Supply Chain Evolution

8/9/2019 Supply Chain Evolution

1/28

Supply Chain Management

Evolution of SupplyChain Management


2/28

Objectives

This session will cover:

- Resource requirement planning

- Dependent and independent demand- Materials requirement planning (MRP)

- Benefits and drawbacks of MRP

- Enterprise resource planning (ERP)- Just-in-time systems

- Push and pull systems

- Global supply chain management


3/28

Resource Requirement Planning

The traditional approach to planning logistics is based onresource requirement planning.

This takes the logistic strategy and continually adds moredetails to get capacity plans, aggregate plans, masterschedules and short-term schedules.

The result is a set of timetables showing what all the

facilities, equipment, people and resources should do atany time.


4/28

Independent Demand

The conventional approach to planning assumes thatoverall demand for a product is made up of individualdemands from many separate customers.

These demands are independent of each other, so thedemand from one customer is not related to the demandfrom another customer.

If you are selling Nike shoes, the overall demand comes

from hundreds of separate customers, all independentlyasking for a pair of shoes.

This gives an independent demand

Here, planning is done using resource requirementplanning (standard approach).


5/28

Dependent Demand

In some situations, demands are not independent.

One demand for a product is not independent of asecond demand for the product.

When a manufacturer uses a number of components tomake a product, the demands for all components areclearly related, since they all depend on the production

plan for the final product. This gives dependent demand.

Here we use material requirement planning.


6/28

Materials requirement planning(MRP)

Material requirement planning uses the master

schedule, along with other relevant information, to

plan the supply of materials. The master schedulegives a time table for activities, typically for each

week

(Walters, 2003)


7/28

Materials requirement planning(MRP)

An important difference between the twoapproaches is the pattern of material stocks.

With independent demand systems, stocks arenot related to production plans so they must behigh enough to cover any likely demand.

These stocks decline during operations, but aresoon replaced.


8/28

Benefits of MRP

Lower stock levels, with savings in capital,space, warehousing, and so on

Higher stock turnover

Better customer service with no delays causedby shortages of materials

More reliable and faster delivery times

Less time spent on expediting and emergencyorders

MRP schedules can be used for planning other

logistic activities


9/28

Benefits of MRP

It can also give early warning of potential problems andshortages. If the MRP schedules show that somematerials will arrive too late, the organization can speedup deliveries or change the production plans.

It improves the wider performance of the organization measured in terms of equipment utilization, productivity,customer service, response to market conditions and so

on.


10/28

Disadvantages of MRP

Reduced flexibility to deal with changes. Materials areprocured according to the specified master schedule andhence cannot be altered

Needs a lot of detailed and reliable information. Manyorganisations simply do not record this information or isnot accurate enough

Systems can become very complex. Accuracy isparticularly important, as large number of small stocktransactions can introduce errors


11/28

Disadvantages of MRP

The order sizes suggested by MRP can be inefficient

MRP may not recognise capacity and other constraints

Can be expensive and time consuming to implement


12/28

MRP 2

Capacity requirement planning extends the MRPapproach further into the organisation.

We started by using MRP to schedule the delivery of

materials, and can now use it in capacity planning.

Materials are only one resource, and organisations haveto schedule others, including people, equipment,

facilities, finances, transport, and so on. Surely we can use the same MRP approach to consider

these other resources. This thinking has led to majorextension of MRP into Manufacturing Resources

Planning, or MRP 2.


13/28

MRP 2

MRP 2 gives an integrated system for synchronising

all functions within an organisation. It connects

schedules for all functions and resources back to themaster schedule

(Walters, 2003)


14/28

Working with other organisations

Following the trend for integrating the supplychain, we can extend the planning to other

organizations. This gives the basis of enterpriseresource planning (ERP) (Walters, 2003).


15/28

ERP

Suppose a manufacturers MRP system finds that itneeds a delivery of 100 units of some material at thebeginning of June.

It uses this information to schedule its purchases. EDI (Electronic data interchange) is a communication

software that can be used to link the MRP system to thesuppliers system, so the supplier knows in advancewhen it has to deliver this material, and it can start

scheduling operations to make sure that it is ready intime. If second tier suppliers are linked to the MRP system of

the first tier supplier, they can also start their operations.

In this way, the message moves backward through thesupply chain, giving integrated planning (Walters, 2003).


16/28


17/28

ERP

Nevertheless, this approach has considerablepotential, and this is leading to the next stage ofthe virtual enterprise resource allocation.


18/28


19/28

JIT

Just-in-Time systems organize materials to arrive

just as they are needed. By coordinating supply and

demand, they eliminate stocks of raw materials and

work in progress

(Walters, 2003)


20/28

JIT

Examples of JIT systems:

Replacing a lawnmower running on fuel with an

electric one Supermarkets owning a bakery in store to

produce a loaf of bread


21/28

Key Elements in JIT

By now, it can be understood that JIT is not just a way ofminimizing stocks. By coordinating all activities, itincreases efficiency and eliminates waste.

One of the problems with JIT is that it only works well incertain types of organization. The most successful usersof JIT are large-scale assembly plants, which makevirtually identical products in a continuous process.

In other words, JIT needs a stable environment where a

process makes a large number of standard product, at afixed rate, for a long time. This stable environment can reduce costs by using

specialised automation. Hence JIT works best wit high

volume, mass production.


22/28

JIT Operations - Push and Pull Systems

How does JIT organize activities so that theyoccur at just the time they are needed? It worksby pulling materials through the process.

JIT uses another approach to pull work through

the process. When one operation finishes workon a unit, it passes a message back to thepreceding operation to say that it needs anotherunit to work on.


23/28


24/28

Extending Just-in-Time Along the SupplyChain

This extension of JIT along the supply chain isknown by a variety of names, including quickresponse (QR), continuous replenishmentplanning (CRP), and more commonly efficientconsumer response (ECR). (Walters, 2003)


25/28

ECR

Efficient consumer responsepulls materials through tiers of

organizations in the supply chain.

With ECR, a message passes backwards through the supply

chain, and each organization co-operates in moving materialsforward. It uses JIT operations and link information systems so

that they can pull materials through the supply chain.

ECR extends the benefit of JIT to the whole supply chain. So itbrings lower stocks, better customer service, lower costs, more

responsive operations, improved space utilization, less

paperwork, and so on.

(Walters, 2003)


26/28


27/28

Summary

The rapid changes in customer demands and serviceexpectation levels necessitates that the marketer mustcarefully study every aspect of internal operations from

product conceptualization through to customer post-purchase consumption.

Firms are adopting the vision of zero-based time, whichhas the ultimate goal of never keeping the customerwaiting. All this demands that JIT should be extendedacross the entire supply chain from procurement,

production, distribution, and delivery cycle.


28/28

Summary

With this view in mind, firms are focusingattention on developing a fully integratedComputer based information system as asolution to achieving time and processmanagement efficiency.

Supply Chain Evolution

Documents

Transcript of Supply Chain Evolution