RM Raw Material WIP Work in Progress FG Final Goods Customer order cycle Retailer Replenishment cycle Distributor Manufacturing cycle Manufacturer Procurement Cycle
Customer arrival - ensure customer arrival turns into customer order answer customer queries, ensure they do not have to wait for a long, etc Customer order entry - customer informing what he wants and retailer allocating stock- retailer should ensure it is quick, accurate and communicated to others in SC Customer order fulfillment - Order is filled and sent to customer picking, packing and sipping product to customer, inventories to be updated - correct order at promised due dates at lowest possible cost Customer order receiving-customer receives and takes delivery, payment made Retail order trigger - retailer placing order at previous stage to replenish his stock total of customer orders less stock available - Economies of scale, balancing product availability & cost of holding inventory Retail order entry- Retailer informing what he wants and wholesaler allocating stock - wholesaler should ensure it is quick, accurate and communicated to others in SC Retail order fulfillment - Order is filled and sent to retailer picking, packing and sipping product to retailer size of these orders are quiet large than that of customer order inventories to be updated - correct order at promised due dates at lowest possible cost Retail order receiving- retailer receives stock physically and takes delivery, payment made Order Arrival - Plant receives order from customer / distributor Production Scheduling - Production plan is made Manufacturing & Shipping - Production & despatch on promised date, meeting quality stds, low costs Receiving at distributor / retailer or customer - Product is received physically by wholesaler / customer & fund is transferred Supply chain design depends on Push / Pull view Push / Pull view Pull Initiated by customer order Hotel, Dell Push Initiated in anticipation of customer order FMCG, IBM Mixed Push + Pull Paint industry Colour base push, colour choice - pull Push / speculative process Execution is initiated in anticipation of customer order forecast Make to Stock Pull / reactive process Execution is initiated to customer order demand is known Make to order In pull view No replenishment cycle
CRM Customer Relationship Mgmt firm & customer Marketing, sales, order management, etc. ISCM Internal Supply Chain Mgmt - internal Planning of internal production, storage capacity, demand & supply plans, etc. SRM Supplier Relationship Mgmt firm & suppliers Evaluation , selection of suppliers, negotiation, buying, etc
Typical Competitive Strategy Patterns :- Prospector (Innovation) Reactor (Quick response to market demands) Analyzer (Minimize risk with proven opportunities) Defender (Operational efficiency) Profit = (Price Variable cost) x Volume Fixed Cost Fixed costs Costs of product development Cost of production capacity Cost of distribution capacity Variable cost Variable cost of production and distribution Operations impact majority of the costs Bottleneck Bottleneck is the resource with limiting constraint on the system Capacity of a process It is the maximum possible flow rate through the process = Capacity of the bottleneck resource Flow Rate Flow rate = min(available input, Demand, Process capacity) Load factor It is the ratio of work demanded from the resource and its capacity Demand placed on a resource Capacity of the resource Bottleneck is the resource with maximum load factor
Flow Rate Average number of flow units that flow through the process per time Flow Time Average amount of time spent in the process by a flow unit Inventory Average number of flow units present within the process boundaries I = R x T I : Average Inventory R : Average flow rate T : Average flow time Average Inventory = (Avg. flow rate x Avg. flow time) R = 100 units / Hr. T = 2 Hrs /100 units I = 200 Units Bottleneck Bottleneck is the resource with limiting constraint on the system Capacity of a process It is the maximum possible flow rate through the process = Capacity of the bottleneck resource Flow Rate Flow rate = min(available input, Demand, Process capacity)
Load factor It is the ratio of work demanded from the resource and its capacity Demand placed on a resource Capacity of the resource Bottleneck is the resource with maximum load factor U cell or C cell????? Kaizen Business Process Reengineering BPR Demand forecast means WHAT YOU ARE GOING TO SELL Estimation of the future demand Used in both systems Push plan production in anticipation of demand i.e. forecast Pull Plan (forecast) capacity and inventory on the basis of anticipated demand Forecasting is the starting point of all operations including marketing, operations etc. Long term forecasts are usually less accurate than the short term forecasts Aggregate forecasts are usually more accurate than the disaggregate forecasts Combination of Top Down and Bottom up forecast is more effective than any one single approach Forecasts are always wrong
Forecasting Methods Qualitative Subjective, when experts have market intelligence, useful when one has to forecast for several years / for new industry eg. 5 year plans Time series historical demand. Useful when demand pattern does not vary year to year. Overall grade in exam for a student Casual Correlation between demand and environmental factors like state of economy, price, etc. Marks of exam when unwell Simulation Consumer choices that give rise to arrive at a forecast. Combine time series and casual method Election opinion poll Assume you have a product with the following parameters: Annual Demand = 360 units Holding cost per year = $1.00 per unit Order cost = $100 per order What is the EOQ for this product?
SC Drivers Facilities Production & storage sites & their capacities Inventory RM, W.I.P., FGs Transportation moving inventory Information data & analysis concerning facilities, inventory, transportation and customer management with the opportunity to make SC more efficient and responsive Offshore Facility : Low cost facility for export production eg. Export zones, Marks & Spenser Raymond India, L&T Mysore / Chennai plants , ITC Nepal packaging facility Source Facility : Low cost facility for Global production eg. Apple Laptops in China, Bulk drugs China, India, Indian leather / Apparel industry Server Facility : Regional Production Facility. Facilitys objective is to supply the market where it is located. Because of Tax incentives, tariff barriers, etc.- Factories in Himachal Pradesh, Gujarat etc. of Pharma cos., Auto say Hyundai, Toyota, Electronics Samsung, HUL Contributor Facility : Regional production facility with development skills. Facility serves local market but also involved greatly in product customization, process improvement, product modification or product development.eg. Maruti Udyog, Bata, Cadbury, McDonald Outpost Facility : Regional production facility built to gain local skills. Eg India - Biotech cos, BPO, Software development, Many factories of Japan Lead Facility : Facility that leads in development and process technologies. Facility with good access to a skilled workforce and technological resource that creates new products, processes and technologies for the entire network .Eg. Tata Motors Buses South America, Africa , Mahindra Scorpio Left hand drive to right hand drive Safety Inventory is the inventory carried for the purpose of satisfying demand that exceeds the amount forecasted or supply arrives later than expected for a given period The more the safety inventory Higher the product availability level BUT Higher the inventory holding costs (cost of capital / holding cost / obsolescence cost) Uncertainty is measured as the coefficient of variation i.e. the ratio of the standard deviation to the mean. It measures the uncertainty relative to demand. Product Availability - The amount of customer demand satisfied from available inventory. Product availability is also called customer service level. Product fill rate (fr) The probability that product demand is supplied from available inventory. Eg. Order is of 100 units, inventory is 90 units, fill rate = 90% Order fill rate In multi-product scenario, all products in the order are supplied from the available inventory. Cycle Service Level (CSL) The probability of not having a stock-out in a replenishment cycle. A replenishment cycle is the interval between two successive replenishment deliveries. Higher the safety inventory, higher the fill rate and Cycle service level i.e. Product availability Continuous review (Q system) Inventory is continuously tracked and an order for a lot size is placed when the inventory declines to the reorder point. Periodic Review (P system) Inventory status is checked at regular periodic intervals and an order is placed to raise inventory level to a specified threshold. The time between orders is fixed but the size of each order fluctuates Square root law : If the number of independent stocking locations decrease by a factor of n, the average safety inventory is expected to decrease by a factor of square root of n. Vendor Managed Inventory (VMI) The manufacturer or the supplier is responsible for all decisions regarding product inventories at the retailer. The control of replenishment decisions moves to the manufacturer instead of retailers. VMI requires the retailer to share demand information with the manufacturer to allow them to make inventory replenishment decisions.