Basics of smoothing the manufacturing plan
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One of the key problems for supply chain teams in many organizations but particularly for those in manufacturing environments are stable demand profiles. In scenarios where there are vast peaks and troughs keeping up with requirements (both forecast and real) can be complex and be easily derailed with either a sudden surge or slump in demand.
Production smoothing is an often used process which targets mitigating the uncertainty in demand (the peaks and troughs) whilst minimizing waste and driving manufacturing efficiencies. With its origins in the Toyota Production System and a tool often utilized in lean production leveling is now a widely utilized and important tool.
Smoothing production – that sounds difficult!
Modeling requirements to produce a smooth production plan is a fairly straightforward theory. When demand is consistent it is simple to level or smooth production to a regular drum beat. This is because it is easier to manufacture what is needed if you can easily estimate customer requirement. In reality though, for many organizations it is extremely difficult to accurately predict demand, because of constraints and variation.
The scenario of developing a production plan that gets it wrong is simple to understand. A production plan that realizes an output lower than what is actually demanded results in stock outs and unhappy customers. Conversely a production plan that outputs greater than requirement results in excess stock and ties up more cash in materials than is actually required.
Smoothing production aims to remove the peaks and troughs from production (and the corresponding signal that cascades to the supply chain). When smoothed, groups of the given products are produced in regular economic batch sizes at routine intervals. This is quite different from a manufacturing plan that just makes to order demanding materials and factory capacity as it goes.
With a smoothed profile batch sizes can be modeled to target reduced changeover times. This can dramatically reduce machine downtime and improve factory efficiency.
However, production plans don’t just take into account materials they also take into account other resources such as the factory workers and equipment – commonly referred to as capacity. Developing a manufacturing plan that requires more resources than you have physically available is obviously doomed to failure! What is required is to ensure that capacity and materials all work together to meet the production schedule.
Smoothing the production and developing a manufacturing plan is carried out by analyzing the products and then establishing an output volume based on actual and predicted demand coupled with targeted service levels. The particular advantages of this kind of system includes more than simply taking out waste. Flexibility within the company is one specific advantage that allows the customer to receive what they want when they need it thus ensuring a high level of satisfied customers whilst enabling the organization has improved visibility over costs.
Manufacturing plans do require a level of forecasting (which is typically mixed with firm future demand). So while over and under production cannot be completely eradicated – close attention to the performance of the plan coupled with regular “tuning” can help mitigate in the longer term. Organizations must be committed to processes that improve forecast accuracy – which may often involve closer collaboration with their market.
The key benefit to the supply chain is a settled demand pattern with suppliers being clear of priorities and requirements.. When the company flows its plan out to its supplier base ‘smoothing’ the order profile can be a key catalyst in removing bottlenecks and blips in the material flow.
For the plant, production smoothing also cuts out busy times that in turn reduce the need to bring in temporary employees whilst helping to reduce ‘dry’ periods that require layoffs. All this results a more stable workforce, employee loyalty, and commitment to the company than experienced if there were threats of job loss.
Whilst there are many advantages to “smoothing” production, it does require commitment from the operating company. It does need a degree of successful forecasting and it can take time to deploy and stabilize (as forecasting improves) it is a cultural shift away from making to order and requires adequate controls and leadership to ensure it is a success.
What are Bills of Materials
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The Bill Of Materials (BOM) is a detailed list that consists of all the component parts, sub-assemblies and materials together with the correct quantities required to produce and manufacture the end product. The BOM should provide an accurate description of what items the product is constructed from and, when combined with appropriate financial data, the true cost.
In using the BOM, understanding “the list of ingredients” it takes to produce the end goods, will assist the operational business activities from supply chain activities such as buying through to stock and inventory management. Having this information will simplify the estimation of parts and components needed to match demand (or forecast demand) and allow the business to respond appropriately.
When a company wants to increase or decrease output, using the BOM to drive the material requirements guarantees the correct amount will be ordered to fuel production. Where the BOM is inaccurate this can lead to manufacturing delays (waiting for parts) or excess inventory. Both of which results in cost.
Different Bill Of Materials for different uses?
With different stages of a products lifecycle (from development to testing through to production) companies commonly utilize different forms of BOM’s – they are all used in the same way but their robustness and their interface with operational elements like procurement vary.
Engineering bill of materials (often used in conjunction with an initial product configuration lists) are typically used during the product design phase. The engineering bill of materials continues to focus on the end product; however its role is to support the engineering team providing an outline of requirements. It’s common in this phase for the BOM to be incomplete or reference parts or materials that are yet sourced or designed. Engineering BOMs will typically not drive procurement activity but will be used in-house until such a time that the BOM is robust enough to be treated as a production BOM (i.e. the product has reached final design stage).
Manufacturing bills of materials are used to identify those parts required for manufacturing purposes – these are the most typical BOM’s and usually represent 100% of the product and its related components and are used within the forecasting process to identify to procurement which parts to buy and in what quantities.
In some industries (e.g. Aerospace) detailed bills of material often accompany the sales process. These Sales BOM’s identify the products as they are shipped (often down to component serial number level). This is often to meet compliancy requirements but also enables the end user to track usage and life expiry data). In some cases these BOM’s may not contain the full list of products but may only track those components that are required to be monitored during usage.
BOMS all have one thing in common, and that is they begin with the top level part (the saleable product) and then display all other parts using a parent child format. At one level (the parent) the end product—or sub-assembly item is listed, below that (the child) the sub components. when these parts are grouped, they create the end item.
The Modular BOM is another common layout. It is a method of developing a BOM for complex production items and those that need to make particular information about involved costs for every component and cost information of the various stages of sub-assembly. This can difficult. For example, data on the number of engineering drawings desired can be produced as well. However, using the BOM the information can be obtained and processed by the information systems as needed.
Summary
Bills of Materials are a common tool used in manufacturing organizations – they are used by many parts of the business from design through to supply chain and finally production. For BOM’s to be effective (and useful) they rely on robust and accurate data. Accurate BOM’s can drive efficiency and value – an incorrect BOM can spell disaster.