the period from 2015-M02 till 2015-M04. It is not supposed to be produced in 2015-M04, but since we cannot go above the Inventory Position Target in 2015-M03, we have either to manufacture the missing volumes in 2015-M04 (and to take out recommended quantities from 2015-M06), or to make them in 2015-M03, but to reduce Planned Quantities of some other products. Closing Stocks of “Product 53”, and “Product 54 MT” expose deficiencies in 2015-M08. Considering the fact that  “Giraffe Product 7 +15%” will substitute these items in 2015-M09, we can produce the missing boxes in 2015-M08 (reducing planned volumes in 2015-M09), and move Planned Quantities of “Giraffe Product 7 +15%” from 2015-M10 to 2015-M09.

Top Line Constraints imposed on the Annual Production Plan Detailed View B

Production Line CBS: Similar to “Production Line CB”, a variety of Traditional, Limited Edition, and Giraffe Products are planned for manufacturing on this line. Again, here, we can find some missing volumes of Limited Edition, and Giraffe Products. The Annual Sales Plan says that “Limited Edition 5” will be offered from 2015-M05 till 2015-M07, then from 2015-M10 trough 2015-M12. In this case, however, the reason for not planning Targeted Volumes is not in the Inventory Position Constraint, but in the Capacity Constraint. Like above, some minor quantity must be added to 2015-M07 (and taken out from 2015-M09) to cover the deficiency. In the same manner, we can solve the issue of “Giraffe Product 1+10%”, and “”Giraffe Product 2+10%” in 2015-M02.

Production Line UCB: This Production Line presents the most significant planning challenge for the second time. The unique combination of Demand, lack of available Production Capacity, and Inventory Position Targets make planning of desired quantities in 2015-M09, 2105-M10, and 2015-M12 quite problematic. Since Available Times are fully utilized in 2015-M10 ,2015-M11, and 2015-M12, one of the few options to manufacture quantities sufficient to cover the Demand, and to build some stocks to close the months, is upfront production in 2015-M08. Latter will increase Inventory Position in 2015-M08 above the target, so Planned Quantity of some other product (or products)  must be reduced. A good candidate for this is “Product 122” made on “Production Line CBS”. If we take 690 boxes out of the planned volume, things get back to normal, but regardless of that, “Product 82”, “Product 83”, and “Product 84” are still expected to close 2015-M09 at zero stock levels.  

Production Line UCB1: On this Production Line, the only significant problem besides capacity shortages in 2015-M06, 2015-M11, and 2015-M12 is the expected stock-out in 2015-M09. Since there is some remaining capacity in this period, and Inventory Position value is below the target, we can add to the Planned Quantities of “Product 114”, and “Product 115” recommended by Automated Planning to close the month at more reasonable stock levels.

 Production Line SC: This is the easiest case of all. Shortages of Exported Products can be covered effortlessly by adding few boxes to the Planned Quantities in 2015-M04, and subtracting the same number from the volumes in 2015-M05.


Now we can take a final look at the Capacity Constrained Target Stock Levels Driven Annual Production Plan of Fine FMCG Industries, ltd. for the Year 2015:

A Capacity Constrained Target Stock Levels Driven Plan in Monthly Time Buckets Detailed View Final A

A Capacity Constrained Target Stock Levels Driven Plan in Monthly Time Buckets Detailed View Final B


5.Concluding Remarks.

Building a reasonable Annual Production Plan (Production Side of the AOP) is a complex task which entails reaching a compromise between conflicting limitations like Target Stock Levels, Capacity Constraints, and Inventory Position Targets. It also requires deep understanding of the Product Mix, and production capabilities of various Work Centers and/or Production Lines involved in the manufacturing processes.  Optimal solution often results from several iterations, and, ideally, is supposed to comply with the strategic goals of the company, and to take into account various risks originating from Demand variations, Sales/Demand Forecast Inaccuracies, inability to meet Sales Targets, technical break-downs on Production Lines, lack of Raw and Packaging Materials, insufficient Warehouse Capacity, etc.

In this respect, the Case Study presented above is intended to demonstrate how to use the functionality of the rollingPlan for building a reasonable solution rather than to deliver the best possible Annual Production Plan. Its purpose is to give a general view on the problems we may encounter during planning, and to propose how to deal with them by using various techniques without spending a lot of time, and efforts. 

By all means, Production Side of the AOP is supposed to be a result of a consensus between Sales, Marketing, Production, and Finance. Normally, it serves as a reference, and its creation could be viewed as an element of a Standardized S&OP Process.

As a tool, rollingPlan is designed to spot real-life problems quickly, and facilitates making adequate business decisions. It can be used to generate plans either fully or partially, to save Named Plans, and to reuse parts of previously built plans to develop rapidly numerous versions of the Annual Production Plan.

Ironically, quality of the plan can be measured only after it is executed. In the next Case Studies, we will see how various Departments of Fine FMCG Industries, ltd., execute their parts of the Annual Plan, and how Outlooks of the AOP can be built when the year goes by.