chapter 3 supply chain operations making and delivery

Chapter 3: Learning Objectives• Gain a basic understanding of supply chain operations involved in making and delivering products • Understand how product design affects the supply chain

CHAPTER

Chain Operations:

Making and Delivering

Chapter 3: Learning Objectives

• Gain a basic understanding of supply chain operations involved in making and delivering products

• Understand how product design affects the supply chain that supports that product• Appreciate the balancing act between utilization rates, inventory levels, and customer service

that is inherent in production scheduling• Be able to apply the four rules of efficient order management in your company• Assess different delivery scheduling options and know which ones are relevant to your own

organizations

Supply Chain Operations

• This chapter looks at Make and Deliver activities

PLAN

• Demand Forecasting• Product Pricing• Inventory

Mgmt.

SOURCE

• Procurement• Credit &

Collections

MAKE

• Product Design• Production

Scheduling• Facility

Management

DELIVER

• Order Management• Delivery

Scheduling• Process Returns

Product Design and Supply Chain

• Supply Chain Impact on Product Cost: The

design of a product and the selection of its components can significantly affect the cost of the product Often, these costs can account for 50 percent or more of the product's total cost

• Simplicity in Design: To optimize the supply

chain, it's advisable to design products with fewer parts, simple designs, and modular construction This approach allows for the use of generic sub-assemblies and parts from preferred suppliers

utilizing generic sub-assemblies and assembling final products as customer orders arrive, there's less need for holding large finished goods inventories, which can be costly and inefficient

• Flexible Supply Chain: The flexibility, responsiveness, and cost-efficiency of the supply chain are crucial for the success of a product in the market A well-designed supply chain can adapt to changes in demand and supply.

Cross-functional product design teams that include representatives from design, procurement, and manufacturing can help align the interests of these different groups This collaboration can result in a product that is easier to manufacture, source, and assemble

it's important to evaluate existing preferred suppliers' capabilities and technical support This evaluation helps determine whether existing suppliers can provide the necessary components and support the product's requirements

Product Design and Supply Chain

Product design teams should also consider the capacity and workforce requirements for manufacturing This includes assessing the skills needed and determining which facilities should be used

• Efficient Supply Chain Support: A product

design that takes into account the perspectives of design, procurement, and manufacturing can lead to a product that is supported by an efficient supply chain This, in turn, can result in a quicker time to market and a competitive cost advantage

Product Design and Supply

Chain

• Product design determines component parts needed and that influences supply chain complexity

• Complex designs and complex supply chains result in higher costs and lower productivity

Production Scheduling

HighUtilization Rates

Long production runs, centralized manufacturing

and distribution facilities

Low Levelsof Inventory

Short production runs, just-in-time delivery of raw

materials

High Levels of CustomerService

Many short production runs, high inventory levels

Economic Lot Size (ELS)

Produce products in ELS quantities ELS balances production set up costs against inventory carrying costs Schedule production so that products with the shortest run out times are made first.

Production scheduling is a continuous balancing act as business conditions change

Production managers must balance often conflicting needs of delivering high levels of customer service while maintaining low levels of inventory and high rates of factory utilization.

High Utilization RatesLow Inventory Levels High Levels of Customer ServiceProduction Scheduling Objectives

Minimizing inventory by adopting short production runs and just-in-time delivery of raw materials.

Ensuring quick product delivery and avoiding stockouts, which may require short production runs or high inventory levels

Maximizing the use of available capacity through long production runs and centralized manufacturing.

Economic Lot Size

● Economic lot size is determined for each product, similar to the Economic Order Quantity (EOQ) calculation in inventory control.

● Balancing production setup costs with inventory carrying costs helps find the optimal production quantity.

● Frequent setups and small batches result in lower inventory but higher setup costs, while long production runs lead to higher inventory and carrying costs.

Scheduling Multi-Product Facilities

● Once economic lot sizes are calculated, the next step is to determine the sequence of production runs for each product.

● Products with low inventory relative to their expected demand should be scheduled first.

● A common technique is to schedule based on a product's "run out time," which is the time it would take to deplete existing inventory based on expected demand.

● The run-out time (R) is calculated as R = P / D, where P is the current inventory and D is the daily or weekly demand.

Repetitive Scheduling Process

recalculated.

production run.

•Facility management takes location as a given

•This involves decisions in three main areas:

1 Role each facility will play in supply chain2 How to allocate capacity in each facility3 Allocation of suppliers and markets to each facility

Facility Management

Economic Lot Size and Run-Out

•When ELS is determined schedule production based on product run- out time•Run-Out Time = Product On Hand / Demand for Product (R = P / D)

Rules for Order Management

1 Enter the Order Once and OnlyOnce

Capture the order electronically as close to the original source as possible Do not manually re-enter the order again.

2 Automate OrderRouting

Automatically send orders to appropriate fulfillment locations.

People do only exception handling.

3 Make Order StatusVisible

Let customers and service agents see order status information

automatically when ever they want.

4 Use Integrated Order Mgmt.Systems

Electronically connect order management systems with other related systems to maintain data integrity.

Delivery Scheduling

● Make direct deliveries from one location to

another when delivery quantities equal EOQ amounts

● Use milk-run deliveries from one facility to

many facilities when smaller amounts are required – do routing by:

 Savings matrix technique Generalized assignment technique● There are two kinds of delivery sources: Single product locations such as factories Distribution centers stocking multiple products

● Return Processing – can be seen as delivery in reverse

 Known as “Reverse Logistics” Increasingly important as products are

returned for recycling and products are returned after ecommerce online

purchases Return processing is important and

should be handled efficiently, but it is often better to focus on ways to reduce the causes of product returns

Outsourcing Supply Chain

Operations

• Relentless pressure on profit margins drives companies to focus on their core competencies and outsource supporting operations to business partners

• Supply chain operations are core competencies for some companies and not for others

stable and predictable mass markets in order to deliver economies of scale• In volatile and unpredictable markets of this century it is less risky for

companies to outsource non-core activities