M 304-Textile and RMG Supply-Demand Chain Management

Nikhil R. Dhar, Ph. DProfessor, IPE Department

BUET

M304: TEXTILE AND RMG SUPPLY-

DEMAND CHAIN MANAGEMENT

1

Department of Industrial & Production Engineering

Course Outlines

Understanding the Supply Chain, Concept Model of Supply Chain Management, SCMApproach, Supply Chain Integration: Push, Pull, and Push-Pull SystemsDecision Making at the Strategic, Tactical and Operational Supply Chain ManagementIntegrated Supply Chain Planning and OptimizationOperations Management in Supply Chain, Basic Principles of ManufacturingManagement, Basic Elements of Lean Manufacturing, Integration of LeanManufacturing and SCMStrategic Sourcing and Supplier ManagementLean Supply Chain Practices, Sustainable Supply Chain Management, Supply ChainUncertaintySupply Contracts: Supply contracts for strategic components, Supply contracts for non-strategic componentsProcurement Management in Supply ChainEnterprise Resources Planning Introduction and overviewEnterprise Resources Planning Project Implementation MethodologyReengineering and ERP SystemBusiness Process Re-engineering: Concepts and PracticePlanning, Design, and Implementation of ERP Systems

128/2


References

Books Fahimnia, B. Planning and Optimization of Complex Supply Chains, Lambert Academic

Publishing (LAP), Germany, 2011.

Chopra, S. and Meindl, P. Supply Chain Management: Strategy, Planning and Operation, 5th

ed. Pearson, 2012.

Jacobs, F.R. and Chase R. Operations and Supply Chain Management: The Core, 3rd ed,

McGraw Hill, 2012.

Coyle, J.J., Langley, C.J., Novack, R.A. and Gibson, B.J. Supply Chain Management: A

Logistics Perspective, 9th ed, South-Western, Cengage Learning, 2013.

Sodhi, M.S. and Tang, C.S. Managing Supply Chain Risk, Springer, 2012

Specialized Journals (Selection only) Supply Chain Management: An International Journal

Journal of Operations Management

Production and Operations Management

European Journal of Operational Research

Computers and Operations Research

International Journal of Production Research

128/3


Marks Distribution and Assignment

Total Marks: 100

Class Test

[10]Attendance &

Participation

[15]

Assignment &

Presentation

[15]

Midterm-1

[22.5]

Midterm-2

[22.5]

Final

[50]

Total

[150]1 2 3

15 15 15 15 15 22.50 22.50 60 150

Assignment: Supply Chain Management Six Sigma at RMG

Executive Summary Introduction Six Sigma Approach to Design Analysis of Supply Chain Delivery Performance Design of Six Sigma Supply Chains Summary References

128/4


BUET

LECTURE-01: INTRODUCTION

SUPPLY CHAIN MANAGEMENT

5


Supply Chain

A supply chain is the system of organizations, people, activities, information and resources

involved in moving a product or service from supplier to customer. Supply chain activities

transform raw materials and components into a finished product that is delivered to the end

customer.

Supplier Manufacturer Distributor Retailer Customers

128/6


A supply chain is a sequence of organizations - their facilities, functions and activities - that are

involved in producing and delivering a product or service. A supply chain is the network of

organizations that are involved, through upstream and downstream linkages, in the different processes

and activities that produce value in the form of products and services delivered to the ultimate

consumer. In other words, a supply chain consists of multiple firms, both upstream (i.e., supply) and

downstream (i.e., distribution), and the ultimate consumer.

Upstream are the processes which occur before manufacturing into a deliverable productor services, typically processes dedicated to getting raw materials from suppliers.

Downstream are the processes which occur after manufacturing or production, typicallythose processes dedicated to getting goods and services to customers and consumers

Suppliers

Supplier

Suppliers

Supplier

Supplier Manufacturer Distributor Retailer Customer

Customers

Customer

Customers

Customer

Suppliers

Supplier

Customers

Customer

Downstream

Upstream

128/7


Encompassed within this definition, we can identify three degrees of supply chain complexity like (i)

Direct Supply Chain (ii) Extended Supply Chain (iii) Ultimate Supply Chain.

A direct supply chain consists of a company, a supplier and a customer involved in the upstream

and/or downstream flows of products, services, finances, and information as shown in the following

Figure.

An extended supply chain includes suppliers of the immediate supplier and customers of the

immediate customer, all involved in the upstream and/or downstream flows of products, services,

finances, and information as shown in the following Figure.

128/8


An ultimate supply chain includes all the organizations involved in all the upstream and downstream

flows of products, services, finances, and information from the ultimate supplier to the ultimate

consumer. The following Figure shows the complexity that ultimate supply chains reach. In this

example, a third party financial provider may be providing financing, assuming some of the risk, and

offering financial advice; a third party logistics provider is performing the logistics activities between

two of the companies; and a market research firm is providing information about the ultimate

customer to a company well back up the supply chain. This very briefly illustrates some of the many

functions that complex supply chains can and do perform.

128/9


Supply Chain Illustration

128/10


Origins of Supply Chain Management

1950s & 1960s

U.S. manufacturers focused on mass production techniques as their principal cost reduction

and productivity improvement strategies.

1960s-1970s

Introduction of new computer technology lead to development of Materials Requirements

Planning (MRP) and Manufacturing Resource Planning (MRP II) to coordinate inventory

management and improve internal communication.

1980s & 1990s

Intense global competition led U.S. manufacturers to adopt

Supply Chain Management along with Just-In-Time (JIT)

Total Quality Management (TQM) and Business Process Reengineering (BPR) practices

2000s and Beyond

Industrial buyers will rely more on Third-Party Logistics (3PLs) to improve purchasing and

supply management

Wholesalers/retailers will focus on transportation and logistics more and refer to these as

quick response, service response logistics, and integrated logistics

128/11


Traditional SCM Approach

SCM approach in MRP: In this approach, customers and suppliers were treated as external entities

and most of the ignored for any strategic decisions. In fact, the organization was looking at various

departments including sales, production, and other like, finance, HR, maintenance, R&D,

administration etc. as separate functionalities and no cohesiveness was observed amongst them.

Goods Flow

Demand Flow

SCM approach in MRP-II: In this approach, purchase, planning and the production departments were

seen as one functionality and MRP-II was primarily focused on materials and capacity integration.

Again the various departments like sales, finance, HR, maintenance, R & D, administration etc. were

not tightly integrated in MRP-II. The customer and suppliers were treated as external entities and not

considered for any long-term decisions.

Goods Flow

Demand Flow

128/12


SCM approach in ERP: In this approach, all the departments were seen as one entity. There existed

a common language and one approach in all decision-making across organization. In fact, the other

entities like subcontractor and even few integrated suppliers were seen as a part of the organization.

But again all the external entities like distributors, retailers or suppliers were not tightly integrated in

ERP. We can say that ERP helped organization to integrate all of its internal supply chain operations

but failed to extend the integrations across external supply chains.

DC-Delivery Challan

128/13


Modern SCM Approach

SCM approach in E-ERP: In this approach, all the organized players are seen as one entity. It meansthe manufacturing organization closely operates with all the trading partners including customers atone side and suppliers at other side. In fact, the well defined customer demands are known and themain focus of the organization becomes fulfilling this demand with the supply management thusintegrating suppliers side.

SCM approach in Global E-Biz: In the Global E-Biz age, consumers can directly talk with themanufacturing company that is also a patent holder of the commodities required by consumers.Perhaps no material physically flows to or from this patent holder as shown in the Figure. It meansthat the manufacturing operations will be outsourced to the 4th level and a logistic services supplierjob is to lift the required material from the point of supply to the point of demand and ultimatelydeliver the goods to the customer.

128/14


Decision Phases in a Supply Chain

A Supply chain needs three phases to build. These phases are strategy or design phase,

planning phase, and operation phase.

Supply chain strategy or design: In this phase, we must consider how to structure the

supply chain. Location, capacities of production and warehousing facilities will be

considered in this phase too.

Supply chain planning: In this phase, companies define a set of operating policies

that govern short-term operations. They collect data and produce market and

inventory level forecast. And they decide whether they need subcontract some of

manufacturing or not in this phase.

Supply chain operation: In this phase companies make decisions regarding individual

customer orders. Then, allocate individual orders to inventory or production. And

they also manage shipments, delivery and schedules of trucks.

128/15


Process View of a Supply Chain

A supply chain is a sequence of processes and flows that take place within and between

different supply chain stages and combine to fill a customer need for a product. There are

different views of this process:

Cycle view: The processes in a supply chain are divided into a series of cycles, each

performed at the interface between two successive stages of a supply chain. Cycle View

of Supply Chain Process has following cycles

Customer order cycle

Replenishment cycle (retailer/distributor)

Manufacturing cycle (distributor/manufacturer)

Procurement cycle (manufacturer/supplier )

The information flows from top to bottom and the products flow from bottom to top.

128/16


Cycles Stages

128/17


Customer Order Cycle Replenishment Cycle

Manufacturing Cycle Procurement Cycle

128/18


Push/Pull View of Supply Chain Processes

The processes in a supply chain are divided into two categories depending on whether they areexecuted in response to a customer order or in anticipation of customer orders. Relative to customerdemand supply chain processes are executed, which fall into two broad categories-PUSH and PULL.

The execution of the Supply Chain process is reactive to customer demand then it is underPULL process.

If the customer orders are speculative and order execution is initiated based on anticipation,then the Supply Chain process in under PUSH process.

LL Bean executes all processes in the customer order cycle after the customer arrives. Allprocesses in the replenishment cycle are performed in anticipation of demand. For Dell, who isthe build to order computer manufacturer, the situation is different. Demand is not filled fromfinished product inventory, but from production.

The Textile and Apparel Supply Chain in the current world is considered as a Push-Pull Supply Chain,which is also called a synchronized Supply Chain. In this strategy, the initial stages of the SupplyChain are based on Push strategy, while the final stages are operated on Pull system. Theinterface between push based stages is referred to Push-Pull boundary.

128/19


Bullwhip Effect

Through the numerous stages of a supply chain; key factors such as time and supply of orderdecisions, demand for the supply, lack of communication and disorganization can result in oneof the most common problems in supply chain management. This common problem is known asthe bullwhip effect; also sometimes the whiplash effect. The following all can contribute to thebullwhip effect:

Disorganization between each supply chain link; with ordering larger or smaller amountsof a product than is needed due to an over or under reaction to the supply chainbeforehand.

Lack of communication between each link in the supply chain makes it difficult forprocesses to run smoothly. Managers can perceive a product demand quite differentlywithin different links of the supply chain and therefore order different quantities.

Free return policies - customers may intentionally overstate demands due to shortagesand then cancel when the supply becomes adequate again, without return forfeit retailerswill continue to exaggerate their needs and cancel orders; resulting in excess material.

Order batching - companies may not immediately place an order with their supplier;often accumulating the demand first. Companies may order weekly or even monthly. Thiscreates variability in the demand as there may for instance be a surge in demand at somestage followed by no demand after.

128/20


Price variations special discounts and other cost changes can upset regular buyingpatterns; buyers want to take advantage on discounts offered during a short time period,this can cause uneven production and distorted demand information.

Demand information relying on past demand information to estimate current demandinformation of a product does not take into account any fluctuations that may occur indemand over a period of time.

Occurs when slight demand variability is magnified as information moves back upstream

128/21


Importance of Supply Chain Management To gain efficiencies from procurement, distribution and logistics To make outsourcing more efficient To reduce transportation costs of inventories To meet the challenge of globalization and longer supply chains To meet the new challenges from e-commerce To manage the complexities of supply chains To manage the inventories needed across the supply chain

Strategic, Tactical and Operating Issues Strategic - long term and dealing with supply chain design

Determining the number, location and capacity of facilities Make or buy decisions Forming strategic alliances

Tactical - intermediate term Determining inventory levels Quality-related decisions Logistics decisions

Operating - near term Production planning and control decisions Goods and service delivery scheduling Some make or buy decisions

128/22


Key Issues in Supply Chain Management

Distribution network configuration How many warehouses do we need? Where should these warehouses be located? What should the production levels be at each of our plants? What should the transportation flows be between plants and warehouses?

Inventory control Why are we holding inventory? Uncertainty in customer demand? Uncertainty in the supply

process? Some other reason? If the problem is uncertainty, how can we reduce it? How good is our forecasting method?

Distribution strategies Direct shipping to customers? Classical distribution in which inventory is held in warehouses and then shipped as needed? Cross-docking in which transshipment points are used to take stock from suppliers deliveries

and immediately distribute to point of usage?

Supply chain integration and strategic partnering Should information be shared with supply chain partners? What information should be shared? With what partners should information be shared? What are the benefits to be gained?

128/23


Product design Should products be redesigned to reduce logistics costs?

Should products be redesigned to reduce lead times?

Would delayed differentiation be helpful?

Information technology and decision-support systems What data should be shared (transferred)

How should the data be analyzed and used?

What infrastructure is needed between supply chain members?

Should e-commerce play a role?

Customer value How is customer value created by the supply chain?

What determines customer value? How do we measure it?

How is information technology used to enhance customer value in the supply chain

128/24


Important Elements of SCM

Purchasing Trends Long term relationships Supplier managementimprove performance through

Supplier evaluation (determining supplier capabilities) Supplier certification (third party to assure product quality and service requirements)

Strategic partnershipssuccessful and trusting relationships with top-performing suppliers

Operations Trends Demand managementmatch demand to available capacity Linking buyers and suppliers via MRP and ERP systems Use JIT to improve the PULL of materials to reduce inventory levels

Distribution Trends Transportation managementtradeoff decisions between cost & timing of delivery/customer

service via trucks, rail, water & air Customer relationship managementstrategies to ensure deliveries, resolve complaints,

improve communications, and determine service requirements Network design creating distribution networks based on tradeoff decisions between cost and

sophistication of distribution system

Integration Trends Supply Chain Process Integrationwhen supply chain participants work for common goals. Supply Chain Performance MeasurementCrucial for firms to know if procedures are working

128/25


Current Trends in SCM

Expanding the Supply Chain U.S. firms are expanding partnerships and building facilities in foreign markets. The

expansion involves: breadth- foreign manufacturing, office & retail sites, foreign suppliers & customers depth- second and third tier suppliers & customers

Increasing Supply Chain Responsiveness Firms will increasingly need to be more flexible and responsive to customer needs Responsiveness improvement will come from more effective and faster product & service

delivery systems

The Greening of Supply Chains Producing, packaging, moving, storing, delivering and other supply chain activities can be

harmful to the environment Supply chains will work harder to reduce environmental degradation Recycling and conservation are a growing alternative in response to high cost of natural

resources

Reducing Supply Chain Costs Cost reduction achieved through: Reduced purchasing costs, Reducing waste, Reducing

excess inventory, and Reducing non-value added activities Continuous Improvement through: improve over competitors performance and Increased

knowledge of supply chain processes

128/26


Scope of Supply Chain Activities Sourcing and procurement Production scheduling and manufacturing Order processing Inventory management Warehousing Customer service Distribution Reverse Logistics

Supply Chain Management Concentration Supply Management Challenges Forecasting Challenges Negotiations Challenges Managing Relationships Challenges Logistics Challenges Strategic Relationships Challenges Transportation Challenges Operations Challenges Quality Management Activities Challenges Information Technology Challenges

128/27


Driving Forces for SCM Competition is global Low-cost producers from developing countries Shorter product life cycles Margins are being squeezed New competitors More demanding customers (information empowered customer) Desire to team with the strongest channel partners Need for better information New information technologies Shifting competitive focus; i.e., from Companies to Supply Chains

Barriers to SCM Lack of Top Management Support Inability or Unwillingness to Share Information Lack of Trust among Supply Chain Members An Unwillingness to Share Risks and Rewards Inflexible Organizational Systems and Processes Cross-functional Conflicts Inconsistent/Inadequate Performance Measures Resistance to Change Lack of Training for New Mindsets and Skills

128/28


Future Supply Chain Trends

Supply chain event management (SCEM) enables an organization to react quickly

to resolve supply chain issues

Selling chain management applies technology to the activities in the order life cycle

from inquiry to sale

Collaborative engineering allows an organization to reduce the costs required during

the design process of a product

Collaborative demand planning helps organizations reduce their investment in

inventory, while improving customer satisfaction through product availability

The functionality in supply chain management systems is becoming more and more

sophisticated as supply chain management matures

The future stages of SCM will incorporate more functions such as marketing,

customer service, and product development

It will also use more advanced communication methods, adoption of more user

friendly decision support systems, and availability of shared information to all

participants in the supply chain

128/29


Supply Chain Management Concentration

Supply Management Challenges How can we reduce costs?

Who should we purchase from?

What are the evaluative criteria we should use for evaluating performance?

What cultural differences will effect negotiations?

What is the most effective cost based negotiating strategy?

What should our strategy be?

How can I best persuade and influence people?

Forecasting Challenges What are the market opportunities for new products or services?

What strategy do we need to develop a new niche in a growing marketplace?

Negotiations Challenges What is the most effective fact based strategy?

Who should I assign to a team?

What are my alternatives?

What are my suppliers' needs?

What value can I add for my suppliers?

128/30


Managing Relationships Challenges Should I outsource? To whom? Why?

What impact will a switch to consignment inventory have on my supplier?

How can I motivate them to see concentrate on the positive instead of the negative?

How can I leverage my external partner's expertise to design a new product that will reduce

production costs?

How does Total Cost of Ownership impact my choice of strategic partners?

Logistics Challenges How can we improve our distribution systems and identify cost savings when each product is

shipped to a different address?

How can we better integrate sales/customer data with our operations to improve customer

satisfaction?

Should we lease, buy, or build a warehouse?

Or should we hire a third party to assume warehouse functions?

Strategic Relationships Challenges How can we optimize our supplier base?

How can we balance cooperation and competition?

How can we integrate our supplier's expertise to reduce our production time, costs, and

design new products?

128/31


Transportation Challenges What product do I need delivered, to whom, when, and by what time?

How can I redesign our warehousing process to reduce parts/repair transportation time?

Which software should we implement?

What are the various governmental trade and tariff requirements and how does this impact

our goals?

Should we buy or lease?

Operations Challenges How can we improve plant efficiency?

We want to move half of our manufacturing tasks to a lower cost labor market.

Where should it be, how do we plan the transition, how do we transfer technology, and how

do we start up a new plant?

128/32


Quality Management Activities Challenges How can I improve customer satisfaction?

How can I reduce waste?

How can I improve the quality from suppliers?

What should the process be for returns?

How can I meet environmental standards without sacrificing cost effective measures?

Information Technology Challenges How can we design information flow to improve all functional processes?

To implement Supply Chain software:

Which product and company should we choose and what are the implementation

considerations?

To add value to our services by offering a best practices relational database to our business

partners:

What data should be included? What should the searchable criteria be? How should we distribute the database?

128/33


BUET

LECTURE 02: PROJECT SCHEDULING

AND CONTROL TECHNIQUES

34


Project

A project is a temporary endeavor involving a connected sequence of activities and a range

of resources, which is designed to achieve a specific and unique outcome and which

operates within time, cost and quality constraints and which is often used to introduce

change.

Characteristic of a project

A unique, one-time operational activity or effort

Requires the completion of a large number of interrelated activities

Established to achieve specific objective

Resources, such as time and/or money, are limited

Typically has its own management structure

Need leadership

128/35


Scheduling the Project

Planning, budgeting and scheduling are all part of the same process

Planning a project, developing a budget for it, and scheduling all the of the many tasksinvolved are not easily separable

Budget must include both the amounts and timing of the resources received orexpanded

One cannot prepare a budget without knowing the specifics of each task and the timeperiods during which the task must be undertaken.

Similarly, a project action implies a schedule just as a schedule implies a plan.

CPM (Critical Path Method), PERT (Program Evaluation and Review Technique)and Gantt Chart

Building the Network

Activity-on-Node (AON) Network

Usually associated with CPM

Activity-on-Arrow (AOA) Network

Usually associated with PERT

128/36


Language of Scheduling

Activity

task or set of tasks

use resources

Event

state resulting from completion of one or more activities

consume no resources or time

predecessor activities must be completed

Network

diagram of nodes and arcs

used to illustrate technological relationships

Path

series of connected activities between two events

Critical Path

set of activities on a path that if delayed will delay completion of project

128/37


Situations in Network Diagram

A B

C

A must finish before either B or C can start

A

BC both A and B must finish before C can start

D

B

C

A

both A and C must finish before either of B or D can start

A

C

B

D

Dummy A must finish before B can startboth A and C must finish before D can start

128/38


Building the Network: AON

Task Predecessor

a -

b -

c a

d b

e b

f c, d

g e

128/39


Building the Network: AOA

Task Predecessor

a -

b -

c a

d b

e b

f c, d

g e

Dummy Activity128/40


Critical Path Method (CPM)

Path: A connected sequence of activities leading from the starting event to the ending

event

Critical Path: The longest path (time); determines the project duration

Critical Activities: All of the activities that make up the critical path

Forward Pass

Earliest Start Time (ES): earliest time an activity can start, ES = maximum EF of

immediate predecessors

Earliest finish time (EF): earliest time an activity can finish, EF= ES + t

Backward Pass

Latest Start Time (LS): Latest time an activity can start without delaying critical

path time , LS= LF - t

Latest finish time (LF): latest time an activity can be completed without delaying

critical path time, LS = minimum LS of immediate predecessors

128/41


Example: Consider the list of four activities for making a simple product:

Activity Description Immediate Predecessor Expected Time (min)

A Buy Plastic Body - 180B Design Component - 30C Make Component B 20D Assemble product A,C 60

1 3 4

2

A

B C

D

Arcs indicate

project activities

Nodes correspond to the beginning and ending of

activities

Solution :

128/42


Example: Develop the network for a project with following activities and immediate

predecessors

Activity A B C D E F G

Immediate Predecessors - - B A, C C C D, E,F

Solution :

1 3 4

2

A

B

C

D

5

E7

6F

G

dummy

Note how the network correctly identifies D, E, and F as the immediate predecessors for activity G.

Dummy activities is used to identify precedence relationships correctly and to eliminate possibleconfusion of two or more activities having the same starting and ending nodes

Dummy activities have no resources (time, labor, machinery, etc)purpose is to PRESERVELOGIC of the network

We need to introduce a dummy activity

128/43


Examples of the use of dummy activity

1

1

2

Activity c not required for e

a

b

c

d

e

a

b

c

d

e

WRONG!!!RIGHT

Dummy

RIGHT

Network concurrent activities

1 2 1

2

3

a

WRONG !!!

a

bb

WRONG !

RIGHT

128/44


Example: Draw the network for the following relationships:

Activity C can be performed at the same time as E; but D cannot be started unless both C

and A are completed; A and B can be performed simultaneously, B has also constraint on

activity C and E both D and E should be completed before the objective is achieved.

Example: In a program consisting of five activities, the constraints determined are

as under. Draw the network.

ED EB

DC BC DA BA

Solution :

dummy activity

Solution :

A

B

C

D

E

AB

CD

E

128/45



predecessors. Construct the network and find the critical path.

Solution:

Activity a b c d e f g h i j

Immediate Predecessors - - - b c a a f g d, e

Completion Time 6 8 5 13 9 15 17 9 6 12

a, 6

f, 15

b, 8

c, 5e, 9

d, 13

g, 17 h, 9

i, 6

j, 12

128/46


ES and EF Times

a, 6

f, 15

b, 8

c, 5

e, 9

d, 13

g, 17 h, 9

i, 6

j, 12

0 6

0 8

0 5

128/47


ES and EF Times

a, 6

f, 15

b, 8

c, 5

e, 9

d, 13

g, 17 h, 9

i, 6

j, 12

0 6

0 8

0 5

5 14

8 21

6 23

6 21

128/48


ES and EF Times

a, 6

f, 15

b, 8

c, 5

e, 9

d, 13

g, 17 h, 9

i, 6

j, 12

0 6

0 8

0 5

5 14

8 21 21 33

6 23 21 30

23 29

6 21

Projects EF = 33

128/49


LS and LF Times

a, 6

f, 15

b, 8

c, 5

e, 9

d, 13

g, 17

h, 9

i, 6

j, 12

0 6

0 8

0 5

5 14

8 21 21 33

6 23

21 30

23 29

6 21

21 33

27 33

24 33

128/50


LS and LF Times

a, 6

f, 15

b, 8

c, 5

e, 9

d, 13

g, 17

h, 9

i, 6

j, 12

0 6

0 8

0 5

5 14

8 21 21 33

6 23

21 30

23 29

6 21

3 9

0 8

7 12

12 21

21 33

27 33

8 21

10 27

24 33

9 24

128/51


LS and LF Times

a, 6

f, 15

b, 8

c, 5

e, 9

d, 13

g, 17

h, 9

i, 6

j, 12

0 6

0 8

0 5

5 14

8 21 21 33

6 23

21 30

23 29

6 21

3 9

0 8

7 12

12 21

21 33

27 33

8 21

10 27

24 33

9 24

3 4

3

3

4

0

0

7

7

0

Float

128/52


Critical Path

a, 6

f, 15

b, 8

c, 5

e, 9

d, 13

g, 17 h, 9

i, 6

j, 12

128/53




Activity A B C D E F G H I J

Immediate Predecessors - A B G D A C,F D A D,I

Duration 90 15 05 20 21 25 14 28 30 45

Solution:

B

F

C

A

I

E

DG H

J

B, 15

F, 25

C, 05

A, 90

I, 30

E, 21

D, 20G, 14 H, 28

J, 45

90,105

95,110

0, 90

0, 90

90,115

90,115

90,120

119,149

105,110

110,115

115,129

115,129129,149

129,149

149,170

173,194

149,177

166,194

149,194

149,194

90,105

95,110

0, 90

0, 90

90,115

90,115

90,120

119,149

105,110

110,115

115,129

115,129129,149

129,149

149,170

173,194

149,177

166,194

149,194

149,194

128/54


Example: Task. A project has been defined to contain the following list of activities along

with their required times for completion. Construct the network and find the critical path.

Activity 1 2 3 4 5 6 7 8

Immediate Predecessors -- 1 1 2,3 4 4 6 5,7

Duration 5 6 7 2 6 5 3 1

1

2

3

4

5

6

8

7

5

6

7

2

6

5

3

10,5

0,5

05,11

06,12

05,12

05,12

12,14

12,14

14,20

16,22

14,19

14,1919,22

19,22

22,23

22,23

128/55




Solution:

Activity A B C D E F G H I

Immediate Predecessors - - A A A E D,F B, C G,H

Completion Time 5 6 4 3 1 4 14 12 2

128/56




Activity a b c d e f g h i j

Immediate Predecessors - - a a a b, c d d, e f g, h

Duration 5 4 3 4 6 4 5 6 6 4

Solution:

128/57


BUET

LECTURE 03: OPERATIONS

MANAGEMENT IN SUPPLY CHAIN

58


Introduction

Operations management is the process whereby resources or inputs are converted

into more useful products. Although the terms operations management and

production management are similar in meaning, there are two points of difference.

This term is more frequently used where inputs are transformed into intangible

services. Viewed from this perspective, operations management will cover such

service organizations as banks, airlines, super bazaars, educational institutions,

consultancy firm etc. in addition to, of course, manufacturing enterprises.

Basic principles of manufacturing management: Manufacturing management is

the management of all the processes, which are involved in manufacturing, i.e. the

conversion of raw materials into finished product. It would include the

management of personnel, management of raw materials, planning for production

etc. Manufacturing management is an age-old process with age-old ideas, but in

this era of competitive market, organizations are trying innovative ways of

planning in order to improve their profits. Some basic areas of manufacturing

management are discussed below:

128/59


Manufacturing System: A system is defined as a relatively complex assembly of

physical elements characterized by measurable parameters. To model a system, we

need to:

To define the systems boundaries or constraints

To predict, through the system parameters, its behavior in response to excitations

and disturbances

Models are used to describe how the system works.

Role of Production in Business: Business is defined as the activity of providing

goods and services involving financial, commercial and industrial aspects.

Production, is the transformation of raw materials and operational inputs into output

that, when distributed, meet the needs of customers. Hence production plays a very

important role in the overall business scenario as it basically deals with the

manufacturing of the goods, which are in turn provided for the customer to fulfill the

needs. The plan for production has to be developed by taking a number of things into

account, that can be basically grouped into 5Ps.

128/60


Product: which deals with areas like

- Performance

- Aesthetics

- Quality

- Reliability

- Quantity

- Production costs

- Delivery date

Plant: which deals with the making the product. It is basically includes areas like

- Future demand

- Health and safety

- Productivity and reliability of equipment

- Environmental issues

Processes: which deals with the different ways of producing a product. It will

consider areas like

- Available capacity

128/61


- Available skills

- Type of production

- Safety

- Production costs

- Maintenance requirements

Programs: which deals with the dates and times of the products that are to be

produced and supplied to customers. It would consider areas like

- Purchasing patterns

- Need for/availability of storage

- Transportation

People: which deals with key personnel decisions like

- Wages and salaries

- Safety and training

- Work conditions

- Leadership and motivation

- Communication

128/62


Mass Production System: Mass production can be defined as, manufacturing of

goods on a large scale, a technique that aims for low unit cost and high output. In

factories, mass production is achieved by a variety of means, such as division and

specialization of labor and mechanization. These speed up production and allow the

manufacture of near identical, interchangeable parts. Such parts can then be

assembled quickly into a finished product on an assembly line. Advantages of mass

production system are:

Mass production is notable because it permits very high rates of production per person

and therefore provides very inexpensive products.

In mass production, each worker repeats one or a few related tasks that use the same

tool to perform identical or almost identical operations on a stream of products.

Mass production systems are usually organized in assembly lines. The assemblies pass

by on a conveyor, or if they are heavy, hung from an overhead monorail.

Another important advantages is that the factory can purchase very large amounts of

materials. This reduces the overhead costs (shipping, paper work etc.) associated with

purchasing parts.

128/63


Lean Manufacturing: Lean manufacturing is a business initiative to reduce waste in

manufactured products. This waste may be from the production process or from any

part of the organization. The basic idea is to reduce the cost systematically,

throughout the product and production process, by means of a series of engineering

reviews. Most important concept in lean manufacturing is the distinction of the seven

major wastes. Wastes are also known as Muda. Wastes are defined as unnecessary

resource that is required to produce a quality product as defined by the customer.

Seven wastes are:

Overproduction

Down Time

Transportation

Inappropriate Processing

Unnecessary Inventory

Unnecessary Motions

Defects

128/64


Overproduction: Eliminate by reducing set-up times, synchronizing quantities and timing

between processes, layout problems. Make only what is needed now.

Waiting: Eliminate bottle necks and balance uneven loads by flexible workforce and

equipment.

Transportation: Establish layouts and locations to make handling and transport

unnecessary if possible. Minimize transportation and handling if not possible to

eliminate.

Inappropriate Processing: Question regarding the reasons of existing of the product and

then why each process is necessary.

Unnecessary Inventory: Reducing all other waste reduce stocks.

Unnecessary Motion: Study motion for economic and consistency. Economic improves

productivity and consistency improves quality. First improve the motions, then

mechanize or automate. Otherwise, there is a danger of automating the waste.

Defects: Develop the production process to be prevent defects from being produced, so as

to eliminate inspection. At each process, do not accept defects and make no defects. A

quality process always yields quality product.

128/65


Lean Manufacturing Goals

128/66


Agile Manufacturing: Lean manufacturing is very good at doing the things that can

be controlled. Agile manufacturing deals with the things which can not be controlled.

Agility is the ability to thrive and prosper in an environment of constant and

unpredictable change. Agility is not only to accommodate change but to relish the

opportunities inherent within a turbulent environment. Some of the reasons for the

fact that the manufacturing paradigm is changing from mass production to agile

manufacturing are:

Global competition is intensifying

Mass markets are fragmenting into niche markets

Cooperation among companies is becoming necessary, including companies who

are in direct competition with each other

Customers expect low volume, high quality, custom products

Very short product life cycles, development time and production lead times are

required

Customers want to be treated as individuals.

128/67


Quick Response Manufacturing (QRM): QRM is a companywide strategy to cut

lead times in all phases of manufacturing and office operations. It can bring the

manufacturing firms products to market more quickly and secure its business

prospects by helping to compete in a rapidly changing manufacturing arena. QRM

will not only make the manufacturing firm more attractive to potential customers, it

will also increase profitability by reducing non-value-added time, cutting inventory

and increasing return on investment (ROI). Benefits of QRM for the manufacturing

firm:

Decreases the manufacturing cost

Increases the market share

Fills customer orders faster

Boosts product quality

Introduce new product rapidly

Eliminates waste and inefficiency

Secures the manufacturing future of the firm.

128/68


Successful Lean Introduction to Supply Chain

Some of the key approaches to make lean successful throughout the supply chain of a

manufacturing company are listed below:

The manufacturing company has to be fact based and not just rely on rhetoric about

the improvements to be gained

The manufacturing company has to be willing to share information at a very detailed

level to help the suppliers to see the savings potential.

The manufacturing company has to demonstrate a commitment to the long-term with

its implementation of the lean strategies and not just a flavor of the month.

Most importantly, the manufacturing company has to give its suppliers support in

terms of training and troubleshooting.

The manufacturing company should demonstrate the potential benefits of lean not

only for their own company but also for all their suppliers.

128/69


Benefits of Lean Manufacturing

Quality performance, fewer defects and rework (in house and at customer).

Fewer Machine and Process Breakdowns.

Lower levels of Inventory.

Greater levels of Stock Turnover.

Less Space Required.

Higher efficiencies, more output per man hour.

Improved delivery performance.

Faster Development.

Greater Customer Satisfaction.

Improved employee morale and involvement.

Improved Supplier Relations.

Higher Profits

Increased Business

128/70


Integration of Lean Manufacturing and SCM

To integrate lean manufacturing and SCM, the steps to be followed are:

Reduced the supply base

Develop strategic long-term partners

Manage suppliers with commodity teams

Certify suppliers

Connect to suppliers with internet technology

Collaborate with suppliers in fulfillment

Outsource for the right reasons

128/71


Characteristics of Lean Systems

Pull method of work flow

Quality at the source

Small lot sizes

Uniform workstation loads

Standardized components & work methods

Close supplier ties

Flexible workforce

Line flows and Automation

Five S (5S)

Push and Pull Systems of Work Flow

Push method: A method in which production of the item begins in advance of

customer needs. Example: A buffet where food is prepared in advance.

Pull Method: A method in which customer demand activates production of service

or item. Example: A restaurant where food is only prepared when orders are placed.

Lean systems use the pull method of work flow.

128/72


Quality at the Source

Quality at the source is an organization-wide effort to improve the quality of a

firms products by having employees act as their own quality inspectors, and never

pass defective units to next stage.

One approach for implementing quality at the source is to use poka-yoke, mistake-

proofing methods aimed at designing fail safe systems that minimize human error.

Another approach for implementing quality at the source is a practice the Japanese

call jidoka, and andon, which gives machines and machine operators the ability to

detect when an abnormal condition has occurred.

Small lot sizes

Lot: A quantity of items that are processed together.

Setup: The group of activities needed to change or readjust a process betweensuccessive lots of items.

Single-digit setup: The goal of having a setup time of less than 10 minutes.

128/73


Uniform workstation loads

A lean system works best if the daily load on individual workstations is relativelyuniform.

Service processes can achieve uniform workstation loads by using reservationsystems (e.g. scheduled surgeries) and differential pricing to manage the demand.

For manufacturing processes, uniform loads can be achieved by assembling the sametype and number of units each day, thus creating a uniform daily demand at allworkstations.

Mixed-model assembly produces a mix of models in smaller lots.

Line Flows and Automation

Line Flows: Managers of hybrid-office and back-office service processes can

organize their employees and equipment to provide uniform work flows through the

process and, thereby, eliminate wasted employee time.

Another tactic used to reduce or eliminate setups is the one-worker, multiple-

machines (OWMM) approach, which essentially is a one-person line.

Automation plays a big role in lean systems and is a key to low-cost operations.

128/74


Five S (5S): A methodology consisting of five workplace practices conducive to visual

controls and lean production

Sort: Separate needed from unneeded items (including tools, parts, materials, and

paperwork), and discard the unneeded.

Straighten: Neatly arrange what is left, with a place for everything and everything in

its place. Organize the work area so that it is easy to find what is needed.

Shine: Clean and wash the work area and make it shine.

Standardize: Establish schedules and methods of performing the cleaning and

sorting. Formalize the cleanliness that results from regularly doing the first three S

practices so that perpetual cleanliness and a state of readiness is maintained.

Sustain: Create discipline to perform the first four S practices, whereby everyone

understands, obeys, and practices the rules when in the plant. Implement mechanisms

to sustain the gains by involving people and recognizing them via a performance

measurement system.

128/75


5Ss

128/76


Kanban

Kanban means card or visible record in Japanese & refers to cards used to control

the flow of production through a factory.

Card system that helps control flow

Very effective in establishing JIT manufacturing goals

Easily understood and requires a relatively simple setup

Card should be attached to a product container and contain essential information

(part #, quantities, etc.)

There are two types of Kanban systems:

Production Kanban: Production kanban signals the need for the production of more

parts

Conveyance Kanban: Conveyance kanban signals the required delivery of parts to

the next stage of production

128/77


General Operating Rules of Kanban:

Each container must have a card.

The assembly line always withdraws materials from fabrication(pull system).

Containers of parts must never be removed from a storage area without a kanban

being posted on the receiving post.

The containers should always contain the same number of good parts. The use of

nonstandard containers or irregularly filled containers disrupts the production flow of

the assembly line.

Only nondefective parts should be passed along.

Total production should not exceed the total amount authorized on the kanbans in the

system.

128/78


Kanban

Kanban

Final assembly

Work cell

Kanban

Material/Parts Supplier

Finished goods

Customer order

128/79


Just-In-Time (JIT)

If you think about someone's journey to work, they could leave the house just-in-time to

cycle to the train station, just-in-time to catch their train, which would get them to their

place of work just-in-time, allowing them to be at their desk just-in-time to start work.

In engineering, using the just-in-time theory would allow the components that are

needed to produce a product to be delivered to the worker, just-in-time. The products

can then be made available for the customers just-in-time. This process allows for all

types of stock, including materials and finished products, to be eliminated.

Implementing a just-in-time structure can mean a company is adopting a lean

production system.

JIT Partnerships: JIT partnerships exist when a supplier and purchaser work together to

remove waste and drive down costs. Four goals of JIT partnerships are:

Removal of unnecessary activities

Removal of in-plant inventory

Removal of in-transit inventory

Improved quality and reliability

128/80


JIT Layout: JIT layouts reduced another kind of waste-movement. The movement of

material on a factory floor does not add value. Consequently, we want flexible layouts

that reduce the movement of both people and material. List of JIT Layout tactics are:

Build work cells for families of products

Include a large number operations in a small area

Minimize distance

Design little space for inventory

Improve employee communication

Use poka-yoke (fail safe) devices

Build flexible or movable equipment

Cross-train workers to add flexibility

128/81


Goal of JIT Layout

Distance Reduction Large lots and long production lines with single-purpose machinery are being replaced by

smaller flexible cells

Often U-shaped for shorter paths and improved communication

Often using group technology concepts

Increased Flexibility Cells designed to be rearranged as volume or designs change

Applicable in office environments as well as production settings

Facilitates both product and process improvement

Impact on Employees Employees may be cross trained for flexibility and efficiency

Improved communications facilitate the passing on of important information about the process

With little or no inventory buffer, getting it right the first time is critical

Reduced Space and Inventory With reduced space, inventory must be in very small lots

Units are always moving because there is no storage

128/82


JIT Inventory: Inventory is at the minimum level necessary to keep operations

running. List of JIT Layout tactics are: Use a pull system to move inventory

Reduce lot sizes

Develop just-in-time delivery systems with suppliers

Deliver directly to point of use

Perform to schedule

Reduce setup time

Use group technology

Goals of JIT Inventory:

Reduce Variability: The idea behind JIT is to eliminate inventory that hides variability

in the production system.

Reduce Inventory

Reducing inventory uncovers the rocks

Problems are exposed

Ultimately there will be virtually no inventory and no problems

Shingo says Inventory is evil

128/83


Reduce Lot Sizes

Ideal situation is to have lot sizes of one pulled from one process to the next

Often not feasible

Can use EOQ analysis to calculate desired setup time

Two key changes necessary

Improve material handling

Reduce setup time

Reduce Setup Costs

High setup costs encourage large lot sizes

Reducing setup costs reduces lot size and reduces average inventory

Setup time can be reduced through preparation prior to shutdown and changeover

128/84


JIT is a suitable production system when: The engineering manufacturer has a standard product that is steadily produced in practical

amounts.

The product is of high value.

The workforce producing the product is a disciplined one.

Flexible working practices are maintained.

Machinery does not demand lengthy set up times.

Quality can be guaranteed through either a cost penalty for defects or good working practices.

Advantages of using a JIT system Products are of a better standard.

Less waste and, in turn, less rework.

Set up times are reduced.

Production flow is improved.

Less stock.

Overall savings.

Efficiency is increased.

Relations with suppliers are enhanced.

128/85


Elements of JIT System: Successful JIT system is the logical outgrowth of the

combination of the following practices: Continuous improvement

Attacking fundamental problems-anything that does not add value to the product

Devising systems to identify problems

Striving for simplicity-simpler systems may be easier to understand, easier to manage and less

likely to go wrong

A product oriented layout-produces less time spent in moving of materials and parts

Quality control at sources-each worker is responsible for the quality of their own product

Total productive maintenance-ensuring machinery and equipment functions perfectly when it

is required and continually improving it.

Good housekeeping-workplace cleanliness and organization

Setup time reduction-increases flexibility and allows smaller batches

Multi-process handling a multi skilled workforce has greater productivity, flexibility and job

satisfaction

Kanban-simple tools to pull product and components through the process

Jidoka (Automation)-providing machines with the autonomous capability to use judgment, so

workers can do more useful things than standing watching them work

128/86


A Just-In-Time Illustration

128/87


BUET

LECTURE-04: ENTERPRISE

RESOURCE PLANNING [ERP]

88


ERPEnterprise Resource Planning

PLANNING the RESOURCES of an ENTERPRISE

ERP is a way to integrate the data and processes of an organization into one singlesystem with modules that support core business areas such as manufacturing,

distribution, financials and human resources.

ERP allows managers from most or all departments to look vertically andhorizontally across the organization to see what they must see (information) to be

productive in their managerial roles.

ERP captures data from historical activity and current operations. That data can betransformed into information that, along with external information, is useful in

planning and controlling operations, and in developing business strategies.

ERP is evolving into a Multi-Module Application Software Package that automatesinter-organizational business processes across the supply chain which involve

business partners, suppliers, customers, and more.

128/89


Without ERP: Functions have their own special purpose software systems that cannot

communicate with each other. For example, the finance department cannot see whether a

particular order has been shipped. They have to contact someone at the warehouse.

Problems: Delays, Lost Orders, Keying into different computer systems invite errors

128/90


After ERP: Single software and single database facilitates information sharing and

communication among departments. ERP implementation requires to change the way

business is conducted. Hence, the implementation can take years.

128/91


Before and after ERP: Systems Standpoint

128/92


Evolution of ERP

ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements

Planning (MRP II). From business perspective, ERP has expanded from coordination of

manufacturing processes to the integration of enterprise-wide backend processes. From

technological aspect, ERP has evolved from legacy implementation to more flexible tiered

client-server architecture. The evolution of ERP from 1960s to 21st century is given below:

1960s: Inventory Management & Control

Inventory Management and Control is the combination of information technology and

business processes of maintaining the appropriate level of stock in a warehouse. The

activities of inventory management include identifying inventory requirements, setting

targets, providing replenishment techniques and options, monitoring item usages,

reconciling the inventory balances, and reporting inventory status.

1970s: Material Requirement Planning (MRP)

Materials Requirement Planning utilizes software applications for scheduling production

processes. MRP generates schedules for the operations and raw material purchases based

on the production requirements of finished goods, the structure of the production system,

the current inventories levels and the lot sizing procedure for each operation.

128/93


1980s Manufacturing Requirements Planning (MRP II)

Manufacturing Requirements Planning or MRP utilizes software applications for

coordinating manufacturing processes, from product planning, parts purchasing,

inventory control to product distribution.

1990s Enterprise Resource Planning (ERP)

Enterprise Resource Planning or ERP uses multi-module application software for

improving the performance of the internal business processes. ERP systems often

integrates business activities across functional departments, from product planning,

parts purchasing, inventory control, product distribution, fulfillment, to order

tracking. ERP software systems may include application modules for supporting

marketing, finance, accounting and human resources.

21st century ERPII ERPII is the name some now use to describe ERP like systems that are evolving to

support inter-organizational business processes across the supply chain.

128/94


Why implement an ERP System? To support business goals

Integrated, on-line, secure, self-service processes for business

Eliminate costly mainframe/fragmented technologies

Improved Integration of Systems and Processes

Lower Costs

Empower Employees

Enable Partners, Customers and Suppliers

How should we implement ERP systems

Obtain the right mix

of people, processes

and technology!!

128/95


ERP Components

Finance: Modules for bookkeeping and making sure the bills are paid on time.

Examples: General ledger Accounts receivable Accounts payable

Human Resource: Software for handling personnel-related tasks for corporate

managers and individual employees.

Examples: HR administration Payroll Self-service HR

Manufacturing and Logistics: A group of applications for planning production, taking

orders and delivering products to the customer.

Examples: Production planning Materials management Order entry and processing Warehouse management

128/96


Advantages and Disadvantages of ERP

Advantages of ERP Systems

Provides integration of the supply chain, production, and administration

Creates commonality of databases

Can incorporate improved best processes

Increases communication and collaboration between business units and sites

Has an off-the-shelf software database

May provide a strategic advantage

Disadvantages of ERP Systems

Is very expensive to purchase and even more so to customize

Implementation may require major changes in the company and its processes

Is so complex that many companies cannot adjust to it

Involves an ongoing, possibly never completed, process for implementation

Expertise is limited with ongoing staffing problems

128/97


Potential Benefits of ERP

Internal Benefits

Integration of a single source of data

Common data definition

A real-time system

Increased productivity

Reduced operating costs

Improved internal communication

Foundation for future improvement

External Benefits

Improved customer service and order fulfillment

Improved communication with suppliers and customers

Enhanced competitive position

Increased sales and profits

128/98


Application of ERP

ERP have been successfully implemented in companies with the following characteristics:

Make-to-stock, Make-to-order, Design-to-order

Simple product, Complex product

Single plant, Multiple plants

Contract manufacturers

Manufacturers with distribution networks

Sell direct to end users, Sell through distributors

Businesses heavily regulated by the government

Conventional manufacturing (fabrication and assembly)

Process manufacturing, Repetitive manufacturing

Job shop and Flow shop

Fabrication only (no assembly)

Assembly only (no fabrication)

High-speed manufacturing and Low-speed manufacturing

128/99


ERP Software Applications

ERP consists of many modules that are linked together to access & share the same database.

Most ERP software providers design their products to be compatible with their competitors

products. The most common ERP modules are: Accounting & Finance

Customer Relationship Management (CRM)

Human Resource Management (HRM)

Manufacturing

Supplier Relationship Management (SRM)

Supply Chain Management (SCM)

Core ERP components - traditional

components included in most ERP

systems and they primarily focus on

internal operations

Extended ERP components - extra

components that meet the

organizational needs not covered by

the core components and primarily

focus on external operations

128/100


Core ERP Components

Accounting and finance component managesaccounting data and financial processes within

the enterprise with functions such as general

ledger, accounts payable, accounts receivable,

budgeting, and asset management

Human resource component tracks employeeinformation including payroll, benefits,

compensation, performance assessment, and

assumes compliance with the legal requirements

of multiple jurisdictions and tax authorities

Production and materials management component handles the various aspects of production

planning and execution such as demand

forecasting, production scheduling, job cost

accounting, and quality control

128/101


Extended ERP Components

Business intelligence describes information that people use to support theirdecision-making efforts

Customer relationship management involves managing all aspects of a customersrelationships with an organization to increase customer loyalty and retention and an

organization's profitability

Supply chain management involves the management of information flows betweenand among stages in a supply chain to maximize total supply chain effectiveness and

profitability

E-business means conducting business on the Internet, not only buying and selling,but also serving customers and collaborating with business partners

128/102


ERP Risks

Although there are great benefits to be realized from ERP systems, there are also failure

stories. ERP systems are very expensive in terms of resources, such as time, money, and

effort. Although they can help introduce good business processes, many companies

implementing ERP software must change their business processes to match the software,

which can cause employee resistance.

128/103


BUET

LECTURE-05: APPLYING A

SUPPLY CHAIN DESIGN

104


Using IT to Drive Supply Chain

The four primary drivers of supply chain management

Facilities

Inventory

Transportation

Information

Organizations use these four drivers to support either a supply chain strategy focusing

on efficiency or a supply chain strategy focusing on effectiveness

128/105


Facilities Drivers: Facility processes or transforms inventory into another product, or it

stores the inventory before shipping it to the next facility. Three primary facilities

components (i) Location, (ii) Capacity and (iii) Operational design

Location efficiencycentralize the location to gain economies of scale, which increases

efficiency

Location effectivenessdecentralize the locations to be closer to the customers, which

increases effectiveness

Capacity efficiencyminimal excess capacity with the ability to produce only what is required

Capacity effectivenesslarge amounts of excess capacity which can handle wide swings in

demand

Operational design efficiencyproduct focus design

allows the facility to become highly efficient at

producing one single product, increasing efficiency

Operational design effectivenessfunctional focus

design allows the facility to perform a specific function

on many different types of products, increasing

effectiveness

128/106


Inventory Driver:

Inventory offsets discrepancies between supply and demand

Inventory management and control software provides control and visibility to the status of

individual items maintained in inventory. Two primary inventory components (i) Cycle

inventory and (ii) Safety inventory

Cycle inventorythe average amount of inventory held to satisfy customer demands between

inventory deliveries

Cycle inventory efficiencyholding small amounts of inventory and receiving orders

weekly or even daily

Cycle inventory effectivenessholding large

amounts of inventory and receiving inventory

deliveries only once a month

Safety inventoryextra inventory held in the event

demand exceeds supply

Safety inventory efficiencyholding small

amounts of safety inventory

Safety inventory effectivenessholding large

amounts of safety inventory

128/107


Transportation Driver: Transportationmoves inventories between the different stages in the supply chain. Two primary

inventory components (i) Method of transportation and (ii) Transportation route

Method of Transportation

Global inventory management system provides the ability to locate, track, and predict the

movement of every component or material anywhere upstream or downstream in the supply

chain

Method of transportation efficiency Method of transportation effectiveness

Transportation route

Transportation planning software tracks and

analyzes the movement of materials and products

to ensure the delivery of materials and finished

goods at the right time, the right place, and the

lowest cost

Distribution management software coordinates the process of transporting materials from a

manufacturer to distribution centers to the final customer

Transportation route efficiency Transportation route effectiveness

128/108


Information Driver Information an organization must decide how and what information it wants to share with its

supply chain partners. Two primary information components (i) Information sharing and (ii)

Push verses pull strategy

Information sharing

Information sharing efficiency freely share lots of information to increase the speed and

decrease the costs of supply chain processing

Information sharing effectiveness share only selected information with certain individuals,

which will decrease the speed and increase the costs of supply chain processing

Push verses pull strategy

Pull information strategy (efficiency) supply chain

partners are responsible for pulling all relevant

information

Pull technology pulls informationPush information strategy effectiveness

organization takes on the responsibility to push

information out to its supply chain partners

Push technology sends information

128/109


Applying a Supply Chain Design

Wal-Marts supply chain management strategy emphasizes efficiency, but also

maintains adequate levels of effectiveness

Facilities focus Efficiency

Inventory focus Efficiency

Transportation focus Effectiveness

Information focus - Efficiency

128/110


IT for Supply Chain Management

Software Systems

Electronic Data Interchange (EDI)

Material Requirements Planning (MRP)

Manufacturing Resource Planning (MRP II)

Enterprise Resource Planning (ERP)

Supply Chain Management Systems (SCM)

Customer Relationship Management (CRM)

Internet-based Software

Network Infrastructure

Wide Area Network (WAN)

Internet (for E-commerce: B2B, B2C)

128/111


Electronic Data Interchange (EDI)

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business

data and documents between companies using standard formats recognized both

nationally and internationally.

The information used in EDI is organized according to a specified format set by both

companies participating in the data exchange.

History of EDI

The general idea behind EDI was originated by a group of railroad companies in the

mid-1960s, in the United States.

Much of the early work on EDI was driven by the industry sectors for:

Transportation

Pharmaceuticals

Groceries

Automobiles

Banking

128/112


Advantages of EDI

Lowering Operating Cost: EDI replaces paper transactions with electronic

transmissions, saving time and reduced cost of business transaction and enabling the

automatic processing of documents.

Reduced Error and Increases Business Information Accuracy: With the

implementation of EDI, there is no need for re-entering data, thus, reducing the risk

for human error. Each re-entry of data is a potential source of error.

Increase Productivity: Making personnel more efficient and it improves business

capabilities by speeding up throughput.

Faster Trading Cycle: EDI allows faster and streamlining trading cycle between

organizations leading to improved relationships between trading partners.

128/113


Disadvantages of EDI

Trading Partners Involvement: Highly dependence on the participation of trading

partners. You need to be confident that they will do their part. EDI will be

meaningless if your trading partner didn't get involved using EDI system effectively.

Costly for smaller companies: Many small companies are facing resources problems

in getting starter with the initial implementation of EDI system. It is beyond the

resources these companies to invest tens or hundreds of thousands of dollars in

setting and implementation costs, as well as weeks of personnel training, to get an

EDI system running.

Difficult to agree on standard to be used: Even though there are widely-accepted and

used standards, there are no ways to force trading partners to accept these standards.

Cooperation between trading partners is needed in order to develop a common rules

to avoid differences in interpretation.

128/114


Three Pillars of EDI

Generic Format Standards

American National Standards Institute

About 300 documents standardized

Many industries represented

Many financial transactions

EDIFACT to eventually become world-wide EDI standard

Sample ANSI X12 Transactions

104 Air Shipment Information

204 Motor Carrier Shipment Information

300 Booking Request

814 Residential Mortgage Loan Application

Sample X12 Finance-Related Transactions

810 Invoice

811 Consolidated Service Invoice (Telephone bill)

812 Credit/Debit Adjustment

128/115


Value-Added Network (VAN):

Communications networks supplied and

managed by third-party companies that

facilitate electronic data interchange,

Web services and transaction delivery by

providing extra networking services.

Translation Software

Off-the-shelf

Low cost

Seventy firms produce it

128/116


Hardware Considerations for SCM Systems

Intranet vs. Extranet

Intranet is to use Internet technology and protocol (TCP/IP) for the internal communications

Extranet is to use Internet technology and protocol for the internal and suppliers

communications

Network Infrastructure: Wide Area Networks (WANs)

WAN Technologies

Ordinary telephone line and telephone modem.

Point-to-Point Leased lines

Public switched data network (PSDN)-Such as ATM, Frame Relay

Send your data over the Internet securely, using Virtual Private Network (VPN)

technology

PSDN

VPN

128/117


Global Considerations in Using SCM/ERP Systems

Time differences

Language issues

Currency exchange rates

Tax

Different accounting systems

Internet and security restrictions

Culture and religion holidays

128/118


Supply Chain Enablers

Information links all aspects of supply chain

E-business

replacement of physical business processes with electronic ones

Electronic data interchange (EDI)

a computer-to-computer exchange of business documents

Bar code and point-of-sale

data creates an instantaneous computer record of a sale

Radio frequency identification (RFID)

technology can send product data from an item to a reader via radio waves

Internet

allows companies to communicate with suppliers, customers, shippers and other

businesses around the world instantaneously

Build-to-order (BTO)

direct-sell-to-customers model via the Internet; extensive communication with

suppliers and customer

128/119


Supply Chain Enablers

128/120


Supply Chain Integration

Share information among supply chain members

Reduced bullwhip effect

Early problem detection and faster response

Builds trust and confidence

Collaborative planning, forecasting, replenishment, and design

Reduced bullwhip effect

Lower costs (material, logistics, operating, etc.)

Higher capacity utilization and improved customer service levels

Coordinated workflow, production and operations, procurement

Production efficiencies

Fast response and improved service

Quicker to market

Adopt new business models and technologies

Penetration of new markets

Creation of new products

Improved efficiency and mass customization

128/121


Impact of New Information Technologies

Application IntegrationComputing performance

New application integration technologies Middleware technology including business

process automation Internet based Software and communication

Whole Supply Chains can be managed in real-time with automated and optimised processesMassively improved customer fulfilment (In time delivery as promised to the customer )Customer order inquiry can be answered immediately within seconds (available / capable to promise)

Increased ROCE (cost reduction, sales improvement, capital employed reduction)

Rapid linking of IT-applications within a companyRapid integration of multiple, cross-company

supply chain sites working together as onevirtual unit online and real-time

high level business process integration

Massive increases in computing performance high performance hardware and software

components high speed & volume memories

Real-time processing of data- and calculationintensive functions

Planning with complete, current, correct andconsolidated data within seconds

Reconsideration of all supply chain parametersand planning scenarios within seconds usingreal-time simulation

New SCM-Applications

ROCE - Return on Capital Employed

128/122


Supply Chain Information Needs

128/123


Map of Supply Chain Information Systems

128/124


Customer Relationship Management (CRM): Planning and

M 304-Textile and RMG Supply-Demand Chain Management

Documents

Transcript of M 304-Textile and RMG Supply-Demand Chain Management