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WORDS FROM WALLACE - MAY 2007
WANT TO FORECAST LESS
AND
GET BETTER RESULTS?
In June of last year, our newsletter's topic was titled "Lean Forecasting." The premise: many companies could forecast less and get better results.
To see that newsletter, click
here.
The message was: forecast at the mix level (individual products, SKUs, items) only out to the Planning Time Fence - which approximates the
time
required to procure and produce specific items. For most companies, this ranges from about four to 12 weeks. If you're doing Postponement (think Dell
Computer) and/or using good Lean Manufacturing approaches, your Planning Time Fence (PTF) could be much less.
Beyond the PTF, forecast in aggregate: product families, groups, categories. Your forecasts will be more valid, contain less error, and require less
time and effort. Can't beat that, eh?
So the question arises: how do you get future capacity requirements out beyond the PTF? Answer: you employ these techniques:
- Resource Requirements Planning (also called Rough-Cut Capacity Planning) which uses . .
.
- Bills of Resources, to calculate workload by key resources, based on . . .
- Simplifying assumptions, which are kept current and valid as conditions change.
Resource Requirements Planning
This process "translates" the aggregate production plan for each product family (the Sales and Marketing view) into workload for key resources (the
Operations view). Part of this translation typically involves converting the product family units of measure - each, cases, thousands, and so forth -
into units of measure meaningful to the Operations side, most often hours.
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Bills of Resources
These link a given product family to the key resources required to make
it. See the diagram, which shows that it takes 1.5 hours of
production
time in Resource A to make 1,000 units of Product Family 5, 4.5 hours
in Resource B, and so forth.
Please note Resource D, whose unit of measure is pounds. Perhaps this
an important material sourced from an outside supplier. So this process
can be
used to project long-range material requirements as well as capacity.
Ditto for logistics requirements such as rail cars, trucks, warehousing
space,
and the like.
Simplifying Assumptions
The Bill of Resources is, in effect, a series of simplifying
assumptions. Of course, these assumptions must be a valid
representation of reality;
otherwise the projected capacity requirements will not be valid, and
they will either be ignored or worse, be acted upon and yield bad results.
So, what can affect these simplifying assumptions, to make them not
valid? Answer: change, and it comes in two types: mix and method.
First, mix changes. This Bill of Resources was based on a given sales
mix of individual products within Family 5. For example, Product 5-1
may
consume 1.2 hours of Resource A; Product 5-2 might take 2.0; Product
5-3 may require .8 and so forth. The bill of resources is a weighted
average of
all these, based on their individual volumes.
But that sales mix can change. Perhaps Product 5-2 is beginning to sell
much better and is taking sales away from Product 5-1. This will change
the
resource consumption picture, perhaps dramatically.
Next, methods changes. The Bills of Resources, when initially created,
should be based on past history: for example how many hours in Resource
A has
it historically taken to generate 1000 units of Family 5? This number
(in our example 1.5 hours) will be valid only until methods changes are
made in
Resource A, which may reduce the required hours down to 1.2.
Thus these assumptions need to be reviewed frequently and modified
where necessary. Changes in production processes and shifts in the
popularity of
one product versus the others within that family must be identified and
reflected in the bills of resources.
If you want to get into this a bit deeper, we might have some good
news. Bob Stahl and I have recently written a white paper on this
topic: Forecast
Less and Get Better Results, which goes into a good bit more detail. To
take a look, and possibly download it, click
here.
Thanks for listening,
Tom
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It's difficult to effect change in an organization. All too often, companies look upon change as the
simple introduction of new tools. Golfers know quite well that the tools - the golf clubs - don't make for a successful player
of and by themselves. For example, the best clubs in the world won't stop either of us from hitting the ball into the lake.
You have to swing the clubs correctly, read the greens well, and exercise proper course management. So it
takes more than tools. They're essential, but not sufficient.
Making meaningful change in an organization requires a number of things, and usually includes:
- A changed mindset
- A changed process
- New tools
An acquaintance of ours said it very well: "The soft stuff is the hard stuff." He meant that the people
issues are typically more challenging and difficult than the technical pieces. To which we say: Amen.
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