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Introduction to Supply ChainManagement

Dr. Nitin Seth

Associate Professor,IIFT, New Delhi

CHANGES TO WORLD ECONOMY

Globalization

Accelerated Pace ofChange

Transition to MarketDriven

Rapid Growth ofKnowledge based service

sector

Change in demographicprofile

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What is OperationsManagement?

What is Operations Management?

Management of day-to-day activities of acompany

Commonly, Operations is separated into two broadgroups:

Production Ops: manufactured goods Service Ops: immaterial; transfer of information, non-

substantive

Production Operations

Examples of industries involved in Production Ops: Autos/Airlines Computer chips Print Electronics

Furniture

Examples of jobs in Production Ops: Plant management Materials planning Supply chain Logistics Process improvement Consulting

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Service OperationsExamples of industries involved in Service Ops: Banking Credit cards Investment management Call centers Cable/Utilities Airline

Examples of jobs in Service Ops: Call center manager Backroom at bank Load balancing at airline Queuing line management

Terminology: Goods versesservicesGoods Services

Product tangible Intangible

Resale yes no

Inventory yes no

Quality easier harder

Customer

Interaction

Can be low high

Transportability yes no

Location Wherever you want Where the customerwants it

Automation Standardized yes Standardized yes

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Manufacturing and Service

Operations Manufacturing organization= produces

physical goods

Service organization= produces non-physical outputs that require customerinvolvement and cannot be stored ininventory.

A Supply Chain

Suppliers CustomersOperations

Logistics Logistics

InformationInformation

Supply Chain Model

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THE SUPPLY CHAIN

Supply chain is network of variousbusiness entities and processes linkingSuppliers, Operations and Customers

Suppliers Operations Customers

Objective is to optimize the over all performance

of the entire network

Need For Managing Supply Chain

Gaining competitiveness

Pressures from Privatization &Globalization

Changing customer demands Knowledgeable Customers

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Changing scenario in Manufacturing

Past Days

Small Product Variations

High Volume and LongProduction Runs

Unconnected islands oftechnology thereby makingimprovement a difficult task

to achieve

Profit through improvingreturns on assts.

Present Days

Large Product Variations

Low Volume and ShortProduction runs

Continuous improvementin Cellular Manufacturing

Profits through eliminationof Waste , reducing

Inventory and maximumValue addition.

The Transformation Process

Inputs

Customers/or

materials

Transformation

Process

Transformation

process

Outputs

Goods & Services

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What is Productivity?

Defined

Productivity is a common measure onhow well resources are being used. Inthe broadest sense, it can be defined asthe following ratio:

OutputsInputs

Examples of ProductivityMeasurement

1. Partial measure (single factor)

Output / Labor, Output / Capital

2. Multi-factor measure

Output

Capital + Labor

3. Total measure

Output

All inputs

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Examples of Partial MeasuresBusiness Measure

Restaurant..Customers / labor hour

Retail Store.Sales / square foot

Chicken Farm..lb. Of meat / lb of feed

Utility Plant.Kw / ton of coal

Paper Milltons of paper / cord of wood

Types of Decisions

1. Strategic or long-range decisions

2. Tactical or medium- range decisions3. Operational planning and control or short-

range decisions

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Facilities Location Critical Decision long lasting impact on

financial, employment and distributionpatterns.

Factors affecting Location Decision-

Capital Banking facilities , loans etc

Raw Material Availability, suppliers

Labor supply , skills , costs

Competition

Economic aspects Wages to staff, taxes profits Non economic impacts- Ecological , environmental and

social.

Political Considerations

Facility Location

Cost/benefit analysis for each location

Sophisticated techniques can help

- Linear programming

- Payoff matrix

- Decision tree analysis.

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Plant LocationMany factors may be employed for determining theproper location. Some of them are:

Nearness to ultimate consumers

Nearness to suppliers

Nearness to raw materials

Proximity to major transportation facilities

Availability of a trained labor force

Room for growth and expansion

Lessons

Managing supply chain is treated asstrategic weapon.

This era can be referred as a business warbetween supply chains and supplychains not between organizations andorganizations

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Production systems andsupply chain forecasting

Dr. Nitin Seth


Typical Production Systems

Mass Production

Batch Production

Job Shop Production

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Mass ProductionProduction processes based on product needs

after the end units have been produced.

Suppliers only involved as necessary, but not inthe production process.

Firms dependence on customers to buy theproducts and use the services that are producedrather than basing use on predetermined needs.

Mass Production

Interchangeability of parts

Simplicity of attaching them to each other

Interchangeable workers

Highly centralized organization

Specialized machine tools and high fixed costs

High production volumes

Low cost to consumers

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Job Shop

Flexible to custom work

Promoting Job satisfaction

Limiting investments

Decentralized organization

General purpose machine tools

Disadvantages

Highly skilled workforce

Low production volume

More complex production control

High cost to consumers

Facilities Layout

Layout decisions are concerned witharrangement of production, support,customer service.

Determination of Layout Type of Product

Type of Production Processes

Volume of Production

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Types of Facility Layout

1. Process layout

2. Product layout

3. Fixed-position layout

Process Layout

Machines that perform the same functionare grouped together in one location.

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ReceivingDept.

Lathes Grinders HeatTreatment

MillingMachinesSaws

Plating andPainting Assembly Storage

A

Product A

B

C

Product B

Product Layout

Machines and tasks are arranged by thesequence of steps in the production of asingle product.

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Receiving

Storage

Lathe Paint Assembly

Saw Lathe Paint Assembly

Saw Mill Grinder Plating

A

B

C

Product A

Product B

Product C

Fixed-Position Layout

The product remains in onelocation and the required

tasks and equipment arebrought to it.

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Ship

Materials

Supplies

Machines

Labor

Equipment

Forecasting Definition

Forecasting is the artof predicting thefuture value of a randomvariable (i.e., avariable with more than one possibleoutcome).

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Aim of Forecasting

In short, forecasting aims to predict thefuture values of a random variable asaccurately as possible.

We usually prepare these forecasts usingall (or any part of) the relevant information

available when the forecast is beingprepared.

Other Important Criteria forEvaluating Forecasts

Forecasts need to be:

timely;

cost effective;

consistent; and,

comprehensible by decision makers.

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Quantitative and Qualitative

Forecasting TechniquesQuantitative Techniques

Statistically based

Predictions based onobservations of historic data

Extrapolative or Causative

Qualitative Techniques

Judgemental, subjective

Predictions based onconjecture about the future

Extrapolative

Time Series Analysis

Causative

Regression Techniques

Expert Opinion and DelphiTechniques

Scenario Planning andWar Gaming

Delphi Technique

A Delphi Manager is appointed to coordinate andfacilitate the creation of a consensus forecast

The experts provide their opinions anonymously to

the Delphi Manager to avoid the social pitfalls ofcommittees The manager also provides structured, anonymous

feedback such as one experts forecast relative to theothers, along with any justifications

The process is repeated with experts eitherconverging towards a consensus view, as theyrevise their opinions based on the feedback fromother experts, or more than one possible outcomeis identified

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Expert Opinion Strengths

Good for answering one, specific, single-dimensionedquestion

No historic or primary market research is required

Forecasts are generated by those best qualified toprovide them

No meetings are required

Weaknesses How does one select or even identify experts?

Once identified they are likely to be expensive! The process is time consuming and the process itself

can introduce bias

Research shows that it is less successful forproducing complex forecasts involving multiple factors

Quantitative Techniques: DemandBehavior

Trend a gradual, long-term up or down movement of

demand

Random variations

movements in demand that do not follow a pattern Cycle

an up-and-down repetitive movement in demand

Seasonal pattern an up-and-down repetitive movement in demand

occurring periodically

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Time(a) Trend

Time(d) Trend with seasonal pattern

Time(c) Seasonal pattern

Time(b) Cycle

Demand

Demand

Demand

Demand

Randommovement

Forms of ForecastMovement

3-month Simple Moving Average

Jan 120Feb 90Mar 100

Apr 75May 110June 50July 75Aug 130Sept 110Oct 90Nov -

ORDERSMONTH PER MONTH

MA3 =

3

i = 1

Di

3

=90 + 110 + 130

3

= 110 ordersfor Nov

103.388.395.078.378.385.0

105.0110.0

MOVINGAVERAGE

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5-month Simple Moving Average

Jan 120Feb 90Mar 100

Apr 75May 110June 50July 75Aug 130Sept 110Oct 90Nov -

ORDERSMONTH PER MONTH

MA5=

5

i = 1

Di

5

=90 + 110 + 130+75+50

5

= 91 ordersfor Nov

99.085.082.088.095.091.0

MOVINGAVERAGE

y = a + bx

wherea = interceptb = slope of the line

x = time periody = forecast fordemand for periodx

Linear Trend Line

b =

a = y - b x

wheren = number of periods

x = = mean of thex values

y = = mean of they values

xy - nxy

x2 - nx2

x

n

y

n

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Least Squares Examplex(PERIOD) y(DEMAND) xy x2

1 73 37 12 40 80 43 41 123 94 37 148 165 45 225 256 50 300 367 43 301 498 47 376 64

9 56 504 8110 52 520 10011 55 605 12112 54 648 144

78 557 3867 650

x = = 6.5

y = = 46.42

b = = =1.72

a = y - bx

= 46.42 - (1.72)(6.5) = 35.2

3867 - (12)(6.5)(46.42)

650 - 12(6.5)2xy - nxy

x2 - nx2

7812

55712

Least SquaresExample (cont.)

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Linear trend line y = 35.2 + 1.72x

Forecast for period 13 y = 35.2 + 1.72(13) = 57.56 units

70

60

50

40

30

20

10

0

| | | | | | | | | | | | |

1 2 3 4 5 6 7 8 9 10 11 12 13

Actual

Demand

Period

Linear trend line

Learnings

Layout decisions are based on: a) Type of product

b) Type of production systems and

c) Volume of production.

Supply chain forecasting helps in efficientand effective utilization of resources.

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Aggregate ProductionPlanning

Dr. Nitin Seth


Long-range plans

Product and service design

Location / layout

Long term capacity

Intermediate plans (General levels)

Employment

Output and inventories

Subcontracting and backorders

Short-range plans (Detailed plans)

Machine loading

Job assignments

Production lot size and order quantities

Overview of Planning Levels

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Aggregate Plan

Aggregate Plan:A statement of a companys

production rates, workforce levels, and inventory

holding based on estimates of customer

requirements and capacity limitations

Service Industry

Staffing Plan

Regarding staffs and

labor related factors

Manufacturing Industry

Production Plan

Regarding production

rates and inventory

Aggregate Production Planning(APP)

Determines resource capacity to meet

demand

For intermediate time horizon, 6-12 months

Not feasible to build new facility

May be feasible to hire/lay off workers,

overtime, or subcontract

Adjusting capacity OR managing demand

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Aggregate Plan ManagerialInputs

Supplier capabilities

Storage capacity

Materials availability

Materials

Current machine capacities

Plans for future capacities

Workforce capacities

Current staffing level

Operations

New products

Product design changes

Machine standards

Engineering

Labor-market conditions

Training capacity

Human resources

Cost data

Financial condition

of firm

Accounting and finance

Aggregate

plan

Customer needs

Demand forecasts

Competition behavior

Distribution and marketing

Aggregate Plan Outputs

Units ordollars

subcontracted

Size ofWorkforce and

Workforce Adjustment

Productionper month

(in units or $)

InventoryLevels

Aggregate

plan

Units or dollars

Of Backlogs,backorders , or

stockout

Reac t i ve A l te rn a t i ves

ComplementaryProducts

CompetitivePricing

Aggressive A l te rna t i ves

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Aggregate Planning Strategies Proactive

Alter demand to match capacity

Reactive

Alter capacity to match demand

Mixed

Some of eachBalancing demand and capacityover the entire planning horizon

Pricing

Promotion

Back orders

New demand

Demand Options

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Hire and layoff workers

Overtime/slack time

Part-time workers

Inventories

Subcontracting

Capacity Options

Chase Demand

Time

Units

Production

Demand

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Chase Approach

Advantages

Investment in inventory is low

Labor utilization in high (overtime)

Disadvantages

The cost of adjusting output rates and/or

workforce levels

Level Production

Time

Production

Demand

Units

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Level Approach

Advantages

Stable output rates and workforce

Disadvantages

Greater inventory costs

Increased overtime and idle time

Resource utilizations vary over time

Mixed Strategy

Time

Units

Production

Demand

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Aggregate Planning Strategies

Possible Alternatives Possible AlternativesStrategy during Slack Season during Peak Season

1. Chase #1: vary workforce Layoffs Hiringlevelto match demand

2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,rateto match demand vacations subcontracting

3. Level #1: constant No layoffs, building No hiring, depletingworkforce level anticipation inventory, anticipation inventory,

undertime, vacations overtime, subcontracting,

backorders, stockouts4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-output rate pation inventory, pation inventory, over-

undertime, vacations time, subcontracting,

backorders, stockouts

Aggregate Plan to MasterSchedule

AggregatePlanning

Disaggregation

MasterSchedule

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Disaggregating the AggregatePlan

Master schedule: The result of

disaggregating an aggregate plan; shows

quantity and timing of specific end items for a

scheduled horizon.

Rough-cut capacity planning: Approximate

balancing of capacity and demand to test the

feasibility of a master schedule.

saggregat ng t e ggregatePlan

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Lessons Aggregate production planning is a

powerful tool for resources management

Suitable aggregate production planningstrategy for an organization depends on

various organizational and environmentalfactors

Thank You

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