5_session_lean Supply Chain Design 2014

8/10/2019 5_session_lean Supply Chain Design 2014

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SESSION#7: Design of Lean Supply Chains

Design of Lean Supply Chain:

Strategies for Inventory Reduction in

a Supply Chain

.Professor

Department of Management Studies

Indian Institute of Technology Delhi

Hauz Khas, New Delhi 110 016, India

Phone: +91-11-26596421 (O); 2659-1991(H); (0)-+91-9811033937 (m)Fax: (+91)-(11) 26862620

Email: [email protected]://web.iitd.ac.in/~ravi1

What is an Inventory System

Inventory is defined as thestock of any item orresource used in anorganization.

An Invent ory System ismade up of a set of policiesand controls designed tomonitor the levels of

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inventory and designed toanswer the followingquestions:

What levels should bemaintained?

When stock should bereplenished? and

How large ordersshould be? i.e. what isthe optimal size of theorder?

Inventories: Why and Why not

CONS

Large inventories hide operational

problems;

Financial costs to carrying excess inventory;

Risk of damage;

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Tracking and accounting costs; Risk of obsolescence and depreciation;

PROS

Allows managers to decouple operations;

Protects one system part from disruptions in others;

Reduces number of times orders are placed;

Provides a hedge against inflation;

Allows quantity discounts from suppliers;

Allows firms to meet unexpected demand.


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Creating a Lean Supply Chain

What is lean? A philosophy that seeks to shorten the time

between the customer order and the shipment tocustomer by eliminating waste John Shook

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We can reduce lean to three elements (Womackand Jones)--

Flow

Pull

Striving for excellence

Elements of a Lean Supply Chain

Lean (JIT) Purchasing

Lean Logistics or JIT Transportation

Lean (JIT) Operations: Toyota Production

System

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[A] For Fast Moving Items

Buffer Stock = [Lm D2 + Dm

2L

2 ]0.5

Reduction in Buffer stock by reducing uncertainty in

demand and supply

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, Lm = Mean Lead Time

Dm = Mean Demand

D = Standard Deviation of demand

L = Standard Deviation of lead time

= Factor for a given level of service


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[A] For Fast Moving Items

Buffer Stock = [Lm D2 + Dm

2L

2 ]0.5

Reduction in Buffer stock by reducing uncertainty in

demand and supply

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If better demand forecasting is done, Dwill be less

=== Leading to lesser Buffer stock

If Lead time (L) monitoring is done, Lmand

Lwill be less

=== Leading to lesser Buffer stock

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STRATEGY-1: Avoid 99% syndrome for all items

because for every 1% increase in Service level Buffer

Stock increases substantially after 90% level of service

99%

100%

90%

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Buffer Stock

Service Level

50%

Increase in BufferStock for over 99% ofservice level


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STRATEGY 2:Standardization,Variety Reduction &

Codification

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STRATEGY-2: Standardization,Variety Reduction

& Codification

If n varieties can be standardized into 1,

then required inventory is (1/ root of n) and

system cost is (1/ root of n).

If 2 parts can be standardized into 1 then

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nearly 30% reduction in inventory.

If 4 parts can be standardized into 1 then 50 %

reduction & so on.

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ven or eve opmen


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STRATEGY 3: Better vendor development to reduce

the lead time and increased quality level.

Develop long term partnership with vendor

Develop vendors by providing

Training

Quality and Inspection capability

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Technology transfer

Assured long term contract

Reliable vendors:

Limited in number

But trusted ones

Located near by

STRATEGY 4: Vendor

Mana ed Inventor VMI

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Vendor Managed Inventory

VMI transfers inventory management (and

possibly ownership) from the customer to

the supplier

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VMI synchronizes the supply chain

through the process of collaborative

order fulfillment


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VMI in use today

In the Factory

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At customer sites

Advantages of VMI

Customer

less resources for inventory

management

assurance that product will be

available when re uired

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Vendor

more freedom in when & how to

manufacture product and make

deliveries

better coordination of inventory levels

at different customers

better coordination of deliveries todecrease transportation cost

VMI Essentials

TRUST

Accurate information provided on a timely

basis

Inventory levels that meet demands

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Confidential information kept confidential

TECHNOLOGY

Automated electronic messaging systems to

exchange sales and demand data, shipping

schedules, and invoicing


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JIT Purchasing

Characteristics of J IT Purchasing--

Purchase in small lots with frequent deliveries

Mutual, consistent improvement by the buyer andsupplier

Collaborative efforts between buyer and supplier

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Efficient point-to-point communication linkages

The rights--

right quantity

right time

right quality

JIT Purchasing

What kind of items are best suited

for a ju st-in-time purchasing

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Supplier Relationships

Long-term, steady relationships with a few suppliers.

Negotiation based on a long term commitment toproductivity and quality improvement.

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Interested in supplier capabilities.

Continuous improvement.

Product/process technology.

Design for manufacturability.

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STRATEGY 6: Lean Logistics

Production

Inspection

Packing

Storage

Supplier Production

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Shipping

Transport

Receiving

Inspection

Storage

Production

Trucking

Customer

Transport

Production

TraditionalJust-in-Time


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Lean Logistics

Replacement of expendable packaging withreusable containers

Frequent deliveries made to the point of use

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(closed loop systems)

Lean Logistics

Long-term dedicated contract carriage replaces

commercial carriage as the primary mode of

transportation

Focus on frequent deliveries of small quantities of

many parts versus large quantities of fewer parts

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Modified shipping and handling equipment

Side loading trucks

Smaller trucks (similar to beverage trucks)

Delivery at Point of use

STRATEGY 7:

CENTRALISATION OF

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Supplier

STRATEGY 7: Centralization of stocking in a multi-echelon distribution system

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Traditional: Decentralized System

Warehouses

Retailers

Supplier

Centralized Systems

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Warehouse

Retailers

STRATEGY 8: Staggering the

supplies

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STRATEGY 8: Staggering the

supplies

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[B] Slow Moving Items: Expensive

slow moving spares

(1)Specials-required only at predetermined

date in scheduled shut down or project

materials.

Policy: MRP policy.

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Do not stock but place an order just in time so

that it arrives on a due date.

Re uired date

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L

Order ReleasedDate (ORD)

KL

ORD

If L is uncertain with (Lm, L):

then KL= safety lead time

K is a factor which depends up on acceptable risk of delay


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Adequate Warning Spare

If lead time is less than the deterioration

signal in the item

then do not stock but place an order onwarning.

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If lead time is reduced by faster mode theninventory can come down substantially

Procurement simplification and expediting is abetter strategy than stocking

[C] STRATEGY: Spare bank or

spare pooling

Consider these two systems:

Decentralized store#1 Project site#1

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Project site#2Decentralized store#2

Project site#2

SupplierCentralized

store

Project site#1

[C] Spare parts pooling

If there are n locations then keeping 1/ root n

centrally will meet the demand adequately

This is particularly useful for slow-moving

expensive spares:

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Turbine rotor

Project site#2

SupplierCentralized

store

Project site#1


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[C] Indadequate Warning Spares

One for one ordering

[(s-1), s] policy:

s is the optimal number of spares to be

stocked which will be typically 1 or 2.

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[D] Non-moving materials: Dead

stock

Return to vendor

Redistribute among other locations

Reuse elsewhere

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Donate to earn goodwill

Dispose off optimally: Inventory control in

reverse gear

Disposal Policy: Frequency of disposal and

process

Inventory pull systems/visible signals

Facility layout changes/work cells

Set up reductions

Level build schedules

Uniform loadin

Implementing the Lean Supply Chain

through focus on Lean Operations

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Total quality and continuous improvement

Standardized material handling/containers

Product and process simplification

Total preventive maintenance

Flexible workforce

Teamwork

Right performance measures


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Find the best supplier and engage early in the

design process Partner with key suppliers that have high

capability for design and supply

Implementing the Lean Supply Chain

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where you build your product

Shorten the supply chain by having suppliersclose, frequent deliveries, and leveledproduction plans

Develop pull systems with suppliers

5_session_lean Supply Chain Design 2014

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