Supply Chain Midterm 2 Guide
Hierarchical Operations Planning: in terms of materials planning
∙ APP (aggregate production plan): (long range) APP involves the construction of facilities and purchase of major equipment. It is at executive level. Ex: ford wants to increase market growth rate by 3% in >1 year)
∙ MPS (master production schedule): (intermediate) MPS shows the quantity and timing of end items. It is at midlevel with plant managers, product line managers, etc. Ex: ford wants to make 1000 F150 pickup trucks/day for the next 618 months. It is a production plan listing the exact end items to be produced by a specific period. It is a good overall view of labor, equipment and long lead time items. It is the production quantity to meet demand from all sources (internal factories or end customers). Time phased end items. o It is more detailed than APP and easier to plan under stable demand
o Planning horizon is shorter that APP, but longer than lead time to produce the item o Service industry: appointment log or book where capacity is balanced with demand ∙ MRP: (materials requirement planning): (short range) detailed planning process for
components and parts to support MPS. It is at planners, factory supervisor level. Ex: 6000 engines 6000 transmissions, seats, windows, in the next 14 weeks. It is the computer based materials management system that calculates the exact quantities, need, dates and planned order releases for subassemblies. MRP needs: If you want to learn more check out liliana clemenza
o Independent demand info
o Parent component relationships from the BOM
o Inventory status of final product and components
o Planned order releases (output of MRP system)
Disadvantages: loss of visibility and ignores capacity due to shop floor conditions Advantages: provides planning information
Hierarchical Operations Planning: in terms of capacity planning
∙ RRP resource requirement planning long range
∙ RCCP rough cut capacity plan medium range
∙ CRP capacity requirement planning short range
∙ BOM: Bill of Materials: it is a document listing all component parts and assemblies making up the final product.
∙ Explosion: in BOM it is all the down under part from the parent part. Used to see what is needed to make that parent part. If you want to learn more check out nathaniel robinson utep
∙ Implosion: is a look upward, to see a component and all the parent parts that it makes. It is used by buyers and planners when they want to look into possibly changing a part, so they know what it is used on. Don't forget about the age old question of method of social control
∙ Parent: item generating demand for lower level components
∙ Component: parts demanded by a parent
∙ Planned order releases: specific order to be released to the shop or to the supplier ∙ Scheduled receipt: a committed order awaiting delivery for a specific period ∙ System nervousness: small changes in the upper level production plan may cause major changes in the lower level production plan.
∙ Time fence: firm uses time fence to deal with nervousness by separating the planning horizon into:
o Firmed Segment (demand time fence) from current period to X weeks into the future. Can only be altered by senior management
o Tentative Segment (planning time fence) – from end of firmed segment to several weeks into the future.
∙ ERP Enterprise Resource Planning: information system connecting all functional areas and operations of an organization. It provides means for supply chain members to share information so that scarce resources can be fully used to meet the demand while minimizing supply chain inventories. If you want to learn more check out tempophonic
added visibility reduce supply chain inventories
helps to standardize manufacturing processes
measure performance and communicate via a standardized method
Firms adapt processes to meet ERP system
Substantial time and capital investment
∙ 3 basic production strategies:
o Chase Strategy: adjusts capacity to match demand. Firm hires and lays off workers to match demand. Finished goods inventory remain constant and it works well for “make to order” products. Ex: airplanes and elevators.
o Level Strategy: relies on a constant output rate while changing and backlog according to fluctuating demand. Firm relies on fluctuating finished goods and backlogs to meet demand. Works well for “make to stock” firms. Ex: light bulbs, plywood, steel, razors.
o Mixed Production Strategy: maintains stable core workforce while using other shortterm means such as overtime, parttime and subcontracting helpers to manage shortterm demand. Ex: retail stores at holiday season. We also discuss several other topics like What is the damping ratio?
∙ Dependent demand: internal demand for parts is based on the demand of the final product in which these parts are used. Ex: subassemblies,. Direct relationship
∙ Independent demand: demand for final products is affected by trends, seasonal patterns or general market conditions.
∙ Direct Costs: directly traceable to the unit produced. (labor, materials, etc) ∙ Indirect Costs: not directly traceable to the unit produced (overhead, electricity used to run line, supervision to the factory line, etc)
∙ Fixed Costs: independent of the output quantity (buildings, equipment, plant security, etc) ∙ Variable Costs: vary with output level (labor, materials, freight charges, credit card fees, etc)
∙ Broad Categories of Inventories:
o Raw materials unprocessed purchase inputs
o Work in process (WIP) partially processed materials not yet ready for sale o Finished goods products ready for a shipment
o Maintenance, repair and operating (MRO) material is used in production like cleaners, brooms, etc.
∙ Buffer uncertainties in the marketplace (customer demands) If you want to learn more check out ncs week 3
∙ Decouple dependencies in the supply chain itself (truck time, warehousing) ∙ EOQ Economic order quantity: it is that size of order which give maximum economy in purchasing any material and contributes towards maintaining the materials at the optimum level while minimizing the costs.
o Basically it is the amount of inventory to be ordered at one time for purposes of minimizing annual inventory cost
o It does not tell you when to order or what to order but just HOW much to order. o It is accomplished by balancing 2 factors:
Cost of possessing or carrying materials
Cost of acquiring or ordering materials
The EOQ model is a quantitative decision making model based on the – tradeoff between annual inventory holding costs and annual order costs. Order cost direct variable cost associated with placing an order
Holding cost or carrying cost the cost incurred for holding inventory in storage
Carrying cost/holding cost: property tax and insurance, deterioration and shrinkage of stocks, interest on investment of working capital, outmodedness of stocks.
o In EOQ model:
Demand, price, delivery time, holding cost, ordering cost are constant, stock outs are not allowed, replenishments is instantaneous
∙ FORMUAL for EOQ
o Annual usage in units= quantity/year
o Order cost= cost to place and order
o Annual carrying or holding cost/ unit= expressed as $ value
√2∗annual usage∈units∗order cost
anuual carrying cost per unit
The whole thing is under square root
∙ Inventory models:
o Physical vs. cycle counts : methods to check if actual inventory is the same as what the records show
∙ Physical Inventory: count every part in stock at one time; this stops operations at a facility while everything is being counted at once. This sometimes has to be done at “off hours” ∙ Cycle Counts: count X number of parts periodically. Over a period of year, every part is counted at least once. It’s a procedure where a small subset of inventory is counted on any given day. This is less disruptive to daily operations and provides an ongoing measure of inventory accuracy and procedure execution.
∙ Lean: focuses on eliminating wastes and efficiency it is an operating philosophy of waste reduction and value enhancement which was originally created as Toyota Production System. It is used to move people and materials when and where needed within short time. They are very visual and workers in one processing center are able to see work in another area (lean layouts)
∙ SCM needs to work with suppliers to remove waste, reduce cost and improve quality and customer service.
∙ JIT purchasing includes: smaller quantities, right time, right location and right quantities. ∙ Elements of JIT (Just in time)
o Waste reduction
o Lean supply chain relationships
o Lean layouts
o Inventory and setup time reduction
o Small batch scheduling
o Continuous improvement
o Workforce environment
∙ Six Sigma: focuses on reducing defects and variation. It is the near quality perfection (99.99966%). By Motorola. It is a statistics based decision making framework to make important quality improvements in value adding processes. Seeks to improve quality of process outputs by removing the cause of defects and reducing variability in manufacturing and business processes.
∙ Elements of Six Sigma: the 5 step process
o Define, Measure, Analyse, Improve, Control (DMAIC)
∙ Statistical tools of Six Sigma:
o Flow diagrams/process maps, Check sheets, Pareto charts, Cause and effect diagrams
∙ Statistical Process Control: SPC visually monitor process performance, takes corrective action and compares the performance to desired levels or standards
∙ FOB “Free on Board”
o Origin title passes at origin. Seller has to do:
put goods in possession of carrier
make proper contract for transportation
obtain and deliver documents to buyer
notify buyer of shipment
o Destination: title passes at destination. Seller assumes title of goods and risk of loss until satisfactory deliver to buyer’s facility.
∙ 3PLthird party logistics: offer warehousing and also transportation to companies if there are lots of steps and processes to manage in the company. It is a company that you contract with to provide several services. These are typically logistical services but very often include other value added services such as packing, ecommerce, inventory management, transportation, etc.
o Economies of scale, increased flexibility
o Concentrate on business core activities
o Release capital from sale of assets
o Improve service performance level
o Data transparency via 3PL tools.
o Surrender control, ownership and expertise
o Changeover costs and operational problems
∙ Types of 3pl services:
o Cross docking, finished goods pull expediting, marshalling, postponement, transport, spares, reverse flow, vendor managed inventory, inventory control
∙ Kanban: Japanese manufacturing system in which supply of components is regulated through the use of an instruction card sent with the production line. It is an instruction card used in a kanban system. Signal card and visual signal.
∙ Logistics: the part of supply chain management that plans, implements and controls the efficient, effective forward and reverse flow and storage of goods and services and related information between the point of origin and consumption in order to meet customer needs. ∙ Transportation: movement of goods and subset of logistics.
∙ Transportation modes:
o Motor carrier (trucks) most flexible
LTL: less than truck load there is no enough goods to fill a whole truck, small shipments. Stops at depots/transfer locations to match load to the final location
TL: truck load used when you have enough materials to fill whole truck and if you want the whole truck to yourself rather than sharing with other suppliers. Safe, faster, secure
o Rail carrier (trains)
o Water carrier (boats, ships)
o Air carrier (planes and cargo)
o Pipeline carrier (natural gas)
o Intermodal (combination of the above carriers) truck rails truck or ocean, etc.
COFC container on flat car
TOFC trailer on flat car
It is the strongest mode of all modes for US domestic market
∙ Carrier Selection
o Common Carrier offered to general public without discrimination based on published rates for specific goods, tariffs and schedule rates. Point A to B and have higher rate/mile than steel
o Contract Carrier: typically not out to serve general public. Serves its shippers under specific and negotiated contract terms. Dedicated carrier. Offers high levels of service because of the contractual relationships.
o Private Carrier: supplier who operates its own transportation equipment. Either owned or leased, offers greater control of freight and used for milk runs in a JIT environment. Ex: walmart, target, etc
o Exempt Carrier: free from any type of rules and regulations. Haul special types of commodities. Assures supply of readily available transportation in markets where only one way traffic is prevalent. Livestock, agriculture, newspapers.
∙ RFID: Radio Frequency Identification:
o Successor to the bar code for tracking individual unit of goods. It does not need direct line of sight to read a tag and information on the tag is updatable. It is more expensive than barcode, that’s why companies need to know where and when to use it. ∙ CRM: customer relationship management:
o Collecting and managing customer data and then acting aptly to meet customer needs and your company goals. Associated mostly with sales efforts and marketing. Focuses on customer needs and then delivering goods and services in manner resulting high levels of customer satisfaction.
o Refers to automated transaction and communication applications
o Still includes talking to customers, understanding their wants and behaviours, and building a system to satisfy those requirements
o Keep track of customers, learning about each one’s likes and dislikes from different sources like transaction records, call center logs, website clicks and search engine queries
BUILDING AND MAINTAINING PROFITABLE LONG TERM CUSTOMER RELATIONSHIPS
∙ Firms must create methods for finding and developing good suppliers ∙ Firms must create methods for becoming and staying good suppliers themselves Segmenting Customers: group of customers to create specific communications about products and services
o Customer age
o Job type
o Income level
o Family size
o Geographic location
o Education level
o Marital status
∙ Key tools of CRM:
o Target marketing efforts: emails and mails that saves time and labor
o Relationship marketing or permission marketing: customers select the type and time of communication. It needs software and customer participation. Ex: “would you like us to send u an email”
o Cross selling: additional products are sold as a result of an initial purchase. Ex: on amazon other books bought by customers.
o Predicting customer behaviours: forecasting customer’s purchases
o Customer defection analysis: churn reduction: reducing customer defections o Customer value determination: customer lifetime value
o Personalizing customer communications and event based marketing
∙ It’s a tool of CRM: Sales Force Automation: (SFA): used for documenting sales activities, communications with the home office and retrieving sales history
o Sales activity management: tool offering sales reps a guided sequence of sales activities. “Do this, do that, then this…..”
o Sales territory management: sales managers obtain information of each sales rep’s activities (monitor their acts)
o Lead management: sales reps can follow prescribed tactics when dealing with prospects for making the sale. Focus on the specific needs of that customer o Knowledge management: enables quick decision making, better customer service and a better equipped and happy sales staff.
∙ CRM application providers: oracle, Microsoft, SAP and others.