Introduction to Supply Chain Management

Dr. Nitin Seth Associate Professor, IIFT, New Delhi

CHANGES TO WORLD ECONOMY

Globalization Accelerated Pace of Change Transition to Market Driven Rapid Growth of Knowledge based service sector Change in demographic profile

What is Operations Management?

What is Operations Management?
Management of day-to-day activities of a company Commonly, Operations is separated into two broad groups:
Production Ops: manufactured goods Service Ops: immaterial; transfer of information, nonsubstantive

Production Operations
Examples of industries involved in Production Ops:
Autos/Airlines Computer chips Print Electronics Furniture

Examples of jobs in Production Ops:

Plant management Materials planning Supply chain Logistics Process improvement Consulting

Service Operations
Examples of industries involved in Service Ops:
Banking Credit cards Investment management Call centers Cable/Utilities Airline

Examples of jobs in Service Ops:

Call center manager Backroom at bank Load balancing at airline Queuing line management

Terminology: Goods verses services

Goods
Product Resale Inventory Quality Customer Interaction Transportability Location Automation
tangible yes yes easier Can be low yes Wherever you want Standardized yes no no harder high no Where the customer wants it Standardized yes

Services
Intangible

Manufacturing and Service Operations

Manufacturing organization = produces physical goods Service organization = produces nonphysical outputs that require customer involvement and cannot be stored in inventory.

A Supply Chain
Supply Chain Model

Information Suppliers Logistics

Information Operations Logistics Customers

THE SUPPLY CHAIN Supply chain is network of various business entities and processes linking Suppliers, Operations and Customers
Suppliers Operations Customers

Objective is to optimize the over all performance of the entire network

Need For Managing Supply Chain

Gaining competitiveness Pressures from Privatization & Globalization Changing customer demands Knowledgeable Customers

Changing scenario in Manufacturing

Past Days Small Product Variations High Volume and Long Production Runs Unconnected islands of technology thereby making improvement a difficult task to achieve Profit through improving returns on assts. Present Days Large Product Variations Low Volume and Short Production runs Continuous improvement in Cellular Manufacturing Profits through elimination of Waste , reducing Inventory and maximum Value addition.

The Transformation Process

Inputs Customers/or materials

Transformation Transformation process Process

Outputs Goods & Services

What is Productivity? Defined

Productivity is a common measure on how well resources are being used. In the broadest sense, it can be defined as the following ratio: Outputs Inputs

Examples of Productivity Measurement

1. Partial measure (single factor) Output / Labor, Output / Capital 2. Multi-factor measure Output Capital + Labor 3. Total measure Output All inputs

Examples of Partial Measures

Business Measure Restaurant..Customers / labor hour Retail Store.Sales / square foot Chicken Farm..lb. Of meat / lb of feed Utility Plant.Kw / ton of coal Paper Milltons of paper / cord of wood

Types of Decisions
1. Strategic or long-range decisions 2. Tactical or medium- range decisions 3. Operational planning and control or shortrange decisions

Facilities Location
Critical Decision long lasting impact on financial, employment and distribution patterns.
Factors affecting Location Decision Capital Banking facilities , loans etc Raw Material Availability, suppliers Labor supply , skills , costs Competition Economic aspects Wages to staff, taxes profits Non economic impacts- Ecological , environmental and social. Political Considerations

Facility Location
Cost/benefit analysis for each location Sophisticated techniques can help - Linear programming - Payoff matrix - Decision tree analysis.

Plant Location
Many factors may be employed for determining the proper location. Some of them are: Nearness to ultimate consumers Nearness to suppliers Nearness to raw materials Proximity to major transportation facilities Availability of a trained labor force Room for growth and expansion

Lessons
Managing supply chain is treated as strategic weapon. This era can be referred as a business war between supply chains and supply chains not between organizations and organizations

Production systems and supply chain forecasting

Dr. Nitin Seth Associate Professor, IIFT, New Delhi

Typical Production Systems Mass Production Batch Production Job Shop Production

Mass Production
Production processes based on product needs after the end units have been produced. Suppliers only involved as necessary, but not in the production process. Firms dependence on customers to buy the products and use the services that are produced rather than basing use on predetermined needs.

Mass Production
Interchangeability of parts Simplicity of attaching them to each other Interchangeable workers Highly centralized organization Specialized machine tools and high fixed costs High production volumes Low cost to consumers

Job Shop
Flexible to custom work Promoting Job satisfaction Limiting investments Decentralized organization General purpose machine tools Disadvantages
Highly skilled workforce Low production volume More complex production control High cost to consumers

Facilities Layout
Layout decisions arrangement of ,customer service. are concerned with production, support

Determination of Layout
Type of Product Type of Production Processes Volume of Production

Types of Facility Layout

1. Process layout 2. Product layout 3. Fixed-position layout

Process Layout
Machines that perform the same function are grouped together in one location.

Receiving Dept. A B C

Lathes

Grinders

Heat Treatment

Product B Product A Milling Plating and Machines Painting Assembly

Saws

Storage

Product Layout
Machines and tasks are arranged by the sequence of steps in the production of a single product.

Product A Lathe Paint Assembly

B
Receiving

Product C Saw Mill Grinder Plating

Fixed-Position Layout

The product remains in one location and the required tasks and equipment are brought to it.

Storage

Saw

Lathe

Paint

Product B Assembly

Materials Supplies Machines Labor Equipment Ship

Forecasting Definition

Forecasting is the art of predicting the future value of a random variable (i.e., a variable with more than one possible outcome).

Aim of Forecasting
In short, forecasting aims to predict the future values of a random variable as accurately as possible. We usually prepare these forecasts using all (or any part of) the relevant information available when the forecast is being prepared.

Other Important Criteria for Evaluating Forecasts

Forecasts need to be:
timely; cost effective; consistent; and, comprehensible by decision makers.

Quantitative and Qualitative Forecasting Techniques

Quantitative Techniques Statistically based Predictions based on observations of historic data Extrapolative or Causative Extrapolative Time Series Analysis Causative Regression Techniques Qualitative Techniques Judgemental, subjective Predictions based on conjecture about the future

Expert Opinion and Delphi Techniques Scenario Planning and War Gaming

Delphi Technique
A Delphi Manager is appointed to coordinate and facilitate the creation of a consensus forecast The experts provide their opinions anonymously to the Delphi Manager to avoid the social pitfalls of committees
The manager also provides structured, anonymous feedback such as one experts forecast relative to the others, along with any justifications

The process is repeated with experts either converging towards a consensus view, as they revise their opinions based on the feedback from other experts, or more than one possible outcome is identified

Expert Opinion
Strengths
Good for answering one, specific, single-dimensioned question No historic or primary market research is required Forecasts are generated by those best qualified to provide them No meetings are required

Weaknesses
How does one select or even identify experts? Once identified they are likely to be expensive! The process is time consuming and the process itself can introduce bias Research shows that it is less successful for producing complex forecasts involving multiple factors

Quantitative Techniques: Demand Behavior

Trend
a gradual, long-term up or down movement of demand

Random variations
movements in demand that do not follow a pattern

Cycle
an up-and-down repetitive movement in demand

Seasonal pattern
an up-and-down repetitive movement in demand occurring periodically

Forms of Forecast Movement

Demand Random movement Time (a) Trend Time (b) Cycle Demand Time (c) Seasonal pattern Demand Time (d) Trend with seasonal pattern

Demand

3-month Simple Moving Average

MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov

ORDERS PER MONTH 120 90 100 75 110 50 75 130 110 90 -

MOVING AVERAGE 103.3 88.3 95.0 78.3 78.3 85.0 105.0 110.0

MA3 =

i=1

Di

3 90 + 110 + 130 3

= 110 orders for Nov

5-month Simple Moving Average

MONTH Jan Feb Mar Apr May June July Aug Sept Oct Nov

ORDERS PER MONTH 120 90 100 75 110 50 75 130 110 90 -

MOVING AVERAGE 99.0 85.0 82.0 88.0 95.0 91.0

MA5 =

i=1

Di

90 + 110 + 130+75+50 5 = 91 orders for Nov

Linear Trend Line

y = a + bx
where a = intercept b = slope of the line x = time period y = forecast for demand for period x xy - nxy x2 - nx2 a = y-bx b = where n = number of periods x x = = mean of the x values n y y = n = mean of the y values

Least Squares Example

x(PERIOD) 1 2 3 4 5 6 7 8 9 10 11 12 78 y(DEMAND) 73 40 41 37 45 50 43 47 56 52 55 54 557 xy 37 80 123 148 225 300 301 376 504 520 605 648 3867 x2 1 4 9 16 25 36 49 64 81 100 121 144 650

Least Squares Example (cont.)

78 = 6.5 12 557 y = = 46.42 12 xy - nxy b = = x2 - nx2 x =

3867 - (12)(6.5)(46.42) =1.72 650 - 12(6.5)2

a = y - bx = 46.42 - (1.72)(6.5) = 35.2

Linear trend line y = 35.2 + 1.72x Forecast for period 13 y = 35.2 + 1.72(13) = 57.56 units
70 60 50 Demand 40 Linear trend line 30 20 10 0 | 1 | 2 | 3 | 4 | 5 | | 6 7 Period | 8 | 9 | 10 | 11 | 12 | 13 Actual

Learnings
Layout decisions are based on:
a) Type of product b) Type of production systems and c) Volume of production.

Supply chain forecasting helps in efficient and effective utilization of resources.

Aggregate Production Planning

Dr. Nitin Seth Associate Professor, IIFT, New Delhi

Overview of Planning Levels

Long-range plans
Product and service design Location / layout Long term capacity

Intermediate plans (General levels)

Employment Output and inventories Subcontracting and backorders

Short-range plans (Detailed plans)

Machine loading Job assignments Production lot size and order quantities

Aggregate Plan
Aggregate Plan: A statement of a companys production rates, workforce levels, and inventory holding based on estimates of customer requirements and capacity limitations

Service Industry Staffing Plan Regarding staffs and labor related factors

Manufacturing Industry Production Plan Regarding production rates and inventory

Aggregate Production Planning (APP)

Determines resource capacity to meet demand For intermediate time horizon, 6-12 months Not feasible to build new facility May be feasible to hire/lay off workers, overtime, or subcontract Adjusting capacity OR managing demand

Aggregate Plan Managerial Inputs

Operations
Current machine capacities Plans for future capacities Workforce capacities Current staffing level Distribution and marketing Customer needs Demand forecasts Competition behavior

Materials Supplier capabilities Storage capacity Materials availability

Aggregate plan

Accounting and finance Cost data Financial condition of firm

Engineering New products Product design changes Machine standards

Human resources Labor-market conditions Training capacity

Aggregate Plan Outputs

Aggressive Alternatives Complementary Products Reactive Alternatives Size of Workforce and Workforce Adjustment
Aggregate plan

Competitive Pricing

Units or dollars Of Backlogs, backorders , or stockout

Inventory Levels

Production per month (in units or $)

Units or dollars subcontracted

Aggregate Planning Strategies

Proactive
Alter demand to match capacity

Reactive
Alter capacity to match demand

Mixed
Some of each
Balancing demand and capacity over the entire planning horizon

Demand Options
Pricing Promotion Back orders New demand

Capacity Options
Hire and layoff workers Overtime/slack time Part-time workers Inventories Subcontracting

Chase Demand
Demand

Units

Production

Time

Chase Approach
Advantages
Investment in inventory is low Labor utilization in high (overtime)

Disadvantages
The cost of adjusting output rates and/or workforce levels

Level Production
Demand Units Production

Time

Level Approach
Advantages
Stable output rates and workforce

Disadvantages
Greater inventory costs Increased overtime and idle time Resource utilizations vary over time

Mixed Strategy
Demand

Units
Production

Time

Aggregate Planning Strategies

Strategy
1. Chase #1: vary workforce level to match demand 2. Chase #2: vary output rate to match demand 3. Level #1: constant workforce level

Possible Alternatives during Slack Season

Layoffs Layoffs, undertime, vacations No layoffs, building anticipation inventory, undertime, vacations Layoffs, building anticipation inventory, undertime, vacations

Possible Alternatives during Peak Season

Hiring Hiring, overtime, subcontracting No hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts Hiring, depleting anticipation inventory, overtime, subcontracting, backorders, stockouts

4. Level #2: constant output rate

Aggregate Plan to Master Schedule

Aggregate Planning

Disaggregation

Master Schedule

Disaggregating the Aggregate Plan

Disaggregating the Aggregate Plan

Master schedule: The result of disaggregating an aggregate plan; shows quantity and timing of specific end items for a scheduled horizon. Rough-cut capacity planning: Approximate balancing of capacity and demand to test the feasibility of a master schedule.

Lessons
Aggregate production planning is a powerful tool for resources management Suitable aggregate production planning strategy for an organization depends on various organizational and environmental factors

Thank You