Bottleneck (Constraint)

Bottlenecks determine the throughput of a supply chain. Recognizing this fact and making improvements will increase cash flow. A bottleneck (or constraint) in a supply chain means the resource that requires the longest time in operations of the supply chain for certain demand. Usually, phenomena such as increase of inventory before a bottleneck and insufficiency of parts after a bottleneck are often seen. Statistically, since fluctuations are inconsistent, the phenomena (excess inventory and insufficient materials) do not always occur. In the case of hiking, a bottleneck means the slowest member in walking. An interval between the bottleneck member and the one before spreads, and narrows with the one after. An important thing about bottlenecks is that bottlenecks determine the throughput of a supply chain. If a bottleneck person in hiking can walk faster, the speed of the whole group will increase. Similarly, if the capacity of a bottleneck in a supply chain improves, the throughput will increase. From the definition of bottlenecks, the operating rate of non-bottlenecks is below 100%. If so, the operating rate of non-bottlenecks will increase only within 100% even if the capacity of the bottleneck increases and the throughput increases. If the operating rate of non-bottlenecks exceeds 100%, it means that the bottleneck place is moved to the place of non-bottlenecks. If bottlenecks are not recognized enough, you will miss a chance to increase throughput. There are many cases where energy is used for a small cost cut and a chance for a large cash flow is missed due to lack of recognition of bottlenecks. Cost per hour on a bottleneck equals to the loss of one hour for an entire supply chain and also the loss of the throughput of an entire supply chain. Theory of Constraints (TOC) explains why recognition and management of bottlenecks will increase the throughput of a supply chain, use machines efficiently, and increase profit significantly. If increasing the capacity of a bottleneck operation incurs 0.1% of the total cost, the rest, 99.9% can be spent to increase throughput without incurring extra cost. It can happen that time and energy are spent only on cost reduction, and as a result, only the improvement that can be made is to decrease the operating rate of a bottleneck from 80% to 60% and no improvement is made on cash flow. If a production division thinks that cost variance due to capacity utilization in standard cost accounting is not their fault, it is because they only think about partial optimization.

SC******************************************* (Supply Chain Management)

"Supply Chain Management (SCM)" is to share information and management resources to eliminate the waste of business processes as much as possible, as one business process beyond the walls of companies, organizations, and divisions aiming for total optimization. The goal of Supply Chain Management (SCM) is to make money, i.e. to increase cash flow. To keep a company in business the most important thing is to increase the flow of cash, which is the blood of the company as a living entity. Accounting principle profit is now not enough for a company and posting profit that does not increase cash flow will jeopardize the management of the company in the deflation era of today. Supply chain management synchronizes demand with a business unit as a whole by using materials/parts and resource capacity such as machines and workers and considering constraints (bottlenecks) to increase the flow from materials/parts supply to product selling, i.e. the cash flow speed called "throughput". The three major elements of supply chain management are demand, materials, and resource capacity and the goal of supply chain management is to increase the cash flow speed by synchronizing business processes based on constraints. Indexes of the management are neither cost nor efficiency, which are traditional accounting concepts, but throughput (item flow), inventory, and expense aiming for total optimization. In short, supply chain management is cash flow management. In the age of mega-competition where markets and competitors expand globally, supply chain management is an indispensable measure for a company to survive. Supply chain management is a concept that challenges the conventional management index in which net profit may be posted by legally capitalizing expenses even if market values of products decrease (the same activity as "stock shuffling" by securities companies). Supply chain management is also a management tool that provides a theoretical base to build a strategic relationship such as a virtual corporation in global supply chain management.

Push-Pull Manufacturing
"Push type" means Make to Stock in which the production is not based on actual demand. "Pull type" means Make To Order in which the production is based on actual demand. In supply chain management, it is important to carry out processes halfway between push type and pull type or by a combination of push type and pull type. Supply Chain Management (SCM) is to create a solution i.e. "supply" for a goal or issue, i.e. "demand". Supply chain models

of "Push type" and "Pull type" are opposite in terms of a demand and supply relationship. "Push type" is represented by "Make to Stock" (MTS) in which the production is not based on actual demand and "Pull type" is represented by "Make To Order" (MTO) in which the production is based on actual demand. One of the major reasons why supply chain management currently receives so much attention is that information technology enables the shifting of a production and sales business model from "Push type" to "Pull type". Pull-type supply chain management is based on the demand side such as Just-in-Time (JIT) and CRP (Continuous Replenishment Program) or actual demand assigned to later processes. Therefore, unlike the Push-type method it is not Make to Stock, which is based on demand forecast. While inventory is kept to a minimum, products can be supplied with short lead times and at high speed. At the point where "Pull type" starts to supply operations triggered by actual demand, it is like an elevator. An elevator starts when a button is pressed even if there is only one passenger. On the other hand, the "Push type" can be considered as an escalator. An escalator continues to supply (push) regardless of whether there is actual demand (passenger). In addition, "Push type" corresponds to a model for trains, buses, and airplanes for which supply (push) is based on demand forecast by time period and route. There may be various forms between "Push type" and "Pull type" depending on inventory forms of materials, work in progress (WIP), and finished items and how to deal with the actual demand in supply chain management. In the case of sushi, there are boxed sushi sold in a shop, sushi ordered at the counter in a sushi restaurant, and sushi for which an order starts from purchasing live fishes. The place and form which fish for sushi are held in varies from downstream to upstream in a supply chain. An extreme example of a pull-type supply chain sushi restaurant that is unconcerned about lead times is the one that goes fishing when an order is received.

IE/OR (Industrial Engineering/Operations Research)

IE (Industrial Engineering), a concept for improving the efficiency of production, is the driving force that brings success in mass production today. OR (Operations Research) is an approach to explore optimization using statistical figures and linear programming. Both of them are included in supply chain flow. IE (industrial engineering) is a concept that was first structured as a concept to enable the improvement of production efficiency during the time when various scientific approaches started by Taylor were tried out to improve production efficiency. During the Civil War, the U.S. promoted the standardization of firearms and parts of munitions. As a result, the U.S. succeeded in the mass production of parts by realizing low-cost and short-lead time production. The engine of this success was the concept of IE. IE was taken over by Henry Ford for producing the Model T Ford and that was a starting point of growth for auto industry. The base of business administration and management consulting methodology of today started with IE, and going through World War I and World War II, the ammunition industry as a heavy industry and modern industrial society were created. We can also say that IE is a technology that combines product-specific manufacturing techniques and product technologies or that synchronizes management resources. If IT (information technology) can be used for many industries together with IE, information and communication will be combined, leading to the flow of supply chain management such as CALS, BPR, ECR, and QR. OR (operations research) started with a military term of "operations research". It is a method of working out an optimal strategy using statistical figures, LP (linear programming), and DP (dynamic programming). It makes use of mathematics and computers as tools for modeling. The Lanchester theory is widely applied for operations research in business. With the principle that the square of military strength is proportional to the consumption rate of the enemy's fighting power, the Lanchester theory tries to determine the quantity, places, and timing of inputting military resources in order to synchronize the resources. The Lanchester theory drew the attention of the retail distribution industry and the assumption that the square of the sales floor area is proportional to the ability to get customers was theorized, which had an impact base policies. Making decisions in supply chain management as to the quantity, places, and timing of inputting management resources such as machines and workers is also part of the synchronization of management resources. At present, the direction of IE/OR seems to be leading to supply chain management in terms of communication and information technology such as the Internet and EDI (electronic data interchange). Taken with kind permission from the book: "Understand Supply Chain Management through 100 words" by Zenjiro Imaoka. Published by KOUGYOUCHOUSAKAI

JIT (Just in Time) Production Schedule

Q.

The production items at our factory consist of a mixture of prospective production items and sales production items. Amongst our regular prospective production item production schedule it is necessary to intermingle JIT (Just in Time) sales production items as well so creating the production schedule is extremely troublesome. Isn't there a good way of making a JIT schedule?

Create a JIT Schedule by Mixing Backward Scheduling and Forward Scheduling

A.

In the case where you are mixing prospective production items and sales production items, it is necessary to create a JIT production schedule that considers the finite capacity of your machines and protects the due dates of your sales production items. Furthermore, because it is necessary to keep your inventory as low as possible it makes the production schedule even more troublesome. It is possible to create this kind of JIT production schedule, where you want to mix backward scheduling (JIT) and forward scheduling, if you use a production scheduler. First of allprospective production business is simply put as the following situation: This week I want to produce 15,000 units of ProductA. The lot size of ProductA is 5000 so we'll split it into 3 lots of 5,000. Let's say that the EST for these three will be 5th Nov, 7th Nov and 9th Nov. Let's try to actually schedule this with a production scheduler. First of all, just like Scheduler Diagram 1 define the processesnext set up the three lots (Scheduler Diagram 1). Based on this data the result of the made schedule is Scheduler Diagram 2.

Scheduler Diagram 1 Order set up In the case where ProductA has been set up as prospective production. Set up 3 ordersSplit up ProductA into 3 lots of 5000 and produce. The EST is the time that Process 1 for that order can start. A priority of 30 is specified for forward scheduling.

Scheduler Diagram 2 Production schedule result: Prospective production item's production schedule. Possible to split ProductA into three times and schedule for one week. This schedule is not JIT.
In production management terms this is called forward scheduling. Next, the sales production item (JIT item) has the following situation: An order has been received from a customer who wants ProductB in three shipments of 2000 units delivered on 5th Nov, 7th Nov and 8th Nov. When should each of these be started? Let's schedule this with a production scheduler. When we set up the order like (Scheduler Diagram 3)then the result of this production schedule based on this data will be like Scheduler Diagram 4, a JIT schedule.

Scheduler Diagram 3 Order set up: In the case that you set up sales production item (JIT item) ProductB: Enter the order for ProductB in three shipments of 2000 units to be delivered on 5th Nov, 7th Nov and 8th Nov. Specify a priority of 80 for backward scheduling (JIT)

Scheduler Diagram 4 JIT production schedule: The sales production item (JIT item) production schedule. The three orders are assigned so that each of them finishes precisely on their respective specified due dates to become a JIT schedule.
In production management terms this is called backward scheduling. The schedule is made so that the order's final process is assigned so that it finishes on the LET (due date) with the previous processes being assigned in order to pack in towards the right. Due to this we know when we should start the orders so that they finish just before the due date. In this way we can do a JIT schedule. In order to mix these two types of scheduling on the computer we only need to combine the order set up so it's simple (Scheduler Diagram 5). In this way, the result of the scheduling is like Scheduler Diagram 6.

Scheduler Diagram 5 Order set up: The state of Scheduler Diagram 1 and Scheduler Diagram 3 orders being combined together. The prospective production item orders (bottom three lines) have a priority of 30 and the sales production item (JIT item) orders (top 3 lines) have a priority of 80. This specifies that the sales production item (JIT item) orders take priority and are assigned first.

Scheduler Diagram 6 Production schedule result. The sales production item (JIT item) orders are assigned so that they finish exactly on their respective due dates (LET). Prospective production item orders are assigned to the remaining free areas available for Machine1. In other words, sales production items (JIT items) are strictly JIT scheduled to their due dates. You can't say that finishing earlier than the due date is JIT.
In this schedule the backward scheduled (JIT) orders are assigned first and then after that the forward scheduled orders are assigned to the remaining open places. Due to this it is possible to mix in the assignment of forward scheduled orders whilst still protecting the due dates of the backward scheduled (JIT) orders. In this way, a production scheduler will follow the setup and process it so it's possible to easily test a JIT schedule. After that, you only have to increase the volume of actual data and test it. Recently, trial versions of production scheduling software are being distributed for free so it's possible to actually enter real data and try JIT scheduling for yourself.

Taken with kind permission from Production Scheduling System Asprova Written by Kuniyoshi Takahashi: Production Scheduling Case Book