t801 msc in manufacturing: management and technology

Don Carmichael P5893614

T801 MSc in MANUFACTURING: MANAGEMENT AND TECHNOLOGY

Name: Don Carmichael

Personal Identifier: P5893614

Title of Dissertation: Supply chain planning systems in

manufacturing.

Date: September 1998

Don Carmichael P5893614

Project Title : Supply chain planning systems in manufacturing.

A dissertation submitted in partial fulfillment of the requirement for the MSc in

Manufacturing : Management and Technology.

The complementary fulfillment of the requirements for the MSc being the following

Diploma Courses :

Course Title Reg. Result Points

Year

PT613 Manufacturing Management 1994 Pass 30

PMT605 Project Management 1994 Merit 15

T833 Implementation of New Technologies 1995 Merit 30

PT611 Structure & Design of Manufacturing 1995 Merit 30

Systems

M866 Relational Database Design 1996 Pass 15

Don Carmichael Page i P5893614 List of Contents

List of tables iii

List of figures v

Glossary of abbreviations vi

Preface vii

CHAPTER 1 Summary 1

CHAPTER 2 Introduction to the project 3

2.1 The aims and objectives of the project 3

CHAPTER 3 Background and literature review 5

3.1 Introduction to Supply Chain Planning (SCP) 5

3.2 The manufacturing interface 15

3.3 Finite Capacity Scheduling (FCS) 17

3.4 The ‘leaner’ issues 25

CHAPTER 4 SCP packages 33

4.1 Introduction 33

4.2 Survey of SCP packages 34

4.3 Commonalities 35

4.4 Analysis 39

4.5 Future directions 39

4.7 Conclusions 40

CHAPTER 5 Survey 41

Don Carmichael Page ii P5893614

5.1 Introduction to the survey 41

5.2 The survey and the methodology 41

5.3 Results of the survey 47

5.3.1 Analysis of the results 56

5.4 Conclusions 59

CHAPTER 6 Discussion and conclusions 60

6.1 Discussion 60

6.2 What does industry want ? 69

6.3 How are SCP packages helping ? 70

6.4 Future directions 72

6.5 Main Conclusions 72

CHAPTER 7 Future work 74

7.1 The broad SCP arena 74

References 75

Appendices 79

Appendix A - The Questionnaire 79

Appendix B - Questionnaire Response Analysis 82

Appendix C - Supply Chain Planning package features 103

Bibliography 112

Fundamental Readings in Supply Chain Management 112

Production Aspects of Supply-Chains 114

Organisational Contexts 118

Don Carmichael Page iii P5893614

List of tables

The following are a list of the tables found in the main body text of this dissertation.

Table Page

Table 3.3 Areas of conflict in the supply chain [3] 21

Table 5.3.0.1 Tabular summary of questionnaire results with

respondent number versus question number with answers. (1

of 5)

51



of 5)

52



of 5)

53



of 5)

54



of 5)

55

Table 5.3.1.1 Results of MCS/CA survey as reported in

Manufacturing Computer Solutions January 1997 showing

selected issues and the number of companies seeing this as

a priority as a percentage.

56

Don Carmichael Page iv P5893614

Table 5.3.1.2 The results of table 5.3.1.1 with the

corresponding project survey question number and

percentage of respondents claiming each issue as a problem

or serious business problem.

57

Don Carmichael Page v P5893614

List of figures

The following is a list of figures found in the main body of this dissertation.

Figure Page

Figure 3.1.1 The scope of supply chain management. Supply

chain management covers the flow of goods from supplier

through manufacturing and distribution chains to the end

user. (From[13]).

7

Figure 3.1.2 A more manufacturing related order driven

supply chain. (From [3]).

14

Figure 3.1.3 The author’s own model of a single business

internal supply chain

15

Figure 3.4.1 The overall aim of manufacturing business

improvement

25

Figure 3.4.2 Suppliers organised into functional tiers 29

Figure 6.1 Number of weeks stock by country from the

European Logistics Comparative Survey 1998. [22]

66

Don Carmichael Page vi P5893614 Glossary of abbreviations

SCM Supply Chain Management

SCP Supply Chain Planning

MRP Materials Requirements Planning

MRP II Manufacturing Resource Planning (an extension of MRP)

ERP Enterprise Resource Planning (an extension of MRP II)

CBP Constraint Based Planning

JIT Just-In-Time; a method of production, developed by Toyota,

whereby only the parts needed are produced and only delivered

to the next operation when required. This cuts out wastes in

inventory, storage and over-production.

BPR Business Process Reengineering

CPG Consumer Packaged Goods; an industry sector

FCS Finite Capacity Scheduling is a process whereby a production

plan consisting of a sequence of operations to fulfill orders is

generated based on the real capacity of resources. These can

be machines, operators, tooling or anything which is a constraint

on the production process.

ECR Efficient Consumer Response

There are several companies mentioned and referenced throughout this dissertation.

These companies are the market leading developers of two types of software system

being :

Don Carmichael Page vii P5893614

• Supply Chain Planning vendors; the two leaders being ‘i2’ Technologies with the

Rhythm product and Manugistics. Other vendors, such as Numetrix and SynQuest

are recognised as contenders for third place [16].

• ERP vendors; the four market leaders are conveniently covered by the acronym

‘BOPS’ meaning BAAN (with the BAAN IV product), Oracle (with the Oracle

Financials, Oracle Manufacturing, GEMMS and CPG package offerings),

Peoplesoft (including it’s ‘Red Pepper’ supply chain optimisation system) and SAP

(with the R/3 product). Other players and leaders in the American mid-market

sector according to the authoritative industry analysts Gartner Group, are SSA

(with the BPCS product) and QAD (with the MFG/PRO package).

Preface

Thanks are extended to the authors supervisor Dr. John Wright for his help and

enthusiasm throughout the project.

Don Carmichael Page 1 P5893614

CHAPTER 1 Summary

‘The best company cannot be competitive if it is part of a supply chain which is

inefficient and ineffective’. [1]

Dr. Canadine, of the Institute of Logistics, believes that leading edge companies are

beginning to understand that competition and competitive advantage is not being

played out between individual companies but by competing supply chains.

In support of this a new breed of software vendors have developed supply chain

planning (SCP) software packages which utilise concurrent optimisation algorithms

to produce the optimum supply chain configuration and schedule. The optimum

configuration and schedule may be based on lowest cost, material or capacity

constraints, customer due date adherence or a user defined combination of optima.

This dissertation describes the basic functionality to be found in supply chain

planning systems and the often confusing coexistence of supply chain management

systems.

A survey by questionnaire across a random sample of manufacturing companies

was undertaken and the dissertation analyses the data to come to a number of

conclusions. Certainly, in the U.K, most manufacturers are still concerned with

internal issues such as cost savings within manufacturing. There is little

comprehension of the effects of each manufacturer’s (or supplier’s) place within the

Don Carmichael Page 2 P5893614 supply chain apart from specific industries such as the Automotive industry where

lean manufacturing methods have led to strong partnerships between automotive

companies and their tiers of suppliers.

The dissertation continues by exploring the reasons why the mainly American supply

chain planning vendors have experienced such explosive growth in the USA. This

growth is mainly to do with the immense potential for cost savings in the long lead

times found in US supply chains, 105 days average replenishment times as

compared to 38 days in the UK. This potential is further enhanced when

consideration is given to the vast US geography and thus the large transportation

costs. The US tends to be supply constrained, controlled by the manufacturer /

supplier, rather than demand constrained, controlled by the retailer / customer, as is

the situation in the UK. This means that manufacturers / suppliers in the US have the

opportunity to optimise their own supply chains to their customers.

The dissertation concludes by agreeing in part with some of the SCP vendors, such

as Manugistics, who believe that their biggest task in the short term is education.

The results of the author’s survey and other sources suggest that in the U.K, and

perhaps in most of the EC, SCP vendors may find that there are neither the supply

chain inefficiencies to justify the high SCP package costs nor the level of interest in

SCP systems in America.

Don Carmichael Page 3 P5893614 CHAPTER 2 Introduction to the project

2.1 The aims and objectives of the project

It is now widely recognised that companies are no longer competing against other

companies. Whole supply chains are now competing against each other.

The pressures of modern business, the global community, customers expectations of

personalisation and rapid delivery and the continuing need to reduce costs are all

changing the way companies view themselves. The challenge now is to optimise and

employ ‘lean’ principles across all a company’s relationship boundaries.

The project concentrated itself on the rise of the supply chain planning software

package, it’s roots in Finite Capacity Scheduling software products and the ‘softer’

issues of the ‘lean’ enterprise.

The aims of the project were to :

1. gather together the current academic and recognised industry analyst knowledge

to produce a picture of where supply chains are changing, and why. The focus of

this was the effects on manufacturing with special emphasis on the ‘lean’

manufacturing / enterprise revolution.

2. match this against the experiences of real manufacturers coping with the

demands placed on them by the great shift in supply chain complexity. The aim

here was to find any conflicts in perceptions and views and compare these against


the book research results. This was achieved through the use of a survey by

questionnaire and ultimately through comparison with the results of other similar

surveys.

3. generally describe Supply Chain Planning (SCP) package functionality and then to

discuss how such a package addresses the supply chain pressures manufacturing

and distribution companies are facing.

4. detail further work required in this subject area and to surmise on the functionality

requirements future SCP packages should include.


CHAPTER 3 Background and literature review

3.1 Introduction to Supply Chain Planning (SCP)

Supply chains are the supplier / manufacturer / distributor channels, networks and

relationships [3] in manufacturing or services supply. A good short-hand describing

some food supply chains would be the ‘plough to plate’ analogy, recently used in

British food hygiene political discussions.

The complexity and length of supply chains is increasing, as for example in the

automotive industry. The Society of Motor Manufacturers and Traders (SMMT)

‘Passenger Car Logistics Survey’ [4] results show that by the year 2000 the average

number of components or sub-assemblies car manufacturers believe a car will be

assembled from is nine. This will have a massive impact along the automotive supply

chain from Tier 1 (direct to car manufacturer) suppliers to Tier 3 (electrical sub

components for dashboard assemblies, for example) and beyond. Design,

manufacturing and assembly responsibility will be passed down automotive supply

chains through closer and closer partnerships with suppliers. This, along with other

‘lean thinking’ ideas, was predicted in Womack et al’s ‘The Machine That Changed

The World’ [5]; the lean production book.

Manufacturing and supply planners are now having to consider a complex supply

chain network as opposed to a single supplier / customer relationship [6]. The flow of

Don Carmichael Page 6 P5893614 information up and down supply chains is becoming more important than anything

else.

‘The economy is changing structure. From being organised around the flow of things

and the flow of money, it is becoming organised around the flow of information [7].’

This statement by Peter Drucker is emphasised in the report on ‘ICL’s Logistics

Strategy’ in the ‘International Journal of Logistics Management’ [3].

ICL believe the most important feature of their supply chain is the flow of information.

Excess inventory (stock) is seen as an undesirable result of imbalanced processes

and the cost of that inventory is seen as being greater than the cost of managing the

flow of information effectively. ICL’s predominant emphasis within their logistics

strategy is to develop Information Technology (IT) applications that enhance logistics

performance. Information must be substituted for inventory as the main trade-off for

achieving customer service all along the supply chain.

Figure 3.1.1 below is a good demonstration of a possible simplistic internal supply

chain showing all of the potential inventory stocking points within one company and

thus all of the points where excess inventory can be held. If this is multiplied by the

network of different companies making up supply chains, one can see how big a

potential problem excess inventory can be.


S u p p lie r s

O rd e r s

P r o c u r e m e n t M a n u fa c tu r in g F a c to r y D is tr ib u t io n C u s to m e r E n d u s e r s

R a w m a te r ia l

In -p ro c e s s

D is tr ib u t io n S e ll in g p o in t

Figure 3.1.1 The scope of supply chain management. Supply chain management

covers the flow of goods from supplier through manufacturing and distribution chains

to the end user. (From[13]).

On top of all the above, business transactions are becoming faster and faster [8].

Customer requirements have become more sophisticated. Product life cycles have

reduced dramatically in most industries and competition has become global.

In the past, focus on output value (local optima, as Goldratt puts it [9]), led to

performance measures such as those based on standard hours, direct labour

efficiency, factory output value and overhead recovery on direct labour. It was

identified that the focuses on inventory and customer service were missing.

This is highlighted when it is noted both that :

Don Carmichael Page 8 P5893614 1. ICL identify 80% of their costs as being material (other sources seem to average

material costs across all manufacturing to about 58%) and that

2. customer service features highly in modern supply chain techniques such as

Efficient Consumer Response (ECR) [10].

The major task for ICL is the management of material within an efficient international

logistics chain.

If companies such as ICL have identified the need for both an efficient logistics chain

and IT applications to enhance the logistics performance, it is perhaps a surprise to

learn that only 20% of U.S logistics professionals believe that IT systems are well

integrated with the logistics processes in their company [11].

This is not to say that U.S logistics professionals are against IT; most respondents of

the KPMG survey [11] said that they thought IT was an ‘important tool’ and would

‘significantly improve logistics’. It can be seen that even in the U.S, who tend to be

ahead of the UK in the take-up of IT systems, there is still a requirement and a

market gap for IT systems to fully support supply chain logistics.

At this point it is worth resolving the difficulties and confusion that may arise from

using ‘supply chain’ terms and ‘logistics’ terms.

During the literature review for this dissertation several sources defined the link

between supply chain terminology and logistics thinking. ‘Supply chain’ terminology

Don Carmichael Page 9 P5893614 is a fairly recent invention as opposed to ‘Logistics’ terms and terminology, which is

much older coming from the Napoleonic campaigns.

Greenwood in the Institute of Logistics journal [12] believes that

‘if we analyse what the experts are calling supply chain management we find that

they are really talking logistics but driven by the requirement of the decade’.

Greenwood believes that supply chain management would be called ‘Demand Chain

Management’ if the process were more fully understood. Further, Bowersox believes

that the issues of logistics and supply chain management are practically

synonymous [2]. The American magazines Distribution (January, 1996) and

Purchasing both define Supply Chain Management (SCM) as interchanges or

combinations of logistics processes.

Many Manufacturing Resource Planning (MRP II) systems (especially those that

have migrated into Enterprise Resource Management (ERP) systems to handle

multiple currencies, multiple companies and multiple sites) are now calling their

products Supply Chain Management (SCM) systems. As an example, the MRPII

product the author used to work with, MFG/PRO by QAD, now calls itself a Global

Supply Chain Management system.

It is important to distinguish between two clearly definable IT systems solutions that

address supply chain issues :

Don Carmichael Page 10 P5893614 1. the MRP II/ERP products, ‘relabeled’ as SCM products. For example, BAAN IV

(Series), Oracle Manufacturing, SAP R/3 and SSA’s BPCS, are ‘transaction’

systems; handling, for example, purchasing, sales and forecasting, shop floor

production, quality and inventory transactions.

2. true Supply Chain Planning (SCP) products, aimed at planning the supply chain

as a whole. The system vendors here, such as Numetrix [13], Red Pepper,

Manugistics and SynQuest believe that their products are the true supply chain

management products.

The key to the real definition, for these SCP vendors, revolves around the system’s

ability to understand, integrate and optimise the complete supply chain from

supplier’s supplier to customer’s customer; to create the optimal sourcing, production

and distribution plan. The aim of these SCP products is to react to the speed of

change of business across the supply chain and create, for example,

• the best splits across suppliers considering supplier capacity and availability.

• the least ‘total acquisition’ cost distribution solution.

• the best customer service level that can be achieved with the current demand plan

and workforce resourcing rules.

Keith Burgess, a consultant with KPMG’s Supply Chain Management Systems

Group, [14] defines the goals of advanced supply chain planning systems as being:


• rapid optimisation of the total supply chain,

• making available ‘what-if’ functionality – to test the effect of possible events on

the total supply chain,

• the ability to cope quickly with unforeseen problems,

• flexible scheduling – allowing for more than the first-in-first-out (FIFO) approach

adopted by most MRP systems, and

• the ability to provide accurate and flexible information about the supply chain.

These products logically sit above MRP II/ERP systems but require these transaction

based systems to enact, record and feedback the optimised demand, supply and

production plan.

Most MRP II / ERP packages still rely on the Materials Requirement Planning (MRP)

algorithms, invented in the 1960’s and defined by Orlicky [15], as the only constraint

planning mechanism. However, the recognition of the importance of SCP products

by the MRP II/ERP product vendors has arrived by a number of announcements

reported over the last few months via the AMR Alert on Supply Chain Management

Email series [23] being that :

Don Carmichael Page 12 P5893614 • Peoplesoft bought the SCP vendor Red Pepper to use a basis for a full ERP

offering.

• BAAN announced a constraint based planning (CBP) module, based on a product

BAAN bought called MOOPI.

• SAP announced a new module developed in-house within SAP called the

Advanced Planner and Optimiser (APO) within SAP’s Supply Chain Optimisation,

Planning and Execution (SCOPE) Initiative.

• Both BAAN and SAP announced strategic alliances with the three top SCP

product vendors ‘i2’ Technologies, Manugistics and Numetrix [16].

Confusion still exists over the definition of supply chain management. Even

Advanced Manufacturing Research (AMR), the leading industry analysts along with

Gartner Group, still call SCP products SCM systems [16].

For the rest of this dissertation the author will try to avoid any confusion by using the

term ‘Supply Chain Planning (SCP)’ system to differentiate these supply chain

optimisation products.

White in Control [17] defines Supply Chain Planning (SCP) as

‘a constraint- based ‘decision support’ or planning tool that includes the following:

Item Forecasting; Promotion and Event Planning; Item Inventory Planning;

Don Carmichael Page 13 P5893614 Replenishment Planning, incorporating Distribution Requirements Planning (DRP)

and various Continuous Replenishment Strategies; Manufacturing Planning and

Scheduling’.

White sees Supply Chain Planning as the keystone to Supply Chain Management.

The dissertation will investigate the effects that recently available Supply Chain

Planning (SCP) software packages will have on manufacturing issues. This will be

achieved by :

• book research,

• a survey by questionnaire,

• and an investigation into the general functionality of a range of these packages

As the dissertation confines itself to the effects of SCP on manufacturing, the scope

of what is meant by manufacturing should be defined. Bowersox [2] defines

manufacturing support within logistical integration as being

‘… managing work-in-process inventory as it flows between stages of

manufacturing’.

Figure 3.1.2 shows a more order related view of a supply chain and where in-

process inventory sits within this environment.


The overall concern is not how production occurs but the what, when and where

products are manufactured. Bowersox believes that whereas physical distribution

must accommodate the uncertainty of consumer and industrial demand,

manufacturing is under the control of the manufacturing enterprise.

From Supplier Throughmanufacturing

And distributionchain

To the end user

Supply chain

Pro-curement

order

Rawmaterialinventory

Shoporders

In-processinventory

MPS orders

Finishedfactory

inventory

Factoryorders

Distributioninventory

Distri-butionorders

Sellingfrom

inventory

Cust-omerorders

Supplier Customer

Figure 3.1.2 A more manufacturing related order driven supply chain. (From [3]).

Figure 3.1.3, below, is a simplistic version of the supply chain diagrams used by the

author to explain how information and inventory flow through a business.

The company is the box split into information flow from right to left and material flow

from left to right. To the right hand side of the box is the direct customer and to the

left the supplier. The planning function is basically a balancing function to take the

demand, in whatever form it is presented (sales orders, forecasts, planned inventory

levels etc.), and convert the demand into

Don Carmichael Page 15 P5893614 1. What to make (produce, convert, pack, assemble etc.) and

2. What to buy

The box is used to demonstrate that a company is one unit and not a series of

departments. Information generally flows from the front of the business to the back

and materials the opposite direction.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Planning

What-to-buy

What-to-make

INFORMATION FLOW

MATERIAL FLOW

ValueAdded

Purchasing

Supply Dispatch and Distribution

Demand

Figure 3.1.3 The author’s own model of a single business internal supply chain.

3.2 The manufacturing interface

Dr. Canadine, the Director-General of the Institute of Logistics [1], calls

manufacturing a ‘micro-logistics’ process, an individual section of a much larger

supply chain. Micro-logistical thinking, says Canadine, has led to the development of

Kanban, Just-in-Time, MRP and MRP II. Thinking of a manufacturing ‘interface’ is

Don Carmichael Page 16 P5893614 actually unhelpful as organisational boundaries are the enemy of the cross functional

thinking that is required to optimise and understand supply chains.

In Hill’s book ‘Manufacturing Strategy’ [28] there is much to convince the reader that

business, marketing, manufacturing and thus all supply chain strategic issues all

have to be considered at once. The traditional view is of business plans being split

into sales / marketing plans and then handed to manufacturing to consider how the

production targets can be met.

There is a ‘macro-logistics’ strategic level where the design and control of the supply

chain takes place and where issues such as :

• the location of markets,

• where to place manufacturing capacity,

• which components to outsource and which to manufacture,

• and how to resource service and maintenance

are considered.

So, in conclusion, manufacturing has to be considered as part of the whole supply

chain and not spilt off as a separate entity as it is in ‘traditional’ logistics thinking

within some companies.


3.3 Finite Capacity Scheduling (FCS)

Production planners invariably claim to have picked the optimum production plan

considering customer due date adherence, optimal throughput, mix and optimal cash

usage. In manual production planning environments which require anything more

than simplistic optimisation rules using ‘rules of thumb’ and experience, humans

cannot, or rarely, actually achieve optimisation.

A series of highly graphical software products have been developed to enable

complex optimisation to be achieved. These are called finite capacity scheduling

(FCS) products (or finite schedulers) with product names such as Preactor, CIM

Leitstand, FI-2, and ‘i2’-Rhythm, SAP-APO for the supply chain variants .

As of the middle of 1996 it was reported in an Aston Business School manufacturing

technology survey [18] that about 19% of respondents used FCS products.

One vendor of FCS products defines FCS as :

‘a process whereby a production plan consisting of a sequence of operations to fulfill

orders is generated based on the real capacity of resources. These can be

machines, operators, tooling or anything which is a constraint on the production

process.’

The reason FCS came into being was that most manufacturing planning systems

assume sufficient resources are available when required, i.e. resources have infinite

Don Carmichael Page 18 P5893614 capacity. An MRP system typically takes the orders for products, breaks them down

into component parts and calculates when to start making them based on the

individual lead times. No account is taken of the current available capacity of

resources.

At the same time that the production order start times are calculated, the materials

needed are ordered to arrive in time for the work to start. If there is a delay in

production upstream of a particular operation then the materials will be ordered too

early. With no concept of bottlenecks available to the planning system, resources

become overloaded, queues of work get longer and work in progress increases.

Because jobs must join the queues at each process step, orders take longer to make

progress, expected lead times are too optimistic and deliveries are late.

FCS software tools are commonly integrated or interfaced into the MRP II business

systems. An FCS tool requires information on resource and work centre capacity,

shift calendars, the current usage of that capacity and the Master Production

Schedule (MPS), or list of production orders. The FCS generally either

• returns an optimised version of the MPS back to the MRP II system for execution

or

• takes control of the MPS where the execution system is linked directly to the

FCS.

Don Carmichael Page 19 P5893614 Here, the execution system is the shopfloor control and feedback mechanism

initiating and recording production actuals.

Simpler FCS systems consider all constraints or bottlenecks in production as ‘hard’

constraints. This means that if the right machine, operator and tooling have to be

available at the same time to produce a particular production order then the FCS

system has to determine a time when all three resources are free. It is worth pointing

out that the more constraints defined for a FCS, the more complex the calculations

become. Each constraint can be thought of as a dimension of calculation.

More complex FCS systems and certainly those built into the Supply Chain Planning

systems considered in this project have the concept of ‘soft’ constraints built in.

In the author’s experience, if manufacturing planners are asked how they resolve a

scheduling conflict if a rush order arrives and tools, for example, are not available,

they tend to suggest buying in additional tooling. Thus tooling, in this case, can no

longer be described as a constraint, merely a cashflow ‘penalty’ for having to

purchase the tools.

The machine or plant required to run the rush order was a ‘hard’ constraint but the

tools were a ‘soft’ constraint. It can be seen then that the optimal plan across a

series of resources may be a compromise that produces the least penalty.

Don Carmichael Page 20 P5893614 The penalty may be simply in cash terms say or if we now consider the FCS

functionality (or ‘simultaneous constraint optimisation’ as the SCP vendor Red

Pepper calls it) in SCP systems, the constraints and thus penalties could include :

• Promise dates,

• Request dates,

• Inventory shortages,

• Aggregate capacity,

• Safety stocks,

• Excess stocks and

• Raw material shortages.

On top of these ‘hard’ and ‘soft’ constraints there are other scheduling complexities

that the better products have to consider such as sequencing environments, colour

sequencing for example.

This is where the optimal plan for producing a product made in different colours is

usually to produce the lighter coloured products first and then the progressively

darker colours thus minimising the cleaning time between colours.

Other constraints can include

• Shelf life,

• Ramp up curves and

• Scheduled maintenance.


Impact of objectives on …

Functional objectives

Inventory

Customer

service

Total costs

High customer service

Low transportation costs

Low warehousing costs

Reduce inventories

Fast deliveries

Reduce labour costs

Desired results

Table 3.3 Areas of conflict in the supply chain [3]

In the above table 3.3, the arrows point upwards for increases in inventory, customer

service and total costs and downwards for resulting decreases in the set objectives.

The darker arrow signifies the main desired impact of a functional objective, for

example, the desired impact of a functional objective to reduce labour costs will

reduce total costs but will also have the effect of increasing inventory and decreasing

customer service.

The table is trying to demonstrate the essential conflict of management objectives

and measures across organisational boundaries across the supply chain.


Some SCP packages attack some of these conflicting objectives by presenting users

with a mechanism to tell the SCP package the weighting the business places on

particular management objectives. Thus, if the business objectives of customer

service should be considered more important than excess stock then the SCP’s

optimisation engine will determine that there is a higher ‘soft’ penalty for customer

service and will therefore produce a stocking plan that may require more stock than

absolutely necessary because there is a lower ‘soft’ penalty for excess stocks.

Within the SCP product ‘Red Pepper’, there is a screen called the ‘ResponseAgent’

Control Panel where the user moves a pointer up and down a meter representing 0

to the left and 100 to the right to signify the weighting to be applied to :

1. Request Dates,

2. Promises Dates,

3. Inventory Shortages,

4. Aggregate Capacity,

5. Safety Stocks,

6. Excess Stocks and

7. Raw Material Shortages.

The ‘ResponseAgent’ tool uses all the meter readings to determine the relative

penalties to be applied to each objective (or constraint as ‘Red Pepper’ call it) and

then optimises all the constraints concurrently.

Don Carmichael Page 23 P5893614 Appendix C covers the detailed scheduling features of one SCP vendor’s package.

The reason only one package is covered at the detail given is that the vendor,

Numetrix, was the only company willing to detail the constraints covered.

As a comparison, another SCP vendor, Logility, limits it’s description of the

constraints covered to

‘equipment capabilities, intermediate storage limitations, shop calendars and

production constraints such as synchronisation of multi-step operations, product

sequencing, changeovers and inventory policies.’

This comes back to a reoccurring theme with all SCP vendors in that they all

complain that there is a broad lack of understanding of the SCP issues, benefits and

product capabilities and yet hardly any of them will release information at a detailed

enough level to examine the exact capabilities of each product.

In the SCP vendors defence, they are competing in a extremely fast-moving and

growing marketplace where functionality evolves almost weekly. Most SCP vendors

seem to sell by :

• fighting for the opportunity to develop a proof of concept pilot at the sales

prospect’s plant,

• using reference sites (current SCP customers) with proven demonstrable benefits

realised through the SCP products.

Don Carmichael Page 24 P5893614 It may be that giving away too much information at the start of the sales cycle allows

prospects the opportunity to perform direct functionality comparisons which the SCP

vendors are unwilling to take part in.


3.4 The ‘leaner’ issues

Through-put

Produc-tivity

Quality Morale

Inventory WIP Operating Costs

IMPR

OVE

RED

UC

E

Figure 3.4.1 The overall aim of manufacturing business improvement

The main objectives of a manufacturing business improvement exercise are shown

in Figure 3.4.1.

However, Figure 3.4.1 shows the utopian view of the business objectives. As we

have seen, there are internal and external conflicts which may mean that a reduction

in inventory, say, increases overall operating costs. One reason for this may be

because the resulting reduction in customer service levels mean that more cost is

required to replace the lost customers.

So far this project has dealt with the ‘hard’ or more technical issues surrounding

SCP. For supply chain planning to be effective, the ‘soft’ issues, i.e. relationships

Don Carmichael Page 26 P5893614 with the customer / consumer and the supplier, need to be developed. To achieve

the utopian view in Figure 3.4.1, business improvement needs to address both the

hard and soft issues simultaneously. This section deals with the ‘soft’ issues by

examining the lean production revolution and the focus on relationship and value.

In ‘The Machine That Changed The World’ [5], the lean production book, Womack et

al. stress how important organisation, communication and relationships throughout

the supply chain were to Eiji Toyoda and the production ‘genius’ Taiichi Ohno (the

originators of the Toyota Production System which ultimately developed into lean

production ideas).

In considering an alternative to the mass-production method of car manufacture,

Ohno and others at Toyota saw many problems with the traditional supply chain

relationships :

• component suppliers had little incentive to improve or optimise their parts as the

design information on the rest of the vehicle was seen as proprietary.

• ‘organising suppliers in vertical chains and then playing them against each other

in search of the lowest short-term cost blocked the flow of information between

suppliers.’ Suppliers were unable to share organisational and process /

technological improvements.


The car assembler ‘might ensure that suppliers had low profit margins, but not

that they steadily decreased the cost of production through improved organisation

and process improvement’.

• if the car assembler knew little of the component suppliers production techniques

then it would be difficult to improve quality beyond specifying maximum levels of

defects. It would be difficult to raise the quality level if most other suppliers

achieved similar levels. Of course, quality of the components impacted the quality

and perception of the finished good, in this case the car.

• the coordination of day-to-day supplies from the supplier proved to be very

difficult. Because of the inflexibility of suppliers’ tooling and the uneven demand

from the car assembler, the suppliers built up large stocks into warehouses

resulting in high inventory costs and the ‘routine production of thousands of parts

that were later found to be defective’ when assembled into the cars.

Toyota’s answer to the inflexibility of their own and their supplier’s tooling

changeovers developed ultimately into the SMED (Single Minute Exchange of Dies)

techniques which allowed rapid changeovers from production of one type of part on

a press, say, to another. This technique was certainly critical to the whole ‘Just-In-

Time’ or kanban system of which so much has been written.

The kanban technique is a ‘pull’ system whereby a customer buys a product and

only a minimum quantity of the product or components (the aim being a single

instance of a product) is made at each stage to replenish the product pulled from the

Don Carmichael Page 28 P5893614 stage in front. The mechanism to control this was the product container carrying the

parts to the next stage. As this technique was to be used across the whole supply

chain, almost all inventories were eliminated at Toyota’s and Toyota’s suppliers

plants and warehouses and the full fragility of the ‘JIT’ supply chain was exposed.

Because there was no or minimal buffer stock between each supplier and process,

as soon as a single process failed the whole system came to a stop. The idea was

that any quality or process failure should have been anticipated.

Certainly, Womack’s book [5] reports that lean manufacturers using these

techniques rapidly focus on process and component quality and generally achieve

quality figures 3 times better than traditional mass production plants.

Toyota’s answers to the ‘softer’ issues being supplier organisation, communication

and relationship problems, resulted in the development of a new lean-production

approach to component supply.

This new approach meant that suppliers would now be intimately involved in

Toyota’s product development, have interlocking equity with Toyota group members,

rely on Toyota for outside financing of capital investment projects and accept Toyota

people as their own personnel.

The suppliers were organised into functional tiers, whatever the legal or formal

relationship. First tier suppliers became an integral part of the product development

team and were given overall performance and cost specifications for major sub-

assemblies. The supplier was given free reign on the engineering decisions and was

Don Carmichael Page 29 P5893614 expected to interrelate with the other tier 1 suppliers. Tier 1 suppliers were expected

to form tier 2 supplier organisations or associations which would concentrate on the

fabrication of the individual components making up the major sub-assembly.

Automotive Supplier 1

Tier 1 Supplier

Tier 1 Supplier

Tier 2 Supplier

Tier 2 Supplier

Tier 2 Supplier

Automotive Supplier 2

Figure 3.4.2 Suppliers organised into functional tiers

In Figure 3.4.2 above the Automotive suppliers are seen at the top of the supply

chain and their suppliers organised into :

• Tier 1 suppliers who supply major sub-assemblies direct to the automotive

supplier;

• Tier 2 suppliers, usually specialist manufacturers, who supply the Tier 1

suppliers.

• Tier n suppliers exist beneath this structure (not featured in the Figure 3.4.2

above); ultimately, down to the raw material extractors, rubber plant for tyres, ore

for metals etc.

Don Carmichael Page 30 P5893614 A point to note about Figure 3.4.2 is that Tier 1 suppliers will often be supplying

multiple car assemblers. In Toyota’s case, Tier 1 suppliers, which may be part

owned by Toyota or have previously been Toyota in-house assembly operations, are

encouraged to perform work for other industries or assemblers. This would generally

be seen as producing higher profit margins.

Womack’s ‘lean manufacturing’ book [5] reports that Nippondenso, a $7 billion

company, is the largest manufacturer of electrical and electronic systems and engine

computers. Toyota holds 22 % of its equity and Nippondenso does 60% of its

business with Toyota. Another 30% of the equity is held by the Toyota supplier group

of companies, and 6% by Robert Bosch, the giant German components firm.

The cross ownership that proliferates within Toyota’s supply chain has some

parallels outside Toyota such as Ford’s purchase, or part ownership, of the Eastern

European Autopal headlamp manufacturing plants.

Toyota also shares personnel with it’s suppliers and helps out with workload surges.

In summary, it can be seen that Toyota, as the original lean manufacturing company,

has developed very high levels of communication, resource and fiscal interaction

with it’s suppliers. Toyota’s suppliers can be seen as sharing Toyota’s destiny.

Of course, it must be remembered that although automobile manufacturing is an

important business activity it cannot be seen as representative of all industries, types

of production or manufacturers place within the supply chain. Toyota, in common

Don Carmichael Page 31 P5893614 with other car manufacturers, lives at the top of the supply ‘food chain’ and therefore

has the opportunity and power to change their suppliers and supply chains. Without

the help of the ultimate car assembler, it can sometimes be difficult for Tier 2

suppliers to develop the levels of communication and relationships required to

achieve a lean supply chain with their own suppliers.

The Odette ‘Passenger Car Logistics Survey’ [4] showed that Tier 2 or 3 suppliers

can often be larger than the direct, Tier 1, suppliers. An example here could be a

dedicated dashboard assembly supplier to two or three automobile assemblers with

a company like Lucas, say, supplying the instrumentation to the dashboard

assembler.

It is interesting to note the similarities between Lean Manufacturing principles (as

derived from the Toyota Production System), Value Engineering and business

process re-engineering.

A definition of business process re-engineering (BPR) from Thomas Gunn’s real-time

enterprise book [8] is:

‘The improvement of business processes by a cross-functional team that first seeks

to understand and document the entire process, then simplifies and removes the

waste from it, then applies information systems to improve the speed and quality of

the process as well as improve it’s flexibility and the productivity of the people

associated with it.’

Don Carmichael Page 32 P5893614 It seems a core principle in Value Engineering, Lean Manufacturing and BPR is the

reduction of waste and the concentration on the value added functions.


CHAPTER 4 SCP packages

4.1 Introduction

Investigating the functionality of Supply Chain Planning (SCP) packages proved very

difficult. Most SCP suppliers are willing to provide high level glossy brochures and

impeccable references but have no detailed system or functionality descriptions. The

reasons for this appears to be that the SCP sales environment is highly competitive

and functionality is rapidly expanding, especially with the two market leaders

Manugistics and ‘i2’.

A SCP sales cycle involves the use of reference sites and paid proof of concept

projects. These projects are short-term, limited implementations of the product within

the customers own site. The SCP software package will be configured to represent a

limited version of the customer’s supply chain and manufacturing environment and

then loaded with a sub-set of the customer’s business data so that the concept,

feasibility, justification and potential cost savings can be demonstrated. The

customer can then decide whether to commit to the whole project.

As a result of the above, SCP vendors feel they do not have to provide highly

detailed system descriptions.

Don Carmichael Page 34 P5893614 4.2 Survey of SCP packages

As of late 1997 the main SCP suppliers competing in Europe were:

• ‘i2’ -Rhythm – primarily focused on the Electronics sector

• Manugistics – focused on the Consumer Packaged Goods (CPG) sector

• Numetrix – focused on the Process sector

• ‘Red Pepper’ / Peoplesoft

• SynQuest

• American Software

Materials gathered and analysed include the sales literature from Manugistics,

Numetrix with it’s ‘Supply Chain Visibility / Integrator’ and ‘i2’ with the ‘Rhythm’

product (the big three according to AMR [16]) with the addition of SynQuest

materials.

It was initially thought that there could have been difficulty in getting even access to

SCP system vendors high level glossy brochures. However, the author’s employer is

an MRP II systems house, and thus a potential partner for SCP vendors. The author

has been able to use this influence to source a set of product literature for each of

the major SCP packages.

Don Carmichael Page 35 P5893614 4.3 Commonalities

All SCP packages extend finite capacity scheduling (FCS) concepts into supply

chain and distribution concepts, for example by being able to consider a single

machine capacity bottleneck and it’s impact across a whole supply chain. All the

packages are capable of simultaneous optimisation against a range of factors

including set business goals; particular service level commitments, inventory value

limits, supply limitations and overtime constraints. Some packages talk about using

‘life’ type random algorithms to produce the best optimisation across all constraints.

The better packages have extended their functionality into Transportation

Management, Demand Management and specific ‘improvement’ algorithms for

particular industry sectors. This may mean specific sequence dependant

optimisation algorithms for paint mixing plants say, where if a darker colour follows a

lighter coloured paint less cleaning time is needed than when a lighter colour follows

a darker where a complete clean-down is required.

The more sophisticated packages cope with ‘soft’ penalty optimisation where the

‘best’ plan may be the one where the least amount of overtime payments are made.

Most packages appear to have sophisticated graphics that can visually show the

effect of different ‘what-if’ distribution plans and their effect on cash-flow and

machine capacity. Certainly, most packages allow users to graphically describe

machines, interdependencies and geographical locations of plants and warehouses.

This capability was ably demonstrated by SynQuest at the CIM 97 show at the

Birmingham NEC.

Don Carmichael Page 36 P5893614 Most SCP packages were originally built on UNIX computer operating system

platforms. The reason for this is that SCP packages achieve their characteristically

rapid and near ‘real-time’ scheduling responses by utilising fast stand-alone

computers with huge amounts of Random Access Memory (RAM) memory. In the

early days of SCP developments, UNIX was ideally suited for this. Additionally,

UNIX, in most of it’s versions and variants, had a graphical user interface that can be

used on UNIX workstations.

Most SCP products are ‘client server’ products. This means that there is a powerful

central ‘server’ computer (or computers) performing the intensive calculations and

data transactions for the multiple graphical ‘client’ workstations (or more usually

Personal Computers). This can be imagined as a star configuration with many

‘clients’ connected to the central ‘server’ computer. As the client computers are,

themselves, moderately powerful, some of the computing load is offloaded from the

server onto the client. This is especially the case for intensive graphical tasks.

The reason for the large computer memory requirement is that SCP products place

as much of the business data (sales orders, stock values and transportation

networks etc ) as possible into memory so that the disk drives (which are mechanical

and thus slower than electronic computer memory) are used as little as possible. The

idea is that all of the SCP calculations are performed in memory.

Nowadays, almost all SCP vendors have a Microsoft NT platform offering (although

vendors such as Numetrix have struggled to develop an NT offering). Because

Microsoft NT is usually supplied on high powered PC (personal computer) hardware,

Don Carmichael Page 37 P5893614 and is therefore a mass produced commodity item, there is a cost advantage in

buying ‘NT based software packages for potential SCP customers.

One SCP supplier, American Software (with their product Logility), did have an

AS/400 offering that only seemed to be available in the U.S. American Software also

have a Windows 95 version of their product but this can only be used in specific

scenarios where there are a limited number of transactions.

In SAP’s case, with it’s SCOPE (Supply Chain Optimisation, Planning And

Execution) initiative, the SCP product was designed and developed for NT and is

intended to run on it’s own networked server NT box. The actual SCP product within

the SCOPE initiative is called the APO (Advanced Planner and Optimiser) module.

SAP have developed a memory based environment for the APO module called

‘liveCache’ which manages the large amount of NT memory required.

None of the SCP vendors would quote typical prices for their solutions, reasoning

that the price depended on a series of factors including the number of users, the

scope, the level of integration with an ERP package and who was asking. However,

on further inquiry a common consensus was that SCP vendors generally target

companies with a turnover greater that £200 million. Their argument being that

companies with a turnover less than this figure would find the costs of buying,

implementing and integrating a SCP product excessive.

Don Carmichael Page 38 P5893614 Companies with a turnover higher than £200 million would possibly be outside the

definition of SMEs (Small to Medium size Enterprises) used by ERP vendors. It is

probably fair to say that, at the present, SCP vendors are only targeting large

companies.


4.4 Analysis

The claim for all the SCP packages is that they can and are reducing millions of

pounds from supply chain costs including warehousing, transportation and lost

business. This is achieved by optimising the supply chain in almost real-time by

reacting to major events as they occur, e.g. by re-routing stock or re-planning

transportation routes to meet the company’s defined service levels.

A key issue is the comparison of supply chain optimisation with improvement

methodologies such as those based on ‘lean’ principles. SCP products cannot

reorganise the factory layout, investigate set-up reduction techniques or improve

supplier relationships. SCP products are as helpless as MRP products in that they

are software based and therefore can only work with the information they are given.

SCP systems cannot compete with ‘lean’ solutions and, on occasions, can actually

stop companies from taking the steps towards a ‘lean’ enterprise in instances when

they are seen as a ‘panacea’. An ideal solution would be one where SCP systems

could co-exist with ‘lean’ solutions.

4.5 Future directions

Already, leaders in the ERP / MRP II marketplace have seen the potential of SCP

and are at least partnering with the SCP vendors and, in the case of SAP, writing

their own SCP product to sit on top of their ERP business systems.


PeopleSoft, who didn’t have an ERP product based on MRP principles previously, is

now trying to change the paradigm by publicising their belief that Enterprise

Resource Planning (ERP) systems are dead, to be replaced by Enterprise Resource

Optimisation (ERO) systems based on SCP technology (in PeopleSoft’s case Red

Pepper).

In the short term, SCP systems will really only appeal to larger companies with big

budgets and lots of resources. In the longer term though, medium sized companies

may feel the pressure to purchase SCP systems in order that their customers, the

larger companies, can include them in their supply chain optimisation calculations.

4.7 Conclusions

SCP systems are expanding everyone’s view as to the potential for cost savings and

control over the speed and uncertainty of modern business.

One conclusion from the analysis could be that supply chain planning systems are

providing a ‘crutch’ for companies who cannot face or do not believe in going down

the ‘lean enterprise’ route.


CHAPTER 5 Survey

5.1 Introduction to the survey

Originally, the research part of the dissertation was to have been a series of

interviews with logistics and manufacturing professionals currently dealing with

supply chain issues. Thus the research would have been qualitative rather than

quantitative. However, the literature review turned up a number of surveys examining

supply chain issues in the manufacturing context and the focus of the research part

of the project changed to a questionnaire based approach.

The first of these was a survey by Benchmark Research for Computer Associates

[19], the second a survey by Warwick Business School [20] and the third a 1995

survey by AT Kearney, UMIST and the Institute of Logistics [21]. As these surveys

had already explored similar areas, it was felt that constructing the author’s own

questionnaire would allow the author the opportunity to both compare and contrast

the results obtained in the other surveys and build upon and focus upon the

manufacturing related supply chain issues.

5.2 The survey and the methodology

Before building the survey questionnaire, the author investigated the possibility of

using his (then) employer, Largotim’s resources to provide the logistics and funding

for the 1000 questionnaires that were felt to be required to gain an adequate

response level to the survey. The Sales Director at Largotim agreed but decided that

Don Carmichael Page 42 P5893614 it should be a joint questionnaire; the employer would add certain questions of

interest to the MRP II business onto the supply chain questionnaire. Some of these

questions were to investigate the requirement for third party software additions to the

MFG/PRO business system package. MFG/PRO, from the U.S company QAD, was

Largotim’s MRP II offering.

These questions can be clearly seen in the second part of ‘Appendix 2 - The Supply

Chain Questionnaire’. Questions about desktop integration have only an indirect

relationship with the supply chain systems issues. The questions relating to project

timescales (‘How soon will this be addressed’, 1-5) were related to the employer’s

wish to see if any new business could be developed with the questionnaire

respondent.

This issue of the dual purpose of the questionnaire should be emphasised as it may

have made the questionnaire too complex and unfocused and thus resulted in a

lower quality and quantity of response.

As the author was trying to compare and contrast some previous research by

Robertson, Swan and Newell from the University of Warwick [20], some of the style

of questions were based on the same problem scale as that research, from 1, not a

problem, to 5, a very serious business problem. These can be seen in the second

part of the questionnaire in ‘Appendix 2 - The Supply Chain Questionnaire’.

In building the questionnaire, the author received help from one of the Largotim

marketing team to ensure the questions were unambiguous and without the author’s

Don Carmichael Page 43 P5893614 bias as to the desired answers. The format of the questionnaire was based on an

insurance questionnaire from Barclays Bank which had been extensively market

researched while being developed.

Since the Initial Report the main complication affecting the project plan had been the

extended negotiations and efforts required to get the questionnaire through the

employer’s marketing department. One of the reasons why it seemed difficult to gain

agreement on the format and logistics of the survey became evident only at the

beginning of May, when it was announced that the author’s employer had been

bought out by a large American corporation. This had been distracting the attentions

of the senior management at Largotim.

Other reasons for the delay centered around the legalities of running the prize

competition being used to leverage a higher rate of returns. Largotim’s marketing

department believed that 4% was a good response rate to this type of questionnaire

and that the addition of the prize could boost the response up to 10% giving about

100 responses from a mailshot of 1000. As Largotim provided manufacturing and

business systems to one of the bigger Formula 1 racing teams, Williams Grand Prix

Racing, the prize offered was two tickets to a test session at Silverstone as a guest

of Williams and Largotim.

This was the first time the employer had actually run a competition open to external

scrutiny and there was some hesitancy as to how prize competitions should be run.

Don Carmichael Page 44 P5893614 The database used by the author’s employer was a ‘random’ one bought from Dun &

Bradstreet two years ago. The age of the database was a concern as names,

addresses and job titles of the questionnaire’s target audience would not be

particularly accurate. The targeted audience was Managing Directors, Operations

Directors and Senior Production Managers. The ‘randomness’ of the database

contacts could not be validated as the marketing department could only be certain

that the database held at least five thousand manufacturing companies which they

believed were represented across all business sectors and across all regions of the

UK in equal proportions. This could not be tested and so should be taken into

account in the analysis of the results.

The questionnaire was tested by two of the author’s best customer contacts. The

contacts, one being an IT Manager in a Tier 1 automotive supplier and the other a

Business Analyst in a large communications company, were initially informed of the

intended purpose of the questionnaire analysis and were then given the chance to

comment on the both the format and the questions within the questionnaire.

Initial responses from the two ‘testers’ revolved around issues on the complexity of

the questionnaire and specific questions which were felt to be missing. One of the

‘testers’ felt that question 2 on the questionnaire, regarding the use of third party

warehousing, needed to split into three questions looking at the proportion of third

party warehousing being used. In retrospect, of course, this type of feedback only

added to the complexity of the questionnaire.

Don Carmichael Page 45 P5893614 The complexity issue was again raised with the Largotim Sales Management but

there was a lack of interest. The Marketing Manager was keen to progress with the

mailing of the existing questionnaire, more as a method of completing the task which

she was beginning to regret she had agreed to.

Following an update to the questionnaire based on the two customer responses, the

contacts were then asked to fill in the questionnaire. The results were then analysed

to see if any further improvements could be made to the questionnaire. Their

responses were mapped onto a single spreadsheet designed by the author to allow

ease and accuracy of results recording and then later ease of analysis.

After some experimentation a template version of the questionnaire was built. The

template version included more and clearer numbering to improve the accuracy of

the recording of the returned questionnaires onto the spreadsheet.

Finally, once a covering letter had been designed, a Freepost address set-up and

the mail merge addresses loaded out of the marketing database, the mail shot

began. This happened on Wednesday 14th May.

Because of the prolonged design and planning period for the questionnaire, it was

decided that a window of only one and a half weeks should be allowed for

responses. This was managed by emphasizing a closing date for the prize

competition as the 23rd May. It was felt by members of the marketing department that

if the respondent did not fill in the questionnaire either the day of receipt or the day

after the likelihood was that the questionnaire would probably be binned or put to the

Don Carmichael Page 46 P5893614 bottom of an in-tray. As a reply paid (Freepost) envelope was included with the

questionnaire there was minimal effort required from the respondent after the

questionnaire was filled in, i.e. folding into the envelope and posting into a mail tray.


5.3 Results of the survey

Unfortunately, there was a very low response rate to the survey. There were 21

responses from the 1000 questionnaires posted. There were various reasons

hypothesized as to the reasons for this but they could be summarised as the :

• complexity of the survey

• length of the survey

• negativity of the questions

• short response time

• lack of profile of the company sending the questionnaire

• age and inaccuracy of the mailing list

• requirement for the respondent to give their name and address

• lack of telephone follow-up

A major psychological factor was the questionnaire’s requirement for respondents to

rate the severity of particular business problems. From the respondent’s viewpoint

this could have been seen as a reflection on the individual or possibly a criticism of

the respondents company. This would give weight to the argument that the questions

should have been phrased in a more positive manner.

In addition to the above, some companies have a policy of not filling in

questionnaires. On investigation, most of these companies believe that time

consumed by individuals interpreting then researching, investigating and finally filling

Don Carmichael Page 48 P5893614 in the questionnaire does not warrant the effort or any expected research gains.

There was also the suspicion that these particular companies trusted neither the

promises of anonymity given in the questionnaire nor the authority or standing of the

company requesting the information.

This may have been different if the questionnaire had been compiled by say one of

the ‘Big 5’ consultancies and the research perhaps destined for a focused

benchmarking tome.

The randomness and suitability of the mailing list has been questioned elsewhere in

this project but it is worth noting here that the best surveys, analysed by the author,

used mailing lists from two sources:

• either the Institute of Operations Management’s membership list;

• or a Management Consultancies client list.

The competition part of the survey produced a number of negative affects being that

some of the potential respondents were sceptical about a questionnaire purporting to

be anonymous and yet seeming to trick the respondent into giving their name,

address, title, company and telephone number.

Also, some respondents did not believe the legitimacy of the Williams Grand Prix /

Silverstone prize draw. Largotim, being a mid-range MRP II vendor and thus not

Don Carmichael Page 49 P5893614 having a vast marketing budget or market presence, was probably not associated

with Williams Grand Prix.

On reflection, the author’s experience is that many sales ‘pitches’ start with a

telephone caller asking if the respondent would mind taking part in some

independent research questionnaire. These generally turn into sales ‘pitches’ once a

few qualifying questions have been answered and the respondent either realises

they are speaking to, or the telephone caller reveals themselves as, a telesales

person

The likely motive of the Sales Management who influenced the format and agreed

the logistics of the questionnaire was to use the contact list generated and a brief

analysis of a few qualifying questionnaire responses to drive a telesales campaign.

The reader can rightly assume from this that the Marketing department reported

directly into the Sales Management and thus there was never any intention of

guiding the questionnaire to simply produce some focused yet anonymous research

that might be fed into the MRP II research and development program.


Question Nmbr I II III IV V VI VII VIII

Response Format Nmbr Nmbr Nmbr Nmbr Nmbr Option £ Option

Respondents

1 2400 700 10 15 30 Globally 220M Industrial/Electronics

2 1400 700 8 8 8 Globally 80M Automotive

3 550 3 9 0 0 Internat. 72M Process


5 400 150 2 2 2 Globally 50M Medical

6 135 135 10 17 17 Inernat. 150M Industrial/Electronics


8 2250 1400 9 3 4 Internat. Food & Beverage

9 1814 290 17 17 Globally 291M Industrial/Electronics

10 180 180 1 1 Internat. 7.5M Automotive

11 800 200 4 Internat. 100M Consumer Packaged Goods

12 1100 125 1 1 47 Nationally 39M Food & Beverage

13 1000 650 4 2 3 Nationally 120M Consumer Packaged Goods

14 312 304 3 3 3 Internat. 57M Industrial/Electronics

15 430 400 1 3 2 Internat 230M Food & Beverage


17 750 420 4 4 4 Nationally 280M Food & Beverage

18 2500 200 16 16 Nationally 1500M Medical

19 500 220 1 2 Globally 200M Medical


21 410 390 3 0 1 Nationally 40M Automotive

Table 5.3.0.1 Tabular summary of questionnaire results with respondent number versus question number with answers. (1 of 5)


Question Nmbr 1a b 2a B c 3 4 5 6 7 8 9a 9b 10 11 12a 12b 13

Response Format Mfg % Dist % Y/N Nmbr % Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Option

Respondents

1 90 10 Y 5 20 N N Y Y Y Y N Y AS400

2 95 5 N N Y Y Y Y Y Y AS400

3 100 0 N Y N Y N Y N Y N N N N N Mainframe

4 70 30 N N Y Y Y N Y N Y UNIX

5 75 25 N N N Y Y N N N UNIX

6 85 15 N N N Y N N N N UNIX

7 100 0 N N N Y Y Y Y Y UNIX/NOVELL

8 95 5 Y 4 25 Y Y Y N Y Y Y N N N N N Windows NT

9 100 0 N N Y Y N N N N N Mainframe

10 100 0 N N N Y Y N N N Windows NT

11 100 0 Y 2 10 N Y Y Y Y Y Y AS/400

12 50 50 N Y Y Y N Y N Y Y N Y Y Windows NT

13 8 20 N N N Y N N Y N N AS/400

14 100 0 N N Y Y Y N N N Y AS/400

15 84 16 Y 4 5 N Y Y N Y Y N Y UNIX

16 40 5 N N Y Y Y N Y N N AS400

17 80 20 N Y - - - - N Y N N N Y N UNIX

18 0 100 N N Y Y N N N N N UNIX/Windows NT

19 0 20 Y 1 100 Y N Y N Y Y Y Y N N N Y Windows NT

20 10 90 N N N Y Y Y N Y Windows NT

21 95 5 Y 1 5 N Y Y N N Y UNIX



Question Nmbr 14a b 15a b 16a b 17a b 18a b 19a b 20a b 21a b 22a b 23a b

Response Format 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5

Respondents

1 3 2 2 5 3 2 4 4 4 3 2 4 2 4 4 4 2 4 2 5

2 5 1 5 1 2 2 2 1 4 1 4 1 5 1 4 1 4 1 4 1

3 1 1 1 1 1 1 6 1 6 1 1 1 1 1 1 1 6 1 1 1

4 1 1 1 1 2 2 1 1 1 1 3 3 2 2 3 4 1 2 1 1

5 3 4 1 1 1 1 2 1 2 5 1 5 2 5 6 5 1 1 2 1

6 2 5 2 2 1 2 2 2 2 5 2 5 2 5 1 5 1 1 2 5

7 3 2 1 6 1 6 3 2 1 3 2 3 2 3 3

8 3 3 3 4 1 1 2 2 1 1 1 1 2 2 6 5 1 1 2 5

9 3 4 3 4 2 5 1 5 1 5 1 5 1 5 1 5 2 5 1 5

10 3 4 4 4 3 4 3 4 4 4 3 4 3 4 3 4 3 4 4 4

11 1 1 4 2 1 1 1 1 1 1 6 1 3 3 1 1 2 2 1 1

12 1 1 1 1 1 2 1 1 2 3 2 1 3 3 2 2 1 1 1 2

13 2 3 1 1 1 1 3 4 1 1 1 1 1 1 1 1 2 3 3 4

14 3 4 2 2 3 1 2 4 1 1 3 4 1 1 3 4 3 2 1 1

15 4 2 3 2 1 1 3 4 3 2 4 2 2 4 4 2 2 2 4 2

16 4 2 3 2 1 1 1 1 2 2 1 0 1 0 6 0 3 4 3 3

17 4 4 4 4 2 5 4 5 4 3 3 5 2 5 3 5 3 3 3 5

18 6 5 3 4 2 2 3 2 3 2 3 2 6 5 6 5 3 2 3 4

19 3 4 2 3 1 5 2 2 2 1 6 6 6 2 2 2 3

20 2 2 1 1 1 2 1 1 2 2 1 1 1 1 1 1 6 6 3 2

21 1 1 2 4 2 4 1 1 1 1 1 5 6 5 6 5 3 2 2 5



Question Nmbr 24a b 25a b 26a b 27a b 28a b 29a b 30a b 31a b 32a b 33a b

Response Format 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5

Respondents

1 3 3 1 5 1 5 3 4 3 4 1 5 1 5 1 5 4 2 3 3

2 1 1 2 2 6 5 4 1 4 1 4 1 4 1 4 2 4 2 4 1

3 1 1 6 1 6 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

4 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1

5 1 1 2 1 6 5 1 1 2 2 3 1 1 5 2 5 2 5 6 5

6 1 1 2 2 1 5 2 5 2 2 2 5 1 5 1 5 2 5 2 5

7 6 2 2 1 2 2 3 2 2 2 6 1 3 2 6

8 1 1 1 1 6 5 1 5 1 1 1 1 6 5 6 5 6 5 6 5

9 6 5 2 4 6 5 1 5 1 5 2 2 1 1 1 1 1 5 1 5

10 3 4 3 4 6 5 2 2 3 2 3 2 1 5 3 2 3 2 4 2

11 1 1 6 6 6 1 1 1 1 1 1 1 1 1 1 6

12 1 2 2 2 1 1 1 1 2 3 1 2 2 2 1 1 1 1 1 2

13 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 4 1 1 1 1

14 3 4 2 2 1 1 1 1 2 2 2 2 3 4 1 1 3 4 1 1

15 5 2 1 1 3 2 3 2 3 1 3 1 1 5 1 2 1 2 1 2

16 2 2 1 0 1 0 3 2 3 2 4 2 1 0 3 3 3 3 3 3

17 3 2 2 2 1 1 1 1 3 2 3 2 1 1 3 4 4 2 2 5

18 4 2 3 2 2 5 3 2 3 2 3 4 6 5 2 2 1 1 2 5

19 2 2 6 2 2 6 3 4 6 6 6 6 6

20 1 1 1 1 2 3 3 2 3 2 1 1 2 1 2 2 3 2 2 2

21 2 5 1 1 6 5 6 5 2 2 2 2 2 2 2 1 2 2 22



Question Nmbr 34a b 35a b 36a b 37a b 38a b 39a b 40a b

Response Format 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5 1-6 1-5

Respondents

1 4 4 4 4 4 4 3 3 3 4 4 3 4 2

2 4 1 4 2 4 1 4 2 5 1 4 1 5 1

3 1 1 1 1 1 1 1 1 1 1 1 1 1 1

4 2 5 2 2 1 1 1 1 1 2 2 2 1 1

5 6 5 2 5 4 2 1 5 2 5 6 5 2 5

6 1 5 2 2 2 2 3 3 2 5 2 5 2 5

7 6 3 2 4 2 6 2 3 6 2 3

8 1 1 1 1 3 2 3 2 1 1 1 1 6 5

9 1 1 1 1 1 2 6 5 1 2 1 1 1 1

10 2 1 3 4 4 2 3 4 3 4 6 5 3 2

11 6 6 3 4 1 1 4 4 1 1 2 5

12 1 1 1 1 1 1 1 1 2 2 2 2 1 1

13 1 1 1 1 3 4 1 1 1 1 1 1 1 1

14 1 1 3 4 3 2 3 2 3 2 2 2 3 3

15 5 3 3 2 3 2 3 2 4 2 3 2 4 2

16 1 0 2 4 3 2 4 2 4 3 2 2 3 2

17 1 1 1 1 4 4 2 5 3 2 3 5 4 2

18 6 5 2 2 6 5 6 5 3 2 6 5 6 5

19 2 1 3 3 3 5 1 5 3 4 2 3 1 5

20 6 6 3 2 2 2 2 2 3 2 2 2 3 2

21 6 5 2 2 2 2 1 1 1 1 6 5 2 2



5.3.1 Analysis of the results

Tables 5.3.0.1, 5.3.0.2, 5.3.0.3, 5.3.0.4 and 5.3.0.5 above show the results of the

survey in tabular form.

Although the survey conducted as part of this project was not directed to find the

same data as the European Logistics Comparative Survey [22] (see below), some

questions mimicked ‘The Manufacturing Computer Solutions (MCS) / Computer

Associates (CA)’ survey [19].

The MCS/CA survey asked companies what the priorities were for future supply

chain strategies under the following headings with the following results.

Issue % of companies as a priority Closer partnerships with customers 82 Closer partnerships with suppliers 83 Reduce number of suppliers 69 EDI links 65 IT based logistics systems 47 Table 5.3.1.1 Results of MCS/CA survey as reported in Manufacturing Computer

Solutions January 1997 showing selected issues and the number of companies

seeing this as a priority as a percentage.

The MCS/CA research was undertaken by Benchmark Research on behalf of

Computer Associates.


The survey conducted as part of this project asked the same questions as Table 6.2

but asked for a problem rating from ‘No problem’ to ‘A very serious business

problem’ instead of a priority rating for future supply chain strategies as in the

MCS/CA survey. Unfortunately, it is difficult to make a direct comparison between

the two approaches with the MCS/CA survey asking a series of fairly neutral

questions as opposed to the survey in this document asking for potentially emotive

answers.

Issue % Survey Question No. % Closer partnerships with customers 82 32 38 Closer partnerships with suppliers 83 31 24 Reduce number of suppliers 69 33 14 EDI links 65 22 38 IT based logistics systems 47 37 38

Table 5.3.1.2 The results of table 5.3.1.1 with the corresponding project survey

question number and percentage of respondents claiming each issue as a problem

or serious business problem.

When the MCS/CA results are plotted together with the results from this project’s

survey there is very little comparison. Although 82% of the MCS/CA respondents

said that closer partnerships with customers was a priority for the future, only 38% of

this project’s survey thought that it was a current problem or serious business

problem.

Don Carmichael Page 58 P5893614 From the discussions on lean manufacturing above and in the standard lean thinking

works [5] and [23], it would have been expected that more companies would believe

issues such as supplier rationalisation to be a bigger current business problem. This

again draws back to the wording of the project survey and it’s interpretation. A

respondent could have viewed an on-going supplier rationalisation program as

neither a problem nor a serious business problem because the program was not

taking up significant management time.

Some responses to the project survey did agree with the academic and comparable

surveys.

38% of respondents thought that transportation management (Question 19) and an

equal percentage thought that transport cost reduction (Question 35) were problems

or serious problems for their business.

52% of respondents felt that maintaining a Just-In-Time / Manufacturing / Supply

environment (Question 38) was a problem or a serious problem.

We are still left with survey results that suggest we are more interested in internal

optimisation in the U.K; 62% of respondents said that manufacturing cost reduction

was a problem or serious problem. Apart from the problems with MRP II / ERP, this

was by far the strongest response in the whole survey. This could lead anyone

analysing these figures to believe that UK companies are inward looking and

disinterested in the wider supply chain issues.

Don Carmichael Page 59 P5893614 5.4 Conclusions

It was difficult to reach too many solid conclusions due to the low number of

responses to the questionnaire. Many inferences and comparisons made in the

analysis section above, could be construed as statistically invalid because of the low

numbers. Having said that, some responses did point in the right direction in

comparison with similar surveys encountered as part of the project book review.

There is evidently a greater awareness of supply chain issues and the prospects for

optimisation and cost reduction.


CHAPTER 6 Discussion and conclusions

6.1 Discussion

In section 3.4 above, ‘soft’ issues, the advantages of lean production, lean supply

chains and the virtues of JIT replenishment were discussed.

One major goal of a lean environment is to reduce the lead time for replenishment. If

one thinks of a supply chain with a manufacturing/processing facility, multiple

distribution centres, warehouses and eventually retail outlets and then imagines the

storage potential of not only these locations but the transportation media between

them, one can see the opportunity for a vast amount of stock to be either sitting on a

shelf or being transported between each location.

We have seen in the discussions above that a lean business goal is to replenish

Just-In-Time (JIT).Therefore the aim is to keep the amount of stock sitting on shelves

and being transported to a minimum.

A common measure of this is the ‘number of days to replenish’. The logic here, is

that if it takes 30 days from manufacturing/processing a product to it being sold or

consumed at the point of retail then there must 30 days worth of idle inventory sitting

in warehouses or being transported that could be sold and converted into cash. If 1

day’s sales are equal to £1 million then 30 days of stock is equivalent to a sales

potential of £30 million.

Don Carmichael Page 61 P5893614 It is important to note that for 30 days no value is added to the stock. (There is

common consensus that transporting goods does not actually add any value to

them.)

One of the aims and therefore one of the reasons for the spectacular success of

SCP packages in the U.S, is their ability to optimise supply chain routes, stocking

levels and timing to reduce the stock held or transported at each point in the supply

chain.

However, to believe that gross cost savings based on days replenishment lead time

reductions are the only aim of reducing supply lines would be an over simplification.

Shorter supply lines are capable of reacting faster to customer demand fluctuations

and reduce the effects of the rapid product obsolescence found in high technology

industries.

As Martin Christopher says in his ‘Logistics and Supply Chain Management’ book

[32]

‘The longer the pipeline from source of materials to the final user, the less

responsive to changes in demand the system will be’.

The ultimate aim of any supply chain is to retain and ‘delight’ it’s customers. Cost

reduction, as based on days replenishment lead time, is an important aim in

optimising a supply chain but it is ten times more expensive to find a new customer

than it is to service an existing one and so a whole raft of other measures and goals

need to be taken into account. Many of these other measures can be defined as

customer service objectives.


A frequently encountered measure of the perfect order is ‘on-time, in-full’ (OTIF) [32].

With it’s logical extension, the phrase ‘and error free’, these three service level

measures have to be taken into account when optimising a supply chain. It is no

good leveraging significant cost savings from a supply chain only to find that the

number of partial order shipments is increasing. The resulting reduction in service

level can easily result in a lost customer; especially in the automotive industry, for

example.

SCP packages do take these other factors into account by allowing multiple

optimisation goals. In the case of the ‘Red Pepper’ product, the user is presented

with a control panel, on screen, with a series of ‘antagonistic’ constraints and a

‘volume type’ level meter against each constraint.

These constraints are:

• Request Dates

• Promise Dates

• Inventory Shortages

• Detailed Capacity

• Aggregate Capacity

• Changeovers

• Safety Stocks

• Excess Stocks

• Raw Material Shortages

Don Carmichael Page 63 P5893614 The ‘Red Pepper’ user sets levels of priority to each scheduling objective and then

the optimiser tries to simultaneously optimise all constraints. If all the constraints

cannot be simultaneously solved the ‘Red Pepper’ optimiser will violate the lower

priority constraints first.

The SCP vendor ‘i2’ claims that over $100 million has been removed from their US

client’s supply chains by, among other techniques, reducing the number of days to

replenish (i.e. the number of supply days).

Michael Blackledge [24], a member of the ‘Institute of Logistics: Supply Chain Focus

Group’ believed that some of the results of the survey undertaken as part of this

project would point to a major difference between UK and US supply chains.

The analysis of the survey results (as unreliable as they are because of the very low

response rate) certainly points to Michael’s beliefs that supply chain issues in the UK

are not as important, as recognised or as developed as in the US.

62% of respondents, all in the UK of course, said that manufacturing cost reduction

was a problem or serious business problem (question 36) as opposed to figures of

29% each for logistics management and supply chain management. The last two

figures were from two catch-all questions in the survey (question 17 and 18).

It seemed, early in the project, that there were differences of opinion within industry

as to the commonality of logistics management and supply chain management; and

whether, in fact, they were the same, so both questions were asked.

Don Carmichael Page 64 P5893614 There is another problem here, of course, in that the questionnaire did not

specifically ask the respondents about their understanding or belief in the benefits of

optimising their supply chains. Perhaps, therefore, the supply chain management

and logistics questions were too broad. A further question on IT based logistics

(question 37) found that 38% of respondents believed this to be a problem or serious

problem for their business. Again, this question was probably too broad to focus in

on a IT based approach to optimising supply chains.

It may be that the higher figure of 52% for those believing maintaining a Just-In-Time

/ Manufacturing / Supply environment to be a problem or a serious problem (question

38) points to companies looking at supply chain issues but without seeing a

requirement for an IT led solution to the optimisation of the supply chain.

The figures above, giving 62% of respondents believing manufacturing cost

reduction to be a problem or serious problem, still show that internal and inward

looking cost reduction programs are still more of a worry to UK businesses than cost

reductions across the whole supply chain where bigger cost savings are usually

available. In the above example of the manufacturing company with a 30 day

replenishment lead time to their retailer, the potential savings on the £30 million of

idle stock in the down stream supply chain to the retailer would probably out-weigh

any potential internal manufacturing efficiency savings.

On the up-stream supply chain to the manufacturers suppliers, the cost reduction

potential is also huge. For a manufacturer, an average figure of 53% is often quoted

for the amount of final goods cost resulting from bought in raw materials or sub-

assemblies. Obviously this figure varies enormously across industry sectors, from

Don Carmichael Page 65 P5893614 those where there is a low value added factor, such as a retailer where bought-in

costs can be > 80% of the cost of sales for an item, to those which add a high level

of value to an item (craft based industries, perhaps).

Rather than a disinterest in SCP, the analysis from the questionnaire may simply

show that UK industry has still to recognise the impact or be convinced of supply

chain optimisation.

This feeds back to the statements being made by supply chain planning system

vendors, such as Manugistics, who state that they believe there is a major

educational requirement in the UK; the supply chain good news message has still to

get across.

Interestingly just as the research for this project was being completed an article

reporting the ‘European Logistics Comparative Survey 1998’ [30] appeared in the

Institute of Logistics’ journal ‘Logistics Focus’ based on joint research with Deloitte &

Touche Consulting. The research was based on a pan-European sample of over 600

logistics users and operators in nine countries.


02468

1012

Weeks Stockholding

Bel

gium

Den

mar

k

Ger

man

y

Spai

n

Fran

ce

Italy

Net

herla

nds

Swed

en

UK

Number of Weeks Stock by Country

19951997

Figure 6.1 Number of weeks stock by country from the European Logistics

Comparative Survey 1998. [22]

Figure 6.1 shows the average number of weeks stockholding within a supply chain

per country in 1997 against the same survey’s results in 1995. Note that no survey

figures were collected for Denmark and Sweden in 1995. It is worth noting that

whereas the UK managed to dramatically reduce the number of weeks stockholding

in the intervening period, other countries, such as Belgium, Germany and Italy

actually experienced the reverse effect, with weeks stockholding actually increasing.

Studying Figure 6.1 reveals that rather than languishing behind the rest of Europe,

the UK has shown the greatest improvement since the 1995 survey.

The results of the European Logistics Comparative Survey 1998, summarised as

Figure 6.1 above and in the following quotes, rather pointed to the fact that there is

Don Carmichael Page 67 P5893614 actually a much higher level of interest in supply chains and optimisation than the

survey conducted as part of this project showed. Again, this could be down to the

low response, negativity of the questions, complexity and length of the questionnaire.

The report’s findings included the following statements:

‘Reduced lead-time is viewed as the most important service level target by

respondents to the survey and is also the most frequently applied measure. This

supports the view that customers are demanding quicker response times and

increasing customisation of products at ever later stages in the supply-chain, thus

putting pressure on service providers to harness information technology and refine

processes in order to meet these requirements and maintain competitive advantage.’

According to the report over 80% of those companies who had implemented

integrated software systems stated that logistics performance had improved as a

result.

In the US, supply chain management, planning and optimisation systems are

producing spectacular results. All of the top supply chain planning packages, ‘i2’,

Manugistics and Red Pepper (Numetrix is a Canadian product) are designed,

developed and owned by US companies. Blackledge, who finished his MBA project

in Vancouver, believes the reason for this US focus is that in general US

manufacturers control the supply chain whereas in the UK it is the customers and

specifically retailers who control the supply chain.

Don Carmichael Page 68 P5893614 There are well documented exceptions, of course, to this US manufacturing supply

chain control. Gunn’s book ‘In the Age of the Real-Time Enterprise’ [8] cites how US

retail companies Kmart and 7-Eleven have produced excellent results by taking

control of their supply chain.

There are geographical and political factors to be taken into account in comparing

the UK with the US. North America is a vast continent with significant transportation,

distribution and warehousing factors to take into consideration across potentially vast

supply chains. In a recent logistics article [16] it was stated that the

‘European average for replenishment of inventory levels is still only 28 days, well

below the US average of 105 days’ .

In Field’s ‘Distribution Focus : Efficient Consumer Response (ECR)’ article [10],

which concentrates on supply chains from the retailers backwards to distribution

centres and manufacturers, the ‘multiple’ grocer Somerfield stated that spectacular

gains in stock reduction and service are unlikely

‘because supply chain inefficiencies are not present in the UK’.

This statement hides the fact that ECR techniques were used to reduce stock at the

Somerfield distribution centres by 11% - 25% by half of the suppliers/manufacturers

using the technique.

Don Carmichael Page 69 P5893614 6.2 What does industry want ?

The European Logistics Comparative Survey [22] results point to the fact that

reduced lead time is viewed as the most important service level target. European

companies and perhaps US companies, because of the greater transportation

demands, are concerned with traffic congestion, the use of integrated transport

solutions and the impact of road pricing.

Customers are demanding :

• quicker response times

• increasing customisation of products at ever later stages in the supply-chain

It is accepted that to maintain competitive advantage and answer the customer’s

demands, information technology solutions together with process re-engineering /

refinement projects are required.

As mentioned above, although the survey conducted as part of this project was not

directed to find the same data as the European Logistics Comparative Survey (see

above), some questions mimicked ‘The Manufacturing Computer Solutions (MCS) /

Computer Associates (CA)’ survey [19].

Drawing on the data represented above in Table 5.3.1.1, it clear from the MCS/CA

survey that the following issues were significant priorities for future supply chain

strategy.

Don Carmichael Page 70 P5893614 • Closer partnerships with customers

• Closer partnerships with suppliers

Although not polling as high as the above, the following issues still polled two thirds

of all respondents.

• Reduce number of suppliers

• EDI links

Lastly, polling about half of all respondents, IT based logistics systems is still a high

priority.

It can be seen from the above, that relationship and lean enterprise issues figure

higher than the IT support required for those issues. The IT support for relationship

and lean enterprise issues being EDI and IT based logistics.

6.3 How are SCP packages helping ?

In the last section we have seen how competitive pressures are forcing

manufacturers (and retailers) to examine the lean issues first. Only after this are the

IT mechanisms to achieve this investigated. This is to be expected. Respected

figures such as Brian Small of Ingersoll Engineers have always said ‘simplify,

integrate, computer integrate’.

Don Carmichael Page 71 P5893614 It is interesting that just the knowledge of the existence of SCP packages can be the

catalyst for some companies to investigate the effectiveness of their supply chain

relationships and planning and optimisation techniques. In one sense, this is the way

it has always been for Western companies where computerisation has lead business

improvement programs (such as the implementation of a MRP system). Traditionally,

the East (especially the Japanese, the source of lean principles) developed

essentially manual improvement methodologies that did not rely on IT as the

catalyst.

SCP packages can be seen as the answer to unstable business environments with

their real-time visibility and optimisation of current inventory positions at factories,

distribution facilities and retail warehouses. Supply chain plans are re-synchronised

on changes to demand and supply by SCP packages with the aim of dramatically

improving customer service while minimising investment in inventory assets.

Lean manufacturing, lean enterprises and lean thinking rely on stability of demand

throughout the supply chain. Lean environments are very bad at handling severe

instability.


6.4 Future directions

Even though the dissertation points in part, to a lack of demand for SCP, the main

SCP vendors have offices in the U.K, are expanding, and winning business and the

major ERP/SCM vendors are partnering these SCP suppliers.

Rover demand 6% year on year cost savings across the board from their suppliers.

This means the suppliers must force the cost savings back through the supply chain.

It appears that businesses face a choice of routes; to computerise their way out of

the chaos caused by a quicker, more global, more competitive, more personalised

business environment or use ‘lean’ enterprise techniques to achieve what may

appear to be similar ends. The arguments about stability of business being the

deciding factor on the route may not be as valid as they appear.

6.5 Main Conclusions

This dissertation has discussed and distinguished between ERP vendors who have

relabeled their products as supply chain management systems and SCP vendors

who provided the true supply chain optimisation products.

Although the survey results were not as encouraging as they could have been, they

can still be seen to have pointed towards a lack of comprehension by businesses

about their own supply chains. The SCP vendors are starting to address this and

improve their profile in the marketplace almost daily.


It is also reasonable to conclude that there will not be the spectacular supply chain

cost savings to be made in the UK and Europe that there are in the US, largely

because UK supply chains are customer rather than manufacturer led.

The dissertation investigated the ‘lean’ enterprise approach to the same problems

that the SCP products are targeted at.


CHAPTER 7 Future work

7.1 The broad SCP arena

Advanced Manufacturing Research (AMR) reports that SCP customers have been

buying piecemeal solutions (i.e. Northern Foods buying both Manugistics forecasting

and Numetrix supply chain integration products). AMR believes that the market will

move to buying integrated SCP packages such as Manugistics version 5 (or SAP’s

new SCOPE SCP offering). The common belief is that, just as in the ERP world, the

strength of having an integrated SCP package outweighs the efforts required in

integrating best of breed packages from different SCP and, say, specialist

forecasting vendors.

Therefore any future work would involve following the trend towards integrated

supply chain packages encompassing SCP and ERP technology together. This

should also concentrate on comparing and contrasting the divergent paths of ‘lean’

solutions with SCP.

It was only recently admitted that there a was still a role for MRP systems,

performing mid-range planning functions, in lean environments. Would it be possible

that SCP tools could help with ‘lean’ principles ?.

As Bowersox [2] says, there is very little work in the area of SCP into manufacturing.

SCP system designers are leading the way and creating the requirements by

generating the market.


References

Sources used in compiling this report :

1. Canadine, I., ‘Customer Driven’, Engineering, (October, 1995).

2. Bowersox, D. J., and Closs, D. J., ‘Logistical Management, The Integrated Supply

Chain Process’, McGraw-Hill, (1996).

3. Christopher, M., (editor), ‘Logistics, The Strategic Issues’, Chapman & Hall,

(1992).

4. Odette ‘Passenger Car Logistics Survey’ as presented at the SMMT Industry

Logistics Conference, (16th October, 1996).

5. Womack, J. P., Jones, D. T., and Roos, D., ‘The Machine That Changed The

World’, Rawson Associates, New York, (1990).

6. Sherman, R., ‘Synchronising the supply chain’, Management Consultancy,

(February 1997).

7. Drucker, P. F., ‘The Economy’s Power Shift’, Wall Street Journal, (24 September,

1992) as reported in [8].

8. Gunn, T. G., ‘In the Age of the Real-Time Enterprise’, Omneo, Oliver Wight

Publications, Inc., (1994).


9. Goldratt, E. M., ‘It’s Not Luck’, Gower, (1994).

10. Field, C., ‘Distribution Focus: Efficient Consumer Response: A Stock Answer’,

Computer Weekly, (20 February, 1997).

11. The National Logistics Practice, KPMG Peat Marwick LLP, ‘Logistics Trends’, in

‘Materials Management & Distribution’, (December, 1996).

12. Greenwood, P. N., ‘Continuous Flow Manufacturing in a Quickened

Marketplace’, Logistics Focus, 5, (2) pp. 9-11, (March 1997).

13. Interview with Paul Rollett, UK Sales Manager, Numetrix, (4th November, 1996).

14. Burgess, K., ‘Supply Chain Planning, Are You Ready For Brain Surgery?’,

Control, 24, (1), pp.20-22, (February, 1998).

15. Browne, J., Harhen, J., and Shivnan, J., ‘Production Management Systems, A

CIM Perspective’, Addison Wesley, (1988).

16. ‘The AMR Alert on Supply Chain Management’, a weekly Email report sent to

subscribers by Advanced Manufacturing Research summarising recent

announcements, developments, news and analysis on Supply Chain Management

companies.

17. White, G. E. J., and White, A., ‘The Arch of Progress’, Control, 23, (4), pp.18-20,

(May 1997).


18. Burcher, P. G., Lee, G. L., ‘A Survey of the Implementation of Advanced

Manufacturing Technologies in the U.K’, Control, 23, (9), pp. 13-16, (November,

1997).

19. Manufacturing Computer Solutions and Computer Associates, ‘Manufacturing for

Profit - the series, Supply chains: improving performance right up the line’,

Manufacturing Computer Solutions, pp. 14-15, (January 1997).

20. Robertson, M., Swan, J. and Newell, S., ‘The Spread Of Technologies To

Support Operations Management’. Control, 23, (2), pp. 24-27, (March 1997).

21. AT Kearney, UMIST and Institute of Logistics, ‘Strategic Advantage and Supply-

Chain Collaboration’, Institute of Logistics Technical Paper, (1995).

22. Deloitte & Touche Consulting Group, Institute of Logistics, ‘European Logistics

Comparative Survey 1998’, as reported in ‘Logistics Focus’, (March, 1998).

23. Womack, J. P., Jones, D. T., ‘Lean Thinking: Banish Waste and Create Wealth in

your Corporation’, Simon & Schuster, New York, (1996).

24. Interview with Michael Blackledge of Summermere Consulting and a member of

the ‘Institute of Logistics Supply Chain Focus Group’, (5th February, 1997).

25. Salvesen Logistics, ’Total Logistics Solutions’, Management Consultancy, pp. 9,

(February 1997).


26. ‘Softworld for the Supply Chain’ show at the NEC, Birmingham. (12-13 March,

1997).

27. Fox, M. L., ‘The Future is Now: Consumer Demand-Driven Supply Chain

Management’, APICS - The Performance Advantage, (June 1995).

28. Hill, T., ‘Manufacturing Strategy’, Macmillan, (1993).

29. Willmott, K., ‘Getting The Picture’, Logistics Europe, (April, 1997).

30. Numetrix, ‘Planx/Schedulex Considerations/Constraints’, (9th May 1997),

provided by Numetrix as additional information to the Numetrix standard

information pack.

31. Jones, D. T., Towill, D., ‘New Directions in Logistics Research’, Control, 24, (2),

pp.15-19, (March, 1998).

32. Christopher, M., ‘Logistics and Supply Chain Management, Strategies for

Reducing Cost and Improving Service’, Financial Times Pitman Publishing,

(1998).


Appendices

Appendix A - The Questionnaire

The supply chain questionnaire is formatted to fit on both sides of a single sheet of paper when mailed.

Supply Chain Management Questionnaire

Thank you for taking the time to complete this questionnaire. The purpose of this survey is to establish trends, perceptions and types of companies operating within the supply chain. For this questionnaire, manufacturing is defined as the collection of activities that directly convert, machine or process product to add value whereas distribution or logistics activities are defined as those that add value by moving, transporting or warehousing for instance or perhaps brand management. The names and contacts of companies taking part will not be disclosed. The results of the questionnaire will be published by BDM Largotim Limited and will be available on request. Company Profile

I. Number of employees in your group or immediate division (if applicable) II. Number of employees at your site III. Number of manufacturing sites within your group / division IV. Number of distribution sites within your group / division V. Number of sales sites within your group / division VI. Is your company operating Globally, Internationally, Nationally or Locally VII. Annual turnover VIII.Primary industry your company operates in (please tick one option)

Food & Beverage Process Consumer Packaged Goods Automotive Medical Industrial / Electronics Other (please state)

1. What percentage split across Manufacturing and Distribution / Logistics would you describe

your site’s activities ?

a. Manufacturing % b. Distribution / Logistics % Please tick where applicable 2a. Does your company use third party warehousing ? Yes No b. If Yes how many third party warehousing partners /alliances ? c. If Yes what is the proportion of third party warehousing ? % 3. Does your company contract out logistics to a third party ? Yes No If the answer to Q3 is YES, please complete questions 4 to 7. If NO continue to Q8

Don Carmichael Page 80 P5893614 4. Does the third party company have personnel at your site ? Yes No 5. Does the third party company handle outgoing logistics ? Yes No 6. Does the third party company handle incoming logistics ? Yes No 7. Does the third party company handle transportation planning ? Yes No 8. Does your company have a dedicated supply chain management

department ? Yes No

9. Is forecasting used in your organisation ? Yes No If Yes is demand aggregated (families of parts) ? Yes No 10. Do you use optimising computer tools to plan production bottlenecks ? Yes No 11. Do you use infinite planning techniques such as Rough Cut Capacity

Planning (RCCP) or Capacity Requirements Planning (CRP)? Yes No

12. Do you use finite planning techniques? Yes No If No would finite planning techniques add value to the planning process? Yes No 13. What systems architecture does your company plan to use for its primary

business system?

a. UNIX b. AS/400 c.Windows NT d. Mainframe e. Other (please state) :

Please place an appropriate number in both A and B, relating to the scales detailed below.

A relates to B relates to ‘Severity of business problem’ ‘How soon will this be addressed’ 1 = No problem 1 = Already resolved 2 = A minor irritation 2 = A current project 3 = A problem 3 = Within the next 6 months 4 = A serious business problem 4 = Between 6 months and 24 months 5 = A very serious business problem 5 = No current plans to address this problem area 6 = Not applicable

A B

Mark box A with 1-6 and box B with 1-514. Manufacturing Resource Planning (MRPII) /Enterprise Resource Planning 15. Executive Information Systems / Decision Support Systems / Business Intelligence 16. Internet / Intranet 17. Logistics Management 18. Supply Chain Management 19. Transportation Management 20. Export Management 21. Finite Scheduling Systems 22. Electronic Data Interchange 23. Supplier Rating 24. Warehousing Management 25. Desktop Integration 26. Contract Management 27. Sales Promotions and Marketing 28. Internal quality 29. Supplier quality 30. Supplier capacity 31. Closer partnerships with suppliers 32. Closer partnerships with customers 33. Reduction in the number of suppliers (supplier rationalisation programme) 34. Outsourcing transportation and logistics 35. Transportation cost reduction

Don Carmichael Page 81 P5893614 36. Manufacturing cost reduction 37. IT-based logistics systems 38. Maintaining a Just in Time/Manufacturing/Supply environment 39. Internal organisation supply chain planning (Distribution Requirements Planning) 40. Due date adherence

To enter the prize draw please complete the following details. The winner will be contacted directly by BDM Largotim Limited. Name Title Company Tel Address


Appendix B - Questionnaire Response Analysis

Analysis of Questionnaire responses.

Of the 1000 questionnaires mailed there were 21 responses giving a response rate

of just over 2%. 4% is an average response rate for this type of questionnaire. The

low response rate is indicative of the age, and thus the accuracy, of the mailshot

database being used (over 2 years old) and the complexity of the questionnaire

itself.

In an early section the reasons for the complexity of the questionnaire, the

unfocused questions and the low response were discussed.

The following is a series of tables analysing the questionnaire responses in detail.

1. Breakdown of the number of survey responses by industry sector.

Industry sector No. % Automotive 3 14% Process (include. Food & Beverage, CPG and Chemicals) 7 33% Medical 3 14% Industrial / Electronics 8 38% Table B.1 Responses by industry sector

Don Carmichael Page 83 P5893614 2. Breakdown of organisation market size.

Market size No. % Global 9 43% International 7 33% National 5 24% Local 0 0%

Table B.2 Responses by respondents view of the market size of their company.

3. Breakdown of the average number of Manufacturing, Distribution and Sales sites

across market size.

Market Manufacturing Distribution Sales Global 5.1 3.9 8.3 International 5.3 3.7 3.9 National 2.4 4.6 14.2 Local 0 0 0

Table B.3 Breakdown of the average number of sites within a company.

For the purposes of the questionnaire, the Manufacturing function was defined as the

collection of activities that directly convert, machine or process products to add

value. The Distribution function was defined as those activities that add value by

moving, transporting, warehousing together with the brand management and

logistics functions.

The National organisation Sales sites is distorted by a single ‘Food & Beverage’

company having 47 sales sites. This may be that the company sells from vans or is

including sales outlets not owned by the company; corner shops or garages for

example.


Without this anomaly factored in, the average number of National Sales sites comes

down to 6.

4. Breakdown of the average number of Manufacturing, Distribution and Sales sites

across all market sizes.

Type of site No. Manufacturing sites 4.2 Distribution sites 4 Sales sites 8.8

Table B.4 Overall average number of sites across function.

Again the number of sales sites is distorted by the single ‘Food & Beverage’

company having 47 sales sites.

Without this anomaly factored in, the average number of Sales sites across all

market sizes comes down to 6.

5. Percentage split across Manufacturing and Distribution

This question asked respondents ‘what percentage split across Manufacturing and

Distribution / Logistics would you describe your site’s activities?’. The purpose of the

question was to find the mix of manufacturing and distribution activities found in the

respondent’s companies. Businesses with a low added value content, an assembly

and packaging company for instance, may have described themselves are more of a

distribution company than a manufacturing company.


0

1

2

3

4

5

6

No. of companies

0 10 20 30 40 50 60 70 80 90 100

Manufacturing as a % of business function

Figure B.5.1 Percentage spread of the Manufacturing function across respondents.

Figure B.5.1 shows that more companies thought of themselves as predominantly

manufacturing organisations. This is signified by the higher number of companies in

the 80, 90 and 100% bracket. The 100% bracket is where companies thought of

themselves as purely manufacturing companies, undertaking no distribution

activities. It must be remembered that all of these responses may have been

misinterpreted by the individuals answering the questionnaire and the answers may

be biased by their view of the company. A Manufacturing Director will more than

likely emphasise the manufacturing function of the company above any distribution /

logistics functions.


0123456789

10

No. of companies

0 10 20 30 40 50 60 70 80 90 100

Distribution as a % of business function

Figure B.5.2 Percentage spread of the Distribution function across respondents.

Figure B.5.2 shows that very few companies thought of themselves as purely

distribution / logistics organisations (one company each in the 90 and 100% bracket).

What is interesting here is that few companies thought of themselves as both a

manufacturing and distribution company in equal weighting.

Perhaps the popularity of third party logistics has forced many companies to

reevaluate their strengths and concentrate on either the manufacturing added value

or the distribution. There are some companies such as Ronson who see themselves

as primarily a brand management company who happen to undertake their own

distribution .

6. Business Issues

For each set of figures below, the questionnaire question number is followed by the

title. A breakdown of the responses is then given where the response to the ‘Severity

of business problem’ question is ‘3’ being a ‘problem’ through ‘4’ being a ‘serious

Don Carmichael Page 87 P5893614 business problem’ to ‘5’ a ‘very serious business problem’. The actual range of

available responses was :

1 No problem

2 A minor problem

3 A problem

4 A serious business problem

5 A very serious business problem

6 Not applicable

The following analysis ignores responses of 1 or 2 as the intention was to analyse

only the business issues that were deemed a significant problem to each business.

It must again be stressed that due to the low number of responses and the negativity

of the questions the results analysis must be treated with extreme caution. People

are naturally defensive about admitting problems within their own business;

especially if they own the problem. Instead of asking the ‘severity of a business

problem’ a more honest answer may have been achieved where the question asked

‘how successful the company felt’ each particular issue was. This can only be noted

for any future survey.

Where a significant number of responses were ‘6’ or ‘not applicable’ these are also

reported.

Not all questions are reported here. Only the questions that were presented by the

author are analysed. Questions such as those examining how much of a problem

Don Carmichael Page 88 P5893614 desktop integration was, could have been relevant to a wider study but, in the

author’s view, were not relevant to this project. Questions on topics such as desktop

integration and export management were added at Largotim’s request to allow them

to justify the resources required to run the survey. Questions on the timing of any

project to address the issues were also added by Largotim.

14. Manufacturing Resource Planning (MRP II) / Enterprise Resource Planning

(ERP).

Severity No. % 3 8 38 4 4 19 5 1 5 Total 13 62 Table B.14 Percentage of respondents who thought MRP II / ERP was a problem or

a serious business problem within their organisations.

Unfortunately, MRP still does not get the press it deserves. Being in the MRPII/ERP

business, the author recognises that many MRP II implementations have not been

as successful as they might have been if proper training, top-level management

support and the disciplines required had been present in each implementation

project from the start.

This is worrying for SCP vendors who still need to co-exist with MRP II/ERP systems

to get the transactional data required such as inventory movements, sales and

purchase orders. SCP implementations hit exactly the same issues as ERP II/MRP

implementations and require similar levels of data accuracy and commitment.

Don Carmichael Page 89 P5893614 17. Logistics Management

Severity No. % 3 4 19 4 2 10 5 0 0 Total 6 29

Table B.17 Percentage of respondents who thought Logistics Management was a

problem or a serious business problem within their organisations.

Questions 17 and 18 were intended as catch all questions were one company may

have interpreted Logistics Management as essentially different to Supply Chain

Management.

18. Supply Chain Management


Table B.18 Percentage of respondents who thought Supply Chain Management was

a problem or a serious business problem within their organisations.

It is interesting to note that although the total figures for Logistics and Supply Chain

Management were the same, the makeup of the figures was quite different. Supply

Chain issues are obviously seen as more important than Logistics issues with a

Don Carmichael Page 90 P5893614 higher number of ‘4’ responses, ‘a serious business issue’. This relates well to the

current interest levels in supply chain terminology and issues.

19. Transportation Management

Severity No. % 3 6 29 4 2 10 5 0 0 Total 8 38 Table B.19 Percentage of respondents who thought Transportation Management

was a problem or a serious business problem within their organisations.

Nearly two-fifths of respondent felt that transportation issues caused problems for

their businesses. Transportation issues have become a much bigger proportion of

overall cost build-up in recent years because of the pressures towards rapid, Just-In-

Time delivery of Less Than Load (LTL) shipments and the subsequent increase in

transport journeys to cope with this.

21. Finite Scheduling Systems


Table B.17 Percentage of respondents who thought Finite Scheduling Systems were


Don Carmichael Page 91 P5893614 It is interesting that Finite Scheduling Systems, which are part of the ‘push’

methodologies like MRP scheduling, are not mentioned at all in the lean thinking

texts [5], [23]. Yet, here, nearly two-fifths of respondents determined Finite Capacity

Scheduling (FCS) systems to be a business problem. This points to the conclusion

that many businesses are coping with the faster response times and smaller quantity

demands from customers by trying to schedule the resulting chaos without looking at

any ‘lean’ principles.

22. Electronic Data Interchange


Table B.22 Percentage of respondents who thought Electronic Data Interchange was


Electronic Data Interchange (EDI) has now become quite common and not just in the

automotive and retail sectors where many EDI concepts were developed. EDI allows

businesses to rapidly communicate demand, supply and financial information up and

down the supply chain from customers to suppliers. EDI has been forced on many

companies by their larger customers, initially to reduce costs from the customer side.

A two-fifths response here possibly reflects the range of ‘standards’ and ‘modified’

EDI messages that some suppliers have to receive from their customers. Most

Don Carmichael Page 92 P5893614 communications from supermarkets are either EDIFACT or TradaNet messages with

ODETTE standards being pursued in the automotive industry.

Rapid communication up and down the supply chain is key to supply chain

optimisation.

23. Supplier Rating

Severity No. % 3 6 29 4 3 14 5 0 0 Total 9 43 Table B.23 Percentage of respondents who thought Supplier Rating was a problem

or a serious business problem within their organisations.

From the author’s own experiences within the ERP / MRP II business, it is surprising

how unsophisticated supplier rating (vendor evaluation) mechanisms are within

many businesses. This is reflected in the figures above. It can only be surmised how

supplier ratings are being used; perhaps to penalise in no-win, combative customer

supplier relationships or in relationship building with those companies using in ‘lean’

enterprise techniques.

Don Carmichael Page 93 P5893614 28. Internal Quality


Table B.28 Percentage of respondents who thought Internal Quality was a problem


29. Supplier Quality

There was 1 response of Severity 6 (Not applicable) equivalent to 5%.


Table B.29 Percentage of respondents who thought Supplier Quality was a problem


It is perhaps surprising that internal quality was seen as more of a problem than

supplier quality when many internal quality problems can usually be traced back to

the supplier. The quality problem can either be build quality or design quality which

really is a relationship issue.

Don Carmichael Page 94 P5893614 30. Supplier Capacity

There were 4 responses of Severity 6 (Not applicable) equivalent to 19%.


Table B.30 Percentage of respondents who thought Supplier Capacity was a

problem or a serious business problem within their organisations.

The figures for Supplier Capacity are surprising low. This may be because most

companies have no view of Supplier Capacity and when purchase orders are

delivered late they have to concentrate on spending more time with tools such as

Finite Capacity Schedulers (which are more of a problem in the survey), balancing

their internal capacity.

Don Carmichael Page 95 P5893614 31. Closer partnerships with suppliers


Severity No. % 3 4 19 4 1 5 5 0 0 Total 5 24 Table B.31 Percentage of respondents who thought that closer partnerships with

suppliers were a problem area or a serious business problem within their

organisations.

The low levels of figures on this question could be interpreted in two ways;

• that closer partnerships with suppliers are seen as unnecessary in a combative,

hands-off environment where the threat of penalties through elaborate terms and

conditions is seen by the purchasing department as the closest the relationship

needs to get

• or that lean thinking has permeated down to purchasing departments such that

closer relationships have evolved with suppliers and are not causing the levels of

problems they once did.

Don Carmichael Page 96 P5893614 32. Closer partnerships with customers



Table B.32 Percentage of respondents who thought that closer partnerships with

customers were a problem area or a serious business problem within their

organisations.

It is to be expected in customer driven companies that relationships with the

customer would be a higher priority over relationships with suppliers.

33. Reduction in the number of suppliers (supplier rationalisation programme)



Table B.33 Percentage of respondents who thought that the reduction in the number

of suppliers was a problem area or a serious business problem within their

organisations.

Don Carmichael Page 97 P5893614 The responses here tend to suggest that in many cases supplier rationalisation

programs have already taken place within many businesses.

34. Outsourcing transportation and logistics



Table B.34 Percentage of respondents who thought that outsourcing transportation

and logistics was a problem area or a serious business problem within their

organisations.

The very low response to this question suggests that many companies have either

already outsourced transportation using third parties such as TNT or Salverson, or

companies are happy to retain their own transport fleet, perhaps for image or

reliability reasons.

This question had intended to find out how many companies had thought about

outsourcing the management of the transportation logistics. An example would be

Technology Plc, part of ICL, who distribute Personal Computers (PCs) for the major

PC brand manufacturers. Technology Plc have third party distribution personnel in

offices on the Technology site. The responsibility for distribution is handed over as

Don Carmichael Page 98 P5893614 the PCs are kitted and loaded into cages but before they have been labeled and

loaded into the trucks and left the physical site.

35. Transportation cost reduction



Table B.35 Percentage of respondents who thought that transport cost reduction was

a problem area or a serious business problem within their organisations.

This question is related to question 19, on Transportation Management, and

probably reflects the same issues regarding the increasing cost of smaller and

quicker deliveries.

Don Carmichael Page 99 P5893614 36. Manufacturing cost reduction



Table B.36 Percentage of respondents who thought that manufacturing cost

reduction was a problem area or a serious business problem within their

organisations.

It is no surprise that the highest response figures would be for the easiest issue for

most companies to report, physically view and investigate.

37. IT-based logistics systems



Table B.37 Percentage of respondents who thought IT based logistics systems were

a problem area or a serious business problem within their organisations.

Don Carmichael Page 100 P5893614 In the Deloitte & Touche / Institute of Logistics comparative survey [22] it is reported

that 80% of companies who had implemented integrated software systems stated

that logistics performance had improved as a result.

The results of this survey could point to the fact that many companies have

implemented such IT based systems and are gaining benefit, or that many

companies are still not convinced of the benefits of IT logistics solutions.

38. Maintaining a Just-In-Time/Manufacturing/Supply environment


Table B.38 Percentage of respondents who thought maintaining a Just-In-Time /

Manufacturing / Supply environment was a problem area or a serious business

problem within their organisations.

With a response of just over half this was a very positive statement on the business

problems caused by the quickening pace of business and the demand for Just-In-

Time manufacture and supply. The response seems to indicate that many

businesses have not yet adjusted to the ‘lean’ demands made upon them and are

struggling.

Don Carmichael Page 101 P5893614 39. Internal organisation supply chain planning (Distribution Requirements Planning)


Severity No. % 3 2 10 4 2 10 5 0 0 Total 4 19 Table B.39 Percentage of respondents who thought internal organisation supply

chain planning was a problem area or a serious business problem within their

organisations.

The low response here indicates that many companies may only have had a single

site of operation or be unaware of the supply chain issues that are caused even

between two physical or internal divisions. With many manufacturing companies

moving towards cell based manufacture, there are supply chain issues created

between cells.

Don Carmichael Page 102 P5893614 40. Due date adherence



Table B.40 Percentage of respondents who thought due date adherence was a

problem area or a serious business problem within their organisations.

The response of two-fifths is difficult to interpret here. It could be that in some cases

customer due dates are kept at the expense of high inventories to compensate for

problematic supplier due date adherence.


Appendix C - Supply Chain Planning package features

The following issues and features are based on one supplied from Numetrix, dated

May 1997, provided as an additional part of a request for standard information on the

Numetrix products. The notes consider the Numetrix ‘Planx’ and ‘Schedulex’

products only.

It must be considered in the following text that, at the time of writing, Numetrix did

not have a demand management product. As such, the interpretation of maintaining

customer service levels within Planx/Schedulex, below, does not go beyond the

maintaining of safety or minimum stock levels. Demand in the form of forecast or

customer orders have to be input into Planx/Schedulex from an external demand

management system, possibly the sales order processing module of an MRP II/ERP

system.

Within an extended supply chain, optimisation routines would have to consider

transportation, distribution, warehousing and down-stream customer or service

provider considerations and constraints.

Planx/Schedulex Considerations and Constraints :

The constraint based planning objectives built into the Planx/Schedulex products are

designed to balance 3 main business drivers :

Don Carmichael Page 104 P5893614 1. Increase/maintain specified customer service levels (measured as ‘Available On

Time or ‘In Full’)

2. Minimise stockholding levels

3. Increase factory efficiency

In Planx/Schedulex this is achieved by applying penalty points to key element.

Planx/Schedulex will then provide the optimal solution by minimising overall penalty

costs to :

1. Increase/maintain customer service

(penalty for stock falling below safety and minimum stock levels)

2. Minimise stockholding levels

(penalty for holding stock)

3. Increase factory efficiency

(penalty for running changeovers)

In addition to these ‘soft’ constraints, which can be violated at a penalty, there are

some ‘hard’ constraints which cannot be violated such as a cooling period after heat

treatment. ‘Hard’ constraints affect the way production is scheduled.

It is usual for constraints to be set up as ‘hard’ for the immediate short term

schedule, where the constraints are more critical. For medium to long term

production scheduling the same constraints can be treated as ‘soft’ to allow more

flexible optimisation.

Don Carmichael Page 105 P5893614 Constraints

Some of the standard hard constraints modeled in Planx/Schedulex are :

• Preferred production lines by product, and alternatives.

• Preferred sequence (e.g. preferred colour or flavour sequence).

• Preferred cycle (production once per day or once every four weeks).

• Product to product specific changeovers

(also known as sequence dependent changeovers).

• Ramp up curves (gradual increase in throughput rate after changeovers).

• Batch sizing applied per product per line.

• Minimum run lengths per product.

• Availability or raw materials.

(Numetrix only recommend that the Planx/Schedulex products be given the

details of key raw materials which may be a constraint on the planning

process. Numetrix recommend materials which are neither key nor critical to

the planning process be defined as ‘soft’ constraints only.

This area is important as the planning of intermediate and raw materials has,

in the past, always been the domain of Materials Requirements Planning

(MRP) mechanisms. It can be seen here that to find the truly optimal plan both

materials, capacity and other constraints must be planned concurrently. This

is known generically as Constraint Based Planning (CBP)).

• Intermediate inventory (if a multi-stage production process).

• Minimum inventory level (can also be a soft constraint).

Don Carmichael Page 106 P5893614 • Over-stock level (can also be a soft constraint).

• Maximum level

(can also be a soft constraint; used for modeling maximum storage or a form

of shelf-life modeling).

• Staffing levels

(these can vary over time due to different shift patterns ad holiday

arrangements; staffing can also be a soft constraint or a monitored

constraint).

• Shelf life

(which can transform stock into spoilage stock if violated. Numetrix

Planx/Schedulex can provide age profiles and age histograms of inventory).

• Waiting time

(i.e. cooling period or maturing period between production stages or

operations).

• Scheduled maintenance or any period of non-availability of production lines.

• Shared resources

(i.e. labour or a palletiser resource may constrain 3 production lines so that

only 2 lines at a time can be run, but this may be any 2 from the 3 lines).

• Group storage constraints

(this is a constraint against a warehouse and not an individual product).

• Synchronised manufacturing

(this is where 2 production operations/stages are linked say, so that no

intermediate stock can be held).

• Batch constraints by family


(i.e. where one product type is planned to a minimum run length or batch

constraint but different pack sizes can be scheduled within this production

run).

Features of the Numetrix Planx/Schedulex products

1. Capacity Planning

• Finite Capacity Planning.

• Load Smoothing.

• Selection of appropriate shift patterns

(i.e. finding am optimum solution between carrying stocks and running

overtime later in the time horizon).

• Offloading of over capacity to alternative production lines.

• Graphical calendar

(to allow the user to specify shift patterns by line and allowing entry of

holidays and non-working time (exceptions)).

• Consideration of holidays / maintenance periods by production line or by site.

2. Activity Planning

• Inputs are Forecast, Customer Orders or both.

(user-defined rules can be defined for forecast consumption).

• Components of demand

(i.e. specific customer orders with priorities which can be connected to

specific production activities).

Don Carmichael Page 108 P5893614 • Multi-stage planning

(the bottleneck is usually planned first then preceding stages backward

scheduled and proceeding stages forward scheduled).

• Modeling of by-products.

• Modeling of key raw material consumption.

• Different throughput rates per product/line combination.

• Various constraints considered when scheduled.

• Graphical ‘Gantt’ charts of sequenced production and inventory profile graphs

produced.

Don Carmichael Page 109 P5893614 3. Automatic Planning

The planning algorithms respect scheduled fixed periods by time, by specific

production lines or by individual product. The schedule is re-created around fixed

activities.

Construction Algorithms

Schedulex contains several algorithms which will construct schedules automatically

according to the constraints and penalties set up to reflect the business objectives

defined.

These algorithms cover:

• Master Production Scheduling (MPS) where production is planned per

specific time bucket (e.g. daily or weekly plan) and

• More specific algorithms to:

• plan in multiple stages (e.g. Just-In-Time (JIT) schedules).

• plan around strictly defined front-loading demand sequences which

must be adhered to.

• plan by product family grouping.

• produce multi-stage plans.

Don Carmichael Page 110 P5893614 Improvement Algorithms

Construction algorithms are used to re-plan the whole schedule and may only take

place once per day, for instance. Between these “regenerative” planning tasks (to

use MRP terminology), smaller point changes may be required to be planned into the

schedule due to updates in production, say, or the addition of a new customer order.

These “net change” planning tasks (again using MRP terminology) utilise

improvement algorithms. There would be no requirement to re-plan the whole

schedule just to adjust the existing schedule to reflect the change data.

4. Manual Planning

Manual changes to the plan can be made to the graphical “Gantt” chart display. The

user can add, move, copy, substitute and delete items, adjust quantities and

interrogate items on the schedule.

Manual planning is usually used when the planner has local knowledge over and

above the standard constraints built into the scheduling rules defined with the

Planx/Schedulex products. This functionality is also used when there are minor

changes such as quantity changes due to limited packaging or material stock

availability.

5. Reporting

The basic standard reports in Schedulex include:

Don Carmichael Page 111 P5893614 • Activity reports showing sequenced start and stop times of each activity by

production line.

• Exception reports to enable the planner to assess the quality of the plan.

• Summary reports and spreadsheet style reports by defined bucket (e.g. daily

buckets for the first week then weekly then monthly buckets showing inventory

profiles, capacity utilisation and raw material requirements.

• Other simple reports can be constructed easily. It is common to export data to

report writing tools for more complex or sophisticated reports.


Bibliography

Fundamental Readings in Supply Chain Management

Supply chain analysis techniques are largely based on the operations literature. JIT

or lean production practice is an important subset of supply chain management.

Womack is the standard work on lean production and also examines the

organisational relationships that surround lean production. Harrison is an overview of

manufacturing organisation in design, distribution and production networks with

emphasis of the roles large and small firms have within these networks.

Arntzen, B. C., Brown, G. G., Harrison, T. P., & Trafton, L. L., ‘Global supply chain

management at Digital Equipment Corporation’, Interfaces, 25, (1), pp. 69-93,

(1995).

Askin, R. G., & Standridge, C. R., ‘Modeling and Analysis of Manufacturing

Systems’, John Wiley and Sons, Inc., New York, (1993).

Davis, T., ‘Effective supply chain management’, Sloan Management Review, pp. 34-

46, (Summer 1993).

Drucker, P. F., ‘The emerging theory of manufacturing’, Harvard Business Review,

pp. 94-102, (May-June, 1990).

Don Carmichael Page 113 P5893614 Harrison, B., ‘Lean and Mean: The Changing Landscape of Corporate Power in the

Age of Flexibility’, Basic Books, New York, (1994).

Hayes, R.H., & Wheelwright, S. C., ‘Restoring Our Competitive Edge: Competing

Through Manufacturing’, John Wiley & Sons, New York, (1984).

Lee, H., & Billington, C., ‘Managing supply chain inventory: Pitfalls and

Opportunities’, Sloan Management Review, pp. 65-73, (1992).

McMillan, J., ‘Managing suppliers: Incentive systems in Japanese and U.S industry’,

California Management Review, 32, (4), pp. 38-55, (1990).

Pine, B. J., II, Victor, B., & Boynton, A. C., ‘Making mass customisation work’,

Harvard Business Review, pp. 108-119, (September-October 1993).

Womack, J. P., Jones, D. T., & Roos, D., ‘The Machine That Changed the World’,

HarperPerennial, New York, (1990).

Zipkin, P. H., ‘Does manufacturing need a JIT revolution?’, Harvard Business

Review, pp. 40-50, (January-February, 1991).

Don Carmichael Page 114 P5893614 Production Aspects of Supply-Chains

Basic Conceptualisations of Production

Many supply-chain techniques are designed with repetitive, large scale production in

mind and largely stem from production and operations theory.

Drucker, P. F., ‘The emerging theory of manufacturing’, Harvard Business Review,

pp. 94-102, (May-June, 1990).

Hayes, R. H., & Wheelwright, S. C., ‘Restoring Our Competitive Edge: Competing

Through Manufacturing’, John Wiley & Sons, New York, (1984).

Manufacturing Theory

Supply chain analysis builds on the conceptualisation and modeling approaches to

production analysis. There are trade-offs between holding inventory and production

efficiency and this is a starting point for the more complex analysis of supply chain

systems under uncertainty.

Askin, R. G., & Standridge, C. R., ‘Modeling and Analysis of Manufacturing systems’,

John Wiley and Sons Inc., New York, (1993).

Don Carmichael Page 115 P5893614 Baker, K. R., Powell, S. G., & Pyke, D. F., ‘Buffered and unbuffered assembly

systems with variable processing times’, Journal of Manufacturing and Operations

Management, 3, pp. 200-223, (1990).

Banker, R. D., Datar, S. M., & Kekre, S., ‘Relevant costs, congestion and

stochasticity in production environments’, Journal of Accounting and Economics,

10(3), pp. 171-197, (1988).

Baudin, M., ‘Manufacturing Systems Analysis With Application to Production

Scheduling’, Englewood Cliffs, Yourdon Press, New Jersey (1990).

Conway, R., Maxwell, W., McClain, J. O., & Thomas, L.J., ‘The role of work-in-

process inventory in serial production lines’, Operations Research, 36, (2), pp. 229-

241, (1988).

Gershwin, S. B., ‘Manufacturing Systems Engineering’, Englewood Cliffs, Prentice-

Hall Inc., New Jersey, (1994).

Production-Distribution Systems

Production-distribution systems are a technical name for supply chain analysis and

stem from the literature on multi-echelon inventory theory.

Arntzen, B. C., Brown, G. G. Harrison, T.P., & Trafton, L. L., ‘Global supply chain

management at Digital Equipment Corporation’, Interfaces, 25, (1), pp. 69-93,

(1995).


Cohen, M. A., & Lee, H. L., ‘Strategic analysis of integrated production-distribution

systems: Models and methods’, Operations Research, 36, (2), pp. 216-228, (1988).

Davis, T., ‘Effective supply chain management’, Sloan Management Review, pp.35-

46. (Summer, 1993).

Lee, H. L., & Billington, C., ‘Material management in decentralised supply chains’,

Operations Research, 41, (5), pp. 835-847, (1993).

Lee, H., & Billington, C., ‘Managing supply chain inventory: Pitfalls and

Opportunities’, Sloan Management Review, pp.65-73, (1992).

Just-In-Time/Lean Production

Womack is the standard work on lean production within the automobile industry.

Lean production techniques or JIT have spread from the Japanese automobile

industry to other industries that manufacture repetitive products. There are specific

production scheduling techniques for lean production environments. JIT systems are

not universally applicable.

Baudin, M., ‘Manufacturing Systems Analysis With Application to Production

Scheduling’, Englewood Cliffs, Yourdon Press, New Jersey, (1990).

Karmarkar, U., ‘Getting control of Just-In-Time’, Harvard Business Review, pp. 122-

131, (September-October, 1989).


Womack, J. P., Jones, D. T., & Roos, D., ‘The Machine That Changed the World’,

HarperPerennial, New York, (1990).

Zipkin, P.H., ‘Does manufacturing need a JIT revolution?’, Harvard Business Review,

pp. 40-50, (January-February, 1991).

Design for Manufacturability/Supply-Chain

Design for manufacturability largely focuses on one part of the production process,

usually the final assembly point. It is also concerned with improving design to reduce

costs of production and improve the quality of the product.

Design for supply-chain aims to design products or families which optimise

production within the entire supply chain.

Nevins, J. L., & Whitney, D. E. (Ed.)., ‘Concurrent Design of Products and

Processes: A Strategy for the Next Generation in Manufacturing’, McGraw-Hill, New

York, (1989).

Ishii, K., Juengel, C., & Eubanks, C., ‘Design for product variety: key to product line

structuring’, In Proceedings of the ASE 7th International Conference on Design

Theory and Methodology, ASME, Boston, (1995).

Don Carmichael Page 118 P5893614 Organisational Contexts

Both supply chains and production crosses organisational boundaries so any

attempts to improve methods will have to consider the organisational challenges and

implications.

Network Organisations

Supply chains are typically arranged in a network form; a loose confederation of

organisations. Network focus can be placed at the personal, organisational and

institutional/structural levels. Harrison is a work examining the structural distribution

and comparative organisation of networks in the global economy.

Harrison, B., ‘Lean and Mean: The Changing Landscape of Corporate Power in the

Age of Flexibility’, BasicBooks, New York (1994).,

Co-ordination Theory

Economic co-ordination theory concerns the efficient transmission of information to

support economic activity. Information is transmitted either as prices as in a market

or as non-price information as in a hierarchy to support economic activity. Prices can

be used as a mechanism to speedily co-ordinate the supply chain.

Milgrom, P., & Roberts, J., ‘Economics, Organisation and Management’, Englewood

Cliffs, Prentice Hall, New Jersey, (Chapter 4), (1992).

Don Carmichael Page 119 P5893614 Incentives and Contracts

Inter organisation commercial relationships are approached through contracts and

incentive structures; often through specific penalty/performance contracts.

Partnering, an extra-contractual agreement, can be a mechanism to lubricate

contractual friction.

Aoki, M., ‘Information, Incentives, and Bargaining in the Japanese Economy’,

Cambridge University Press, New York, (1988).

t801 msc in manufacturing: management and technology

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