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Chapter 18 of Business Dynamics

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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Chapter 18 of Business Dynamics

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  1. Chapter 18 of Business Dynamics

  2. The Manufacturing Supply Chain • This chapter adapts the stock management structure of the previous chapter to represent the supply chain in manufacturing firms

  3. The stock management structure… • Is broken up into • An order fulfillment structure • A production starts structure • A demand forecasting component

  4. Overview Production Model

  5. Key management decisions are made by • Order Fulfillment • Production Scheduling

  6. 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

  7. In this initial model there are… • No capacity constraints (from either labor or capital) • No stocks of materials

  8. Production Structure

  9. Production Rate = • DELAY3(Production Start Rate, Manufacturing Cycle time)

  10. 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

  11. An Order Fulfillment Structure

  12. Table for Order Fulfillment • From Fig. 18-3

  13. Desired Shipment Rate = • Customer Order Rate

  14. Order Fulfillment Ratio = • Table for Order Fulfillment(Maximum Shipment Rate/Desired Shipment Rate)

  15. Minimum Order Processing Time = • 6 • Is a constant

  16. Maximum Shipment Rate = • Inventory/Minimum Order Processinig Time

  17. Safety Stock coverage = • 6 • Is a constant

  18. Time to Average Order Rate = • 6 • Is a constant

  19. Desired Inventory coverage =

  20. Minimum Order Processing Time = • 6 • Is a constant

  21. Desired Inventory = • whatever

  22. Adjustment for Inventory = • Difference between desired inventory and actual inventory, all divided by the Inventory Adjustment Time

  23. Inventory Adjustment Time = • 6 • Is a constant

  24. A production starts structure

  25. Manufacturing Cycle time = • 6 • Is a constant

  26. Desired WIP = • Manufacturing Cycle Time * Desired Production • This is an implementation of Little’s Law

  27. WIP Adjustment Time = • 6 • Is a constant

  28. Adjustment for WIP = • Guess: f(Desired WIP, WIP Adjustment time, Work in Process Inventory)

  29. Desired Production = • MAX(0, Expected Order Rate + Adjustment for Inventory)

  30. Desired Production Start Rate = • Adjustment for WIP + Desired Production

  31. Production Start Rate = • MAX(0, Desired Production Start Rate)

  32. 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

  33. The demand forecasting structure • What is the equation for Change in Exp Orders?

  34. 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

  35. 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

  36. Behavior—Inventory • Inventory drops below desired inventory

  37. Behavior—The Rates

  38. 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

  39. 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

  40. The backlog structure

  41. 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

  42. 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

  43. Materials Inventory

  44. The final single supplier model

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