Supply Chain Management

1. Supply Chain Management Purchasing: • The acquisition of goods and services needed to support the various activities of an organization, at the best possible cost and from reliable suppliers.

2. Supply Chain Management Purchasing professional's goal to a company should be to provide: • The best pricing • Communication • Research in finding sources • Supplier performance Evaluation • Service level agreements (SLA’s)

3. Supply Chain Management Importance of purchasing: • Competition • Material cost • Lead time • Customer Demand • Quality

4. Supply Chain Management Logistics “The process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from point of origin to point of consumption for the purpose of customer Satisfaction” (council of logistics management)

5. Supply Chain Management Basic modes of transport • By Air • By Road • By Train • By Sea

6. Supply Chain Management Considerations in Transportation • Cost / Rates • Reliability • Safety / Damages • Insurance • Speed / Time • Mode of Transportation • Routes / sectors • Vehicles type • Urgency / Priority • In-house / Outsource

7. Supply Chain Management 3rd Party Logistic Service providers “Third-party Logistics is simply the use of an outside company to perform all or part of the firm’s materials management and product distribution function.” -- Simchi-Levi (2000)

8. Supply Chain Management • Advantages • Cost reduction • Focus on core competency • Improved efficiency, service and flexibility • Disadvantages • Loss of control • Impact on in-house workforce

9. Supply Chain Management Current use of 3PL by industry • Industry • Percentage of 3PL use in different industries Computer Consumer Retail Chemical Medical Auto Source "What's ahead for 3PLs“ Modern Materials Handling, April, 2000

10. Supply Chain Management Warehousing

11. Supply Chain Management Warehousing Functionality • Consolidation and Break-Bulk • Assortment (Cross Docking, Mixing) • Postponement (Packaging, Labelling) • Stockpiling (Seasonal, Bulk-Buy) • Reverse Logistics

12. Supply Chain Management CROSS-DOCK = No storage(?) Cross-dock (from multiple suppliers): • goods sorted as they arrive, • goods moved across dock and loaded onto trailers, • benefits - optimal vehicle use and low handling costs, • requires sophisticated planning techniques.

13. Supply Chain Management Warehouse Planning: • Site selection • Design • Product mix • Future expansion

14. Supply Chain Management Safety and Maintenance • Health and safety • Incidents • Environment

15. Supply Chain Management Manufacturing

16. Supply Chain Management • Manufacturing is all about converting raw material into consumer or industrial products. • A firms manufacturing competency is based on Brand power, Volume, Variety and Lead time.

17. Supply Chain Management JIT and Lean Manufacturing “A philosophy of manufacturing based on planned elimination of waste and continuous improvement of productivity ……”

18. Supply Chain Management Lean Manufacturing “A philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise. It involves: • … identifying and eliminating non-value-adding activities, • … employing teams of multi-skilled workers, • … using highly flexible, automated machines” (APICS) • American Production and Inventory Control Society (APICS) is an organization for professionals working in the field of Operations Management

19. Supply Chain Management Elements of JIT Manufacturing • Eliminating waste • Enforced problem solving and continuous improvement • People make JIT work • Total Quality Management (TQM) • Parallel processing • Kanban production control • JIT purchasing • Reducing inventories

20. Supply Chain Management Benefits of JIT • Inventory levels are drastically reduced: • frees up working capital for other projects • less space is needed • customer responsiveness increases • Total product cycle time drops • Product quality is improved • Scrap and rework costs go down • Forces managers to fix problems and eliminate waste .... or it won’t work!

21. Supply Chain Management Production Planning

22. Supply Chain Management Production Planning • What to produce • When to produce • How to produce

23. Supply Chain Management Overview of Operational Planning Activities • Long-Range Planning • Focuses on strategic issues relation to capacity, products, processes and plant location. • Intermediate-Range Planning • Focuses on tactical issues pertaining to aggregate workforce and material requirements for the coming year (Aggregate Planning). • Short-Range Planning • Addresses day-to-day issues of scheduling workers on jobs at assigned work stations.

24. Supply Chain Management • Aggregate production planning is done in an organization to match the demand with the supply on a period by period basis in a cost effective manner

25. Supply Chain Management Aggregate Planning Strategies • Pure • Mix

26. Supply Chain Management Pure strategies are as follows • Building and utilizing inventory through constant work force • Varying the size of work force • Overtime utilization • Subcontracting

27. Supply Chain Management Steps for Developing the Aggregate Plan • Step 1- Choose strategy: level, chase or hybrid • Step 2- Determine the aggregate production rate • Step 3- Calculate the size of the workforce • Step 4- Test the plan as follows: • Calculate Inventory, expected hiring/firing, overtime needs • Calculate total cost of plan • Step 5- Evaluate performance: cost, service, human resources, and operations

28. Supply Chain Management Aggregate plan for services firms Service organizations also use aggregate planning, some in exactly the same way with a manufacturing firm. • How many accounts we need to open • How many membership we need to sale • How many patient we need to serve

29. Supply Chain Management Master Production Schedule (MPS)

30. Supply Chain Management Master Production Schedule (MPS) • MPS is product wise plan for manufacturing products Which product will produce at what time till what time

31. Supply Chain Management MPS specifies • The sizing and timing of production orders for specific items • The sequencing of individual jobs • The short term allocation of resources to individual activities and operations

32. Supply Chain Management Inventory Management

33. Supply Chain Management Two Fundamental Inventory Decisions • How much to order of each material when orders are placed with either outside suppliers or production departments within organizations • When to place the orders

34. Supply Chain Management Independent Demand Inventory Systems • Demand for an item carried in inventory is independent of the demand for any other item in inventory • Finished goods inventory is an example • Demands are estimated from forecasts and/or customer orders

35. Supply Chain Management Dependent Demand Inventory Systems • Items whose demand depends on the demands for other items • For example, the demand for raw materials and components can be calculated from the demand for finished goods • The systems used to manage these inventories are different from those used to manage independent demand items

36. Supply Chain Management Inventory Costs • Costs associated with ordering too much (represented by carrying costs) • Costs associated with ordering too little (represented by ordering costs) • These costs are opposing costs, i.e., as one increases the other decreases

37. Supply Chain Management Economic Order Quantities (EOQ)

38. Supply Chain Management Economic Order Quantities • Typical assumptions made • annual demand (D), carrying cost (C) and ordering cost (S) can be estimated • average inventory level is the fixed order quantity (Q) divided by 2 which implies • no safety stock • orders are received all at once • demand occurs at a uniform rate • no inventory when an order arrives

39. Supply Chain Management

40. Supply Chain Management Example of EOQ Zartex Co. produces fertilizer to sell to wholesalers. One raw material – calcium nitrate – is purchased from a nearby supplier at $22.50 per ton. Zartex estimates it will need 5,750,000 tons of calcium nitrate next year. The annual carrying cost for this material is 40% of the acquisition cost, and the ordering cost is $595. a) What is the most economical order quantity? b) How many orders will be placed per year?

41. Supply Chain Management ABC Classification of Inventory • Typical observations • A small percentage of the items (Class A) make up a large percentage of the inventory value • A large percentage of the items (Class C) make up a small percentage of the inventory value • These classifications determine how much attention should be given to controlling the inventory of different items

42. Supply Chain Management Manufacturing Operation Scheduling

43. Supply Chain Management Scheduling: • Allocation of jobs to scarce resources OR • Scheduling is the process of rank ordering the jobs in front of each resource to maximize some chosen performance measure

44. Supply Chain Management Need and Basis for Scheduling • Availability of additional information (new or cancelled orders) • Occurrence of random events (absents, breakdowns) • Micro Resources (workers, machines)

45. Supply Chain Management Shop Floor Planning and Control • A system for controlling the manufacturing process from raw material to shipping • Shop Floor Control Systems involve collaboration of every aspect of manufacturing to optimize productivity • Basic focus of all approaches - WIP control

46. Supply Chain Management Common shop floor activities • Assigns priority to order • Issues dispatch list • Collect information • Track WIP and keep system updated • Control input-output between work centers measure efficiency, utilization and productivity of shop

47. Supply Chain Management Order sequencing rules • First come first served(FCFS) • Shortest processing time • Earliest due date

48. Supply Chain Management Order Sequencing Rules • First-Come First-Served (FCFS) Next job to process is the one that arrived first among the waiting jobs • Shortest Processing Time (SPT) Next job to process is the one with the shortest processing time among the waiting jobs • Earliest Due Date (EDD) Next job to process is the one with the earliest due (promised finished) date among the waiting jobs

49. Supply Chain Management End of Topic