BSCM review
Session 1 Introduction to supply chain management
Manufacturing Business Model:
1. Defining products and customers
2. Designing products and process
3. Managing material flow
4. Providing customer service and support
The primary goal of manufacturing is to create value for producers and customers. In this way wealthy is created for society as a whole
For manufacturers, value is created by transforming raw materials and ideas into finished products and services that meet customer needs
Choice of manufacturing process – project, intermittent, or repetitive, flow or continuous flow
The product and supporting processes should be designed to:
Meet customer needs and provide value, Be cost effective, Provide quality, Be built or provided efficiently
Managing Material Flow
Acquisition (production resource) -> Manufacturing operations (scheduling, production) -> Distribution (both from and to customer)
CRM: Customer Relationship Management
Customer expectations
Price, Quality, Delivery, Pre-and post-sale service, Flexibility (product and volume)
Order qualifiers–Those competitive characteristics that a firm’s products must exhibit to be viable competitors
Order winners–Those competitive characteristics that cause a firm’s cus tomers to choose that firm’s goods and service
Relative value (RV)= (quality, price)
Types of production environments – make to order(MTO) , make to stock(MTS) , assemble to order(ATO) , or engineer to order(ETO) , Mass customization (Shortest lead time)
Volume/Variety Relationships graph of 5 types
CLT (cumulative LT) vs CMLT (cumulative manufacturing LT) P.1-22
Product life cycle and production environments
Introduction: ETO, MTO
Growth: MTO, ATO, MTS, MC
Maturity: MTO, ATO, MTS, MC
Decline: MTO, ATO
Phase out: MTO
Choice of Processes and Layouts
Intermittent: Job shop/ process layout
Flow(repetitive/Line, Continuous): Product layout
Project
Supply Chain Management Definitions
Supply chain: The global network used to deliver products and service from raw materials to end customers through an engineered flow of information. Physical distribution, and cash
Supply chain management: The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging world-wide logistics, synchronizing supply with demand, and measuring performance globally
External view of supply chain-Suppliers, manufacturers, distributors, retailers, consumers, flow of information, cash, goods and services
Traditional internal supply chain-production, procurement and distribution have their own success factor and they conflicting
Cross functional supply chain-based on efficiency of manufacturing operations, also consider marketing, sales, finance and HR
Material management
1. Coordinate MPC
2. Physical material supply and distribution (raw material, WIP, inventory, shipping etc,.
KPI
Strategic- Long term, profitability, market share, growth and productivity;
Tactical-intermediate-term, such as production plan & budgets, on time delivery rate, inventory turn
Operational-Daily work routines, cycle time, utilization and efficiency
MPC
5 objectives of manufacturing
The right goods , of the right quality , In the right quantities , At the right time , At minimum cost (right price)
Concept of priority and capacity – Priority related to demand and capacity relates to supply
Evolution from MRP to ERP ( cross function)
MRP -> MRP Closed Loop -> MRP II -> ERP(+ sales & Operation planning)
Session 2 Demand Management
3 important business processes related to demand management
1. Marketing management
2. Customer relationship management
3. Demand planning (forecasting and customer orders)
Customer order management is a major CRM activity and also plays a major role from a supply chain operation efficiency and customer service perspective
Marketing Mix/4Ps: Product, Price, Promotion, Place
Demand Plannning: Demand fcst , Management of actual customer orders (from internal and external customers)
Independent(needs fcst, such as finished goods & spare parts) vs. Dependent Demand(BOM parts)
5 sources of independent demand: Forecast , Customer orders , Replenishment orders from distribution centers , Interplant transfers , Other (example for marketing and product demonstration)
Demand Patterns:
1. Trend (increasing, decreasing, level)
2. Seasonal (Quarterly, short term-monthly, weekly, daily, hourly)
3. Random (weather, special events, human behavior)
4. Cyclical: Wave-like fluctuations take place over long time spans, several years, tied to external influence
Three planning levels supported by demand fcst
1. Business plan: Volume in ($)
2. Sale & operation planning: In product family level
3. Master Scheduling: End level
4 Principles of Forecasting
1. Are rarely 100% accurate over time
2. Should include an estimate of error(error determine the level of safety stock)
3. Are more accurate for product groups and families
4. Are more accurate for near periods of time
3 principles of data collection and preparation principles
1. Record data in the terms needed for the fcst (use production schedule, match manufacturing items
2. Record the circumstances relating to the data(promotions, weather, price changes, strikes, competitor marketing initiatives)
3. Record demand separately for different customer groups
Qualitative Techniques vs. Quantitative Techniques
1. Qualitative: based on intuition and informed opinion, subjective, for medium to long term
2. Quantitative(extrinsic): Base on correlation & causality, external indicator
Economic (housing starts, or orders fir large military and commercial craft)
Demographic (change in population such as birth rate, age distribution)
Quantitative(intrinsic): The past helps you understand future, data & pattern in the
history(Moving averages, Exponential Smoothing)
Moving average fcst works best when demand is stable with random variation
Exponential smoothing logic: New fcst=(α)(latest demand)+(1-α)(previous fcst), α ↗ when upward or downward demand trend Smoothing Constant α
Seasonal forecast process:
1. Seasonal Demand Index
2. Deseasonalized Forecast- Whole year fcst average to each period
3. Seasonal fcst: 1X2
Bias vs. Random Variation
Bias: Cumulative variation of actual demand from the cumulative fcst is not zero
Random Variation: Cumulative variation of actual demand from the cumulative fcst is zero
Mean Absolute Deviation (MAD): MAD=∑||
=
∑
Statistically, in a normal distribution, 60 percent of the fcst error will fall within ± one MAD (2MAD) of the average, 90 percent within ±2 MAD(4MAD), and 98 percent within ±3
MAD(6MAD)
MAD is important to indicate the relative cost of different levels of customer service (safety stock
Session 3 Master Planning
Production planning is a major output of S&OP and is concerned with
1. Planning for each product family (quantities)
2. Maintaining desired inventory levels
3. Determining resources required (eqmt, labor, material)
4. Comparing load with available resources
4 Production Strategies
1. Chase- production chase demand
A: Stable & low inventory; production meet sales requirement (flexible)
D: Cost increase (training, hiring, OT, layoffs); Employee morale↓; unavailable work skills; Capacity varies, sometimes high, sometimes low
2. Level
A: Cost of demand change↓; C hangeover cost↓, cost/item ↓
D: Inventory↑; require very accurate fcst
3. Subcontracting-level production at a rate equal to minimum demand level, meet additional demand by subcontracting
A: No excess capacity; level production
D: Costs of subcontracting; Proprietary production technology
4. Hybrid-combination of above 3,
A: production is leveled in both full and lower capacity; Invetory and workforce adjustment cost↓ than chase strategy
D: Need accurate fcst in level strategy
Level production plan calculation-Open inventory, ending inventory
Objectives of Master Scheduling (MPS)
1. Maintain desired level of customer service
2. Make the best use of resources
3. Keep inventories at the desired level
Difference between production plan and master scheduling (MPS)
Production plan(from S & OP) for product family. MPS for end-item
Production plans state in months, MPS state in weeks.
Master schedule vs. Master Production Schedule (one line of Master schedule)
Projected Available Balance(PAB)- tell you if you need to schedule an MPS, if negative, schedule an MPS
Planning Horizon- cumulative lead time calculation
ATP calculation
ATP for period X=On hand/MPS scheduled receipt – customer orders before next MPS scheduled receipt
Session 4 Material Requirements Planning
Planning Bill – simply more bills in one bill P4-22
Where-Uses –no matter there is a current requirement for it or not
Pegging report – focus on components, there is a current requirement
4 major inputs to MRP- MPS data; Bill of material; Inventory status; Planning data(lead time)
Net requirements = gross requirement– available inventory
Scheduled receipt vs. planned order receipt
Scheduled receipt – An open order that has an assigned due date
Planned order receipt –………have not been released
Open order – A released manufacturing order or purchase order
Planned Order - Net requirement generates planned order receipts
Firm Planned Orders– a tool that allows the planner to override the MRP logic
Role of MRP Software
1. Perform gross to net, lead time offset and explosion calculation
2. Create action and exception messages
Not release planned orders, planner does it.
Releasing Planned Orders
1. Releasing a planned order
2. Scheduling a receipt
3. Creating an open order
4. Allocating components to the order
Actions available to planner to due date in priority plan
1. Maintain priority plan by – expediting or de-expediting, change quantity requirement
2. Replanning – Changes end item due date
Session 5 Capacity management and production control
4 steps of capacity planning
1. Determine the capacity available
2. Translate the priority plan into capacity required for each time period
3. Sum up capacities for each time period required for each resource for comparison with capacity available
4. Resolve differences between available capacity and required capacity for each time period
Capacity– The capability of a system or resource to produce a quantity of output in a particular time period
Capacity available is based on
1. Available time= no. of machines (or workers) X hrs/day X days/wk
2. Utilization % = 100%
3. Efficiency % = 100%
Rated capacity (std hrs) = available time X utilization X efficiency
Demonstrated capacity (std hrs) = (average of past period resource output)
Load
operation time per work order = # of pieces X run time per piece + setup time
Total load = setup time + (run time per piece X order quantity)
Five elements of manufacturing lead time
1. Queue – waiting before an operation begins
2. Setup – get ready for operation
3. Run – perform an operation
4. Wait – wait after operation ends
5. Move – move materials between operations
3 steps of capacity requirement planning (CRP)
1. Scheduling orders simulation
2. Establishing load files
3. Resolving difference
Load file
Transition from priority planning to execution phase
1. Purchasing
2. Production activity control
3. Capacity control: monitor actual vs. planned output and take corrective action to get back on plan
Three functions of PAC- Plan/Replan; Implement; Control
Information used in PAC– MRP, Item master file, product structure file, routing file, Work center master file, shop order file
4 types of scheduling and loading Techniques
1. Forward scheduling – start from the order received date through finish date
2. Backward scheduling – schedule back from the due date
3. Infinite loading - capacity is infinite
4. Finite loading – definite limit capacity
Throughput– bottleneck is the drum(schedule) that controls the throughput of the entire system
Rope– The virtual rope release materials to the gateway work center at a rate that protects the drum at the bottleneck
Time buffer– Allows enough time for work to flow from the gateway to the bottleneck and to make sure the bottleneck is never idle
Backlog – all open order
Back order – overdue order
Backlog = previous backlog + input - output
Critical Ratio = smaller CR has high priority,
CR<1 order is late, CR=1, Order is on time, CR>1 order is ahead of schedule
Session 6 Aggregate Inventory Management
5 different classes of inventory
1. Raw Material
2. Working in process
3. Finished goods
4. Distribution inventories
5. Maintenance, repair, and operating supplies (MRO)
6 functions of Inventory
1. Anticipation inventory- build up in advance of events (peak selling season, shutdown), to minimize operating cost
2. Safety stock(fluctuation inventory) –cover random flunctuations, prevent or reduce the stockouts
3. Lot-size inventory (Cycle stock)
4. Transportation inventory (pipe stock)
5. Hedge inventory – buffer against events that may not happened, exp: weather, natural disasters, political events, labor strike on prices and supplies.
6. Buffer – material purposely maintain at different points in process, In TOC, buffers are used to ensure the achievement of throughput and due date performance objectives
3 objectives of aggregate inventory management
1. Customer service
2. Operating efficiency (low cost plant operation)
3. Minimum inventory investment
5 categories of inventory costs
1. Item costs –
Purchased item cost – Transportation; Customs duties; Insurance
Manufactured item cost – direct materials; direct labor; factory overhead
2. *Carrying costs – all costs attributable to the volume of inventory
Capital cost(carrying inventory)- cost of all purchased and WIP items
Storage costs- utilities, workers, building, eqmt maintenance, security
Risk costs- obsolescence; Damage; Pilferage; Deterioration; Insurance
3. Ordering costs – Factory orders (production control, setup, Lost capacity) + Purchase orders
4. Stockout costs
1. Backorder costs
2. Lost sales costs
3. Lost customer costs
4. Expediting costs
5. Additional manufacturing and purchasing costs
5. Capacity-related costs
1. over time
2. Hiring
3. Layoff
4. Training
5. Shift premiums
Balance Sheet Equation – value of a company at a point in time, usually the last day of a calendar or fiscal year
Owners’ Equity = Assets – Liabilities
1. Owner’s equity– Net worth of the business (difference between assets and liabilities)
2. Assets- Items of value to the company(Cash, inventory, machinery, building, accounts receivable, patents)
3. Liabilities – Obligations of the business (Accounts payable, wages payable, long-term debt)
Income statement
Income= Revenue –Expenses
1. Revenue- income from sales of goods and services (cash, accounts receivable -increase owners’ equity)
2. Expense = Cost of goods sold+ General and administrative expenses
1. *Cost of goods sold - Direct labor, direct material, factory overhead expense
2. General and administrative expenses – Advertising, insurance, property taxes,
wages and benefits
Revenue – total cost of goods sold = Gross margin
Revenue – total cost of goods sold- General and administrative expense = Net income (profit)
Inventory and Financial result– From a supply chain management perspective , converting inventory quickly into sales is a major objective and has positive financial statement implication
Inventory turns =
Speed of inventory conversion into sales
Days of supply =
days of inventory on hand
Session 7 Item Inventory management
4 lot-size decision rule
1. Lot for lot – Only required amount is ordered
2. Fixed order quantity (FOQ)
3. Economic order quantity (EOQ) – related to carrying cost and ordering cost
4. Order n periods of supply – qty is based on estimate of what it will require to satisfy demand for a certain number (n) of periods
Inventory carrying cost =X c X i Q: Lot size; c: cost/unit; i: cost rate
Inventory carrying cost = Ordering cost
=
A: Annual units; S: Order cost; i= Inventory carrying costs rate; c=Item cost
EOQ = √
Order Point (OP) = demand during lead time (DDLT) + safety stock (SS)
Periodic review system– fixed reorder cycle inventory model
Safety stock = Safety factor X MAD;
Safety factory = from safety factor vs. service level% table
Service level = ; n= stockout per 100 order
3 methods of determining when the order point is reached
1. Two bin system
2. Kanban
3. Perpetual inventory record system (human inputs)
Periodic review system vs. Order point system
Order point system – interval between orders varies depending on actual usage Periodic review system – interval between orders fixed and constant
Q = T – I T-target/maximum inventory level
T = D (R+L) + SS D:Demand/day; R:Review period; L=LT SKU – stockkeeping units
ABC inventory Control
3 setps of ABC inventory control process
1. Establish the item charater that influence the result of inventory management ($, Q)
2. Classify items into groups based on the criteria established
3. Apply a degree of control in proportion to the importance of the group
2 general rules
1. Have plenty of low value items
2. Focus control effort on A item
Auditing Inventory Records
1. Periodic inventory- all inventory, for annual financial statements appraisal of inventory
2. Cycle count-every day
Advantages of cycle counting
1. Timely detection and correction of problems
2. Little or no loss of production time
3. Higher level of counting accuracy (trained people)
4. Determination and elimination of causes of error
4 types of purchased items
1. Raw materials and components
2. Capital items
3. Maintenance, repair and operating supplies (MRO)
4. Services
Objective of purchasing
1. Obtain goods and services of the right quality and quantity needed
2. Obtain goods and services at the right cost
3. Ensure the best possible service
4. Identify qualified suppliers and maintain good relations
Purchasing activities
1. Procurement
Establish specifications; Select suppliers; Negotiate contracts
2. Purchasing Execution
Manage the purchasing cycle; Manage contract buying
3. Measurement
Monitor Supplier Performance
Select suppliers
Sourcing – Sole sourcing; Multiple sourcing; Single sourcing
Supplier Partnering
1. 3 Key factor – Long term commitment; Trust; Shared vision
2. Manage Inventories
Consignment – supplier own the product until used
Vendor - managed inventory (VMI) – customer owns the goods, customer share the fcst to supplier
Supplier agreements - Blanket purchase orders; Long term contracts
Categories covered – Price; Terms; Delivery; Quality; Quantity
4 methods of receiving notification to purchase
1. Traditional (non-MRO) requisitions- for unique components or capital eqmt
2. MRP planned order releases – MRP system
3. Kanban signals
4. Buffer replenishment – minimum inventory levels as the reorder point
Purchasing Cycle
Physical distribution
Two ways physical distribution adds value
Place value – locates goods where they are available to customers Time value – Makes goods available when customers want them Influence of Marketing – (4P) Product; Price; Place; Promotion Interface with production & Finance Production Distribution costs and factory location High service level of supply necessary
Replenishment of distribution inventory
Finance – Inventory levels
Pull system – Each distribution center use re-order point methods with fixed order quantity lot size
Push system – All fcst and order decisions are made centrally
Distribution Requirements Planning(DRP) – translate DC demand into fcst in the factory master scheduling process. The logic uses a time-phased netting
Generate requisition
Issue purchase order
Follow up
Receive goods Approve payment
Transportation and Warehousing
Mode 1: Factory to Customer, using Less Than Truckload (LTL)
Mode 2: Factory to DC to customer, using Full Truckload (TL)
5 Transportation Modes
Rail – for large volumes of bulky goods, long distances, reliable, cheaper than road Road – Door to door, flexible, good for small volume to dispersed market
Air – fast, high cost, for high value, low weight cargo and emergency items
Water – low cost, slow, good for low value, bulky cargo, long distances
Pipeline – low cost, not impact by weather, good for large volume
Types of carriers- For hire (common carrier, contract); Private (in house)
4 shipping costs
Line-haul – Distance moved, increase weight to reduce the cost
Pickup and delivery – charge for each pickup and weight moved
Terminal handling cost-number of times a shipment is handled, loaded, and unloaded Billing and collecting costs – the number of shipment made
Consolidate shipments to reduce 2-4 cost
Session 9 Lean/JIT and Quality System
4 phases of product and quality cycle
1. Product Definition
2. Product Design
3. Product Manufacturing
4. Product Consumption (Use)
4 objectives of productivity and quality management system
1. Quality of product definition
2. Quality in the design process
3. Quality during the manufacturing and packaging process
4. Quality from customer perspective – Performance; Features; Conformance; Warranty
6 requirements customers have for products– Quality; Flexibility; Service; short lead time; Consistency; Cost savings
Quality Function Deployment (QFD)– methodology designed to ensure all major requirements of the customer are identified and met or exceeded. It is used to capture the voice of customer as input to technical requirements for product design; House of quality
8 waste lean/JIT– Process; Movement; Methods; Product defects; waiting time; Overproduction; Excess inventory; Unused people skills
Kanban in a pull system
Difference between functional and cellular layouts
Total Productive Maintenance (TPM) – Preventive maintenance plus continuing efforts to adapt, modify, and refine equipment to increase flexibility, reduce material handling, and promote continuous flows. It is operator-oriented maintenance with the involvement of all qualified employees in all maintenance
Supplier Partnership
Supplier is viewed as an upstream work center to the plant, share information. Supplier must have reliable quality & be able to produce and make small frequent deliveries Two main types of quality-related costs
1. Costs of failure – internal failure costs and external failure costs
2. Costs of controlling quality – Prevention costs (design improvements, SPC), Appraisal costs (inspections, audits, calibration, testing)
7 quality control tools– Flow chart; Cause and Effect; Control chart& SPC; Check sheet; Histogram; Pareto; Scatter Diagram
Cause of variation– Special causes (can be isolated); Common causes (inherent in a process, affect every product)
Session 10 Theory of Constraints and Review Activity