Pipeline information survey:a UK perspective
Post on 16-Sep-2016
Embed Size (px)
Pipeline Information Survey:
a UK Perspective
University of Wales, Cardi, UK
University of Wales, Cardi, UK
University of Wales, Cardi, UK
(Received June 1996; accepted after revision August 1997)
Experiential and analytical research output from a number of sources suggests that the inclusion ofpipeline information in an inventory and production (or supply) ordering rule leads to a reductionin production and supply on-costs and improved customer service levels. The evidence is provided byconsideration of the dynamics induced in an ordering system due to existence of delays between anorder being placed and receipt of that order, namely, the pipeline. While the utilisation of pipelineinformation in such Decision Support Systems as the To-Make model is admirable the resourceimplications to a manufacturing enterprise have to be considered. This paper outlines a surveyundertaken of a sample of UK companies in order to determine their understanding of the pipeline,their practices in acquiring pipeline information and their application of such pipeline information.The survey concentrated on interviews with master production schedulers, but also included discus-sions with logistics managers, and was supported by plant visits. Clustering analysis of the surveydata gathered provides evidence that industry realises the importance of monitoring pipeline states,such as the level of orders in the pipeline or the pipeline lead-time, particularly where long and vari-able lead-times are encountered. The particular pipeline of interest to a given enterprise may be in-ternal (production) or external (supply) or both. It is noted that where the pipeline is monitoredthere is often an unfulfilled opportunity for utilising the pipeline information within a robust order-ing strategy. # 1998 Elsevier Science Ltd. All rights reserved
Key wordspipeline management, material flow survey, master production schedule
1. THE RESEARCH AREA
A FOUR MAN-YEAR UK publicly sponsored
research project, Dynamic Analysis of an
Adaptive To-Make Model for exploitation in
Supply Chains and Individual Business
Policies, has confirmed and reinforced the
experiential results of Sterman  that the in-
clusion of pipeline information in a master
production schedule (MPS) ordering rule can
have a dramatic impact on improving dynamic
behaviour. The pipeline may be defined as the
delay between generating an order and the
receipt of that order into stock.
The main output of the research has been
the development of a structured control engin-
eering and simulation methodology to analyse
and optimise the To-Make model. The To-
Make model is an in-house industry devel-
oped ordering algorithm that utilises pipeline
informationnamely lead-times and the order
Omega, Int. J. Mgmt Sci. Vol. 26, No. 1, pp. 115131, 1998# 1998 Elsevier Science Ltd. All rights reserved
Printed in Great Britain0305-0483/98 $19.00+0.00PII: S0305-0483(97)00041-8
in the pipeline (OPL). The theoretical researchwork has shown that incorporation of pipelineinformation within an ordering algorithmleads to improved dynamic behaviour  and
can lead to increased customer service levelswhile minimising stock holding requirements[3, 4]. The research has also shown the import-ance of such pipeline information in minimis-ing the demand amplification eect within a
supply chain .
Although the theoretical research results aresignificant the ability for manufacturing enter-
prises in general to generate and properly uti-lise pipeline information has to be considered. Although the utilisation of pipeline infor-mation is admirable the resources to gathersuch information need to be considered.
The research therefore undertook a surveyof a small sample of UK industry in order todetermine their:
(1) Understanding of the pipeline: Agreedor at least a substantially common ter-minology would be likely to emergewhich would facilitate the feedback of
theoretical research results to industrial-ists.
(2) Practices in acquiring pipeline infor-mation: From the outset of the researchwe wished to test the hypothesis that
pipeline information was readily avail-able and was being utilised, althoughnot necessarily for MPS purposes.
(3) Application of such pipeline infor-
mation: If a company did acquire pipe-line information to what use was itbeing put?
(4) Industrial environment: We wished todetermine a niche for an ordering al-
gorithm utilising pipeline information.
The paper focuses on reporting the pipelinesurvey methodology and its findings. Prior tothis the theoretical implications on dynamic
behaviour of introducing pipeline informationwithin ordering algorithms is summarised.This is important as it forms the backgroundto the survey itself and also depends on thesurvey output to determine appropriate what
A general outline of MPS requirements isalso introduced as it is the MPS function thatis being addressed by the pipeline survey.Also, the interpretation of the survey results isundertaken by drawing on the outputs ofother researchers, in particular Burcher [10, 11]who undertook a survey examining the capa-bilities of 400 companies MRPII systems.
2. THE THEORETICAL CONTEXT
Sterman , through his behavioural studiesof the well known supply chain Beer Game,advocates two pieces of pipeline informationto be utilised in an ordering rule;
(1) The lead-time between placement andreceipt of orders: To ensure that su-cient orders are received into stock theamount of OPL should be proportionalto the lead-time.
(2) The amount of OPL within the pipelinewhen reordering: Ignoring the pipeline
Fig. 1. Block diagram representation of a multi-productcompany incorporating the To-Make ordering control
Berry et al.Pipeline Information Survey116
OPL leads to instability and it is there-fore far better to compensate for thedierence between desired and actualOPL.
A lack of consideration of the pipeline inthe generation of orders can lead to costlyswings in supply, production and inventory.The consequences can be periods of poor cus-tomer service levels and/or excessive stockkeeping units.Figure 1 gives a block diagram showing the
major features of a formalised computer baseddecision support system known as the To-Make model. The model was conceived withthe specific objective of achieving high custo-mer service levels without requiring excessivestocks. The model was developed in-house bya South Wales manufacturing company usingsteady-state control theory principals. A num-ber of authors have advocated the use of con-trol theory in the design of production andinventory management . Control theoryalso formed the basis of the simulation analy-sis undertaken to study and optimise themodel in a dynamic sense.The rules within the model incorporate a
number of features which we consider to be
advanced. Desired stock levels are determined
via a service level requirement based on a stat-
istical analysis of sales. Production orders are
calculated according to a rule that utilises a
stock replenishment policy and a forecast of
future demand. Furthermore, the ordering rule
also makes use of information about the level of
orders still being processed in the pipeline and
a frequently updated estimate of the pipeline
A typical rule generated by a MPS may be:
The order placed on the production shop floor
is equal to a fraction of the finished goods
inventory deficit (taken as the dierence
between a target and the free stock in Fig. 1)
plus a fraction of the OPL deficit (taken as the
dierence between a target and the actual
OPL, or WIP in Fig. 1) plus the average fore-
cast customer demand (which may be deter-
mined via exponential smoothing).
Typical questions, among others, that may
be asked of such a rule are;
(i) Should the customer demand be used in
Fig. 2. Response of a pipeline based ordering algorithm to a step change in demand (a) Factory com-pletion response (b) Free stock response.
Omega, Vol. 26, No. 1 117
(ii) If so, how much smoothing should beapplied to average demand?
(iii) What fraction of the inventory deficitshould be utilised?
(iv) What fraction of the OPL deficit shouldbe utilised?
Example outputs from the theoreticalresearch are shown in Fig. 2  and Fig. 3
. Figure 2 shows the impact on the
dynamics of production completions and stock
by varying the proportion of OPL error within
an ordering rule. As seen in Fig. 2a, increasing
the fraction of the OPL error smooths the
production response. The extreme case where
there is no OPL feedback yields the fastest re-
sponse but at the expense of a higher degree
of demand amplification. A smoother pro-
duction completions response unfortunately
Fig. 3. Customer service levels for a pipeline based ordering algorithm for various operating scenarios.
Berry et al.Pipeline Information Survey118
yields a slower stock recovery as seen inFig. 2b, with the greater risk of stock out.This dichotomy is overcome by careful designin choosing a compromise value of the frac-tion of OPL error.Figure 3 shows a greater degree of sophisti-
cation in simulation analysis. The three graphsshow the relationship between customer ser-vice level (PIC rate) and weeks worth of stock
for dierent scenarios. Two dierent pipeline
representation are shown (first order and third
order) and the pipeline lead-time is fixed or
variable throughout a simulation run. Best
and worst case designs are shown for dierent
average pipeline lead-times (Tp = 4 and 8
weeks) with proportional (P) and pro-
portional/integral (P and I) control. Under
these scenarios the OPL and a lead-time esti-
mate is fed back into the ordering rule. The
latter is depicted under two extreme cases; the
proactive system feeds back any lead-time
change as it happens, while the reactive system
waits for a product to come out of the pipeline
before it feeds back the estimate.
As an example the analysis has shown that,
for a given target customer service level of
97.5%, steady-state analysis (the baseline case
in Fig. 3) misleadingly predicts low stock hold-
ing requirements at 1.63 weeks worth of stock.
Dynamic analysis on the other hand shows
that by considering the pipeline delay a higher
stock holding is required, although careful de-
sign minimises requirements .
The theoretical research has shown that
pipeline information does improve dynamic
behaviour. The theoretical research has gone
further than Stermans experiential work by
also showing the potential for using control
theory and simulation in an integrated fashion
Fig. 4. Relationship of MPS to other manufacturing plan-ning and control activities .
Fig. 5. The essential requirements of an MPS .
Omega, Vol. 26, No. 1 119
so as to design suitably robust ordering algor-ithms that incorporate pipeline information.
3. MPS REQUIREMENTS
The need to incorporate the present state ofthe pipeline into ordering rules/decisions hasalso been expressed in the UK by twoComputer Aided Production Management(CAPM) surveys [3, 17]. The surveys indicatethat there is a need in UK industry to developsuitably robust (in the dynamic sense) orderingalgorithms. Such ordering algorithms shouldmake the best use of all available informationwith regards to both exogenous and endogen-ous factors. For example, information aboutthe current order book, forecast demand andthe manufacturing systems state, when coupledwith suitable stock and replenishment policies,aid in the decision making process for pro-duction ordering.
Within the context of CAPM a theoreticalmodel, shown as Fig. 4, developed byVollman et al.  was found to be adequatefor a general framework for the project. Themodel describes a range of planning and con-trol activities that are typically found in manycompanies to varying degrees. In the contextof this model a number of pipelines can beidentified: A production pipeline and a ma-terial supply pipeline. In addition, althoughonly implied in Fig. 4, is a capacity acquisitionpipeline which is the focus of much ofBurchers studies .In the context of the present research, the
major pipeline under consideration is the (in-ternal) production pipeline, which is con-sidered in MPS activities; the (external)material supply pipeline became an issue oncethe survey was underway. The MPS is a man-agement commitment to produce certainvolumes of finished goods in particular timeperiods in the future. Key principles are out-
Fig. 6. The focus of the company pipeline flow survey.
Fig. 7. Example of a process flow analysis model developed during company survey.
Berry et al.Pipeline Information Survey120
lined in Fig. 5. The MPS is created for eachfinished goods part number using known cus-tomer orders, sales forecasts and knowledge ofcapacity . According to APICS the successof MRP systems depends greatly on the man-agement of the MPS process; The MPSdrives MRP and consequently the entire pro-duction and inventory management system. Successful management of the MPSdepends on the adoption of a number of keyprincipals as described in Fig. 5.The theoretical studies summarised in
Section 2 are of considerable importance informalising the MPS process. The MPS pro-cess in many companies is often undertaken inan ad-hoc manner, and often relies totally onthe accumulated experience of a master sche-duler. A number of authors have suggestedthat there is considerable scope for computerbased DSS [11, 20] of which the algorithmsdescribed in Section 2 are an example of.Improvements in company performance as aresult of a DSS have also been described else-where .
4. COMPANY MATERIAL FLOW SURVEY:
The methodology adopted for the companysurvey initially involved drafting a list of com-panies with whom the research team had pre-vious contact and categorising the companiesaccording to their market sector, production
strategies, product range and logistic pipeline
structure. It should be noted that the previous
contact with these companies were in colla-
borative programmes unrelated to the research
described in this paper. Thus, although the
companies were known to the research team,
they were a random sample from the UK
industry base with a wide geographical spread.
The basis of the sample selection was simply
to determine whether there were any immedi-
ate beneficiaries from the research.
A trial interview with company executives
was undertaken utilising an in-depth question-
naire developed in-house addressing key issues
in order to obtain industrial feedback on
issues such as type and style of questions,
interview length and whether the categories of
information exist within one persons knowl-
edge or with several cognate executives. Based
on the interviewees recommendations it was
decided to use a short list of points of discus-
sion (as given by the headings in Appendix A)
and to base the interview around the develop-
ment of a series of simple diagrammatic ma-
terial flow models.
The essential ideas behind the interviews