Supply Chain

Production Planning Strategies

Production planning strategies are the plans for meeting demand. Tradeoffs involved include workers employed, work hours, inventory and shortages.

Material Requirements Planning (MRP

A logical, easily understood approach to the problem of managing the parts, components, and materials needed to produce end items per the schedule (Master Production Schedule) MRP is used to manage the dependent demand

Assembly Line

A single path through the process All products follow the same path Workflow is sometimes paced with a conveyor or belt

Aggregate Planning in Service Environments

As mentioned in previous chapters, services typically cannot be inventoried (therefore, sufficient supply must be available at the times that the demand occurs) So in services, planning sufficient capacity is the key to satisfying customer demand However, benefits of customer satisfaction must be weighed against risks/costs of excess capacity

Make-to-Order and Engineer-to-Order

Boeing's process for making commercial aircraft is an example Customer order decoupling point could be in either raw materials at the manufacturing site or the supplier inventory Depending on how similar the products are it might not even be possible to pre-order parts

Bill of Materials

Contains the complete product description, listing the materials, parts, and components along with the sequence in which the product is created May also be called the product structure file, or product tree, because it shows how a product is constructed

Multi-Period Models (Fixed Order Time period)

Counting takes place only at the end of the review period Has a larger average inventory Favors less expensive items Is sufficient for less-important items Requires less time to maintain Is less expensive to implement

Product Demand Sources

Customers - specific orders placed by either external or internal customers THEREFORE, the same item can be both independent and dependent demand. Shock absorbers are dependent demand to the assembly of automobiles, but also are forecasted for spare parts

Exiting the Queuing System

Customers who have been served have two possible desired outcomes: Low probability of reservice (appendectomy patients rarely return for a repeat operation) High probability of reservice (a machine that is prone to breakdowns may require new service immediately after leaving the service center)

Cycle Counting

Cycle Counting Continuous inventory verification process Items selected at random, based upon some general rules (and can be "floor to stock" or "stock to floor)) For example, A items every three months, B every 6 months, Conducted by inventory control specialists No requirement for any production shutdown Incremental adjustments to inventory records Recommended by most auditors / auditing firms All ERP software packages support cycle counting

Yield Management Success Factors

Demand can be segmented by customer Fixed costs are high and variable costs are low Inventory is perishable Product can be sold in advance Demand is highly variable

Fixed-Order Quantity Models - Assumptions to choose this option

Demand for the product is constant and uniform throughout the period Lead time (time from ordering to receipt) is constant Price per unit of product is constant Inventory holding cost is based on average inventory Ordering or setup costs are constant All demands for the product will be satisfied

Dependent demand

Dependent demand - the need for any one item is a direct result of the need for some other item • Usually a higher-level item of which it is part

Manufacturing Cells

Dissimilar machines are grouped together For example, one lathe with one mill and one drill press Objective of this grouping is to produce products requiring similar production sequences and steps in the most efficient manner

Make to Stock - general comments

Examples of products Televisions Clothing Packaged food products Essential issue in satisfying customers is to balance the level of inventory against the level of customer service Trade-off between the costs of inventory and level of customer service must be made

Make-to-stock firms:

Firms that serve customers from finished goods inventory

Periodic Inventories

Frequency determined by organization or auditors No less frequent than annual Requires a complete inventory to validate assets (raw materials, WIP, finished goods, inventory in transit still owned by organization) Usually requires a shutdown to the operation Requires most individuals in organization to participate Including those not directly involved in the Inv. Mgmt function Necessary inventory adjustments for all items required before resuming production/shipment activities

Negative aspects of Inventory

Hide operational problems Lost opportunity to invest $ elsewhere Risk of deterioration (loss, pilferage, damage, etc.) Costs associated with managing and tracking Product obsolescence Hindrance to flexibility

Inventory Costs

Holding (or carrying) costs • Costs for storage, handling, insurance, and so on Setup (or production change) costs • Costs for arranging specific equipment setups, and so on Ordering costs • Costs of placing an order Shortage costs • Costs of running out

Multi-Period Models (Fixed Order Quantity)

Inventory remaining must be continually monitored Has a smaller average inventory Favors more expensive items Is more appropriate for important items Requires more time to maintain - but is usually more automated Is more expensive to implement

Queuing System Factors

Length Number of lines Queue discipline - priority rule or set of rules that determine the order of service for customers who are waiting in line

Continuous Process

Liquid, gas, slurry (not individual items) Very few product types and high volume Individual products can't be distinguished until packaging

Poka-Yokes

Poka-yokes - procedures that block the inevitable mistake from becoming a service defect ("avoid mistakes") Poka-yokes are common in factories

Inventory Models with Price Breaks

Price varies with the order size To find the lowest-cost, calculate the order quantity for each price and see if the quantity is feasible 1. Sort prices from lowest to highest and calculate the order quantity for each price until a feasible order quantity is found 2. If the first feasible order quantity is the lowest price, this is best, otherwise, calculate the total cost for the first feasible quantity and calculate total cost at each price lower than the first feasible order quantity

Yield Management Systems

Pricing structures must appear logical to the customer and justify the different prices Must handle variability in arrival or starting times, duration, and time between customers Must be able to handle the service process Must train employees to work in an environment where overbooking and price changes are standard occurrences that directly impact the customer The essence of yield management is the ability to manage demand

Project Layout

Product is usually stationary Material brought to the product

Level scheduling works best (requirements)

Production should be repetitive (assembly-line format) The system must contain excess capacity Output of the system must be fixed for a period of time There must be a smooth relationship among purchasing, marketing, and production The cost of carrying inventory must be high Equipment costs must be low The workforce must be multi-skilled

PLANNING FOR THE INTERMEDIATE TERM

Rolling horizon long range varies by industry, usually updated annually intermediate plans updated monthly (S&OP) short-term plans updated daily/weekly

Establishing Safety Stock Levels

Safety stock - amount of inventory carried in addition to expected demand. A common approach is to simply keep a certain number of weeks of supply Probability • Assume demand is normally distributed • Assume we know mean and standard deviation • To determine probability, we plot a normal distribution for expected demand and note where the amount we have lies on the curve

Managing Queues

Segment the customers Train your servers to be friendly Inform your customers of what to expect Try to divert the customer's attention when waiting Encourage customers to come during slack periods

Service Organization Design

Services cannot be stored in inventory In services, capacity becomes the dominant issue Too much capacity leads to excessive costs Insufficient capacity leads to lost customers Waiting line models provide a powerful mathematical tool for analyzing many common service situations Services can be physical or virtual

Lot-for-Lot

Sets planned orders to exactly match the net requirements Produces exactly what is needed each week with none carried over into future periods Minimizes carrying cost Does not take into account setup costs or capacity limitations.

Assembly Line Balancing

Specify the sequential relationships among tasks Determine the required workstation cycle time Determine the theoretical minimum number of workstations Assign tasks, one a time, until the sum of the tasks is equal to the workstation cycle time Evaluate the efficiency of the balance Rebalance if needed

The Three T's

Task to be done 2. Treatment accorded to the customer 3. Tangible features of the service facility

Production Layout Strategy

The choice of manufacturing processes depends mostly on a firm's target market. Sales volume Variety of products

Level scheduling works best (advantages)

The entire system can be planned to minimize inventory and work-in-process Product modifications are up-to- date because of the low amount of work-in-process There is a smooth flow throughout the production system. Purchased items from vendors can be delivered when needed, often directly to the production line

Fixed-time period model

The item is ordered at certain intervals of time

Master Production Scheduling

The master schedule deals with independent demand items and is a major input to the MRP process All production systems have limited capacity and limited resources The aggregate plan provides the general range of operation, the master scheduler must specify exactly what is to be produced To determine an acceptable feasible schedule to be released to the shop, trial master production schedules are tested using the MRP program This is the capacity portion of the Planning Process on the earlier slide

Practical View of Waiting Lines

The number of arrivals over the hours that the service system is open Customers demand varying amounts of service, often exceeding normal capacity We can control arrivals • Short lines • Specific hours for specific customers • Specials We can affect service time by using faster or slower servers

MRP Explosion Process

The requirements for end items are retrieved from the master schedule (Net Change or Regeneration) • These are referred to as "gross requirements" by the MRP program On-hand balance and schedule of orders are used to calculate the "net requirements" Net requirements data is used to calculate when orders should be received to meet these requirements Planned order releases are generated by offsetting to allow for lead time

Queuing System Analysis

The source population - who are your customers? Population size - finite or infinite? Customer arrival rates are random Customer arrival characteristics Arrival patterns (steady or seasonal) Size or arrival rates (individuals or groups) Degree of patience (will they wait?

Service Blueprinting

The standard tool for service process design is the flowchart Called a service blueprint A unique feature of the service blueprint is the distinction made between the high customer contact aspects of the service and those activities that the customer does not see Made with a "line of visibility" on the flowchart Fail-safing involves using the service blueprint to identify opportunities for failure and then establishing procedures to prevent mistakes from becoming defects (poka-yokes)

Assembly Line Balancing

The time to complete a task is its cycle time Assembly line balancing is the method of assigning tasks to workstations so that the amount of idle time is minimized. It may be easier to think of workstations as people, although they can be machines or a combination of persons/machines When you minimize the idle time, you will be able to accomplish the tasks with the fewest workers.

Purposes of Inventory (Positive aspects)

To maintain independence of operations To meet variation in product demand, including seasonality To allow flexibility in production scheduling To provide a safeguard for variation in other parts of the system Take advantage of Economic order size/frequency Hedge against inflation, or perceived disruption in supply

FYI only

Total average value of inventory - the sum of the value (at cost) of the raw material, work-in process, and finished goods inventory Days of supply - the inverse of inventory turns scaled to days

Single-period model

Used when we are making a one-time purchase of an item

Fixed-order quantity model

Used when we want to maintain an item "in-stock," and when we restock, a certain number of units must be ordered

Many applications of poka-yokes to services

Warning methods (e.g. steps that lead to mistakes trigger a reminder) Physical or visual contact methods (e.g. parts can only fit together in the correct way) The Three T's

Workcenter layout

Workcenters are focused on a particular type of operation Machines that perform the same type of operation are grouped together For example, all the lathes are in one area

Assembly Line Design

Workstation cycle time - a uniform time interval in which a moving conveyor passes a series of workstations Also the time between successive units coming off the line Assembly-line balancing - assigning tasks to a series of workstations so that the required cycle time is met and idle time is minimized Precedence relationship - the order in which tasks must be performed in an assembly process

Yield Management

Yield management - the process of allocating the right type of capacity to the right type of customer at the right price and time to maximize revenue or yield Can be a powerful approach to making demand more predictable Has existed as long as there has been limited capacity for serving customers Its widespread scientific application began with American Airlines' computerized reservation system (SABRE)

Cycle counting

a physical inventory management technique to more effectively control inventory accuracy

"Soft" Benefits of S&OP

enhanced teamwork in the executive and mid- management groups better decisions with less effort one set of numbers, in both units and dollars, to run the business a tight linkage between strategic plans and day-to- day activities a "window into the future" for the organization

Engineer-to-order firm:

firm that will work with the customer to design and then make the product

Assemble-to-order firms

firms that combine a number of preassembled modules to meet a customer's specifications A primary task is to define a customer's order in terms of alternative components since these are carried in inventory An example is the way Dell Computer makes their desktop computers One capability required is a design that enables as much flexibility as possible in combining components There are significant advantages from moving the customer order decoupling point from finished goods to components

"Hard" Benefits of S&OP

higher customer service lower finished goods inventories more stable production/service rates faster and more controlled new product introductions reduced obsolescence shorter customer lead times

ERP

integrates internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application (SAP, Oracle, JDE)

Requirements are "time-phased"

items need to be available per the schedule, but no sooner Therefore, items are planned to arrive exactly at the time needed Since not all parts are needed at the same time in the production/assembly process, they are "time-phased" to arrive only when needed for the execution of the plan

Inventory accuracy

refers to how well the inventory records agree with physical count

Make-to-order firms

that make the customer's product from raw materials, parts, and components

Inventory turns

the cost of goods sold divided by the average inventory value A good aggregate measure of how effectively the organization is using the inventory dollars

Independent demand

the demands for various items are not dependent upon other items in our control • Customer orders, sales forecasts

Little's Law

the flow of items through a production process can be described using little's law Inventory=throughput rate x flow time throughput-long term average rate of flow through the process flow time- time for a single unit to traverse the entire process inventory-materials held by the firm for future use

MRP

the logic used in determining the number of parts, components, and materials needed to produce a product to the schedule provided (which is the production of the dependent demand)

Inventory system

the set of policies and controls that manages and monitors the inventory investment For example, determines what levels should be maintained, when stock should be replenished, and how large orders should be

Inventory

the stock of any item or resource used in an organization Includes: raw materials, finished products, component parts, supplies, and work-in-process

Lead time

the time needed to respond to a customer order

A pure strategy

uses just one of these approaches, a mixed strategy uses two or more

Customer order decoupling point:

where inventory is positioned to allow entities in the supply chain to operate independently