Cost-Based Optimized Plans

ASCP Fundamentals

Copyright © 2007, Oracle. All rights reserved.

 Objectives

After completing this module, you should be able to do the

following:
• Describe plan options
• Describe concepts
• Describe objectives
• Describe penalties
• Describe key indicators
• Describe plan differences
• Work with optimized plans

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 Module Overview: Topics

• Plan options
• Concepts
• Objectives
• Penalties
• Key indicators
• Plan differences

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 Topic Overview: Plan Options

• Optimization tabbed region

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 Optimization Tabbed Region

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 Topic Overview: Concepts

• What is optimization?
• Plan type comparison
• Comparing constrained and optimized plans

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 What Is Optimization?

• The optimal solution to a model is the one that best

satisfies the objective criteria
• A model represents the essential elements of a system
• Constraints specify feasibility boundaries for the
solution to the model; for example:
– Resource constraints limit the ability to produce
– Market constraints limit the ability to sell

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 What Is Optimization?

• Objective criteria are used to evaluate alternative

feasible solutions
• Feasible solutions satisfy all of the constraints
• Assumptions state conditions that must be met for the
solution to be valid

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 Plan Type Comparison

Constrained - - Demands may be late

Enforce capacity - Resource capacity,supplier capacity respected
constraints - Lead time, planning time fence respected

Constrained - - Demands on time

Enforce demand - Resource capacity,supplier capacity violated
due dates - Lead time, planning time fence violated

Constrained with - May be ECC or EDD

decision rules - Substitutes/alternates selected based on
decision rules

Optimized - May be ECC or EDD

- Substitutes/alternates selected based on cost

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 Comparing Constrained and Optimized Plans

Optimization considers the additional dimension of cost:

• Requires accurate cost estimates, such as:
– Rolled up item costs
– Resource rates
– Resource usage time
• Penalty factors are cost multipliers:
– Example: exceeding labor capacity (overtime) = 150%

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 Comparing Constrained and Optimized Plans

• Constrained plans are feasible, but not optimal

• Optimized planning requires more implementation
effort:
– Setting objective function weights
– Specifying penalty factors
– Verifying costs
• Penalty factor hierarchy permits implementing more
detailed penalty factors over time to continuously
improve planning model precision

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 Contrasting Constrained and Optimized Plans

• Enforced and non-enforced constraints:

– Both constrained and optimized plans respect enforced
constraints
• Demand priorities:
– Constrained plans respect demand priorities
– Optimization overrides demand priorities if that improves
the solution
• Alternates:
– Constrained plans pick in sequence
– Optimized plans pick the cheapest

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 Topic Overview: Objectives

• Plan objectives
• Planning objectives

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 Plan Objectives

Objectives are desired outcomes, such as:

• Maximize inventory turnover
• Maximize plan expected profit
• Maximize on time delivery
• Objectives are translated into currency units
– Only one currency per plan

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 Planning Objectives

• Multiple objectives are allowed

• User specified weights indicate the relative importance
of objectives
• Multiple objectives tend to conflict:
– Late demand versus inventory investment
– Profit versus late demand

0.0 1.0

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 Topic Overview: Penalties and Constraints

• Penalty factors and penalty costs

• Default penalty factors
• Setting penalty factors
• Enforced and non-enforced constraints

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 Penalty Factors and Penalty Costs

• Penalty factors are the percentages that you specify

• Penalty costs are the multiple of the penalty factor and
some cost
• Optimization uses penalty costs

Penalty
x Variable
= Penalty
factor cost

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 Default Penalty Factors

• Penalty factors can be entered in the Plan Options

window
– Act as default values if detailed penalty factors are not
specified
– Are overridden if detailed penalty costs are specified
• Defaults allow generation of optimized plans without
the need to specify detailed penalties
• Late Demand (filling demand after promised date)
• Exceeding material capacity
• Exceeding resource capacity
• Exceeding transportation resource capacity

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 Setting Penalty Factors

• Hierarchy of multiple locations provided to enter

penalty factor information
• Most specific penalty factor overrides
• Permits implementing penalty factor information in
phases
• Example hierarchy: penalty factor for exceeding
resource capacity
— Profile option

— Plan

— Organization

— Resource

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 Topic Overview: Key Indicators

• Key indicators
• Making performance improvements based on KPIs

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 Key Indicators

• Inventory turns
• Planned utilization
• Margin percentage
• On time delivery

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 Making Improvements Based on KPIs

Increasing Inventory Turns

• Decrease the penalty factor for safety stock violation.
• Increase weight given to the maximize inventory turns
objective, decrease weight given to other objectives by
choosing Plan Options > Optimization tab.

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 Making Improvements Based on KPIs

Increasing Planned Utilization

• Decrease penalty factor for exceeding resource
capacity.
• Increase weight given to the maximize resource
utilization objective, decrease weight given to other
objectives.
• Increase the demand that is being planned.
– Note that increasing demand can have adverse impact to
other KPIs (for example, On-time Delivery) if material
capacity is not sufficient to support the demand.

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 Making Improvements Based on KPIs

Increasing Margin Percentage

• Decrease penalty factors considered in the margin
percentage calculation.
• Increase weight given to the maximize margin
percentage objective, decrease weight given to other
objectives.
• If material and/or resource capacity is constrained,
demand will not be fulfilled by the request date and
sales will either be lost of penalty costs will be incurred
for late demand.
– See actions described in Increasing On-time Delivery.

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 Making Improvements Based on KPIs

Increasing On-time Delivery

• On-time Delivery will suffer if material capacity and/or
resource capacity are not sufficient to meet requested
delivery dates. By looking at the exceptions that occur
after a plan is run, you can determine whether material
or resource capacity is the gating factor.

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 Practice Overview:
Working with Optimized Plans

This practice covers working with optimized plans.

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 Summary

In this module, you should have learned how to:

• Describe plan options
• Describe concepts
• Describe objectives
• Describe penalties
• Describe key indicators

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