Post. Flashcards
Supply Chain network order from focal to third tier customer & supplier
- Center — Focal companyThird tier customer: whoever consumes it, last of the chain, product reaches its goal —> being marketed to this customerSecond tier customer: who ever buys from the storeFirst tier customer: supermarket etc. who buys from the factory1st and 2nd the priorities, 3rd the goalFirst tier suppliers: These are direct suppliers of the final product (food for cows)Second tire suppliers: These are suppliers or subcontractors for your tier 1 suppliers. (cows — milk products)
- Flow of service and information through all channels
Structure - Capacity Management: Optimum Capacity Level
Why is long-term capacity management important? And 2. key aspects
Because it has significant impact on
o Operational performance
o The design of configuration of supply networks
o Decision to develop in-house capacity, integrate vertically or outsource o For the network to operate efficiently all stages must balance otherwise the network will be limited to the smallest/slowest stage
key aspects
o capacity can either lead or lag demand
o Inventory can be used to smooth out the peaks
Optimum Capacity Level
About unit cost, when optimal and need to know where the optimum point is
when optimal economies of scale (cost lowest but optimal with demand) and when dis-economies of scale (over capacity, more costs)
Impact on: performance, design of supply chain network, decisions to in-house capacity, integrate vertically or outsource
Either leading or lagging strategies
What does mean to manage capacity?
Always sufficient capacity to meet Forecast demand
Timing - that demand is always greater than or equal to actual capacity
Smoothing with inventories means using the excess capacity in one period to produce inventory that supplies the under-capacity period
Inventories to obtain the advantage of both capacity leading and capacity lagging
Capacity leading advantages and disadvantages
+ always sufficient capacity to meet demand
+ capacity can serve for extra demand
+ start-up problems, less likely to affect supply
- low utilization of factories
- risk of overcapacity, more costs, since forecast not realised
- capital spending early
Capacity lagging advantages and disadvantages
+ always sufficient demand to keep factories working at full capacity
+ minimal overcapacity when demand drops
+ capital spending on factories delayed
- insufficient capacity to meet demand
- no ability to exploit short-term increase in demand
- start-up problems with new factories cause even worse undersupply
Scope: Configuring supply networks
When operations design their supply networks they have many choices to make, how much of the supply network they will own and manage themselves?
Key aspects for decision making
2 key aspects of supply network design
o Vertical integration and the direction
o Outsourcing
Verical integration upstream or downstream to narrow or wide extent:
Raw material supplier - component maker - assembly operation - wholesaler - retailer
Vertical integration if:
Activity of strategic importance
Company has specialized knowledge
Company’s operations performance superior
Significant operations performance improvement likely
lower cost in-house
Outsourcing if:
Not strategic
Company doesn’t have the knowledge
Can’t perform better than competitors
Not significant in performance
Outsourcing vs Offshoring
Offshoring deals with the location of operations
- Company doesn’t own the assets
- Outsourcing: domestic delivers of products & services
- Offshore outsourcing: overseas supplier delivers (international)
- Company owns the assets
- Domestic operations: focal operations, performs activities themselves
- Offshore operations: focal operation’s overseas operation delivers products & services (international)
Smoothing with inventory
Using the excess capacity in one period to produce inventory that supplies the under-capacity period — Only works if space for inventory: demand met by production and inventory - mostly in leading strategy
What is supply chain management?
Supply chain management is the management of the interconnection of organization that relate to each other through upstream and downstream linkages between the processes that produce value to the ultimate consumer in the form of products and services
Market-based/transactional supply arrangements = emphasis predominantly on contracting
Partnership supply arrangements = Emphasis predominantly on relationships
Supply Chain Relationship Arrangements
lowest involvement — virtual spot trading: outsources everything with many supplier
highest involvement — vertical integration: close with few suppliers, nothing outsourced
traditional market supply: contract agreements, arm’s length outsourcing some, or nothing, focused on product production
sources materials, provides them to a manufacturer to make the product –> sends them to a sales channel to be delivered to the customer
“Partnership” supply relationships: make everything, close with few
“Partnership” supply relationships
committed to work together mutual benefit of both parties, sharing relevant information and the risks and rewards of the relationship
high trust, collaboration in problem solving, early conflict resolution, understanding competencies to reduce costs, quality failures and solve problems early
The bullwhip effect
starts with change in demand affects retail store’s sales, wholesaler’s store orders, manufacturer’s orders to manufacture, manufacturer’s orders to it’s supplier: orders affects deliveries
The supplier selection process (your organization as customer, your customer)
Initial supplier qualification
Agree measurement criteria
Obtain relevant info
Make selection
Based on:
Supplier performance gap: how the supplier thinks it’s performing and how it thinks what the customer wants
Fulfillment perception gap: how supplier vs customer think of performance
Supplier improvement gap: how customer thinks the supplier is performing and what they really want
Requirements gap: what supplier thinks wants and what they really want
What is the difference between planning and control in operations?
Planning = deciding
- What activities should take place in the operation
- When they should take place
- What resources should be allocated to them
Control is
- Understanding what is actually happening in the operation
- Deciding whether there is a significant deviation from what should be happening
- Changing resources in order to affect the operation’s activities
- balance; long, medium and short-term planning and control - volume-variety effects when volume high — variety low: planning long term volume low — variety high: more flexible, short term planning
Long-term planning and control
Focus on planning
Uses aggregated demand forecasts
Determines resources in lump form
Objectives mostly financial
Medium term planning and control
Uses partially dis-aggregated demand forecasts
Determines resources and contingencies
Objectives: finance and operations terms
Short-term planning
Focus on control
Uses totally dis-aggregated forecasts and actual demand
Makes interventions and correct deviations from plans
Ad hoc consideration of operations objectives
How do supply and demand affect planning and control?
They affect dependent and independent demand:
Dependent demand
= demand for tyres is governed by the planned number of cars to be made by the auto plant
Independent demand
= demand for tyres is largely governed by random factors
Independent demand (not too predictable, tire fitting service, demand flexible) is the demand for a finished good, such as a car, while dependent demand (relatively predictable, tires for a car company, sells mostly on orders) is the demand for a component part of a finished good, such as the tires on a car.
—> affects the production schedule operations volume and capacity management planning
What are the planning and controlling activities?
- Loading = how much to do, finite / infinite loading
- Sequencing = in what order to do things
a. Setting priorities based on predefined set of rules
b. DD = Earliest Due Date first
c. Last in, first out
d. First in, First out
e. Longest Operation Time (LOT): keeps utilization high
f. Shortest Operation Time (SOT): eases cash-flow, short invoice - Scheduling = when to do things
a. Gantt chart showing the schedule for jobs at each process stage - Monitoring and control = are activities going to plan?
a. Push system = where items are moved onto the next stage as soon as they have processed
b. Pull system = when items are moved only when the next stage wants them
P:D ratios
P = process time / total throughput time
D = demand time
If P:D ratio is 1, means that the customer waiting time equals the time it takes to obtain the resources, produce the product or service, and deliver it to the customer, usually exceeds 1
(look through examples on lecture 9.)
How do increasing integration of information systems and increasing impact on the whole supply chain correlate?
From least (o) to most including of all parts (1)
Material Requirements planning - Focus on material flows
Manufacturing resource planning - Inclusion of capacity dimension
Enterprise resource planning
Web integrated enterprise resource planning (e-commerce)
Meaning that companies have evolved to the use of the whole supply chain with integration of information systems. More trust and communication - less things in-house.
Control systems - MRP: Material requirements planning
MRP: Balancing supply and demand
What do you need?
1. The materials you need to support the gross demand for your business
a. For sale in the stores or online
b. To fulfill customer orders placed in advance
c. For the production/manufacturing process
What do you have?
1. The inventory that you have in store, whether in the shops, or in warehouses, or in
the pipeline
Crucial components
1. Master Production Schedule
2. Bill of Materials
Based on all the information: demand from customers, info from suppliers — MRP: purchase orders, materials plan and works order
Control systems - Bill of Materials in MRP
- BOM and product structure, is the linking pin between MPS and Material Requirements planing (MRP) records
- Product structure consists of various levels, with the finished product being level 0
- The structure: levels tell what products do you need to make the product and the order quantity (x) for them. Lead times (LT) tell how long does it take for the part to get there (dependencies). If you cannot deliver, production stops.
- LT: some are dependent resources — LT crucial, the others can be started based on the final date and their lead times.
- Uses back scheduling — MRP netting process (project mgmt)
Control systems - Enterprise Resource Planning (ERP)
= bring all relevant information for planning and controlling operations together in integrated database that holds applications:
operations, supply back-office for suppliers
HR, finance, strategy etc. for internal stakeholders
sales, delivery, service in front-office for customers
Benefits of ERP
+Because software communicates across all functions, there is absolute visibility of what is happening in all parts of the business
+ forcing business-process-based changes in an effective mechanism for making all parts of the business more efficient
+ capable of integrating whole supply chains including suppliers and customers
+ continuous improvement
- Underestimate total cost
- Underestimate time and efforts to implement ERP
- More outside expertise required
- Bigger changes to business processes than expected
- Training requirements
What is capacity management?
The scale of productions — needs to be appropriate at all points of time.
The activity of understanding the nature of demand for products and services, and effectively planning and controlling capacity in the short term, medium term and long term. All this must be done while reconciling the competing demands of customer satisfaction and resource efficiency.
Judged by effect on costs revenue, working capital and service level (speed, quality, dependability, flexibility)
How are demand and capacity measured?
- Demand is measured by forecasting: qualitative and quantitative and by seasonality
- panel approach, Delphi method, scenario planning — time series analysis, casual modelling techniques
- Causes of seasonality
- Capacity is measured by input & output measures (formulas) — hotel (rooms available) vs. retail store (sales floor area)
Effective capacity formula
design capacity – planned losses
i.e Number of seats in the room unused for example
Actual output in terms of capacity formula
effective capacity - unplanned losses
i.e When ‘the room’ is used, but people cancelled
Utilization in capacity calculations
Utilization = actual output / design capacity
Efficiency in capacity calculations
Efficiency = Actual output / Effective capacity
Factors tending to increase/decrease base level of capacity
+ Low fixed costs
+ Need for high levels of customer service
+ High perishability
+ Inexpensive fixed capacity
- High fixed costs
- Need for high-capacity utilization
- Ability to store output
- Expensive fixed capacity
!! - Ways of reconciling and coping with the fluctuations in capacity and demand?
Ways of reconciling capacity and demand
1.- Level capacity
2 - Chase demand
3 - Demand management
Short-term capacity management
- Level capacity plan – absorb fluctuations
- Chase demand plan – change capacity to reflect demand fluctuations
- Demand management plan – attempt to change demand to reduce fluctuations
Absorb demand: level capacity plan
Absord demand –> Keep output level
- Make customer wait: Queues, Backlogs
- Have excess capacity
- Make to stock: Part finished, Finished goods, Customer inventory
Adjust output to match demand: chase demand plan
Change demand and it’s pattern, develop alternative products and/or services
Yield management
- Overbooking capacity
- Price discounting
- Varying service types
Overbooking
= one of the most basic tools in yield management is overbooking. For any service provider,
capacity is perishable. Having an airline seat, restaurant table, or doctor sit idle is expensive
If predictable variation high and unpredictable variation in demand low - objective and capacity mgmt?
adjust planned capacity as efficient as possible
capacity: work on how to reduce the cost of planning into effect, evaluate mix of methods for fluctuation
If predictable variation high and unpredictable variation in demand high - objective and capacity mgmt?
adjust planned capacity as efficient as possible, enhance for further fast adjustments
capacity: combination of predictable and unpredictable
If predictable variation low and unpredictable variation in demand low - objective and capacity mgmt?
make sure base capacity is appropriate
capacity: seek ways to provide steady capacity effectively
If predictable variation low and unpredictable variation in demand high - objective and capacity mgmt?
adjust as fast as possible
capacity: identify sources of extra capacity or surplus, work on ways how to adjust it quickly
What are the ways of coping with mismatches between demand and capacity?
Absorb demand — keep output level
- Have excess capacity, make to stock (finished goods or customer inventory), make customer wait
Chase Demand — adjust output to match demand
- Hire - fire, temporary - lay-off, overtime - short - time, employee contract focus
Demand management — change pattern of demand, develop alternatives (customer incentive focus)
Yield management:
1. change demand = change pattern, develop alternatives
2. yield management = overbook capacity, price discounts, varying service types
Types of inventory of finished products
- Buffer/safety inventory - allows for unexpected fluctuations in demand
- Cycle - allows batches to be made using the same transforming resources
- Anticipation - Inventory can be used to cope with seasonal demand
- Pipeline - when inventory moving from one location to another (Containership)
Inventory of parts and raw materials: de-coupling inventory
This allows work centres to operate
relatively independently
What is inventory?
stock - accumulation of the transformed resources
materials, customers, information - flow through processes or networks
physical, queues of customer, info databases (ex. hotel)
Return on assets and inventory effect on it
profit / total assets
(revenues – costs)/(working capital + fixed assets)¨
rev - ability to supply from stock
cost - orders, storage, loss
working capital - debt to suppliers, acc. receivable, funding inventory
Disadvantages of holding inventory
- Ties up capital
- Incurs storage costs: energy, security, maintenance…
- May become obsolete, be damaged or perish or may be lost
- Occupies space that could be valuable and could be used to make money
- Incurs costs due to administration and insurance
Why there should be physical inventory &
ways to reduce it
uncertanity of demand and supply - improve demand forecasting
lack of flexibility, cycle stock to maintain supply - increase flexibilitym use parallel production processes
short-term opportunities (suppliers offers) - supplier negotiation of lower prices
anticipate demands - increase volume flexibility: chase demand
fill processing pipeline, items delivered to customers -reduce time of request and dispatch, reduce throughput time in downstream supplychain
Costs associated with inventory order quantity (volume)
- Cost of placing and order (transaction costs)
- Price discount costs (volume discount)
- Operating inefficiency costs (high inventory levels hide inefficient processes)
- Storage costs (heating, cooling, equipment, facility, security)
etc.
How much inventory to order - EOQ, formula?
Economic Order Quantity (EOQ)
* EOQ corresponds to the order quantity that has the lowest total cost
Total cost = Holding costs + Order costs
Holding costs
* working capital costs, storage costs, obsolescence risk costs
* increase linearly as the order quantity increases
Ordering costs
* cost of placing the order, transportation cost, price discount cost
* decrease hyperbolically as the order quantity increases
When to Order inventory - Re-order Level & Re-order Point?
Instantaneous delivery - simple model
Deliveries at the rate of D/Q per period (D = predictable demand, steady)
Average inventory = Q/2
When to re order?
Order lead time model
- When re-order level reached - order more
Order lead time = the time from order to receiving the stock
- In most situations the demand rate is unpredictable / non-linear and there is variation in lead-times
Problem is that with complications after re-order level is reached, safety stock might be used and reorder level not reaching the demand at time
The ‘Two bin’ and ‘Three bin’ systems of re-ordering system
In both systems: reorder when Bin 1 is empty (c.q. when you start on Bin 2)
two bin
bin 1: items used
bin 2: re-order level + safety inventory
three bin system
bin 1: used items
bin 2: re-order level inventory
bin 3: safety inventory
Risk management - 4. broad activities
- Understanding what failures could occur.
- Preventing failures occurring.
- Minimizing the negative consequences of failure (called risk ‘mitigation’).
- recovering from failures when they do occur.
- if failure happens how to recover
How can operations assess the potential causes and consequences of failure?
Sources of potential failure in operations
- Supply failure
- Human failures
- Organizational failure
- Technology failure
- Environmental disruption
- Product/service design failure
- Customer failure
Assessing consequences of failure — post-failure analysis procedures include
- Accident investigation
- Failure traceability
- Complaint analysis
- Fault-tree analysis with and/or nodes
How can failures be prevented?
- Product/service innovation (Chapter 4)
- Process design (Chapter 6)
-
Quality management (Chapter 17)
Maintenance — In order to achieve quality - Enhanced safety
- Increased reliability
- Higher quality
- Lower operating costs
- Longer life span for process technology
- Higher end-value
How can operations mitigate the effects of failure? — maintenance methods
- Preventing, run-to-breakdown, condition-based monitoring
- Optimum level of maintenance effort
Preventing, run-to-breakdown, condition-based monitoring
different kinds of maintenance to be considered
- Run to breakdown — not preventive and not optimal maintenance method
- Condition based monitoring — the best one, continuous data, actionable advice for the company (the crew ship advice), make sure the maintenance schedule is organized and optimized, unscheduled maintenance minimize to avoid problems
- Preventive maintenance
Traditional view = we will always have faulty products to throw away, which is why does not care about preventive maintenance
Lean approach = not acceptable, waste (excess inventory — time and effort already in) to avoid at all costs, quality first — preventive maintenance
Optimum level of maintenance effort
costs associated with preventive maintenance shows
- Only to optimum, since no more necessary: as in all operations
Total costs = Cost of breakdowns + Cost of providing preventive maintanance
If preventive maintenance tasks are carried out by operators and if the real cost of breakdowns is considered, the ‘optimum’ level of preventive maintenance shifts toward a higher level
- Preventive maintenance
Traditional view = we will always have faulty products to throw away, which is why does not care about preventive maintenance
Lean approach = not acceptable, waste (excess inventory — time and effort already in) to avoid at all costs, quality first — preventive maintenance
What is layout and how can it influence performance?
= how its transforming resources are positioned relative to each other, how its various tasks
are allocated to these transforming resources and the general appearance of the transforming resources.
= pattern and nature of how transformed resources progress through the operation or process
What makes a good layout in operations?
lay out will depend on the strategic objectives of the operation, objectives:
Inherent safety
Length of flow
- Minimize delays
- Reduce work-in progress
- Clarity of flow
- Communication
- Use of space minimizing the space used for a particular purpose
- Use of capital = capital investment should be minimized
etc.
What are the basic layout types used in operations? - 4
- Fixed position layout
- Functional layout
- Cell layout
- Line (product) layout
Fixed position layout
a. Locating the product or service so that it remains largely stationary while transforming resources are moved to and from it
i. Transformed resources cannot be moved or prefer not to be moved
b. Advantages
i. Very high mix and product flexibility
ii. Product or customer not moved or disturbed
iii. High variety of tasks for the staff
c. Disadvantages
i. Very high unit cost
ii. Scheduling of space and activities can be difficult
iii. Can mean much movement of equipment and staff
Functional layout
a. Similar resources or processes are located together = convenient to group them together, or that utilization of transforming resources is improved.
b. Route from activity to activity according to needs
Examples
i. Hospital, machining the parts which go into aircraft engines, supermarket
d. Advantages
i. High mix and product flexibility
ii. Relatively robust in the case of disruptions
iii. Relatively easy to supervision of transforming resources
e. Disadvantages
i. Low facilities utilization
ii. Can have very high work-in-progress or customer queuing
iii. Complex flow can be difficult to control
Cell layout
a. Transformed resources entering the operation are pre-selected to move to one part of the operation in which all the transforming resources, to meet their immediate processing needs, are located.
b. Processing same type of product
c. Serving same type of customers
Examples
i. Dental clinic: brings together all the transforming resources to meet processing needs of the transformed resources
e. Advantages
i. Gives a compromise between cost and flexibility for relatively high- variety operations
ii. Fast throughput
iii. Potential good staff motivation
f. Disadvantages
i. Can be costly to rearrange existing layout
ii. Can require more equipment
iii. Can give lower equipment utilization
Line (product) layout
a. Locating transforming resources in a sequence defined by the processing needs of product or service
Examples
i. Automobile assembly almost all variants of the same model require the same sequence of processes
d. Advantages
i. Low unit cost for high volume
ii. Gives opportunities for specialization of equipment
iii. Materials or customer movement is convenient
e. Disadvantages
i. Can have low mix flexibility
ii. Not very robust if there is disruption
iii. Work can be very repetitive
What type of layout should an operation choose?
= low volume, high variety - flow is not a major issue
= higher volume, low variety - flow becomes an issue, line layout
= resources in low-volume-high-variety processes should be arranged to cope with irregular flow
= resources in high-volume-low-variety processes should be arranged to cope with smooth, regular flow
Process type framework
(look through slides L13)
Are we looking at services or products?
- Volume and Variety characteristics
- Process flow
o Intermittent = transformed resource coming into the process
o Continuous = oil refinery, transformed resource is not divided into units
- Process tasks
o Diverse/complex = many complex things need to be taken care
