Manufacturing Systems ISYE 6201
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Date Created: 11/02/15
Intro to Inventory Lectures ISyE 6201 Manufacturing Systems Georgia Institute of Technology Atlanta GA August 28 2001 Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech A Raw Material 4 Production 4 DistributionResource Planning gt Plamm 1 Planmng l A l A g E g Lme m quotE g Transport 398 SChedunng g E quot Scheduling 0 8 If S A 5 O m m H Delivery a 0 Schedule lt1 0 3 Production g E IVFIVBTHOIVY t E Schedule g g anagemen g rag 57 on o m 4 Productivity Reporting System H l HT Forecasts Forecasting Sales Transactions Promotions lt PurchasingEgt ProductioJ Warehouse2 Distribution sales gt Lecture by Dr Julie Swann based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech What Is Inventory Supplier Customer Material that has been purchased from a supplier may have been partially or completely converted but not yet sold to the customer we own it if it gets stolen it is our loss Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Types of Inventory Supplier Customer raw materials work1nprocess components nished goods Lecture by Dr Julie Swann based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Inventory Issues Demand Constant vs variable Known vs random Lead time 5 time units Review time continuous vs periodic Excess demand backorders lost sales Inventory change perishability obsolescence Lecture by Dr Julie Swann based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Why Hold Inventory To balance against uncertainty safety To ensure a high level of customer service location Economies of scale in production or purchasing batch Processing and movement pipeline Time varying demand or supply patterns seasonal Speculation on future events speculative Independence of stages in value chain buffer decouple Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech TWO CUSTOMERS EACH CUSTOMER ORDERS ONE UNIT PER WEEK REPLENISHMENT ORDERS ARE PLACED EVERY TWO WEEKS THERE IS ZERO REPLENISHMENT LEAD TIME WHAT IS THE AVERAGE INVENTORY Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech TWO CUSTOMERS EACH CUSTOMER ORDERS 2 UNITS HALF THE TIME 0 UNITS HALF THE TIME ORDER QUANTITY IS quotRANDOMquot REPLENISHMENT ORDERS ARE PLACED EVERY TWO WEEKS THERE IS ZERO REPLENISHMENT LEAD TIME WHAT IS THE AVERAGE INVENTORY Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech TWO CUSTOMERS EACH CUSTOMER ORDERS 2 UNITS HALF THE TIME 0 UNITS HALF THE TIME ORDER QUANTITY IS quotRANDOMquot REPLENISHMENT ORDERS ARE PLACED EVERY TWO WEEKS REPLENISHMENT LEAD TIME IS ONE WEEK WHAT IS THE AVERAGE INVENTORY Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech LEAD TIME UNCERTAINTY INVENTORY TO IMPROVE SYSTEM PERFORMANCE REDUCE MATERIAL LEAD TIMES REDUCE INFORMATION DELAY TIMES IMPROVE QUALITY OF INFORMATION Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Simple Decision Support Policy Economic Order Quantity EOQ Developed by Harris in 1913 Interest on capital tied up in wages material and overhead sets a maximum limit to the quantity of parts which can be pro tably manufactured at one time setup costs on the job x the minimum Experience has shown one way to determine the economical size of lots Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Harris Insight 0 Setup cost is the sum total of the labor and material cost to ready the shop to produce a product 0 Large lots reduce setup costs but small lots reduce inventory We need to strike a balance between these two concerns Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Assumptions Production is instantaneous 0 Delivery is immediate Demand is constant over time A production run incurs a constant setup cost Products can be analyzed singly No production capacity limits Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Notation D demand rate unitsyear c unit production cost 7 Q unit A constant setup cost E gt h holding cost z39c g unityear Q lot size units T T time between orders QD ZQD T T1me Lecture by Dr Julie Swarm based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech unit EOQ Formula Total cost Holding Cost Q2h Replenishment Cost A DQ Holding cost Q Setup cost Lot Size Lecture by Dr Julie Swann based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Example 0 Three Minute Maid products orange juice 0 fruit punch FF and apple juice AJ 0 We have following data A h D OJ 110 30 3000 PP 100 30 100 AJ 100 30 700 0 Compute Qilt and T values What are some problems Lecture by Dr Julie Swann based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech Some Variations Leadtime isn t instantaneous dug W Q h leadtime Production isn t instantaneous Economic Production Lot Model 2AD PD D Q h1 D P Lecture by Dr Julie Swann based on material from Dr Paul Griffin and Dr Jane Ammons of Georgia Tech PDQP Lecture 1 Slides lSyE 6201 Manufacturing Systems Georgia Institute of Technology Atlanta GA August 20 2002 Lecture by Dr Julie L Swarm Material courtesy of Dr Paul Grif n and Dr Pinar Keskinocak ISyE Ga Tech The Enterprise Environment A V Firm I V A Enterprise Components PPPPP CT Environment F v it im 4 MAT IAL I it mm Structure or content resources Activities or behavior operations Resources Capital plant equipment Financial cash stock borrowing capacity Human people Goods product amp material inventories Information data contacts recipes Intellectual patents trademarks Infrastructure dist n channels corporate culture Privileges franchise mineral rights Operations Transform the portfolio of resources Eg assemble parts into a product Eg use people and equipment to develop a new product concept E g transact with a customer to exchange products for money The Manufacturing Enterprise 0 a portfolio of resources 0 deployed through a network of activities 0 to create value for a customer 0 by producing and delivering a product 0 in order to create economic pro t for its owners What Is A Supply Chain The network of manufacturing and distribution sites that interact in order to procure and transform raw materials for producing nished goods to customers Supply Chain Manufacturers Warehouses Customers Raw Material 1II12H i c Procurement Production Distribution Supply Chain for Beverage Provider A Suppliers f Concentrate Plant 0 Bottling Plants l Distribution Centers Q Customers i HEB Eile Eiew ata Sglect ites Lanes Eruducts Models Sglve Eesults graphics Ianls 1 143558 e39 3111 D1 8 351335 rni 15533 Supply Chain Management Supply Chain Management SCJW is the management of material and information ows in and between the di erent parts of the Supply Chain Deliver the right product to the right place at the right time for the right price While minimizing systemWide costs and satisfying service requirements Key Supply Chain Processes Company Concentrate i hulls 5t humfactu r Eng Consumers 4 Customers Distribution Consumer and customer service systems strategy Consumer and customer service systems planning Demand management and operations planning Warehousing and transportation Manufacturing Infrastructure planning and development Individual and organizational development Source Steve Bu mgton Supply Chain Decisions Strategic Level l Tactical l Operational V Long Term Medium Term Near Term 0 Corporate Objectives 0 Capacity 0 Facilities 0 Location Resources 0 Aggregate Planning 0 Resource Allocation 0 Capacity Allocation Distribution MPS Raw Material 0 Scheduling What is c Maufacturi Manus hand Factus make 1 Value Added O gt0 gt 33 Starting Material in Processed Material Processing Material Manufacturing is the realization of product Customer Value Drivers E COST E QUALITY E SPEED E INNOVATION Cost Quality Speed and Innovation are the core manufacturing competencies essential to success They are the essential ways to creating value for customers and the basis for competition The Manufacturing Function Raw Material 4 Production 4 DiStfibUtiOHIReSOUTCC Planning Planning Planmng l A A l A 8 quotE E Line g FE Transport 395 g scheduling g E 5 Scheduling O 1 t m m 94 quot Delivery a 0 Schedule 0 PC 0 3 Forecasting Production a 3 Inventory 3 Schedule E 5 Management E g 5 m H1story 5 lt5 A A 0 BASIS A Sales Productivity Reporting System Transactions l T l l T Promotions lt PurchasingEgt ProductioJ Warehouse2 Distribution Sales gt Supports for Materials Management Information Buffers Capacity Inventory Leadtime Pricing Control Cost of Capacity A new semiconductor fab may cost US46 billion The nance cost can be 600 million per year An engine line for GM can cost as much as 150 millionand there is at least one line for every different engine model Idle capacity is a CEO s nightmare Where is your capacity What does it cost Cost of Inventory KO revenues in 1998 were 2355 billion The cost of goods sold was 36 of revenue Suppose inventory turns once per month The prime rate today is 825 The cost to KO to nance inventory is roughly 70 million per year Actual inventory costs are considerably higher due to insurance facilities taxes etc Customers Want Speed Jiffy Lube Domino s 30 Minute Guarantee 1 Hour Film Development Products usually have substitutes As such if the product isn t delivered when the customer wants it in the quantities desired customers will switch brands Why need operations management PRESSURES FROM TODAY39S COMPETITIVE ENVIRONMENT Rapidly changing demand and market conditions Diversity of customer requirements in global markets Demands for mass customizationproduct variety Short product life cycles Why need operations management 0 Compaq computer estimates it lost 500 million to 1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them 0 In 1993 IBM lost a major fraction of its potential sales of desktop computers because it could not purchase enough chips that control the computer displays 0 Boeing Aircraft one of America39s leading capital goods producers was forced to announce writedowns of 26 billion in October 1997 0 The reason Raw material shortages internal and supplier parts shortagesquot Wall Street Journal Oct 23 1997 Why need operations management PRESSURES FROM TODAY39S COMPETITIVE ENVIRONMENT Rapidly changing market and demand conditions Need exibility and shorter time tomarket Short InnovationProduct Development Cycles Inventory becomes a major risk Why need operations management During the decade from the mid3980s to the mid3990s IBM and Digital lost 80 billion in market value while new specialized business designs by Intel Microsoft and others gained 80 billion from the book Value Migration by Slywotzk Dell Computers predicts a loss stock plunges Dell acknowledged that the company was sharply off in its forecast of demand resulting in inventory writedownsquot WSJ August 1993 Liz Claiborne said its unexpected earnings decline is the consequence of higher than anticipated excess inventoriesquot WSJ August 1993 When Palm formally reported its quarterly numbers in June the damage was gruesome Its loss totaled 392 million a big chunk of which was attributable to writing down excess inventory piles of unsold devices The Industry Standard June 16 2001 Why need operations management 0 Nortel posts 192 billion loss for the second quarter Inventory writedowns of 152 billion Lays off 20000 employees Nortel CEO John Roth quotIt was only in October that customers stopped beating me up for not shipping fast enough and now they say 39Ship What I don39t need it June 2001 The Industry Standard Why need operations management Apple Computer has reported a record 740 million second quarter loss in 1997 huge writedowns of inventories which climbed nearly 2 million increased outsourcing of various operational functions 0 liquidation of certain assets reductions in total headcount 2800 jobs over the next 12 months quotAlmost every single smart etailer is moving to stock more and more Julie Wainwright CEO of petsupplies site 1 1 1999 In November 2000 Petscom announced it was closing Amazoncom 100 million items in stock 276 billion in sales in 2000 0 Inventory turnover rate 17 or 18 times a year compared to 6 to 8 times in a bricksandmortar store Issues in production Flexibility 0 Ability to produce different products simultaneously and efficiently 0 Ability to produce new products efficiently 0 Efficiency 0 Low cost 0 Short lead time 0 Reliability 0 Ontirne delivery 0 Quality Dell performance DELL IS A MASTEI39I AT MANAGING lNIIENT I39IV DAV INVENTURV ANI39I TllI39INING SALES INT GASN FAST D L L mumunnmu YancMHuN ausHauD Haw 1D2y 13Bmmn mumunnmu mmcMHuN ausHauD my 3501 5399an MAKING IT TOPS IN NIGNTEGN PI39IDFITABILITV mswmmmm mum wwsn urrnimvmwwnnmxmu m4wa Dell model Suppliers maintain nearby ship points delivery time 15 minutes To 1 hour Suppliers own inventory until used in production Demand forecasting is critical changes are shared immediately within Dell and with supply base Customers frequently steered to recommended configurations with high availability to balance supply and demand Demand pull throughout value chain information for inventory substitution Focused on strategic partnerships suppliers down from 200 to 47 External logistics supplier used to manage inbound supply chain