Chapter 18 of Business Dynamics. The Manufacturing Supply Chain This chapter adapts the stock...
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Transcript of Chapter 18 of Business Dynamics. The Manufacturing Supply Chain This chapter adapts the stock...
Chapter 18 of Business Dynamics
The Manufacturing Supply Chain
This chapter adapts the stock management structure of the previous chapter to represent the supply chain in manufacturing firms
The stock management structure…
Is broken up into An order fulfillment structure A production starts structure A demand forecasting component
Stock S
Adjustment forStock AS
Desired Stock S*
Stock AdjustmentTime SAT
Loss Rate
Desired AcquisitionRate DAR
Supply Line SLAcquisition Rate
AROrder Rate OR
Acquisition LagAL
Expected LossRate EL
IndicatedOrders IO
Adjustment forSupply Line ASL
Desired SupplyLine SL*
Supply Line Adjustmenttime SLAT
AverageLifetime L
Expected AcquisitionLag EAL
Overview Production Model
Work in ProcessInventory
InventoryProduction Rate
Shipment RateProduction StartRate
Customer OrderRate
Order Fulfillment
demandForecasting
ProductionScheduling
B
WIP Control
B
Inventory Control
B
Stockout
InventoryShipment Rate
InventoryCoverage
Customer OrderRate
Desired ShipmentRate
Order FulfillmentRatio
MaximumShipment Rate
Table for OrderFulfillment
Work in Process InventoryProduction RateProduction Start
Rate
Adjustment forWIP
Desired ProductionStart Rate
ManufacturingCycle Time
Desired WIPWIP Adjustment
Time
DesiredProduction
ExpectedOrder Rate
Desired Inventory Desired InventoryCoverage
Safety StockCoverage
Minimum OrderProcessinig Time
Adjustment forInventory
InventoryAdjustment Time
Key management decisions are made by
Order Fulfillment Production Scheduling
Three Balancing Loops
Stockout loop regulates shipments as inventory varies
Inventory and WIP Control Loops adjust production starts to move the levels of inventory and WIP toward their desired levels
In this initial model there are…
No capacity constraints (from either labor or capital)
No stocks of materials
Production Structure
InventoryWork in Process
InventoryProduction StartRate
Production Rate
ManufacturingCycle Time
Production
Production Rate =
DELAY3(Production Start Rate, Manufacturing Cycle time)
Terms
Manufacturing Cycle Time—the average transit time for all items aggregated together in the model
Manufacturing delay is being modeled as a fourth-order material (flow) delay
An Order Fulfillment Structure
InventoryShipment Rate
InventoryCoverage
Customer OrderRate
Desired ShipmentRate
Order FulfillmentRatio
MaximumShipment Rate
Table for OrderFulfillment
Desired InventoryCoverage
Safety StockCoverage
Minimum OrderProcessinig Time
InventoryAdjustment Time
Table for Order Fulfillment
From Fig. 18-3
Desired Shipment Rate =
Customer Order Rate
Order Fulfillment Ratio =
Table for Order Fulfillment(Maximum Shipment Rate/Desired Shipment Rate)
Minimum Order Processing Time =
6 Is a constant
Maximum Shipment Rate =
Inventory/Minimum Order Processinig Time
Safety Stock coverage =
6 Is a constant
Time to Average Order Rate =
6 Is a constant
Desired Inventory coverage =
Minimum Order Processing Time =
6 Is a constant
Desired Inventory =
whatever
Adjustment for Inventory =
Difference between desired inventory and actual inventory, all divided by the Inventory Adjustment Time
Inventory Adjustment Time =
6 Is a constant
A production starts structure
Work in Process InventoryProduction RateProduction Start
Rate
Adjustment forWIP
Desired ProductionStart Rate
ManufacturingCycle Time
Desired WIPWIP Adjustment
Time
DesiredProduction
ExpectedOrder Rate
Desired Inventory
Adjustment forInventory
InventoryAdjustment Time
Manufacturing Cycle time =
6 Is a constant
Desired WIP =
Manufacturing Cycle Time * Desired Production
This is an implementation of Little’s Law
WIP Adjustment Time =
6 Is a constant
Adjustment for WIP =
Guess: f(Desired WIP, WIP Adjustment time, Work in Process Inventory)
Desired Production =
MAX(0, Expected Order Rate + Adjustment for Inventory)
Desired Production Start Rate =
Adjustment for WIP + Desired Production
Production Start Rate =
MAX(0, Desired Production Start Rate)
A demand forecasting component
This structure simply smoothes the customer order rate, much like exponential smoothing would do to provide a realistic model of the forecasting process used in many firms
The demand forecasting structure
Customer OrderRate
ExpectedOrder Rate
Change in ExpOrders
Time to AverageOrder Rate
What is the equation for Change in Exp Orders?
Typical constants
Minimum order processing time = 2 wks Safety Stock Coverage = 2 wks Manufacturing Cycle Time = 8 wks Inventory Adjustment Time = 8 wks WIP Adjustment Time = 2 wks
Initial Stocks for Equilibrium
Initial Inventory = Desired Inventory\ Initial WIP = Desired WIP Initial Expected Order Rate = Customer
Order Rate
These are all the initial conditions needed to create an initial equilibrium
Behavior—Inventory
Inventory drops below desired inventory
Inventory vs. Desired Inventory
60,000
50,000
40,000
30,000
20,000
0 5 10 15 20 25 30 35 40 45 50Time (Week)
Inventory : run2Desired Inventory : run2
Behavior—The RatesThe Rates
15,000
13,250
11,500
9,750
8,000
0 5 10 15 20 25 30 35 40 45 50Time (Week)
Customer Order Rate : run2Production Rate : run2Shipment Rate : run2Production Start Rate : run2
What the rate BOT charts tell us Amplification of the customer order rates
by the production starts rate is unavoidable This is what causes the bull whip effect in
supply chains, especially when suppliers are linked to the manufacturer by JIT Kanban or signaling systems
There is a phase lag between receipt of the order and its fulfillment
There is no significant oscillation
What about backlogs?
Boeing, like not other manufacturer, carries backlogs stretching out years.
Boeing is a make to order manufacturer Consideration of backlogs modifies the
order fulfillment structure
The backlog structure
Inventory
ShipmentRate
B
-
+
DesiredShipment
Rate
+
BacklogOrderRate
OrderFulfillment
Rate
+
+
+
TargetDelivery
Delay
-
B
OrderFulfillment
DeliveryDelay+ -
Backlog equations
What is the equation for backlog? The equation for delivery delay is
formulated from one of the most important principles in Operations Management—Little’s Law: Delivery delay = backlog/order fulfillment
rate Desired Shipment Rate = Backlog/Target
Delivery Delay
More Backlog Equations
Order fulfillment rate = shipment rate These are, however, totally different
entities Shipment rate is a physical flow Order fulfillment rate is an information
accounting that reduces the amount of backlog within the computer’s database
Materials Inventory
ProductionStart Rate
DesiredProductionStart Rate
B
WIP Control
+
+
+
<ShipmentRate>
-
MaterialsInventory
MaterialDelivery
Rate
MaterialUsage Rate
MaterialUsageRatio
Table forMaterialUsage
MaximumMaterial
Usage Rate
MinimumMaterial
InventoryCoverage
+-
+
+B
MaterialsStockout
DesiredMaterial
Delivery Rate
Adjustmentfor MaterialInventory
DesiredMaterial
Inventory
MaterialSafety Stock
Coverage
+
+
-
+
B
MaterialsControl
MaterialsInventoryCoverage
<MaterialUsageRate>
<MaterialsInventory>
+-
MaterialUsage per
Unit
DesiredMaterial
Usage Rate
+
+
FeasibleProductionStarts fromMaterials
-
++
+
+
+
+
MaterialInventory
AdjustmentTime
-DesiredMaterial
InventoryCoverage
+
+
+
The final single supplier model
InventoryProduction
RateShipment
Rate
DesiredProduction
Adjustmentfrom Inventory
DesiredInventory
ExpectedOrder Rate
Change inExp Orders
InventoryAdjustment
Time
DesiredInventoryCoverage
Time to AverageOrder Rate
OrderFulfillment
Ratio
Table forOrder
Fulfillment
Work inProcess
InventoryProductionStart Rate
ManufacturingCycle Time
Adjustmentfor WIP
Desired WIP
DesiredProductionStart Rate
WIPAdjustment
Time
B
Stockout
B
Inv entoryControlB
WIP Control
-
-
+
+
+
+
+-
-
+
+
-
-+
+
+
+
+
-
DesiredShipment
Rate
MaximumShipment
Rate
MinimumOrder
ProcessingTime
+
+
-
+ SafetyStock
Coverage
+
BacklogOrderRate
OrderFulfillment
Rate
+
++
TargetDelivery
Delay
-
<Customer OrderRate>
+
B
OrderFulfillment
DeliveryDelay+ -
<DesiredShipment
Rate>-
InventoryCoverage
<Inventory>
+
<ShipmentRate>
-
MaterialsInventory
MaterialDelivery
Rate
MaterialUsage Rate
MaterialUsageRatio
Table forMaterialUsage
MaximumMaterial
Usage Rate
MinimumMaterial
InventoryCoverage
+-
+
+B
MaterialsStockout
DesiredMaterial
Delivery Rate
Adjustmentfor MaterialInventory
DesiredMaterial
Inventory
MaterialSafety Stock
Coverage
+
+
-
+
B
MaterialsControl
MaterialsInventoryCoverage
<MaterialUsageRate>
<MaterialsInventory>
+-
MaterialUsage per
Unit
DesiredMaterial
Usage Rate
+
+
FeasibleProductionStarts fromMaterials
-
++
+
+
+
+
MaterialInventory
AdjustmentTime
-DesiredMaterial
InventoryCoverage
+
+
+