C ONSEQUENCES FOR THE OBJECT MODEL

This subsection describes the consequences for the object model of the financial evaluations of ‘setting the MPS’ on the object model. The translation of the decision ‘setting the MPS’ in terms of the HCFM has encountered some problems. These problems have been solved. Here, the relationship with the object models is discussed.

The decision ‘setting the MPS’ requires specific resources. These resources have specific behaviour that present resources do not have. For instance, MPS resources (a family item) can be asked to disaggregate its forecast to its real resources (separate items). For this reason, the class [MPSResource] is introduced, which is a subclass of the class [Resource]. The [MPSResource] has an association relationship with its superclass. This relationship specifies the possible relation with the real resources. When the calculation is finished and a MPS scenario is chosen, the scenario is copied to the real resources.

126 Chapter 5 The methods of calculating sales prices, purchase prices, and contribution margins are incorporated in the class [PriceCalculator]. This class has an association relationship with the class [Resource]. When calculated, the prices are recorded in the model in newly created instances of the class [Quantity]. These instances are related via the instance of the class [QuantityPer] to specific instances of the class [Contract] that represent contract potentials, and the resource instance cash.

PriceCal cul ator

MPSResource Resource 0..* 0..1 0..* 0..1 **

Figure 5-2: Object models for MPS functionality

Figure 5-2 gives the object classes introduced. Note that the core of the model stays intact. New functionality is completely incorporated by introducing new classes and re-use (inheritance relation between [Resource] and [MPSResource]). This is completely according to the philosophy of object-orientation.

5.3

O

In this section the order acceptance decision is considered in the hierarchy with the MPS decision. Wouters (1997) discusses this link between order acceptance and MPS. Here the main points of that paper are summarised and compared with the HCFM. Moreover, the explicit link to the MPS is discussed. Finally, the consequences of the decision ‘order acceptance’ on the object model are examined.

The MPS, as discussed above, has been determined on basis of financial trade-offs, amongst other considerations. When order acceptance decisions are made next, also based on financial considerations, this could be straightforward: accept only those orders that are consistent with the MPS. Order acceptance, then is just a matter of executing the MPS and therefore no new financial evaluation is required. However, it is likely that actual conditions during order acceptance will differ from the assumptions that have been used

Rationale of the information system design 127 when making financial trade-offs in the MPS decision. Sales prices, purchase prices, capacity requirements, capacity availability, timing and quantity of demand, etc. could be different than expected and it may not be wise to follow the MPS decision without allowing any exceptions. Exceptions would be not accepting something planned in the MPS, or accepting something not planned in the MPS. In other words, we propose to consider the order acceptance decision in the hierarchy of the MPS. If differences occur with the plan, incremental modifications of production plans are proposed, based on financial evaluations, rather than a complete plan regeneration with each decision. See also Winter (1996) who discusses this principle of incremental modification.

Wouters (1997) distinguishes between two possibilities when accepting orders: 1. The order is included in the MPS.

2. The order is not included in the MPS.

The trade-off that is being made in both situations is the cash flow gross balance of accepting versus the opportunity cash flow balance of not accepting.

When the order is included in the MPS, the financial consequences of accepting the order is determined by the incremental effect of the order (cash flow gross balance). Not accepting the order implies that the planned reservation should be cancelled. This results in an opportunity effect (opportunity cash flow balance). This effect depends on what is done with these resources for which the reservation has been cancelled:

1.1.The resources for which the reservation is cancelled cannot be reserved for other destinations. Therefore, the opportunity effect is zero.

1.2.The resources for which the reservation is cancelled are being used for other destinations (maybe some unplanned production for alternative customer demand that has been rejected when setting the MPS). This option results in an opportunity effect. The opportunity effect equals the cash transition resulting from this potential sale and potential purchase of additional resources.

1.3.The cancellation of the reservation of the resources results in the cancellation of planned future resource expansion, or in the reduction of contracted resources. This option leads to reduction of future expenditures regarding the purchase of resources, or an increase of future cash inflows resulting from the sale of the resource considered.

The opportunity effect (opportunity cash flow balance) can now be compared with the incremental effect (cash flow gross balance).

128 Chapter 5 When the order has not been included in the MPS, the financial result of not accepting would equal zero. The financial result of accepting would depend on how the demand is satisfied:

2.1.The demand is (completely) satisfied with resources that do not have reservations. This option does not lead to additional cash outflows. Therefore, the opportunity effect for this decision equals zero; the incremental effect equals the total cash inflow resulting from the demand (order).

2.2.The demand is satisfied with resources that were reserved for other demand, which is cancelled. The opportunity effect of this decision is the missed cash inflow of the demand that is cancelled (only when resources are scarce, otherwise option 2.1 applies) The incremental effect of the decision constitutes of the cash inflow resulting from this demand minus the cash outflow resulting from needed purchases.

2.3.The demand is satisfied by expanding resources needed or the cancellation of planned resource reduction. In the first situation, the opportunity effect equals zero, in the second situation the opportunity effect equals the missed reduction in cash outflow, or the missed cash inflow due to the sale of the resource. The incremental effect equals the cash inflow resulting from the demand (order) minus the cash outflow resulting from the purchase of resources needed to satisfy the demand.

The incremental effect (cash flow gross balance, which equals zero in this situation) can now be compared with the opportunity effect (opportunity cash flow balance).

In the HCFM, these different consequences when accepting orders can be dealt with in generic form. For instance, the HCFM does not make a distinction between types of resources. The HCFM does not require an explicit distinction between ‘included in the MPS’ and ‘not included in the MPS’ in its calculation. Whether or not an order has been foreseen in the MPS, fulfilling demand always results in cancellation of activities / contracts upstream and downstream the planned resource flow. This cancellation results in an opportunity effect. Both situations (foreseen and not foreseen in the MPS) thus lead to an opportunity effect. This opportunity effect is then compared with the incremental effect. Note that when the order was foreseen in the MPS, order acceptance is just carrying out the plan (i.e. the MPS). The opportunity effect thus equals the incremental effect.

Rationale of the information system design 129