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8/3/2019 Supply Chain Modeling
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Supply chain modeling
SUPPLY CHAIN OPTIMIZATION
Supply chain optimization is the application of processes and tools to ensure the optimal
operation of a manufacturing and distribution supply chain.
This includes the optimal placement of inventory within the supply chain, minimizing operating
costs (including manufacturing costs, transportation costs, and distribution costs).
This often involves the application of mathematical modelling techniques using computer
software
supply chain managers are trying to maximize the profitable operation of their
manufacturing and distribution supply chain. This could include measures like:
maximizing gross margin return
, minimizing total operating expenses
maximizing gross profit of products distributed through the supply chain.
Supply chain optimization addresses the general supply chain problem of
delivering products to customers at the lowest total cost and highest profit.
Supply chain optimization has applications in all industries manufacturing and/or
distributing goods, including retail, industrial products, and consumer packaged goods
(CPG).
Linear programming (LP, or linear optimization) is a mathematical method for
determining a way to achieve the best outcome (such as maximum profit or lowest cost)
in a given mathematical model for some list of requirements represented as linear
relationships.
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Linear programming can be applied to various fields of study. It is used most extensively
in business and economics, but can also be utilized for some engineering problems.
Industries that use linear programming models include
transportation,
energy,
telecommunications,
manufacturing
. It has proved useful in modeling diverse types of problems in planning, routing,
scheduling, assignment, and design
Uses
Likewise, linear programming is heavily used in microeconomics and company
management, such as planning, production, transportation, technology and other
issues.
Although the modern management issues are ever-changing, most companies would
like to maximize profits or minimize costs with limited resources. Therefore, many
issues can be characterized as linear programming problems.
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RFID TECHNOLOGY
NEED FOR RFID
1) Error free work.
2) Improves the efficiency of work
3) Need of rfid increases when volume of the business is increased
4) Tracking becomes possible
5) Retail sector is using for theft control in retail outlets
6) RFID helps in reducing paper works
radio-frequency identification (RFID) is a technology that uses radio waves to transfer data
from an electronic tag, called RFID tag or label, attached to an object, through a reader for the
purpose of identifying and tracking the object.
Some RFID tags can be read from several meters away and beyond the line of sight of the
reader. The application of bulk reading enables an almost-parallel reading of tags.
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APPLICATION OF RFID
Manufacturing and Processing
Inventory and production process monitoring
Warehouse order fulfillment
Supply Chain Management
Inventory tracking systems
Logistics management
Retail
Inventory control and customer insight
Auto checkout with reverse logistics
Security
Access control
Counterfeiting and Theft control/prevention
Location Tracking
Traffic movement control and parking management
Wildlife/Livestock monitoring and tracking
RFID advantages over bar-codes
No line of sight required for reading
Multiple items can be read with a single scan
Each tag can carry a lot of data (read/write)
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Individual items identified and not just the category
Passive tags have a virtually unlimited lifetime
Active tags can be read from great distances
DRIVERS OF SUPPLY CHAIN
LOGISTIC DRIVERS
1) Facilities
places where inventory is stored, assembled, or fabricated
production sites and storage sites
2) Inventory
raw materials, WIP, finished goods within a supply chain
inventory policies
3) Transportation
moving inventory from point to point in a supply chain
combinations of transportation modes and routes
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CROSS FUNCTIONAL DRIVERS
4) Information
data and analysis regarding inventory, transportation, facilities
throughout the supply chain
potentially the biggest driver of supply chain performance
5) Sourcing
functions a firm performs and functions that are outsourced
6) Pricing
Price associated with goods and services provided by a firm to
the supply chain
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1) FACILITIES
Components of facilities decisions
a) Location
centralization vs. decentralization
b) Capacity
c) Manufacturing methodology (product focused versus
process focused)
d) Warehousing methodology (SKU storage, job lot storage,
cross-docking)
2) Inventory
COMPONENTS OF INVENTORY
Cycle inventory
Average amount of inventory used to satisfy demand between
shipments
Depends on lot size
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Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible
production
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness
3) TRANSPORTATION
Components of transportation
u Mode of transportation:
u Route and network selection
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4) Information
Push (MRP) versus pull (demand information transmitted
quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
5) Sourcing
Components of sourcing
In-house versus outsource decisions
Supplier evaluation and selection
Procurement process
6) Pricing
Components of pricing
Pricing and economies of scaleEveryday low pricing versus high-low pricing
Fixed price versus menu pricing
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MATERIAL REQUIREMENT PLANNING
Material requirements planning (MRP) is a production planning and inventory control
system used to manage manufacturing processes. Most MRP systems are software-
based, while it is possible to conduct MRP by hand as well.
An MRP system is intended to simultaneously meet three objectives:
Ensure materials are available for production and products are available
for delivery to customers.
Maintain the lowest possible material and product levels in store
Plan manufacturing activities, delivery schedules and purchasing activities
The scope of MRP in manufacturing
The basic function of MRP system includes inventory control, bill of material processing and
elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan
manufacturing, purchasing and delivering activities.
"Manufacturing organizations, whatever their products, face the same daily practical problem - that
customers want products to be available in a shorter time than it takes to make them. This means
that some level of planning is required
. Making a bad decision in any of these areas will make the company lose money. A few examples
are given below:
If a company purchases insufficient quantities of an item used in manufacturing (or the wrong
item) it may be unable to meet contract obligations to supply products on time.
If a company purchases excessive quantities of an item, money is wasted - the excess quantity
ties up cash while it remains as stock and may never even be used at all.
Beginning production of an order at the wrong time can cause customer deadlines to be missed.
MRP is a tool to deal with these problems. It provides answers for several questions:
What items are required?
How many are required?
When are they required
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MANUFACTURING RESOURCE PLANNING
Manufacturing resource planning (MRP II) is defined by APICS as a method for the effective
planning of all resources of a manufacturing company
BASIC FUNCTION OF MRP 2
Master production schedule (MPS)
Bill of materials (BOM) (technical data)
Production resources data (manufacturing technical data)
Inventories and orders (inventory control)
Purchasing management
Material requirements planning (MRP)
Capacity planning or capacity requirements planning (CRP) Standard costing (cost control)
BENEFITS OF MRP 2 ARE
MRP II systems can provide:
Better control of inventories
Improved scheduling
Productive relationships with supplier
Improved design control
Better quality and quality control
Reduced working capital for inventory
Improved cash flow through quicker deliveries
Accurate inventory records
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Collaborative planning and replenishment Forecasting
Collaborative Planning, Forecasting and Replenishment (CPFR) is a concept that aims to
enhance supply chain integration by supporting and assisting joint practices. CPFR seeks
cooperative management of inventory through joint visibility and replenishment of productsthroughout the supply chain. Information shared between suppliers and retailers aids in planning
and satisfying customer demands through a supportive system of shared information. This
allows for continuous updating of inventory and upcoming requirements, making the end-to-end
supply chain process more efficient. Efficiency is created through the decrease expenditures for
merchandising, inventory, logistics, and transportation across all trading partners.
9 STEPS OF CPRF
Step1. Develop Front-End Agreement: Roles, Measurement,Readiness
Step2. Create Joint Business Plan: Strategies and Tactics
Step3. Create Sales Forecasts: Buyer and supplier both createcustomer-demand forecasts
Step4. Identify Exceptions in Sales Forecasts
Step 5. Resolve Exceptions: Agree on single forecast or agree todisagree
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Step 6. Create Order Forecasts: Buyer and Supplier both createplans for buyer orders.
Step 7. Identify Exceptions in Order Forecasts
Step 8. Resolve Exceptions: Agree on single plan for buyerorders
Step 9. Order Generation
BENEFITS OF CPRF SYSTEM
Increased inventory turns (i.e, lower buffer inventory)
Increased fill-rate for the SKU’s involved
Higher levels of customer service
CPFR also implemented in B2B exchanges such asWorldwide Retail Net
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CHALLENGES FACED BY CPFR SYSTEM
Buyer and supplier must develop trust that each will treat theother fairly and honestly.
Pre requisites to do that incentives to do so.
Conflicts with contractors
At technical level, buyers and suppliers must develop a commonlanguage for identifying products and making decisions aboutthem.
System must be developed for linking the buyers and suppliersbusiness processes.
This will involve system challenges and Training.
Security level protocols must be implemented that will safeguardboth partners form leaks of proprietary information.
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