Beruflich Dokumente
Kultur Dokumente
Type
of product:
o Red box: airplanes, are very complex with a lot of supplier
CSR: it is a priority for this box
o Fashion product / jobbing: blind buying, you don't know the demand
it has to be fast
supplier relation mng, customer relation mng are important
o Durable: cars, computer
supply chain relationship is important
o Commodities: lamps, toothpaste
capacity utilization maximization, …
3 C’s of Supply Chain: Collaboration, Coordination, Communication
Demand creation (vision and mission) fulfilment (supply chain strategies, design & planning) value chain (design
of measurement system)
2
3: Restructuring Operations (Capacity and Layout)
once you know the new process, you know to need priorities for you (costs, ....) and from that you decide what type of
supply chain
3
CAPACITY PLANNING
Capacity is the maximum capability to produce. Long-term capacity planning is a strategic decision that establishes a firm’s
overall level of re- sources. It extends over a time horizon long enough to obtain those resources—usually a year or more for
building or expanding facilities or acquiring new businesses. Capacity decisions affect product lead times, customer
responsiveness, operating costs, and a firm’s ability to compete. In- adequate capacity can lose customers and limit growth.
Excess capacity can drain a company’s re- sources and prevent investments in more lucrative ventures. When to increase
capacity and how much to increase it are critical decisions.
Capacity lead strategy. Capacity is expanded in anticipation of demand growth. This aggres- sive strategy is used to lure
customers from competitors who are capacity constrained or to gain a foothold in a rapidly expanding market. It also allows
companies to respond to unex- pected surges in demand and to provide superior levels of service during peak demand
periods.
Average capacity strategy. Capacity is expanded to coincide with average expected demand. This is a moderate strategy in
which managers are certain they will be able to sell at least some portion of expanded output, and endure some periods of
unmet demand. Approximately half of the time capacity leads demand, and half of the time capacity lags demand.
Capacity lag strategy. Capacity is increased after an increase in demand has been documented. This conservative strategy
produces a higher return on investment but may lose customers in the process. It is used in industries with standard products
and cost-based or weak competition. The strategy assumes that lost customers will return from competitors after capacity has
expanded.
Capacity can be increased incrementally or in one large step as shown in Figure 7.1d. Incre- mental expansion is less risky but more
costly. An attractive alternative to expanding capacity is outsourcing, in which suppliers absorb the risk of demand uncertainty.
An industry with an 80% average utilization would have a 20% capacity cushion for unexpected surges in demand or temporary work
stoppages. Large-capacity cushions are common in industries in which demand is highly variable, resource flexibility is low, and
customer service is important. Utilities, for example, maintain a 20% capacity cushion. Capital-intensive industries with less flexibility
and higher costs maintain cushions under 10%. Airlines maintain a negative cushion by overbooking flights. Best operating level can
also refer to the most economic size of a facility.
4
4: Beer Game
Manufacturer -> Distributor -> Wholesaler -> Retailer
Capacity as a Key Issue. Synchronise all steps
Satisfy demand at a minimum cost! Especially inventory cost.
Bullwhip Causes:
Bullwhip Consequences:
Lack of information sharing
- Manufacturing cost
Ordering in large lots - Inventory cost
Large replenishment lead time - Transportation cost
Rationing and shortage gaming - Level of product availability
Price fluctuations - Labor cost for shipping and receiving
- Relationship across the supply chain
Bullwhip Avoid It:
Align goals and incentives across functions
Improving information accuracy (implementing collaborative forecasting and planning)
Reduce replenishment lead time
Reduce lot sizes
Trust
---------- based on forecast (push) --------> INVENTORY <-------- based on order (pull) ------------
5
5&6: Demand Management + Forecasting
Demand Management aim: coordinate and control all sources of demand (inside and outside organisation) to enable
efficient use of operations and timely delivery of the product. Requires a lot of coordination.
o Demand is not the demand only of the final customer, but also of demand from different sources: marketing (sales & new
product), customer service (spare parts), factory inventory (supply), manufacturing (stock)
o Strategic or tactical, the forecast of the demand is always important
Demand management: strategic decision-making process = matching capacity and anticipate demand. Demand
forecasting is the first crucial step that must be taken, and it depends on the lifecycle where you are.
Forecasting (Who uses it and why):
o Long-term strategic planning. Forecasting is critical in determining how much inventory to keep to meet
customer demands.
o Finance and management control (corporate planning and control, budget and cost control)
o Marketing and sales (plan and launch new products, compensate sales personnel)
o Production and operations (supplier selection, processes selection and adaptation, capacity planning, facility
layout and inventory management)
Demand Forecast: Independent vs Dependent
o Focus on independent: the company can either influence demand (active role in managing demand, ex:
promotional campaigns, price increase/decrease, incentive to sales department --> to grow sales in December
to close the budget) or meet demand (production planning and supply chain).
Demand Components if company is passive, more effects:
o Trends, Seasonal factors, Cyclical elements (can be predicted)
+ average value of demand + potential trend + seasonality (Christmas, discount in January) + critical events
(difficult to predict, macroeconomic factor, wars, elections) + casual variability (hardest component,
unexplained variation) + auto-correlation
Short term forecasts for tactical decisions such as replenishing inventory, measuring variability in demand which is
useful to set safety stock levels.
Forecast depends on: forecast time horizon; availability of data; required precision; size of the estimated budget;
availability of qualified personnel.
Mean Absolute Deviation (MAD) = is the easiest way to calculate the level of goodness
of a prediction (aka the alpha that you chose to do the forecasts).
o The lower the MAD, the better (small absolute values)
o You cannot predict always lower demand values than actual values
o 1 MAD = about 0,8 standard deviation
o Difference between what actually occurred and what was forecast
4) Linear Regression
retailers don't want to give information about the market to the suppliers because suppliers in this was can have
bargain power
7
7&8: Inventory Management (Appendix G book)
Customer Decoupling Order Points: points within the supply chain where inventory is positioned to allow processes or
entities in the supply chain to operate independently. Inventory acts as a buffer to separate the customer from the
manufacturing process. Selection of decoupling points is a strategic decision that determines customer lead times and can
greatly impact inventory investment. The closer this point is to the customer, the quicker the customer can be served.
There is a trade-off where quicker response to customer demand comes at the expense of greater inventory investment.
Finished goods inventory is more expensive than raw material inventory.
Inventory = Decoupling processes The larger the inventory, the more independent are the processes. The more
dependent, the lower the inventory. Synchronisation between processes is key.
Inventories may include raw materials, finished products, components, parts and WIP
Inventory management system: set of procedures and controls that monitor the stock to a minimum and establish what
level to keep, when reintegrate them, and what size orders should have.
The basic purpose of inventory analysis, whether in manufacturing, distribution, retail, or services, is to specify (1) when
items should be ordered and (2) how large the order should be.
Purpose of Inventory:
o Maintain independence of operations (flexibility in operations)
o Meet variation in product demand (safety or buffer stock to absorb demand variation)
o Provide safeguard for variation in raw material delivery time
o Take advantage of economic purchase order size
Inventory objectives (key decisions: when to and how many to order/deliver) and goals: Page 14.
o Effectiveness: coping with changes in product demand + availability of different materials at different levels of the
supply chain, independence between phases, provide flexibility to the production plan
o Efficiency: minimum investment in capital and minimum cost managing the inventory itself
Inventory Costs:
o Holding/carrying costs (most important!) Ex: renting the warehouse, utilities, security, insurance. Increase linearly with
the number of products you are holding. Light, warranty, internal transportation, warehouse, capital invested
o Setup costs
o Order costs (purchasing office, transportation from the supplier)
o Stockout/shortage costs (order cancellation, late delivery penalties)
o Consider costs of underestimation and overestimation
Independent & Dependent Demand (Page 520)
In independent demand, the demands for various items are unrelated to each other.
For example, a workstation may produce many parts that are unrelated but that
meet some external demand requirement. In dependent demand, the need for any
one item is a direct result of the need for some other item, usually a higher-level
item of which it is part.
Models
Cost Model:
o Purchasing cost: cost do not change with order size. Flat. No quantity discounts
o Ordering cost: decreases, on an annual base you make smaller number of orders.
It decreases because the process complexity decreases (also transportation costs
go down).
o Holding cost: increases, when the order size increases how much inventory
you have on average. The more inventory you have (level), the more expensive it is to keep it (it is less expensive to
keep 500 inventories on average than 1.000)
usually, high holding costs items will have small batches and several orders --> food, Rolex, items that request high volume of energy
U-shaped curve Total Cost (TC) EOQ = optimum value of order size that minimise the total cost of inventory
management (Total cost = Annual Holding + Annual Ordering + Annual Purchasing).
FOQ when to order? ROP (Reorder Order Point)
ROP: reorder point cover the demand during lead time (you place your order in advance) in this way we are just in
time to cover the future demand but this is risky, I need a safety stock
𝐷 (𝑄𝑂𝑃𝑇 )
𝑇𝐶 = 𝐷𝐶 + 𝑆+ 𝐻
𝑄𝑂𝑃𝑇 2
S and H do not depend on the inventory mng policy, but on other operation SC mng decisions (expensive products have a
higher H, and so QOPT will be lower)
To correct the model, since demand during lead time is uncertain (risk of stockout only during lead time, aka between the
time and order is placed and the time is received), you apply a Safety Stock
o ROP has to be higher (it is not “time” but is “quantity”!)
o Probability not to go in shortage --> I have to define this probability that I want to mantain z value
o How much risk you have will impact the safety stock. Safety stock deals with 2 risks:
First risk: bigger/longer supplier lead time (e.g. one day of delay from supplier?)
Second risk: demand is not constant during the lead time.
The probability approach to calculate safety stock considers only the probability of
running out of stock and NOT how many units are short.
o How much is the variability of the demand during the lead time = standard
deviation during the lead time (L)
9
𝑑𝑛
𝜎𝐿 = √∑ 𝜎𝑑2
𝑑0
3) Multi-period with Fixed Order Period (FOP) instead of fixing the quantity you order every time, is better to control
the when your order. Fixing the when every time (fixed time windows between orders), you can establish how much.
The "how much" or the order quantities vary from period to period, depending on the usage rates. In this case
inventory is counted only at particular times (review period). More simple, easy and less expensive. the standard
fixed–time period models assume that inventory is counted only at the time specified for review. It is possible that
some large demand will draw the stock down to zero right after an order is placed. This condition could go unnoticed
until the next review period. Then, the new order, when placed, still takes time to arrive. Thus, it is possible to be out
of stock throughout the entire review period, T, and order lead time, L.
o Sometimes there are problems e.g. I can order only on Monday, or only one week per month
Review period: you do not control it every time (if I order every week, the review period is one week)
Cover period: period in which I want to cover the demand with one single order (if lead time is 3 day and my review period
is one week, I have to order items to cover one week + three days, from Monday to Thursday)
Total covered period: have to subtract the inventory we already have
𝑞 = 𝑑(𝑇 + 𝐿) + 𝑧𝜎𝑇+𝐿 − 𝐼
o q: order quantity
o d: forecast average demand (daily/annual)
o L: lead time — from one order to another order
o T: review period
o I: inventory that we currently have
o L+T: standard deviation of the covered period = variability of
demand during this period
o z: standard deviation considered
Differences between the 2 managing inventory models (other than what triggers the timing of the order placement):
1. FOQ size of inventory is less than FOP
o Safety stock for model FOP and FOQ: in FOP needs to be higher because the risk period is longer
o In FOP the order considers the safety stock (protect against stockout during review period itself and as well as
during the lead time from order placement and order receipt, zL+T) FOP safety stock is higher
o In FOQ: the key difference between a fixed–order quantity model where demand is known and one where
demand is uncertain is in computing the reorder point. The order quantity is the same in both cases
2. FOQ favours more expensive and critical items because average inventory is low. But requires more time to maintain
because every addition or withdrawal is logged. FOP is more efficient because multiple items can be ordered at the
same time and is usually used for lower-cost items.
10
F.O.Q. (fixed order quantity) F.O.P. (fixed order period)
Price Break Model = Relaxing one of the assumptions prices quantity discount: if you order more, you will get a discount
discount is not computed in the FOQ
when the purchasing costs curve is not constant
discount on quantity ordered depending on the batch
Steps:
o Step 1: Calculate EOQ (QOPT) for every price break, from lowest to highest (Ex: 3 prices = 3 EOQ 3 total costs
you will get with the minimum of the 3-price break)
o Step 2: verify if EOQ are feasible or not (they are within the price break intervals)
o Step 3: calculate total costs Where is the optimal Q? The one that gives you the minimum cost
ABC Inventory classification (Pareto principal): divides inventory into dollar volume categories that map into strategies
appropriate for the category. Dollar volume is a measure of importance: an item low in cost but high in volume can be more
important than a high-cost item with low volume.
NOTE:
1) how can I reduce H and S (ordering costs) per unit? S and H depend on operational decisions
S
CORRECT: select a supplier that is next door --> less transportation
WRONG: increase QOPT --> I'll have more holding costs and I'll reduce only total S
H
WRONG: reduce inventory
11
CORRECT: what is based on my holding cost? On the warehouse? On the price of the good? After
understanding the single components of H, I can make efficiency on each single component
2) Total costs depend on the standard deviation on the demand --> the more the demand is fluctuating, the more you
need safety stock, that increase the costs
12
9: Sales and Operations Planning (SOP) – Chapter 19
Intermediate-term activities
1. Forecasting and demand management & 2. Sales and operations
planning.
By focusing on aggregate product and sales volumes, marketing and operations functions are able to develop plans for the way
demand will be met (fluctuation of demand due to market trends and other factors).
Production Planning Strategy: Plans for meeting demand that involve trade-offs in the number of workers employed, work
hours, inventory, and shortages.
Chase strategy. Match the production rate to the order rate by hiring and laying off employees as the order rate varies.
The success of this strategy depends on having a pool of easily trained applicants to draw on as order volumes
increase. There are obvious motivational impacts. When order backlogs are low, employees may feel compelled to slow
down out of fear of being laid off as soon as existing orders are completed.
Stable workforce—variable work hours. Vary the output by varying the number of hours worked through flexible work
schedules or overtime. By varying the number of work hours, you can match production quantities to orders. This
strategy provides workforce continuity and avoids many of the emotional and tangible costs of hiring and firing
associated with the chase strategy.
Level strategy. Maintain a stable workforce working at a constant output rate. Short- ages and surpluses are absorbed
by fluctuating inventory levels, order backlogs, and lost sales. Employees benefit from stable work hours at the costs of
potentially decreased customer service levels and increased inventory costs. Another concern is the possibility of
inventoried products becoming obsolete.
Subcontracting when demand becomes high but if the relationship with suppliers is not strong, lose some control over
schedule and quality
13
Costs involved: P.495
Production costs (important)
Costs associated to workforce flexibility and balancing
Inventory holding costs (storing, insurance, taxes, spoilage, obsolescence)
Backorder costs (penalties, loss of sales revenues)
14
10: Material Requirement Planning (ERP + MRP) subcomponent dependent demand
ERP P.427 (Enterprise Resources Planning) = SOP + MRP meet demand over time
Computer system that integrates application programs in accounting, sales, manufacturing and other functions in the
company. This integration is accomplished through a database shared by all the application programs
Benefits: better processes, information accuracy, responsiveness through real-time information provided by the
system. Specifically, in supply chain: managing materials, scheduling machines and people, coordinating suppliers,
processing customers’ orders are all included in the ERP
ERP supports: design of a supply chain system, future planning to meet supply and demand objectives, collaboration
between suppliers and customers
MRP (Material Requirement Planning): used for “dependent demand” items (caused by the demand for a higher-level item)
MRP is most valuable to companies involved in assembly operations and least valuable to those in make- to-order
fabrication. One more point to note: MRP does not work well in companies that produce a low number of units
annually
Technique to determine the number of parts, components and materials needed to respect a Master Production
Schedule (MRP input is MPS)
provides a timed-schedule that specifies how much and when to order to the suppliers (or to the shop floor) the
materials, parts and components
we need to calculate month by month the number of raw materials, sub components and parts in order to make (a
product) the Master production schedule feasible
each component has a lead-time
we have to decide make or buy? Usually components at the lower lever in BOM are BUY, components in the higher
part are MAKE
You need the materials by order release and NOT by requirement
the requirement of each components depends on the order release of its parent components
MRP input
MPS: the plan states how many final/finished products the company has to produce and when (gross requirements)
BOM: identifies the specific raw materials, parts/components, lead times, production sequence of a product
IT: inventory transactions contains the data of scheduled receipts (on order) and inventory on hand
MRP output
Planned Order Releases: How much and exactly when to order it is a PROPOSAL
MRP analysis
From top to bottom components (from independent to dependent,
planning "backwards" of lead time)
The sub-tables have all the same layout
Output of MRP = "Planned order release" in the sub table
In this example, planned order receipt is equal to net
requirements = "We order just what we need"
If safety stock is needed, the on-hand balance needs to be
reduced by the safety stock
Net-requirements = projected available balance + scheduled
receipts are not sufficient to cover gross requirements
Planned order receipts = amount required to meet net
requirements.
Planned order release = planned order receipt offset by the
lead time.
What if I have inventory? I have to transform the requirement
in NET requirement, using the inventory
inventory transaction = scheduled receipts + proj. available
balance
Lot sizes are the production (or purchasing) quantities used by the MRP system
15
Lot-for-lot (L4L) = the system schedules exactly what is needed in each period = planned order receipt is equal to net
requirements = "We order just what we need"
o Plan orders to exactly match net requirements
o Produce exactly what I needed each week with no inventory
o Minimises carrying/holding cost
Economic Order Quantity (EOQ)
Fixed Order Quantity (FOQ)
Fixed Order Period (FOP)
Lot Sizing policies/problems: make planned order receipt and planned order release (and in our case net requirements
too) different. "You may order more or less than what you need due to a pre-
existing inventory".
L4L is only used to balance the fixed and variable costs that vary according
to the production lot size but does NOT consider the capacity of machines,
setup costs, people and the supply chain as a whole. This model causes high
setup costs. That's why you require Capacity Requirement Planning (CRP)
and MRP.
CRP or MRP II is a computerized system that projects the load from a given
material plan onto the capacity of a system and identifies underloads and overloads.
It is then up to the MRP planner to level the load—smooth out the resource
requirements so that capacity constraints are not violated. This can be accomplished
by shifting requirements, reducing requirements, or temporarily expanding capacity.
MRP uses 3 main sources of information: BOM, MPS and IT
CRP uses process plans: you find them on the shop-floor
CRP used to check if the proposal of order release is feasible (manufacturing process plan)
CRP considers the REAL production capacity:
o Lead-time of production: if you need to ship 20 you can produce them 1 day, but what if you need 2000?
Document showing the manufacturing steps for a product or component
CRP can produce a load profile for each process or work center in the shop. The load profile compares released orders
and planned orders with work centre capacity.
Calculate the workload of each work centre, week per week. When the workload exceeds available capacity:
o Overtime
o Add machine to perform task
o Outsource the operation
o Anticipate or postpone part of the operations
o Redefine a new execution date and re-program.
UNDERLOADS
Underloaded conditions can be leveled by:
1. Acquiring more work;
2. Pulling work ahead that is scheduled for later periods;
or 3. Reducing normal capacity.
Additional work can be acquired by transferring similar work from other machines in the same shop that are near or over capacity, by making components
in-house that are normally purchased from outside suppliers, or by seeking work from outside sources. Pulling work ahead seems like a quick and easy
alternative to alleviate both underloads and overloads. However, we must remem- ber that the MRP plan was devised based on an interrelated product
structure, so the feasibility of scheduling work in an earlier time period is contingent on the availability of required materials or components. In addition,
work completed prior to its due date must be stored in inventory and thus incurs a holding cost. When work is shifted to other time periods, the MRP plan
should be rerun to check the feasibility of the proposed schedule.
OVERLOADS
Overloaded conditions are the primary concern of the MRP planner because an overloaded sched- ule left unchecked cannot
possibly be completed as planned. Overloads can be reduced by:
o 1. Eliminating unnecessary requirements;
o 2. Rerouting jobs to alternative machines, workers, or work centers;
o 3. Splitting lots between two or more machines;
o 4. Increasing normal capacity;
o 5. Subcontracting;
o 6. Increasing the efficiency of the operation;
o 7. Pushing work back to later time periods; or
o 8. Revising the master schedule.
Some capacity problems are generated from an MRP plan that includes lot sizes, safety stock and unsubstantiated requirements for
service parts or forecasted demand. To verify that a capacity overload is caused by “real” need, the planner might examine the MRP
16
matrices of the items as- signed to a machine centre during an overloaded period as well as the matrices of the parents of those
items processed, all the way up the product structure to the master schedule. Or, the MRP system could be rerun with lot sizes
temporarily set to one and safety stock to zero to see if the capacity problem is eliminated.
MRP systems assume that an entire lot of goods is processed by one machine or operator. Given the job shop environment in which
most MRP systems are installed, there are usually several machines that can perform the same job (although perhaps not as
efficiently). With CRP, load profiles are determined with jobs assigned to the preferred machine first, but when capacity prob- lems
occur, jobs can certainly be reassigned to alternate machines. In addition, if two or more similar machines are available at the same
time, it may be possible to split a batch—that is, assign part of an order to one machine and the remainder to another machine.
Normal capacity can be increased by adding extra hours to the work day, extra days to the work week, or extra shifts. Temporary
overloads are usually handled with overtime. More extensive overloads may require hiring additional workers. Work can also be
outsourced.
Improving the efficiency of an operation increases its capacity. Assigning the most efficient workers to an overloaded machine,
improving the operating procedures or tools, or decreasing the percentage of items that need to be reworked or scrapped increases
efficiency and allows more items to be processed in the same amount of time. Because output increases with the same amount of
input, productivity increases. This is especially useful for alleviating chronic overloads at bottleneck operations, but it does take time
to put into effect.
If later time periods are underloaded, it may be possible to push work back to those periods so that the work is completed but later
than originally scheduled. There are two problems with this approach. First, postponing some jobs could throw the entire schedule
off, meaning customers will not receive the goods when promised. This could involve a penalty for late delivery, loss of an order, or
loss of a customer. Second, filling up the later time periods may preclude accepting new orders during those periods. It is normal for
time periods further in the future to be underloaded. As these periods draw nearer, customer orders accelerate and begin taking up
more of the system’s capacity.
NOTE:
One more final good has a big impact on all the chain because is linked to multiple subcomponents with the BOM.
MRP: simulation back and forward, what if analysis --> planning the production based on the maximum capacity that is
achievable.
Lead-time in MRP are considered fix but it is not true
o You can calculate the average time in system
1
𝑇𝑠 =
𝜇 − 𝜆(𝑘)
o = service rate
o = arrival rate (load)
17
12: Just in Time (JIT), Lean Production, Theory of Constrains
JIT (OM philosophy)
It is the basis for Lean Production: set of activities designed to achieve high-volume and high-quality production using
minimal inventories (raw materials, WIP and finished goods) by eliminating waste in every activity/area of production
(people management & organization, suppliers’ relationships, stocks, overproduction, process, design, manufacturing)
o e.g. excess inventory inventory is one of them and hides other problems (machines breakdown, queues,
resource redundancy, order changes, un-reliable suppliers)
also involves timing of production: resources arrive "just in time" to the next work station
it focuses on having stocks of goods, providing services, and using resources only where and when needed
The goal is to drive all inventory queues to zero, thus minimising inventory investment and shortening lead times
When inventory levels are low, quality problems become very visible
(exposed problem hidden by excess inventories and staff!)
JIT and Lean Production work best in repeatable and standardised
operations. Price to pay by being lean: customer service when unlikely
events occur
Achieve high customer service with minimum levels of inventory investment
JIT drawback: cannot rely on extra material just in case something happens
Conventional approaches use safety stock and early deliveries against
production problems JIT uses excess labour (overtime and part-time)
which is much cheaper than carrying extra inventory.
Group technology: redesign of the production plant to reduce movements of parts, redesign the layout of product and
process. Aggregate products into families of products in which they are technological similar (similar technological features)
and the processes required to make the parts are arranged in a specialised work cell. The aim is to:
o Reduce unnecessary movements relating to each product (and waiting times)
o New layout, reducing material handling and improve flow of product
o Reduce inventory and number of employees required
Waste in operations: looking a machine run, waiting for parts, counting parts, overproduction, moving parts over a long
distance, storing inventory, looking for tools, machine breakdown, rework
Cells group dissimilar machines together to process a family of parts with similar shapes or processing requirements. The
layout of machines within the cell resembles a small assembly line and is usually U-shaped. Work is moved within the cell,
ideally one unit at a time, from one process to the next by a worker as he or she walks around the cell in a prescribed path.
Because cells produce similar items, setup time requirements are low and lot sizes can be re- duced. Movement of output
from the cells to subassembly or assembly lines occurs in small lots and is controlled by kanbans (which we discuss later).
Cellular layouts, because of their manage- able size, workflow, and flexibility, facilitate another element of lean production,
the pull system.
Pull system, workers go back to previous stations and take only the parts or materials they need and can process immediately.
When their output has been taken, workers at the previous station know it is time to start producing more, and they replenish
the exact quantity that the subsequent station just took away. If their output is not taken, workers at the previous station
simply stop production; no excess is produced. This system forces operations to work in coordination with one another. It
prevents overproduction and underproduction; only necessary quantities are produced. “Necessary” is not defined by a
schedule that specifies what ought to be needed; rather, it is defined by the operation of the shop floor, complete with
unanticipated occurrences and variations in performance.
KANBAN
The most sophisticated is probably the dual kanban system used by Toyota, which uses two types of kanbans: production
kanbans and withdrawal kanbans. As their names imply, a production kanban is a card authorizing production of goods, and a
18
withdrawal kanban is a card authorizing the movement of goods. Each
kanban is physically attached to a con- tainer or cart. As shown in Figure
16.7, an empty cart signals production or withdrawal of goods. Kanbans are
exchanged between containers as needed to support the pull process.
The dual kanban approach is used when material is not necessarily moving
between two con- secutive processes, or when there is more than one input
to a process and the inputs are dispersed throughout the facility (as for an
assembly process). If the processes are tightly linked, other types of Kanban
can be used.
Designing and setting up a Kanban control system requires to establish the number of Kanban containers/cards. And
EACH container represents the minimum production lot size to be supplied. The number of containers, therefore,
directly controls the amount of work-in-progress inventory in the system.
Accurately estimating the lead time needed to produce a container of parts is the key to determining the number of
containers. This lead time is a function of the processing time for the container, any waiting time during the
production process, and the time required to transport the material to the user. Enough Kanban are needed to cover
expected demand during this lead time plus some additional amount for safety stock
A Kanban system does NOT produce zero inventory, it controls the amount of material that can be processed at a
time (= the number of containers of each item). The Kanban system can be easily adjusted to fit the current system
because card sets can be easily added or removed from the system. (ex: add/remove additional container of material
with the accompanying Kanban cards)
SMALL LOTS
Small-lot production requires less space and capital investment than systems that incur large inventories. By producing small
amounts at a time, processes can be physically moved closer together and transportation between stations can be simplified.
In small-lot production, quality problems are easier to detect and workers show less tendency to let poor quality pass (as they
might in a system that is producing huge amounts of an item anyway). Lower inventory levels make processes more
dependent on each other. This is beneficial because it reveals errors and bottlenecks more quickly and gives workers an
opportunity to solve them.
From the kanban formula, it becomes clear that a reduction in the number of kanbans (given a constant container size)
requires a corresponding reduction in safety stock or in lead time itself. The need for safety stock can be reduced by making
demand and supply more certain. Flexible resources allow the system to adapt more readily to unanticipated changes in
demand. Demand fluctuations can also be controlled through closer contact with customers and better forecasting systems.
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Deficiencies in supply can be controlled through eliminating mistakes, producing only good units, and reducing or eliminating
machine breakdowns.
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Automatic inspection
seeks to eliminate causes of production defects
4) Quasi-Zero Inventory:
Production is "pulled" by the demand
Reduce lot sizes
Collaboration with suppliers to:
o Reduce lead time
o Frequent deliveries
o Plan resource needs
o Quality goals
Quasi-zero inventory
traditional: ordering cost increase with order size (optimum value), and set up cost is treated as a constant. Work on
the green line: reduce the ordering cost (ex: selecting supplier that is close, so the transportation cost is lower).
JIT/Kanban: work on the single unit order cost. Setup cost is significantly reduced and the corresponding optimal order
quantity is reduced (EOQ is lower than Traditional one) (to speed up Set-up times go to page 363)
Setup costs (it is the order cost but for the production) in order to do that, they did operational improvement to
decrease the set-up cost
JIT don't accept high fix costs
JIT integrated set of activities designed to achieve high-volume production using minimal inventories parts that arrive
exactly when they are needed. Goal: Reduce setup costs to permit smaller lot sizes.
Lean manufacturers determine takt times, create a level schedule, and use kanbans to control
production. This approach starts to have serious deficiencies when applied to companies that have high
variability in demand (takt time breaks down), or large variety of low-volume products (too many
kanbans in the system), or custom-engineered products (there are no kanbans for something that is
yet to be designed).
Nor is lean production the best choice for high-volume repetitive items where mass production is more common. Even Toyota produces high-
demand components (typically, small items that require stamping and forging) in lots as large as 10,000 units, sending them to subsequent
processes in small batches only when requested.
Lean production can also present problems when unexpected changes in demand or supply occur. For example, a fire at one supplier’s brake
factory shut down three Toyota plants one year.8 In the United States, longshoremen strikes have cut off overseas supply and brought
hundreds of factories to a halt. Add to that possible epidemics, natural disasters, terrorist attacks, and armed conflicts, and being completely
lean is not very appealing.
Thus, lean production must be compatible with a company’s products, processes, and cus- tomers. Companies must also assess risk and
uncertainty in their business environment, and adapt lean practices accordingly. Even with these drawbacks, however, we have found that
most types of businesses can find some parts or processes that can benefit from lean concepts. That includes service industries.
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Theory of Constraints (TOC) synchronous manufacturing
Comparison among 3 methods: Page 637.
MRP: uses backward scheduling approach because you start with the finishing product requirements. Is oriented
toward meeting due dates and maximising the use of capacity
JIT: uses Kanban and work-in-progress (something to pull, ex: pulls material based on need). Does not allow much
flexibility for changes particularly when capacity is tight
TOC: uses forward scheduling (synchronised manufacturing to achieve firm goals). More flexible and focused on
maximising flow through the system while minimising cost
Process Orientation
Process-oriented organisations continue to be structured in functions
but the focus lies in the strategic and operational streamlining, re-design
and optimisation of business processes
It's not an organisational model but a management approach (which
leads to re-envision the organisation).
It does not replace the functional structure, but they overlap
The resources belonging to a given business function cooperate with
those of other functions to achieve a common goal, the goal of the process
The resources belonging to a given business function cooperate with those of other functions to achieve a common
goal, the goal of the process
The success of process orientation depends precisely on the ability of coordination between the functional areas of
the company in such a way to ensure that business outcomes are something more than a simple sum of parts
O&SCM process
1) Forecasting, commercial agents’ requests, received orders
2) First attempt MPS
3) Rough cut capacity planning (RCCP)
4) Authorized MPS
5) MRP
6) MRP II / CRP
7) Shop floor control (SFC)
communication, collaboration and coordination of
activities belonging to different functions.
Process Flow Analysis (evaluate and improve process performance)
o Activities of the process "Production management": ensuring the availability of space-time materials, from
suppliers to the warehouse of finished products downstream of the factory along the entire chain of
production
o Supplier relationship management: aims to ensure (not perform) the business logistics from suppliers
(suppliers’ selection, contract management, evaluation etc)
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13: Strategic alignment
Business strategy: defines the goal of every corporate division or business unit in terms of competitive priorities that
will be offered to each market segments that will be served (strategic positioning).
Functional strategy: defining the objectives of the three major business functions:
o Marketing strategy: identifies customers that the business unit wants to serve, the products and the 4 P that it
has to offer in response to customer needs
o Operations strategy: defines the design, planning and management processes through which the business unit
will provide services and products to customers
o Finance strategy: acquires and allocates resources to various processes of the business unit
Performance
o Financial measures: relative to the difference between the value of the goods or services offered to the
customer and the cost of production/sale
Absolute measurements (income, expenses, net income, profit) & measures relating to resource use
(ROI, turnover ratios)
o External performance measures, relative to customer satisfaction (process output)
Cost of product (aka price), delivery time, product variety, quality of product
o Internal performance measures, relative to internal efficiency of the process
Cost of process, flow-time process, process flexibility, process quality
The operations manager has to translate the customer expected values (external measures) into the appropriate
measures of internal process
Output of operation has a higher value of the input
Process flow analysis (evaluate and improve process performance): transform input in output
1) Input and output
a. inputs of a business process are tangible or intangible units that flow from outside to the process (raw
materials, work in progress, energy, information)
b. output of a business process are tangible or intangible units that flow from the process towards the external
environment (finished products, materials)
2) Flow units: the entity that is processed (ex: in the airport example, is the passenger)
3) Network of activities and buffers
a. basic activities are the simplest form of transformation of inputs into outputs
b. buffer stores flow units that have already been processed by a task and are waiting to be processed by
another task (inventory and storage of the flow unit, increases and decreases)
4) Resources (tangible assets that can be capital) (buildings, land, production systems, machines, information systems,
etc..) or labour (human resources)
Internal measures of a process performance (internal measures of every company are related to their market):
Flow time
o total time necessary to transform input to output (processing time + waiting time in the buffers)
o very useful information for a manager who has to promise a delivery
date to the customer
Throughput (flow rate) it is ALWAYS less then capacity
o number of units flowing through a specific process for each unit of time
(capacity of the process)
o it can change over time
Work in Progress (WIP)
o number of flow units (entities) present within the boundaries of the process
o it can change over time
Direct influence on the cost and response time and are directly influenced by the
flexibility of the process and its quality (- Cost of the process; - Quality; - Flexibility; -
Responsiveness).
Little Law
WIP work in progress, T flow time, X throughput
A process is stationary when the steady-state average rate of input stream equals that of output. In such case, the
flow rates (in-flow, out-flow) are called average throughput of the process. In this case, by the known Little's law, it is
possible to determine the average value of the WIP.
average value of WIP in steady state (average throughput of the process)
Little Law limitation: process must be operating for a while, is stable and there's inventory at every step.
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Inventory turnover ratio & Little Law: number of times we are filling the inventory within a month
𝑆𝑎𝑙𝑒𝑠 𝑇ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 𝑋 1
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑖𝑜 = = = =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑊𝐼𝑃 𝑊𝐼𝑃 𝑇
X (throughput)
WIP (I)
Depending on the type of the service, different considerations on how X, T, and WIP impact Cost, Quality and
Responsiveness of the processes.
Examples:
Example 1: high levels of WIP - The main effect of high levels of WIP is on costs (holding cost), but in turn we are able
to be more responsive (cycle times diminishes and we are able to reduce delivery time). Contrarily, in service
operations, when the flow unit is a customer (for example a passenger in the airport), the main effect of having high
WIP is on the flow time (more precisely on the waiting times). So, the quality of the service (expressed by the
satisfaction of the customer) decreases.
Example 2: Flow Time - when the flow unit is a physical good (for example a product) waiting time means high
inventory. This means costs (holding cost), but also efficiencies (resources are not under-utilised because of missing
components). In service operations, the waiting time component of the flow time is something unwanted because it
will decrease customer satisfaction. So, the quality of the service (expressed by the satisfaction of the customer)
decreases.
NOTE:
Inventory in services is BUFFER
Inventory is in every office e.g. documents to be processed
In services it is very difficult to decide to what bucket put all costs
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Wrap-Up
Your system is perfectly design to give the result that you get
Changing the design imply to have a different behavior
Supply chain is not a chain but is network force
o Supply chain are dispersed components from all countries
Operations are the building block of supply chain
Supply chain is disintegrated: numerous products with short life cycle and many players in different chains
Pascal Law & Little Law
Bullwhip and clock-speed effects
JIT, TOC and ERP(MRP) collaboration
o ERP: long term planning & information processing capabilities
o JIT: philosophy of waste & POOGI & Kanban system
o TOC: concentrate on constraints in short and long term & preserve flow through constraints & abolish
accounting based performance measurement
There is no one size fits all
Best Production and Inventory Control Systems (PICS) requirements:
o Information system requirements
o Long-term and medium-term planning function
o Capacities and priorities logic
o Shop floor (short-term) control and tracking function
o Work in progress (WIP) control logic
Best PIC System (integration of all processes)
o ERP (SOP-MRP)
Long-term planning and reporting
Information processing capabilities
o JIT:
Philosophy of waste elimination + POOGI
Simple shop floor control (Kanban system)
o TOC
Concentrate on constrain tin short as well as long-term
Preserve flow though constraints
Abolish accounting-based performance measurement
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