BSCM.all10.Modules.condensed

Basics Of Supply Chain Management

Session 1

Introduction to Supply Chain Management

Basics of Supply Chain Management, Version 2.1 — August 2001

Visual

Customer Expectations

Characteristics that provide value to the customer

Price Quality Delivery Pre- and post-sale service Flexibility (product and volume)

1-7


Visual

Customer Expectations (cont.)

Order qualifiersCompetitive characteristics needed to be a viable competitor

Order winnersCompetitive characteristics that cause customers to choose firm’s products and services

1-8


Visual

Lead Time

“A span of time required to perform a process”—APICS Dictionary

Delivery lead time “The time from the receipt of a customer order to the

delivery of the product”—APICS Dictionary

Cumulative lead time “The longest planned length of time to accomplish the

activity in question”—APICS Dictionary

1-11


Visual

Manufacturing Strategies

Make-to- Stock

Design

Inventory Manufacture Assemble Ship

Delivery Lead Time

Manufacture Inventory Assemble Ship

Manufacture Assemble Inventory Ship

Purchase Manufacture Assemble ShipEngineer-to-Order

Make-to- Order

Assemble- to-Order

Delivery Lead Time

Delivery Lead Time

Delivery Lead Time

Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, Prentice-Hall.

1-12


Visual

Conflicts in Traditional Supply Systems

FinanceMarketing Operations

This implies

Inventory investment

TraditionalObjective

Customer service

Production efficiency

Increase profit and cash flow, reduce investment

Increase revenue Reduce manufacturing cost

82 5

93 6

71 4

1-18


Visual

Manufacturing Processes

ContinuousProduction

RepetitiveProduction

Product Layout

Intermittent Production(Job Shop)

Process Layout Project Layout

Manufacturing Processes

1-21


Visual

Characteristics of Product Layout

Limited range of similar products Dedicated workstations Sufficient demand Capital intensive

1-23


Visual

Advantages of Product Layout

Little work-in-process inventory Short throughput and manufacturing lead

times Lower unit cost

1-24


Visual

Characteristics of Process Layout

Intermittent lot production Many different parts processed at

workstations General-purpose machinery Similar types of skills and equipment in

each department Work moves only to required stations

1-26


Visual

Characteristics of Process Layout

Relatively easy to change product or volume

Complex and expensive production and inventory control

High work-in-process inventory levels Longer lead times

1-27


Visual

Characteristics of Project Layout

Used for large, complex projects Project remains in one location for

assembly Avoids cost of moving the product

1-29

Basics of Supply Chain Management

Session 2

Forecasting


Visual

Capacity Management Techniques

CapacityRequirements

Planning (CRP)

Priority Management Techniques

ResourcePlanning

(RP)

ProductionPlan

Rough-CutCapacity

Planning (RCCP)

MasterProductionSchedule

Material Requirements

Planning (MRP)

Production Activity Control

(PAC) Operation Sequencing

Input/Output Control

Planning and Control Hierarchy

At each level, there are three questions:

What are the priorities?

What capacity is available?

How can differencesbe resolved?

1-32


Visual

Manufacturing Resource Planning (MRP II)

“A method for the effective planning of all resources of a manufacturing company”

—APICS Dictionary

Objective: to integrate the resources of an organization

1-33


Visual

Sources of Demand

All sources of demand must be identified:

Customers Spare parts Promotions Intracompany Other

2-4


Visual

What Should Be Forecast?

Business plan Market direction 2 to 10 years

Sales and operationsplanning

Product lines andfamilies

1 to 3 years

Master productionschedule

End item andoption

Months

Forecast Time FrameLevel

2-8


Visual

Principles of Forecasting

Forecasts Are rarely 100% accurate over time Should include an estimate of error Are more accurate for product lines and

families Are more accurate for nearer periods of

time

2-9


Visual

Qualitative Techniques

Are based on intuition and informed opinion

Tend to be subjective Are used for business planning and

forecasting for new products Are used for medium-term to long-term

forecasting

2-11


Visual

Quantitative Techniques

Based on historical data usually available in the company

Assume future will repeat past

2-12


Visual

Extrinsic Techniques

Based on external indicators Useful in forecasting total company

demand or demand for families of products

2-13


Visual

Intrinsic Quantitative Techniques

Month SalesJanuary 92February 83March 66April 74May 75June 84July 84August 81September 75October 63November 91December 84January ?

2-14


Visual

Moving Average Forecasting

Can be used to filter out random variation. Longer periods smooth out random

variation. If a trend exists, it is hard to detect. Manual calculations can be cumbersome

when dealing with more periods.

2-16


Visual

periods all for sales Average

sales average Period =index Seasonal

Seasonality

Measures the amount of seasonal variation of demand for a product

Relates the average demand in a particular period to the average demand for all periods

2-20


Visual

Seasonal Sales

Average Salesfor All Periods

2-22


Visual

Planning and Control

At each level we must answer these questions:

What are the demand priorities?

What capacity is required?

What capacity is available?

3-2

Production Plan

Business Plan

Master Production Schedule

Planning

Execution

Material Requirements

Plan

Production Activity Control and Purchasing


Visual

Typical Characteristics of the Production Plan

12-month time horizon Fluctuating or seasonal demand Plan made for product families Variety of management objectives

3-4


Visual

3-5

Developing a Production Plan

Three basic strategies can be used: Match/chase Level Combination/hybrid


Visual

Production

Demand

J F M A M J J A S O N D

3-6

Chase Strategy

Period

Un

its


Visual

Chase Strategy

Advantages: Stable inventory Varied production to meet sales requirements

Disadvantages: Costs of hiring, training, overtime, and extra shifts Costs of layoffs and impact on employee morale Possible unavailability of needed work skills Maximum capacity needed

3-7


Visual


Time

Dem

and

Demand

Production


3-8

Level Production Strategy


Visual

Level Production Strategy (cont.)

Advantage: Smooth, level production avoids labor and

capitol costs of demand matching

Disadvantage: Buildup of inventory Requires a more accurate forecast

3-9


Visual


Time

Dem

and

Demand

Production


3-10

Combination Strategy


Visual

Combination Strategy (cont.)

Produces at or close to full capacity for some part of the cycle

Produces at a lower rate (or does not produce) during the rest of the cycle

Makes use of available capacity, yet limits inventory buildup and inventory carrying costs

3-11


Visual

3-12

Make-to-Stock Production Plan

Goods are put into inventory and sold from inventory

Used when Demand is constant and predictable Only a few product options exist Delivery times are shorter than time

needed to make the product


Visual

Make-to-Stock Production Plan

Information needed Forecast by time period for the planning

horizon Opening inventory Desired ending inventory

3-13


Visual

Resource Requirements Planning

The production plan must be compared with existing resources

Are required resources available? If not, how will differences be reconciled?

3-20


Session 3

Master Planning


Visual

Master Production Schedule

States requirements for individual end items and options by date and quantity

Constrained by and supports the production plan

“Disaggregates” the production plan

3-22


Visual

Objectives of Master Scheduling

Maintain desired level of customer service Make best use of resources Keep inventories at desired level

3-23


Visual

Relationship to the Production Plan

3-25


Visual

Rough-Cut Capacity Planning

Rough-cut capacity planning checks whether critical resources are available to support the preliminary master schedule

A resource bill shows the time required for individual items on a critical resource

3-29


Visual

The MPS

The MPS is not A sales forecast A wish list A final assembly schedule

The MPS should be The anticipated build schedule Realistic and achievable

3-31


Visual

On hand = 200 units

Available-to-Promise (ATP)

Period 1 2 3 4 5 6

Customer orders 160 20 20 60

MPS scheduledreceipts 200 200 200

Available-to-promise

3-33


Visual

Planning Horizon

The planning horizon is the amount of time the master schedule extends into the future

This is normally set to cover a minimum of cumulative lead time plus time for lot sizing low-level components and for capacity changes of primary work centers

—APICS Dictionary

3-34


Session 4

Material Requirements Planning (MRP)


Visual

Objectives of MRP

To determine the materials required–What is required–How much is required–When it is required

To establish and maintain priorities

4-4


Visual

Inputs to MRP Process

MPS

MRP

Planning Data

Bill of Material

Inventory Status

4-5


Visual

Description: TablePart Number: 100Part Number Description Quantity Required Unit of Measure

306 Wooden legs 4 EA433 Wooden ends 2 EA711 Wooden sides 2 EA025 Table top 1 EA822 Hardware 1 Kit

Bill of Materials

A bill of material lists all the components needed to make one assembly

Each part has a unique part number

4-6


Visual

Bill of Materials

Single Level

Multilevel

B a se3 00

T op0 25

H a rd w a reK it

8 22

T a b le1 00

L e gs3 06

L e g B o lts3 26

F ra m e3 57

B a se3 00

B o a rds0 31

G lue0 75

T op0 25

H a rd w a reK it 8 22

T a b le1 00

4-7


Visual

Where-Used and Pegging Data

Where-Used Lists all the parents in which a component is used, whether there is a demand for the parent or not

Pegging Shows the parents creating the demand for components, the quantities needed, and when

Uses where-used logic to identify current sources of demand

May be single-level or full-level

4-9


Visual

The MRP Process

Determines What is needed How much is needed When to order

Involves MPS data Bills of material Inventory status Planning data

4-10


Visual

Lead Time, Exploding, and Offsetting

Lead time: The time from when an order is placed until the part is ready for use

Exploding: Multiplying the parent requirements by the usage quantity through the product tree

Offsetting: Placing the requirements in their proper time periods based on lead time

4-11


Visual

Gross and Net Requirements

Available inventory must be taken into account

Net requirements = gross requirements – available inventory

Example:Gross requirements 50 units

Available inventory – 20 units

Net requirements 30 units

4-14


Visual

Basic MRP Record

Lead time: 2 weeks

ItemNumber

Week

1 2 3 4 5Gross requirements 35

Scheduled receipts 20

Projected available 10 10 30 30 30 0

Net requirements 5

Planned order receipt 5

Planned order release 5

4-17


Visual

Using the Material Requirements Plan

The MRP logic will–Gross, net, offset, and explode requirements–Create planned orders–Keep priorities current

The software can provide action or exception messages

4-19


Visual

Using the Material Requirements Plan

Planner’s actions include the following: Releasing planned orders Rescheduling open orders Changing order quantities Working with others to solve problems

4-20


Session 5

Capacity Management and Production Activity Control


Visual

Capacity Management

Planning and controlling resources needed to meet production objectivesPlanning: Determining resources

needed to meet the priority planSelecting methods to make that capacity available

Controlling: Monitoring output, comparing with the plan, and taking corrective action

Capacity management occurs at each planning level

5-3


Visual

Defining Capacity

The capability of a system to perform its expected function

The capability of a worker, machine, work center, plant, or organization to produce output per time period

5-5


Visual

Capacity Planning Process

Determine the capacity available Translate the released and planned orders

into capacity required Sum up capacities required for each work

center Resolve differences between available

capacity and required capacity

5-6


Visual

Determining Capacity Available

Capacity available is“The capability of a system or resource to produce a quantity of output in a particular time period”

—APICS Dictionary

Available capacity can be calculated or measured

To calculate available capacity, identify Available time Utilization Efficiency

5-7


Visual

Available Time

Available time: depends on the number of machines, number of workers, and hours of operation

Number of machines (or number of workers) × hours of operation

What is the weekly available time for a work center that has four machines and works eight hours a day for five days a week?

5-8


Visual

Utilization

Utilization: Percentage of the time that the work center is active

Example: Work center is available 120 hours a week, but actually produces goods for 90 hours

100% hours Available

orkedactually w Hours nUtilizatio

utilization 75% 100% 120

90=×

5-9


Visual

Efficiency

Efficiency: Actual output rated againststandard output

Example: A work center is utilized 100 hours per week and produces 110 standard hours of work

%100workedactually Hours

workof hours Standard×

efficiency %110%100100110

=×=

5-10


Visual

Rated Capacity

Rated capacity = available time x utilization x efficiency

Example: A work center consists of three machines and is operated eight hours a day for five days a week. Past utilization has been 75%, and efficiency has been 110%.

Available time =

Rated capacity =

5-12


Visual

Demonstrated Capacity

Proven capacity calculated from actual performance data

Example: Over the previous four weeks, a work center produced 110, 140, 120, and 130 standard hours of work. What is the demonstrated capacity?

Demonstrated weekly capacity = standard hours/week

5-14


Visual

Load

Generated by the priority planning system (MRP)

Translates the priorities, given in units, into time required at each work center in each time period

Takes place at each planning level

5-15


Visual

Lead-Time Elements

Queue Setup Run Wait Move

Lead Time

Queue Time waiting before operation begins

Setup Time getting ready for operation

Run Time performing operation

Wait Time waiting after operation ends

Move Time physically moving between operations

Adapted from Material and Capacity Requirements Planning Certification Review Course, 1993, APICS

5-18


Visual

Scheduling Orders

To determine when orders should be started and completed on each work center

Calculate operation time required at each work center

Operation time = setup time + run time Allow for queue, wait, and move times

5-19


Visual


5-24

Production Plan

Planning

Implementcontrol Purchasing


MasterProduction Schedule

MaterialsRequirements

Planning

Capacity Control

Input/Output


Visual

Objectives of PAC

Execute the MPS and MRP Optimize use of resources Minimize work in process Maintain customer service

5-25


Visual

PAC Functions

Plan Ensure resources are available Schedule start and completion dates

Execute Gather relevant shop order information Release shop orders

Control Establish and maintain order priority Track actual performance Monitor and control WIP, lead times, and queues Report work center performance

5-26


Visual

Scheduling and Loading Techniques

Forward scheduling: Activities are schedule from a start date with the completion date of an order computed

Backward scheduling: Activities are scheduled back from the due date

Infinite loading: Assumes capacity is infinite at any work center

Finite loading: Assumes there is a definite limit to capacity at any work center

5-30


Session 6

Inventory Fundamentals


Visual

What Is Inventory?

“…Those stocks or items used to support production,…supporting activities,…and customer service…”

—APICS Dictionary

6-3


Visual

Reasons for Carrying Inventory

The only good reason for carrying inventory beyond current needs is if it costs less to carry it than not.

Inventory allows the company to operate with different production rates and batch sizes throughout the supply, production, and distribution system.

DecouplesDemand from Supply

Customer demand from Finished goods

Finished goods from Component availability

Output of one operation from Output of preceding operation

Materials to begin production from Suppliers of materials

6-7


Visual

Functions of Inventory

Anticipation Fluctuation Lot size Transportation Hedge

6-8


Visual

Inventory Objectives

Best customer service Low-cost plant operation Minimum inventory investment

6-9


Visual

Basic Problem

Balance cost of carrying inventory with costs of not carrying inventory

–Customer service–Changing production levels–Placing orders

Sum of the cost of carrying inventory and the cost of not carrying inventory should be as low as possible

6-10


Visual

Inventory Costs

Item costs Carrying costs Ordering costs Stockout costs Capacity-related costs

6-11


Visual

Item Costs

Cost of item and all costs to get item into the plant

Product Transportation Customs duties Insurance Direct material, direct labor, and factory

overhead

6-12


Visual

Carrying Costs

Carrying costs can be broken down into three categories

– Capital costs Money tied up in inventory– Storage costs Space, personnel, and

equipment– Risk costs Obsolescence, damage,

pilferage, insurance, and deterioration

These costs increase with the amount of inventory carried

6-13


Visual

Ordering Costs

Costs of placing an order with the factory or outside supplier

Costs include Production control Setup and teardown Lost capacity Purchase order

6-15


Visual

Stockout Costs

If demand during the lead time exceeds forecast and available inventory, we can expect a stockout, causing

Backorder costs Lost sales costs Lost customer costs

6-17


Visual

Capacity-Related Costs

Costs of changing production levels–Overtime/undertime–Hiring–Layoff–Training–Shift premiums

Can be avoided by leveling production(but may build inventory)

6-18


Visual

AssetsLiabilitiesOwners’ equity

RevenuesExpenses

Balance sheet accounts

Income statement accounts

Accounting Systems

Accounting systems classify activities of a company into five types of accounts.

6-20


Visual

Balance Sheet Equation

Assets = Liabilities + Owners’ equity

Assets Anything of value

Liabilities Amounts owed

Owners’ equity What is left over after liabilities are paid

6-21


Visual

Cash Flow Analysis

The inflow and outflow of cash in the business over a given period of time

To survive, a business must have the cash available to pay its bills

6-26


Visual

Cash Flow

Inventory State Effect on Cash Flow

Raw material Cash outflowWork in process Cash outflowFinished goods Cash outflowAccounts receivable paid Cash inflow

6-27


Visual

Inventory Turns

A measure of how effectively inventory is being used

Example

Annual cost of goods sold = $1,000,000

Average inventory = $500,000

dollars ininventory Averagesold goods of cost Annual

turnsInventory =

2500,000

1,000,000turnsInventory ==

6-28


Session 7

Inventory Management


Visual

How Much to Order at One Time

Management will want to Minimize sum of all costs involved Maximize customer service

Management has to make decision rulesMethods of deciding how much to order at one time:

Lot-for-lot Fixed order quantity Economic order quantity

7-3


Visual

Lot-for-Lot

Only required amount is ordered No unused lot-size inventory is created Is used

–For dependent demand items–For expensive components (A items)–In a Just-in-Time (JIT) environment

7-4


Visual

Fixed-Order Quantity

Specific amount is ordered each time an order is placed

Is quick and simple Is often made on the basis of what seems

reasonable Does not always produce the best results

7-5


Visual

Economic Order Quantity

Assumes that Demand is relatively constant and known Items are produced or purchased in lots or

batches Order preparation costs and inventory

carrying costs are constant and known Replacement occurs all at once

7-6


Visual

Average Inventory and Number of Orders Per Year

Weekly demand = 100 units; order quantity is 200 units

Reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, 3rd edition, Prentice-Hall, 1998

units 100 = 2

200 =

2quantity Order

=inventory size lot Average

yearper orders 26 = 200

52 x 100 =

quantity Orderdemand Annual

= yearper orders of Number

7-7


Visual

Order Quantity

If the order quantity (Q) increases Annual cost of carrying increases Annual cost of ordering decreases

We want an order quantity where the sum of these two costs is a minimum.

7-8

ordering of cost x Qdemand Annual

= ordering of cost Annual

carrying of cost x cost unit x 2Q

= carrying of cost Annual


Visual

iC2AS

= EOQ

Economic Order Quantity Formula

Where

A = Annual usage in units

S = Ordering cost in dollars

i = Annual inventory carrying cost as a decimal

C = Unit cost

7-10


Visual

units 200 = $5 x 0.2

$20 x units 1,000 x 2 = EOQ

Economic Order Quantity Formula

For example, if

A = 1,000 units

S = $20 per order

i = 20% = 0.2

C = $5 per unit

7-11


Visual

When to Place an Order

If an order is placed late, there is the possibility of a stockout

If an order is placed early, there will be extra inventory and cost

A system is needed to tell when to order Common systems include

– Order point system– Periodic review system– Materials requirements planning

7-14


Visual

Order Point System

Order point = demand during lead time + safety stockOP = DDLT + SS


7-15

Qu

anti

ty

LT

OPSS


Visual

Order Point Formula—Example

Demand = 100 units per weekLead time = 4 weeksSafety stock = 100 unitsOP = DDLT + SS

= 100 (4) + 100= 500

Place an order when 500 units are on hand

7-16


Visual

Order Point

Order quantities are usually fixed Order point is determined by the average demand

during the lead time Intervals between replenishments are not

constant

Order point = Demand during lead time + safety stock

7-17

stocksafety 2quantity Order

inventory Average


Visual

Safety Stock

Safety stock is used to prevent a stockout The amount of safety stock carried

depends on– Variability of demand during the lead time– Frequency of ordering– Desired service level– Length of the lead time– Ability to forecast and control lead times

7-19


Visual

Service Levels

The cost of carrying safety stock plus the cost of a stockout should be a minimum

Costs of a stockout:– Cost of backorder– Cost of lost sales– Cost of lost customers

All are difficult to calculate Management should state the number of

stockouts per year that is tolerable

7-20


Visual

Determining When to Order

Two basic systems

Two-bin system

Perpetual inventory record system

7-21


Visual

Figure reprinted with permission, J.R. Tony Arnold, Introduction to Materials Management, second edition, Prentice-Hall, 1996

Periodic Review System

The quantity of an item on hand is determined at fixed intervals and an order is placed.

Review intervals are fixed Order quantities vary

7-23

TARGET LEVEL


Visual

Cycle Counting

Inventory is counted continually throughout the year

Some items are counted each day All items are counted a predetermined

number of times a year depending on their importance

Cycle counting uses trained and dedicated personnel

7-30


Visual

Cycle Counting

Purpose: To identify items in errorand eliminate causes of error

Advantages Timely detection and correction of

problems Little or no loss of production Identification and elimination of causes of

error

7-31


Session 8

Physical Distribution


Visual

Concept of ABC Inventory Control

A small number of items will represent the most critical values.

ABC inventory control separates the most significant items from the less important.

It is used to determine the degree and level of control required.

8-3


Visual

ABC Classification

A Items 20% of the items account for80% of the total dollar usage

B Items 30% of the items account for15% of the total dollar usage

C Items 50% of the items account for5% of the total dollar usage

8-4


Visual

ABC Process

Establish the item characteristics that influence the results of inventory management:

Annual dollar usage Scarcity of material Quality problems

Classify items into groups based on the criteria established

Apply a degree of control in proportion to the importance of the group

8-5


Visual

Example of ABC Analysis

Annual Annual Part Number Unit Usage Unit Cost $ Usage

1 1,100 $ 2 $ 2,200 2 600 40 24,000 3 100 4 400 4 1,300 1 1,300 5 100 60 6,000 6 10 25 250 7 100 2 200 8 1,500 2 3,000 9 200 2 40010 500 1 500

Total $38,250

8-6


Visual

Control Based on ABC Classification

Two general rules to follow Have plenty of low-value items. Use control effort saved to reduce the inventory of

A items.

A items: Tight control

B items: Normal control

C items: Simplest possible control

8-9


Visual

Physical Distribution

The physical supply and distribution system depends on many factors, including

Channels of distribution Types of markets served

– Geographic dispersion– Number of customers– Size of orders

Characteristics of the product Type of transportation available

All are interrelated

8-10


Visual

Physical Distribution Activities

Transportation Distribution inventory Warehousing Materials handling Protective packaging Order processing and communication

8-11


Visual

8-15

Warehousing

Benefits: Provides a place to store and protect inventory Reduces transportation costs Improves customer service levels

Objectives: To provide timely customer service To keep track of items To minimize cost To provide communication links with customers


Visual

8-16

Warehousing

Activities: Receive, identify, and store goods Pick, group, and load goods for shipment Dispatch the shipment Operate an information system

Complexity depends on Number of stockkeeping units (SKUs) Quantity of each SKU Number and frequency of receipts and shipments


Visual

8-17

Warehouse Management Objectives

Optimize use of space Make effective use of labor and equipment

– Select the best mix of labor and equipment– Provide ready access to all items– Perform efficient movement of goods

These efforts depend on Stock location Order picking and assembly Packaging


Visual

Stock Location Objectives

To provide the required customer service To keep track of where items are stored To minimize effort to receive, put away,

and retrieve items

8-18


Visual

Stock Location

Two basic systems Fixed location Floating (random) location

The system used depends on Type of goods being stored Type of storage facilities needed Throughput Size of orders

8-19


Visual

Unitization

Unitization is the consolidation of several units into larger units for fewer handlings

Unit load: Made up of a number of items or bulky material, so arranged or confined that the mass can be picked up or moved as a single unit

Examples: Pallets, sheets, racks, containersUnitization can be successive:

There should be some dimensional relationship among the primary package, the carton, the unit load, the vehicle, and the warehouse.

8-22


Visual

Distribution Inventory Objectives

To provide the required level of customer service

To minimize the cost of transportation and handling

To interact with the factory to minimize scheduling problems

8-24


Visual

Pull System

Each distribution center orders from central supply what it needs when required without regard for

Needs of other distribution centers Available inventory at central supply Production schedule at the factory

Advantage: Allows each center to operate independently

Disadvantages: Lack of coordination, poor customer service, disrupted factory schedules

8-27


Visual

Push System

All forecasting and order decisions are made centrally.

Advantage: Coordination among factory, central supply, and the distribution centers

Disadvantage: Difficulty in reacting to local demand

8-28


Visual

DRP


8-29


Visual

Rail Transportation

Is best able to move large volumes of bulky goods long distances over land

Provides less frequency of departure than trucks Provides good speed of transit over long

distances Provides reliable service Provides flexibility in types of goods carried Is cheaper than road for large quantities of bulky

cargo

8-32


Visual

Road Transportation

Has low capital cost compared with rail Provides door-to-door service Provides fast, flexible service Is particularly suited to distribution of small

volume goods to a dispersed market

8-33


Visual

Air Transportation

Provides speedy service over long distances

Uses passenger aircraft as well as freight aircraft

Can go anywhere there is a suitable landing strip

Has high cost Is suitable for high-value, low-weight cargo

and for emergency items

8-34


Visual

Water Transportation

Has low operating costs per ton-mile

Is slow and usually not door-to-door

Is most useful for moving low-value, bulky cargo over long distances where water routes are available

8-35


Visual

Pipeline Transportation

Low operating costs

Impervious to weather

Move large volumes continuously

8-35a


Visual

Line-Haul Costs

Include fuel, wages, wear and tear Depend on the distance moved, not the

weight moved

Example:

Line-haul cost is $4 per mile, Distance moved is 200 miles

If 3 tons are shipped LHC/ton = =

If 5 tons are shipped LHC/ton = =

8-37


Visual

Shipping Costs

Line-haul Depend on the distance moved

Pickup and delivery Depend on the number of pickups and weight

Terminal handling Depend on the number of times a shipment is handled, loaded, and unloaded

Billing and collecting Depend on the number of shipments made

8-38


Visual

Total Transportation Costs

To minimize shipping costs Decrease line-haul costs by increasing

weight shipped Consolidate shipments to reduce

–Terminal handling costs–Pickup and delivery costs–Billing and collecting costs

8-39


Session 9

Quality Management and Purchasing


Visual

Total Quality Management (TQM)

“…TQM is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work.”

—APICS Dictionary

9-3


Visual

Total Quality Management (TQM)

Key principles and characteristics Customer focus

Meeting or exceeding the user’s expectations Costs of quality

Identifying all the costs associated with quality Taking action

Using problem-solving toolsInvolving the employeeContinuously improving the process

9-4


Visual

The Cost/Productivity Advantage

Before AfterImprovement Improvement

Scrap rate 13% 5%Order size 100 100Number produced 115 105Production costs

@ $10 per unit $1,150 $1,050Sales revenue

@ $15 per unit $1,500 $1,500Profit $ 350 $ 450

9-6


Visual

Costs of Quality

Costs of failure–Internal–External

Costs of appraisal Costs of prevention

9-7


Visual

What Is Quality?

“Conformance to requirements or fitness for use….”

—APICS Dictionary

Better definition:

As a minimum, all parts must be within specification, and the less the variation from the center of the specs, the better.

9-10


Visual

Quality Tools

Pareto chart Cause-and-effect diagram Stratification or scatter diagrams Check sheet Histogram Graph and control chart

9-13


Visual

Control Charts—Key Points

Filled in by operators, not inspectors Record the average and range of the

process Control limits are set to indicate the normal

variation of the process Control charts do not show product

specifications

9-19


Visual

Limitations of Inspection

Is expensive Does not add value for the customer Does not prevent further defects Is not dependable Gives no information at the source

(feedback)

9-20


Visual

Purchasing

“The term used in industry and management to denote the function of and the responsibility for procuring materials, supplies, and services.”

—APICS Dictionary

9-21


Visual

Purchasing Objectives

To obtain goods and services of the quality and quantity needed

To obtain goods and services at the right cost

To ensure the best possible service To identify qualified suppliers and maintain

good relations

9-22


Visual

Establishing Specifications

What to buy depends on Quantity Cost considerations What the item should do

–Quality level needed–Those characteristics of product determined

by final use Function, quality, service, and price are

interrelated

9-27


Visual

Selecting Suppliers

Factors in selecting suppliers Technical ability Manufacturing capability Reliability After-sales service Location Price Financial stability Management attitude

9-29


Session 10

Just-in-Time Manufacturing


Visual

Define Just-in-Time Manufacturing

What is Just-in-Time manufacturing?

A popular definition:Continuous improvement and the planned elimination of waste

10-3


Visual

Value

Value should be defined from the customer’s point of view

Any activity that does not add value from the customer’s point of view is waste

10-4


Visual

The Product Cycle


10-5


Visual

Waste Caused by Manufacturing

Process Methods Movement Product defects Waiting time

–Planned–Unplanned

Overproduction Inventory

10-9


Visual

How Lower Inventories Reduce Waste

Faster response to engineering changes Faster reaction to quality problems Reduced material handling costs Reduced control costs Better visibility

_______________________________________________________________

10-10


Visual

Continuous Production

Narrow product line Dedicated equipment Easily automated Work flows along constant path Little inventory Short lead times

10-11


Visual

Process Layout

Wide range of product General-purpose machinery Products move in lots or batches Long queues at the work centers High level of work in process Long lead times

10-13


Visual

Work Cells

The use of work cells can result in Reduced queue Simplified production activity control Reduced floor space Reduced material movement Immediate feedback

These advantages can lead to Greater production flexibility Smaller lot sizes Improved quality

10-15


Visual


Dedicated Production Lines

10-16


Visual

Setup Reduction Indirect Benefits

Reduced lot size Reduced queue and manufacturing lead

time Reduced work-in-process inventory Improved quality Improved process and material flow Greater flexibility

10-17


Visual

Total Quality Management

Total quality management– Reduces lot size, which will reduce lead

time, which will reduce WIP inventory

Lot sizes are reduced by Lowering fixed costs per batch Decreasing destructive testing Improving yield

10-18


Visual

Lead Time Reduction

Smaller lot sizes reduce lead time by reducing

Operation time Queue time Wait and move times

Reduced lead time reduces the average work-in-process inventory

10-19


Visual

Preventive Maintenance

Costs associated with performing preventive maintenance

Parts and materials for the service Technician’s time to perform the service Lost production time (planned) while the

machine is out of service

10-23


Visual

Preventive Maintenance

Costs associated with not performing preventive maintenance

Damage to other parts and equipment Defective product Unscheduled overtime for repair crews Idle production workers Lost production time; lost capacity Late deliveries to customers

10-24


Visual

Total Productive Maintenance

“Preventive maintenance plus continuing efforts to adapt, modify, and refine equipment to increase flexibility, reduce material handling, and promote continuous flows. It is operator-oriented maintenance with the involvement of all qualified employees in all maintenance activities.”

—APICS Dictionary

10-25


Visual

Employee Empowerment

“The practice of giving nonmanagerial employees the responsibility and the power to make decisions regarding their jobs or tasks…”

—APICS Dictionary

Broad definition Moving the day-to-day decision-making of a company lower in the

management structure

Narrow definition Giving all employees the authority to stop the production of defective

products

10-27


Visual

Employee Involvement

Employee involvement requires cooperation and involvement of everyone

Employee involvement requires that employees be versatile

Workers are responsible for –Performance improvement–Preventive maintenance–Problem solving

Managers must become facilitators

10-28


Visual

Manufacturing Planning and Control

Manufacturing planning and control answers these questions:

What are we going to make? What do we need to make it? What do we have? What do we need to get?

10-29


Visual

Planning and Control with JIT

JIT simplifies the manufacturing process and the planning and control process:

Forecasting– Shortens lead times at all planning levels

Production planning– Shortens lead times– Improves supplier relations

Master scheduling– Levels material and capacity schedules – Shortens lead times– Encourages schedule stability

10-30


Visual

Planning and Control with JIT

Material requirements planning Is date and quantity driven Does not require netting Simplifies and flattens bills of material

Capacity management Levels capacity throughout the plan

Inventory management Reduces inventory Reduces tracking of components Backflushes to relieve inventory

10-31

Documents

BSCM.all10.Modules.condensed