Basics of Supply Chain Management

Basics Of Supply Chain Management
Session 1 Introduction to Supply Chain Management
Customer Expectations
Characteristics that provide value to the customer

Price Quality Delivery Pre- and post-sale service Flexibility (product and volume)
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Basics of Supply Chain Management, Version 2.1 August 2001
1-7
Customer Expectations (cont.)
Order qualifiers Competitive characteristics needed to be a viable competitor
Order winners Competitive characteristics that cause customers to choose firms products and services
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1-8
Lead Time
A span of time required to perform a process
APICS Dictionary
Delivery lead time
The time from the receipt of a customer order to the delivery of the product
APICS Dictionary
Cumulative lead time
The longest planned length of time to accomplish the activity in question

APICS Dictionary
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1-11
Manufacturing Strategies
Delivery Lead Time Design Purchase Manufacture Assemble Ship Engineerto-Order
Delivery Lead Time Inventory Manufacture Assemble Ship
Make-toOrder
Delivery Lead Time

Manufacture Inventory Assemble Ship Assembleto-Order
Delivery Lead Time Manufacture Assemble Inventory Ship Make-toStock

Visual
Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall.
1-12
Conflicts in Traditional Supply Systems

Marketing
Traditional Objective This implies
Operations
Finance
Increase revenue
Reduce Increase profit and manufacturing cost cash flow, reduce investment
1
Customer service
4 5
7 8
2
Production efficiency
3
Inventory investment
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Manufacturing Processes
Manufacturing Processes
Product Layout Continuous Production Repetitive Production Process Layout Intermittent Production (Job Shop) Project Layout
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1-21
Characteristics of Product Layout
Limited range of similar products Dedicated workstations Sufficient demand Capital intensive
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Advantages of Product Layout
Little work-in-process inventory Short throughput and manufacturing lead times Lower unit cost
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Characteristics of Process Layout
Intermittent lot production Many different parts processed at workstations General-purpose machinery Similar types of skills and equipment in each department Work moves only to required stations
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Characteristics of Process Layout
Relatively easy to change product or volume Complex and expensive production and inventory control High work-in-process inventory levels Longer lead times
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1-27
Characteristics of Project Layout
Used for large, complex projects Project remains in one location for assembly Avoids cost of moving the product
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Basics of Supply Chain Management

Session 2 Forecasting
Planning and Control Hierarchy

Priority Management Techniques Production Plan Capacity Management Techniques Resource Planning (RP)
At each level, there are three questions:
Master Production Schedule
Rough-Cut Capacity Planning (RCCP)
Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Input/Output Control Operation Sequencing
What are the priorities? What capacity is available? How can differences be resolved?
Production Activity Control (PAC)
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Manufacturing Resource Planning (MRP II)
A method for the effective planning of all resources of a manufacturing company APICS Dictionary Objective: to integrate the resources of an organization
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1-33
Sources of Demand
All sources of demand must be identified:

Customers Spare parts Promotions Intracompany Other

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What Should Be Forecast?

Level
Business plan
Forecast
Market direction
Time Frame
2 to 10 years
Sales and operations planning Master production schedule
Product lines and families

End item and option
1 to 3 years
Months
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2-8
Principles of Forecasting
Forecasts
Are rarely 100% accurate over time Should include an estimate of error Are more accurate for product lines and families Are more accurate for nearer periods of time
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2-9
Qualitative Techniques
Are based on intuition and informed opinion Tend to be subjective Are used for business planning and forecasting for new products Are used for medium-term to long-term forecasting
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Quantitative Techniques
Based on historical data usually available in the company Assume future will repeat past
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2-12
Extrinsic Techniques
Based on external indicators Useful in forecasting total company demand or demand for families of products
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2-13
Intrinsic Quantitative Techniques

Month January February March April May June July August September October November December January
Sales 92 83 66 74 75 84 84 81 75 63 91 84 ?
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Moving Average Forecasting
Can be used to filter out random variation. Longer periods smooth out random variation. If a trend exists, it is hard to detect. Manual calculations can be cumbersome when dealing with more periods.
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Seasonality
Measures the amount of seasonal variation of demand for a product Relates the average demand in a particular period to the average demand for all periods
Period average sales Seasonal index = Average sales for all periods
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Seasonal Sales
Average Sales for All Periods
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2-22
Planning and Control

Business Plan Production Plan Master Production Schedule Material Requirements Plan Production Activity Control and Purchasing Execution
At each level we must answer these questions:

Planning
What are the demand priorities? What capacity is required? What capacity is available?
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3-2
Typical Characteristics of the Production Plan
12-month time horizon Fluctuating or seasonal demand Plan made for product families Variety of management objectives
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Developing a Production Plan

Three basic strategies can be used:
Match/chase Level Combination/hybrid
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Chase Strategy
Production
Demand Units J
M A
J J A S Period
O N
D
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3-6
Chase Strategy
Advantages:

Stable inventory Varied production to meet sales requirements
Disadvantages:

Costs of hiring, training, overtime, and extra shifts Costs of layoffs and impact on employee morale Possible unavailability of needed work skills Maximum capacity needed
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3-7
Level Production Strategy
Demand
Demand Production
Time
Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall. Basics of Supply Chain Management, Version 2.1 August 2001
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3-8
Level Production Strategy (cont.)

Advantage:
Smooth, level production avoids labor and capitol costs of demand matching
Disadvantage:

Buildup of inventory Requires a more accurate forecast
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3-9
Combination Strategy
Demand
Demand Production
Time
Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall. Basics of Supply Chain Management, Version 2.1 August 2001
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3-10
Combination Strategy (cont.)
Produces at or close to full capacity for some part of the cycle Produces at a lower rate (or does not produce) during the rest of the cycle Makes use of available capacity, yet limits inventory buildup and inventory carrying costs
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3-11
Make-to-Stock Production Plan

Goods are put into inventory and sold from inventory Used when

Demand is constant and predictable Only a few product options exist Delivery times are shorter than time needed to make the product
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3-12
Make-to-Stock Production Plan

Information needed
Forecast by time period for the planning horizon Opening inventory Desired ending inventory
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3-13
Resource Requirements Planning

The production plan must be compared with existing resources

Are required resources available? If not, how will differences be reconciled?
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3-20

Session 3 Master Planning
Master Production Schedule

States requirements for individual end items and options by date and quantity
Constrained by and supports the production plan Disaggregates the production plan
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Objectives of Master Scheduling
Maintain desired level of customer service Make best use of resources Keep inventories at desired level
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Relationship to the Production Plan
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Rough-Cut Capacity Planning
Rough-cut capacity planning checks whether critical resources are available to support the preliminary master schedule A resource bill shows the time required for individual items on a critical resource
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3-29
The MPS
The MPS is not
A sales forecast A wish list A final assembly schedule
The MPS should be

The anticipated build schedule Realistic and achievable

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Available-to-Promise (ATP)
On hand = 200 units
Period Customer orders 1 160 2 20 200 3 20 200 4 5 60 200 6
MPS scheduled receipts

Available-topromise
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3-33
Planning Horizon
The planning horizon is the amount of time the master schedule extends into the future This is normally set to cover a minimum of cumulative lead time plus time for lot sizing low-level components and for capacity changes of primary work centers
APICS Dictionary
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3-34

Session 4 Material Requirements Planning (MRP)
Objectives of MRP
To determine the materials required

What is required How much is required When it is required
To establish and maintain priorities
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4-4
Inputs to MRP Process

MPS
Inventory Status
MRP
Bill of Material
Planning Data
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4-5
Bill of Materials
A bill of material lists all the components needed to make one assembly Each part has a unique part number
Description: Table Part Number: 100 Part Number Description 306 Wooden legs 433 Wooden ends 711 Wooden sides 025 Table top 822 Hardware
Quantity Required Unit of Measure 4 EA 2 EA 2 EA 1 EA 1 Kit

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4-6
Bill of Materials
Single Level
Table 100
Base 300
Top 025
Hardware Kit 822
Table 100
Multilevel
Base 300 Top 025 Hardware Kit 822 Legs 306 Leg Bolts 326 Frame 357 Boards 031 Glue 075
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4-7
Where-Used and Pegging Data

Where-Used Lists all the parents in which a component is used, whether there is a demand for the parent or not Shows the parents creating the demand for components, the quantities needed, and when Uses where-used logic to identify current sources of demand May be single-level or full-level
Pegging
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4-9
The MRP Process

Determines

What is needed How much is needed When to order

MPS data Bills of material Inventory status Planning data
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Involves

4-10
Lead Time, Exploding, and Offsetting
Lead time:
The time from when an order is placed until the part is ready for use
Multiplying the parent requirements by the usage quantity through the product tree Placing the requirements in their proper time periods based on lead time
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Exploding:
Offsetting:
4-11
Gross and Net Requirements

Available inventory must be taken into account
Net requirements = gross requirements available inventory
Example:
Gross requirements Available inventory Net requirements
50 units 20 units 30 units

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4-14
Basic MRP Record

Lead time: 2 weeks
Item Number 1 Gross requirements Scheduled receipts Projected available Net requirements Planned order receipt Planned order release 5 10 10 20 30 30 30 0 5 5 2 Week
5 35
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4-17
Using the Material Requirements Plan
The MRP logic will

Gross, net, offset, and explode requirements Create planned orders Keep priorities current
The software can provide action or exception messages
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4-19
Using the Material Requirements Plan

Planners actions include the following:
Releasing planned orders Rescheduling open orders Changing order quantities Working with others to solve problems
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4-20

Session 5 Capacity Management and Production Activity Control
Capacity Management
Planning and controlling resources needed to meet production objectives Planning: Determining resources needed to meet the priority plan Selecting methods to make that capacity available Controlling: Monitoring output, comparing with the plan, and taking corrective action
Capacity management occurs at each planning level

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5-3
Defining Capacity
The capability of a system to perform its expected function The capability of a worker, machine, work center, plant, or organization to produce output per time period
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5-5
Capacity Planning Process
Determine the capacity available Translate the released and planned orders into capacity required Sum up capacities required for each work center Resolve differences between available capacity and required capacity
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5-6
Determining Capacity Available

Capacity available is
The capability of a system or resource to produce a quantity of output in a particular time period APICS Dictionary
Available capacity can be calculated or measured To calculate available capacity, identify

Available time Utilization Efficiency

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5-7
Available Time
Available time: depends on the number of machines, number of workers, and hours of operation
Number of machines (or number of workers) hours of operation
What is the weekly available time for a work center that has four machines and works eight hours a day for five days a week?
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5-8
Utilization
Utilization: Percentage of the time that the work center is active
Hours actually w orked Utilization 100% Available hours
Example:
Work center is available 120 hours a week, but actually produces goods for 90 hours
90 100% = 75% utilization 120
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5-9
Efficiency
Efficiency: Actual output rated against standard output
Standard hours of work 100% Hours actually worked
Example: A work center is utilized 100 hours per week and produces 110 standard hours of work
110 = 100 % = 110 % efficiency 100
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5-10
Rated Capacity
Rated capacity = available time x utilization x efficiency
Example: A work center consists of three machines and is operated eight hours a day for five days a week. Past utilization has been 75%, and efficiency has been 110%. Available time =
Rated capacity =
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5-12
Demonstrated Capacity
Proven capacity calculated from actual performance data Example: Over the previous four weeks, a work center produced 110, 140, 120, and 130 standard hours of work. What is the demonstrated capacity?
Demonstrated weekly capacity = standard hours/week
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5-14
Load
Generated by the priority planning system (MRP) Translates the priorities, given in units, into time required at each work center in each time period Takes place at each planning level
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5-15
Lead-Time Elements
Lead Time Queue Queue Setup Setup Run Wait Move
Time waiting before operation begins Time getting ready for operation
Run
Wait Move
Time performing operation

Time waiting after operation ends Time physically moving between operations
Adapted from Material and Capacity Requirements Planning Certification Review Course, 1993, APICS
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5-18
Scheduling Orders
To determine when orders should be started and completed on each work center
Calculate operation time required at each work center Operation time = setup time + run time Allow for queue, wait, and move times
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5-19
Production Activity Control

Production Plan
Planning Master Production Schedule
Materials Requirements Planning
Implement control
Purchasing
Production Activity Control
Capacity Control Input/Output
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5-24
Objectives of PAC
Execute the MPS and MRP Optimize use of resources Minimize work in process Maintain customer service
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5-25
PAC Functions
Plan

Ensure resources are available Schedule start and completion dates Gather relevant shop order information Release shop orders
Execute

Control

Establish and maintain order priority Track actual performance Monitor and control WIP, lead times, and queues Report work center performance
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5-26
Scheduling and Loading Techniques

Forward scheduling: Activities are schedule from a start date with the completion date of an order computed Backward scheduling: Activities are scheduled back from the due date Infinite loading: Assumes capacity is infinite at any work center Finite loading: Assumes there is a definite limit to capacity at any work center
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5-30

Session 6 Inventory Fundamentals
What Is Inventory?
Those stocks or items used to support production,supporting activities,and customer service
APICS Dictionary
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6-3
Reasons for Carrying Inventory

The only good reason for carrying inventory beyond current needs is if it costs less to carry it than not. Inventory allows the company to operate with different production rates and batch sizes throughout the supply, production, and distribution system. Decouples
Demand Customer demand Finished goods Output of one operation Materials to begin production
from from from from from
Supply Finished goods Component availability Output of preceding operation Suppliers of materials
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6-7
Functions of Inventory
Anticipation Fluctuation Lot size Transportation Hedge
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Inventory Objectives
Best customer service Low-cost plant operation Minimum inventory investment
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6-9
Basic Problem
Balance cost of carrying inventory with costs of not carrying inventory

Customer service Changing production levels Placing orders
Sum of the cost of carrying inventory and the cost of not carrying inventory should be as low as possible
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6-10
Inventory Costs
Item costs Carrying costs Ordering costs Stockout costs Capacity-related costs
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6-11
Item Costs
Cost of item and all costs to get item into the plant

Product Transportation Customs duties Insurance Direct material, direct labor, and factory overhead
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6-12
Carrying Costs
Carrying costs can be broken down into three categories

Capital costs Storage costs Risk costs Money tied up in inventory Space, personnel, and equipment Obsolescence, damage, pilferage, insurance, and deterioration
These costs increase with the amount of inventory carried
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6-13
Ordering Costs
Costs of placing an order with the factory or outside supplier Costs include
Production control Setup and teardown Lost capacity Purchase order

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6-15
Stockout Costs
If demand during the lead time exceeds forecast and available inventory, we can expect a stockout, causing

Backorder costs Lost sales costs Lost customer costs
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6-17
Capacity-Related Costs
Costs of changing production levels

Overtime/undertime Hiring Layoff Training Shift premiums
Can be avoided by leveling production (but may build inventory)

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6-18
Accounting Systems
Accounting systems classify activities of a company into five types of accounts.
Assets Liabilities Owners equity Revenues Expenses Balance sheet accounts
Income statement accounts
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Balance Sheet Equation

Assets = Liabilities + Owners equity Assets Liabilities Owners equity Anything of value Amounts owed What is left over after liabilities are paid
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6-21
Cash Flow Analysis
The inflow and outflow of cash in the business over a given period of time To survive, a business must have the cash available to pay its bills
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Cash Flow
Inventory State
Raw material Work in process Finished goods Accounts receivable paid
Effect on Cash Flow

Cash outflow Cash outflow Cash outflow Cash inflow
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6-27
Inventory Turns
A measure of how effectively inventory is being used
Annual cost of goods sold Inventory turns = Average inventory in dollars Example Annual cost of goods sold = $1,000,000 Average inventory = $500,000 1,000,000 Inventory turns = =2 500,000
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6-28

Session 7 Inventory Management
How Much to Order at One Time

Management will want to

Minimize sum of all costs involved Maximize customer service
Management has to make decision rules Methods of deciding how much to order at one time:

Lot-for-lot Fixed order quantity Economic order quantity

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7-3
Lot-for-Lot
Only required amount is ordered No unused lot-size inventory is created Is used

For dependent demand items For expensive components (A items) In a Just-in-Time (JIT) environment
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Fixed-Order Quantity
Specific amount is ordered each time an order is placed Is quick and simple Is often made on the basis of what seems reasonable Does not always produce the best results
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7-5
Economic Order Quantity

Assumes that
Demand is relatively constant and known Items are produced or purchased in lots or batches Order preparation costs and inventory carrying costs are constant and known Replacement occurs all at once
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Average Inventory and Number of Orders Per Year
Weekly demand = 100 units; order quantity is 200 units

Average lot size inventory =
Number of orders per year =
Order quantity 200 = = 100 units 2 2

Annual demand Order quantity
100 x 52 = 26 orders per year 200

Visual
Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, 3rd edition, Prentice-Hall, 1998
7-7
Order Quantity
If the order quantity (Q) increases
Annual cost of carrying increases Annual cost of ordering decreases
We want an order quantity where the sum of these two costs is a minimum.
Annual cost of carrying = Q x unit cost x cost of carrying 2
Annual demand x cost of ordering Q
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Annual cost of ordering =
7-8
Economic Order Quantity Formula
Where A = Annual usage in units S = Ordering cost in dollars i = Annual inventory carrying cost as a decimal C = Unit cost
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2AS EOQ = iC
7-10
Economic Order Quantity Formula

For example, if A = 1,000 units S = $20 per order i = 20% = 0.2 C = $5 per unit
2 x 1,000 units x $20 EOQ = = 200 units 0.2 x $5
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7-11
When to Place an Order
If an order is placed late, there is the possibility of a stockout If an order is placed early, there will be extra inventory and cost A system is needed to tell when to order Common systems include
Order point system Periodic review system Materials requirements planning
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7-14
Order Point System

Quantity
OP SS LT
Order point = demand during lead time + safety stock OP = DDLT + SS

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7-15
Order Point FormulaExample

Demand Lead time Safety stock OP = 100 units per week = 4 weeks = 100 units = DDLT + SS = 100 (4) + 100 = 500 Place an order when 500 units are on hand
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7-16
Order Point

Order quantities are usually fixed Order point is determined by the average demand during the lead time Intervals between replenishments are not constant Order quantity Average inventory safety stock 2
Order point = Demand during lead time + safety stock

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7-17
Safety Stock
Safety stock is used to prevent a stockout The amount of safety stock carried depends on
Variability of demand during the lead time Frequency of ordering Desired service level Length of the lead time Ability to forecast and control lead times
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7-19
Service Levels
The cost of carrying safety stock plus the cost of a stockout should be a minimum Costs of a stockout:
Cost of backorder Cost of lost sales Cost of lost customers
All are difficult to calculate Management should state the number of stockouts per year that is tolerable
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7-20
Determining When to Order

Two basic systems
Two-bin system Perpetual inventory record system
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7-21
Periodic Review System

The quantity of an item on hand is determined at fixed intervals and an order is placed.

Review intervals are fixed Order quantities vary

TARGET LEVEL
Figure reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, second edition, Prentice-Hall, 1996 Basics of Supply Chain Management, Version 2.1 August 2001
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Cycle Counting
Inventory is counted continually throughout the year Some items are counted each day All items are counted a predetermined number of times a year depending on their importance Cycle counting uses trained and dedicated personnel
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Cycle Counting
Purpose: To identify items in error and eliminate causes of error Advantages
Timely detection and correction of problems Little or no loss of production Identification and elimination of causes of error
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7-31

Session 8 Physical Distribution
Concept of ABC Inventory Control
A small number of items will represent the most critical values. ABC inventory control separates the most significant items from the less important. It is used to determine the degree and level of control required.
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ABC Classification
A Items 20% of the items account for 80% of the total dollar usage B Items 30% of the items account for 15% of the total dollar usage C Items 50% of the items account for 5% of the total dollar usage
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ABC Process
Establish the item characteristics that influence the results of inventory management:

Annual dollar usage Scarcity of material Quality problems
Classify items into groups based on the criteria established Apply a degree of control in proportion to the importance of the group
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8-5
Example of ABC Analysis

Annual Unit Usage 1,100 600 100 1,300 100 10 100 1,500 200 500 Annual $ Usage $ 2,200 24,000 400 1,300 6,000 250 200 3,000 400 500 $38,250
Part Number 1 2 3 4 5 6 7 8 9 10
Unit Cost $2 40 4 1 60 25 2 2 2 1 Total
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8-6
Control Based on ABC Classification

Two general rules to follow

Have plenty of low-value items. Use control effort saved to reduce the inventory of A items.
A items: Tight control

B items: Normal control C items: Simplest possible control
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8-9
Physical Distribution
The physical supply and distribution system depends on many factors, including
Channels of distribution Types of markets served

Geographic dispersion Number of customers Size of orders
Characteristics of the product Type of transportation available
All are interrelated

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8-10
Physical Distribution Activities
Transportation Distribution inventory Warehousing Materials handling Protective packaging Order processing and communication
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8-11
Warehousing
Benefits:

Provides a place to store and protect inventory Reduces transportation costs Improves customer service levels
Objectives:

To provide timely customer service To keep track of items To minimize cost To provide communication links with customers
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8-15
Warehousing
Activities:

Receive, identify, and store goods Pick, group, and load goods for shipment Dispatch the shipment Operate an information system
Complexity depends on

Number of stockkeeping units (SKUs) Quantity of each SKU Number and frequency of receipts and shipments
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8-16
Warehouse Management Objectives

Optimize use of space Make effective use of labor and equipment

Select the best mix of labor and equipment Provide ready access to all items Perform efficient movement of goods
These efforts depend on

Stock location Order picking and assembly Packaging

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8-17
Stock Location Objectives
To provide the required customer service To keep track of where items are stored To minimize effort to receive, put away, and retrieve items
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8-18
Stock Location
Two basic systems

Fixed location Floating (random) location
The system used depends on

Type of goods being stored Type of storage facilities needed Throughput Size of orders
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8-19
Unitization
Unitization is the consolidation of several units into larger units for fewer handlings Unit load: Made up of a number of items or bulky material, so arranged or confined that the mass can be picked up or moved as a single unit Examples: Pallets, sheets, racks, containers Unitization can be successive: There should be some dimensional relationship among the primary package, the carton, the unit load, the vehicle, and the warehouse.
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8-22
Distribution Inventory Objectives
To provide the required level of customer service To minimize the cost of transportation and handling To interact with the factory to minimize scheduling problems
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8-24
Pull System
Each distribution center orders from central supply what it needs when required without regard for

Needs of other distribution centers Available inventory at central supply Production schedule at the factory
Advantage:
Allows each center to operate independently Disadvantages: Lack of coordination, poor customer service, disrupted factory schedules
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8-27
Push System
All forecasting and order decisions are made centrally. Advantage: Coordination among factory, central supply, and the distribution centers Difficulty in reacting to local demand
Visual
Disadvantage:
8-28
DRP
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8-29
Rail Transportation
Is best able to move large volumes of bulky goods long distances over land Provides less frequency of departure than trucks Provides good speed of transit over long distances Provides reliable service Provides flexibility in types of goods carried Is cheaper than road for large quantities of bulky cargo
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8-32
Road Transportation
Has low capital cost compared with rail Provides door-to-door service Provides fast, flexible service Is particularly suited to distribution of small volume goods to a dispersed market
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8-33
Air Transportation
Provides speedy service over long distances Uses passenger aircraft as well as freight aircraft Can go anywhere there is a suitable landing strip Has high cost Is suitable for high-value, low-weight cargo and for emergency items
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8-34
Water Transportation
Has low operating costs per ton-mile Is slow and usually not door-to-door Is most useful for moving low-value, bulky cargo over long distances where water routes are available
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8-35
Pipeline Transportation
Low operating costs Impervious to weather Move large volumes continuously
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8-35a
Line-Haul Costs
Include fuel, wages, wear and tear Depend on the distance moved, not the weight moved
Example: Line-haul cost is $4 per mile, Distance moved is 200 miles If 3 tons are shipped LHC/ton = = If 5 tons are shipped LHC/ton = =
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8-37
Shipping Costs
Line-haul Pickup and delivery Terminal handling Depend on the distance moved Depend on the number of pickups and weight Depend on the number of times a shipment is handled, loaded, and unloaded Depend on the number of shipments made
Visual
Billing and collecting

8-38
Total Transportation Costs
To minimize shipping costs Decrease line-haul costs by increasing weight shipped Consolidate shipments to reduce
Terminal handling costs Pickup and delivery costs Billing and collecting costs
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8-39

Session 9 Quality Management and Purchasing
Total Quality Management (TQM)

TQM is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work.
APICS Dictionary
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9-3
Total Quality Management (TQM)

Key principles and characteristics
Customer focus Meeting or exceeding the users expectations Costs of quality Identifying all the costs associated with quality Taking action Using problem-solving tools Involving the employee Continuously improving the process
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9-4
The Cost/Productivity Advantage

Before Improvement Scrap rate 13% Order size 100 Number produced 115 Production costs @ $10 per unit $1,150 Sales revenue @ $15 per unit $1,500 Profit $ 350
After Improvement 5% 100 105 $1,050 $1,500 $ 450

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9-6
Costs of Quality
Costs of failure
Internal External
Costs of appraisal Costs of prevention
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9-7
What Is Quality?
Conformance to requirements or fitness for use.
APICS Dictionary
Better definition: As a minimum, all parts must be within specification, and the less the variation from the center of the specs, the better.
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9-10
Quality Tools
Pareto chart Cause-and-effect diagram Stratification or scatter diagrams Check sheet Histogram Graph and control chart
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9-13
Control ChartsKey Points
Filled in by operators, not inspectors Record the average and range of the process Control limits are set to indicate the normal variation of the process Control charts do not show product specifications
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9-19
Limitations of Inspection
Is expensive Does not add value for the customer Does not prevent further defects Is not dependable Gives no information at the source (feedback)
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9-20
Purchasing
The term used in industry and management to denote the function of and the responsibility for procuring materials, supplies, and services.
APICS Dictionary
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9-21
Purchasing Objectives
To obtain goods and services of the quality and quantity needed To obtain goods and services at the right cost To ensure the best possible service To identify qualified suppliers and maintain good relations
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9-22
Establishing Specifications
What to buy depends on
Quantity Cost considerations What the item should do

Quality level needed Those characteristics of product determined by final use
Function, quality, service, and price are interrelated

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9-27
Selecting Suppliers
Factors in selecting suppliers

Technical ability Manufacturing capability Reliability After-sales service Location Price Financial stability Management attitude
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9-29

Session 10 Just-in-Time Manufacturing
Define Just-in-Time Manufacturing

What is Just-in-Time manufacturing? A popular definition:
Continuous improvement and the planned elimination of waste
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10-3
Value
Value should be defined from the customers point of view Any activity that does not add value from the customers point of view is waste
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10-4
The Product Cycle
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10-5
Waste Caused by Manufacturing

Process Methods Movement Product defects Waiting time

Planned Unplanned
Overproduction Inventory
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10-9
How Lower Inventories Reduce Waste

Faster response to engineering changes Faster reaction to quality problems Reduced material handling costs Reduced control costs Better visibility
_____________________ _____________________ _____________________

Visual
10-10
Continuous Production

Narrow product line Dedicated equipment Easily automated Work flows along constant path Little inventory Short lead times
Visual
10-11
Process Layout
Wide range of product General-purpose machinery Products move in lots or batches Long queues at the work centers High level of work in process Long lead times
Visual
10-13
Work Cells
The use of work cells can result in
Reduced queue Simplified production activity control Reduced floor space Reduced material movement Immediate feedback
These advantages can lead to

Greater production flexibility Smaller lot sizes Improved quality

Visual
10-15
Dedicated Production Lines
Visual
10-16
Setup Reduction Indirect Benefits
Reduced lot size Reduced queue and manufacturing lead time Reduced work-in-process inventory Improved quality Improved process and material flow Greater flexibility
Visual
10-17
Total Quality Management
Total quality management

Reduces lot size, which will reduce lead time, which will reduce WIP inventory
Lot sizes are reduced by Lowering fixed costs per batch Decreasing destructive testing Improving yield
Visual
10-18
Lead Time Reduction

Smaller lot sizes reduce lead time by reducing

Operation time Queue time Wait and move times
Reduced lead time reduces the average work-in-process inventory

Visual
10-19
Preventive Maintenance
Costs associated with performing preventive maintenance

Parts and materials for the service Technicians time to perform the service Lost production time (planned) while the machine is out of service
Visual
10-23
Preventive Maintenance
Costs associated with not performing preventive maintenance

Damage to other parts and equipment Defective product Unscheduled overtime for repair crews Idle production workers Lost production time; lost capacity Late deliveries to customers
Visual
10-24
Total Productive Maintenance

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 activities.
APICS Dictionary
Visual
10-25
Employee Empowerment
The practice of giving nonmanagerial employees the responsibility and the power to make decisions regarding their jobs or tasks APICS Dictionary
Broad definition
Moving the day-to-day decision-making of a company lower in the management structure
Narrow definition
Giving all employees the authority to stop the production of defective products
Visual
10-27
Employee Involvement
Employee involvement requires cooperation and involvement of everyone Employee involvement requires that employees be versatile Workers are responsible for
Performance improvement Preventive maintenance Problem solving
Managers must become facilitators

Visual
10-28
Manufacturing Planning and Control

Manufacturing planning and control answers these questions:

What are we going to make? What do we need to make it? What do we have? What do we need to get?
Visual
10-29
Planning and Control with JIT

JIT simplifies the manufacturing process and the planning and control process:
Forecasting
Shortens lead times at all planning levels
Production planning
Shortens lead times Improves supplier relations
Master scheduling
Levels material and capacity schedules Shortens lead times Encourages schedule stability
Visual
10-30
Planning and Control with JIT

Material requirements planning

Is date and quantity driven Does not require netting Simplifies and flattens bills of material
Capacity management
Levels capacity throughout the plan

Reduces inventory Reduces tracking of components Backflushes to relieve inventory
Visual
Inventory management

10-31

Basics of Supply Chain Management

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Basics Of Supply Chain Management

Session 1 Introduction to Supply Chain Management

Basics of Supply Chain Management, Version 2.1 August 2001

Customer Expectations (cont.)

Order qualifiers Competitive characteristics needed to be a viable competitor

Basics of Supply Chain Management, Version 2.1 August 2001

Delivery lead time

Cumulative lead time

The longest planned length of time to accomplish the activity in question

Basics of Supply Chain Management, Version 2.1 August 2001

Delivery Lead Time Inventory Manufacture Assemble Ship

Delivery Lead Time

Delivery Lead Time Manufacture Assemble Inventory Ship Make-toStock

Conflicts in Traditional Supply Systems

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Characteristics of Product Layout

Basics of Supply Chain Management, Version 2.1 August 2001

Advantages of Product Layout

Basics of Supply Chain Management, Version 2.1 August 2001

Characteristics of Process Layout

Basics of Supply Chain Management, Version 2.1 August 2001

Characteristics of Process Layout

Basics of Supply Chain Management, Version 2.1 August 2001

Characteristics of Project Layout

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management

Planning and Control Hierarchy

At each level, there are three questions:

Master Production Schedule

Rough-Cut Capacity Planning (RCCP)

Production Activity Control (PAC)

Basics of Supply Chain Management, Version 2.1 August 2001

Manufacturing Resource Planning (MRP II)

Customers Spare parts Promotions Intracompany Other

Basics of Supply Chain Management, Version 2.1 August 2001

What Should Be Forecast?

Sales and operations planning Master production schedule

Product lines and families

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Intrinsic Quantitative Techniques

Moving Average Forecasting

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Planning and Control

At each level we must answer these questions:

Basics of Supply Chain Management, Version 2.1 August 2001

Typical Characteristics of the Production Plan

Basics of Supply Chain Management, Version 2.1 August 2001

Developing a Production Plan

Match/chase Level Combination/hybrid

Basics of Supply Chain Management, Version 2.1 August 2001

Basics of Supply Chain Management, Version 2.1 August 2001

Stable inventory Varied production to meet sales requirements

Basics of Supply Chain Management, Version 2.1 August 2001

Level Production Strategy

Level Production Strategy (cont.)