Chapter 18 of business dynamics
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Chapter 18 of Business Dynamics. The Manufacturing Supply Chain. This chapter adapts the stock management structure of the previous chapter to represent the supply chain in manufacturing firms. The stock management structure…. Is broken up into An order fulfillment structure

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The manufacturing supply chain
The Manufacturing Supply Chain

  • This chapter adapts the stock management structure of the previous chapter to represent the supply chain in manufacturing firms


The stock management structure
The stock management structure…

  • Is broken up into

    • An order fulfillment structure

    • A production starts structure

    • A demand forecasting component



Key management decisions are made by
Key management decisions are made by

  • Order Fulfillment

  • Production Scheduling


Three balancing loops
Three Balancing Loops

  • Stockout loop regulates shipments as inventory varies

  • Inventory and WIP Control Loops adjust production starts to move the levels of inventory and WIP toward their desired levels


In this initial model there are
In this initial model there are…

  • No capacity constraints (from either labor or capital)

  • No stocks of materials



Production rate
Production Rate =

  • DELAY3(Production Start Rate, Manufacturing Cycle time)


Terms
Terms

  • Manufacturing Cycle Time—the average transit time for all items aggregated together in the model

  • Manufacturing delay is being modeled as a fourth-order material (flow) delay




Desired shipment rate
Desired Shipment Rate =

  • Customer Order Rate


Order fulfillment ratio
Order Fulfillment Ratio =

  • Table for Order Fulfillment(Maximum Shipment Rate/Desired Shipment Rate)



Maximum shipment rate
Maximum Shipment Rate =

  • Inventory/Minimum Order Processinig Time


Safety stock coverage
Safety Stock coverage =

  • 6

  • Is a constant






Adjustment for inventory
Adjustment for Inventory =

  • Difference between desired inventory and actual inventory, all divided by the Inventory Adjustment Time





Desired wip
Desired WIP =

  • Manufacturing Cycle Time * Desired Production

  • This is an implementation of Little’s Law


Wip adjustment time
WIP Adjustment Time =

  • 6

  • Is a constant


Adjustment for wip
Adjustment for WIP =

  • Guess: f(Desired WIP, WIP Adjustment time, Work in Process Inventory)


Desired production
Desired Production =

  • MAX(0, Expected Order Rate + Adjustment for Inventory)


Desired production start rate
Desired Production Start Rate =

  • Adjustment for WIP + Desired Production


Production start rate
Production Start Rate =

  • MAX(0, Desired Production Start Rate)


A demand forecasting component
A demand forecasting component

  • This structure simply smoothes the customer order rate, much like exponential smoothing would do to provide a realistic model of the forecasting process used in many firms


The demand forecasting structure
The demand forecasting structure

  • What is the equation for Change in Exp Orders?


Typical constants
Typical constants

  • Minimum order processing time = 2 wks

  • Safety Stock Coverage = 2 wks

  • Manufacturing Cycle Time = 8 wks

  • Inventory Adjustment Time = 8 wks

  • WIP Adjustment Time = 2 wks


Initial stocks for equilibrium
Initial Stocks for Equilibrium

  • Initial Inventory = Desired Inventory\

  • Initial WIP = Desired WIP

  • Initial Expected Order Rate = Customer Order Rate

  • These are all the initial conditions needed to create an initial equilibrium


Behavior inventory
Behavior—Inventory

  • Inventory drops below desired inventory



What the rate bot charts tell us
What the rate BOT charts tell us

  • Amplification of the customer order rates by the production starts rate is unavoidable

    • This is what causes the bull whip effect in supply chains, especially when suppliers are linked to the manufacturer by JIT Kanban or signaling systems

  • There is a phase lag between receipt of the order and its fulfillment

  • There is no significant oscillation


What about backlogs
What about backlogs?

  • Boeing, like not other manufacturer, carries backlogs stretching out years.

  • Boeing is a make to order manufacturer

  • Consideration of backlogs modifies the order fulfillment structure



Backlog equations
Backlog equations

  • What is the equation for backlog?

  • The equation for delivery delay is formulated from one of the most important principles in Operations Management—Little’s Law:

    • Delivery delay = backlog/order fulfillment rate

    • Desired Shipment Rate = Backlog/Target Delivery Delay


More backlog equations
More Backlog Equations

  • Order fulfillment rate = shipment rate

  • These are, however, totally different entities

  • Shipment rate is a physical flow

  • Order fulfillment rate is an information accounting that reduces the amount of backlog within the computer’s database




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