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Introduction to Supply ChainManagement
Dr. Nitin Seth
Associate Professor,IIFT, New Delhi
CHANGES TO WORLD ECONOMY
Globalization
Accelerated Pace ofChange
Transition to MarketDriven
Rapid Growth ofKnowledge based service
sector
Change in demographicprofile
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What is OperationsManagement?
What is Operations Management?
Management of day-to-day activities of acompany
Commonly, Operations is separated into two broadgroups:
Production Ops: manufactured goods Service Ops: immaterial; transfer of information, non-
substantive
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
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Service OperationsExamples 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 versesservicesGoods Services
Product tangible Intangible
Resale yes no
Inventory yes no
Quality easier harder
Customer
Interaction
Can be low high
Transportability yes no
Location Wherever you want Where the customerwants it
Automation Standardized yes Standardized yes
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Manufacturing and Service
Operations Manufacturing organization= produces
physical goods
Service organization= produces non-physical outputs that require customerinvolvement and cannot be stored ininventory.
A Supply Chain
Suppliers CustomersOperations
Logistics Logistics
InformationInformation
Supply Chain Model
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THE SUPPLY CHAIN
Supply chain is network of variousbusiness entities and processes linkingSuppliers, 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
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Changing scenario in Manufacturing
Past Days
Small Product Variations
High Volume and LongProduction Runs
Unconnected islands oftechnology thereby makingimprovement a difficult task
to achieve
Profit through improvingreturns on assts.
Present Days
Large Product Variations
Low Volume and ShortProduction runs
Continuous improvementin Cellular Manufacturing
Profits through eliminationof Waste , reducing
Inventory and maximumValue addition.
The Transformation Process
Inputs
Customers/or
materials
Transformation
Process
Transformation
process
Outputs
Goods & Services
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What is Productivity?
Defined
Productivity is a common measure onhow well resources are being used. Inthe broadest sense, it can be defined asthe following ratio:
OutputsInputs
Examples of ProductivityMeasurement
1. Partial measure (single factor)
Output / Labor, Output / Capital
2. Multi-factor measure
Output
Capital + Labor
3. Total measure
Output
All inputs
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Examples of Partial MeasuresBusiness 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 decisions3. Operational planning and control or short-
range decisions
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Facilities Location Critical Decision long lasting impact on
financial, employment and distributionpatterns.
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.
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Plant LocationMany factors may be employed for determining theproper 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 asstrategic weapon.
This era can be referred as a business warbetween supply chains and supplychains not between organizations andorganizations
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Production systems andsupply chain forecasting
Dr. Nitin Seth
Associate Professor,IIFT, New Delhi
Typical Production Systems
Mass Production
Batch Production
Job Shop Production
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Mass ProductionProduction processes based on product needs
after the end units have been produced.
Suppliers only involved as necessary, but not inthe production process.
Firms dependence on customers to buy theproducts and use the services that are producedrather 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
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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 are concerned witharrangement of production, support,customer service.
Determination of Layout Type of Product
Type of Production Processes
Volume of Production
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Types of Facility Layout
1. Process layout
2. Product layout
3. Fixed-position layout
Process Layout
Machines that perform the same functionare grouped together in one location.
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ReceivingDept.
Lathes Grinders HeatTreatment
MillingMachinesSaws
Plating andPainting Assembly Storage
A
Product A
B
C
Product B
Product Layout
Machines and tasks are arranged by thesequence of steps in the production of asingle product.
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Receiving
Storage
Lathe Paint Assembly
Saw Lathe Paint Assembly
Saw Mill Grinder Plating
A
B
C
Product A
Product B
Product C
Fixed-Position Layout
The product remains in onelocation and the required
tasks and equipment arebrought to it.
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Ship
Materials
Supplies
Machines
Labor
Equipment
Forecasting Definition
Forecasting is the artof predicting thefuture value of a randomvariable (i.e., avariable with more than one possibleoutcome).
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Aim of Forecasting
In short, forecasting aims to predict thefuture values of a random variable asaccurately as possible.
We usually prepare these forecasts usingall (or any part of) the relevant information
available when the forecast is beingprepared.
Other Important Criteria forEvaluating Forecasts
Forecasts need to be:
timely;
cost effective;
consistent; and,
comprehensible by decision makers.
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Quantitative and Qualitative
Forecasting TechniquesQuantitative Techniques
Statistically based
Predictions based onobservations of historic data
Extrapolative or Causative
Qualitative Techniques
Judgemental, subjective
Predictions based onconjecture about the future
Extrapolative
Time Series Analysis
Causative
Regression Techniques
Expert Opinion and DelphiTechniques
Scenario Planning andWar Gaming
Delphi Technique
A Delphi Manager is appointed to coordinate andfacilitate the creation of a consensus forecast
The experts provide their opinions anonymously to
the Delphi Manager to avoid the social pitfalls ofcommittees The manager also provides structured, anonymous
feedback such as one experts forecast relative to theothers, along with any justifications
The process is repeated with experts eitherconverging towards a consensus view, as theyrevise their opinions based on the feedback fromother experts, or more than one possible outcomeis identified
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Expert Opinion Strengths
Good for answering one, specific, single-dimensionedquestion
No historic or primary market research is required
Forecasts are generated by those best qualified toprovide 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 forproducing complex forecasts involving multiple factors
Quantitative Techniques: DemandBehavior
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
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Time(a) Trend
Time(d) Trend with seasonal pattern
Time(c) Seasonal pattern
Time(b) Cycle
Demand
Demand
Demand
Demand
Randommovement
Forms of ForecastMovement
3-month Simple Moving Average
Jan 120Feb 90Mar 100
Apr 75May 110June 50July 75Aug 130Sept 110Oct 90Nov -
ORDERSMONTH PER MONTH
MA3 =
3
i = 1
Di
3
=90 + 110 + 130
3
= 110 ordersfor Nov
103.388.395.078.378.385.0
105.0110.0
MOVINGAVERAGE
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5-month Simple Moving Average
Jan 120Feb 90Mar 100
Apr 75May 110June 50July 75Aug 130Sept 110Oct 90Nov -
ORDERSMONTH PER MONTH
MA5=
5
i = 1
Di
5
=90 + 110 + 130+75+50
5
= 91 ordersfor Nov
99.085.082.088.095.091.0
MOVINGAVERAGE
y = a + bx
wherea = interceptb = slope of the line
x = time periody = forecast fordemand for periodx
Linear Trend Line
b =
a = y - b x
wheren = number of periods
x = = mean of thex values
y = = mean of they values
xy - nxy
x2 - nx2
x
n
y
n
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Least Squares Examplex(PERIOD) y(DEMAND) xy x2
1 73 37 12 40 80 43 41 123 94 37 148 165 45 225 256 50 300 367 43 301 498 47 376 64
9 56 504 8110 52 520 10011 55 605 12112 54 648 144
78 557 3867 650
x = = 6.5
y = = 46.42
b = = =1.72
a = y - bx
= 46.42 - (1.72)(6.5) = 35.2
3867 - (12)(6.5)(46.42)
650 - 12(6.5)2xy - nxy
x2 - nx2
7812
55712
Least SquaresExample (cont.)
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Linear trend line y = 35.2 + 1.72x
Forecast for period 13 y = 35.2 + 1.72(13) = 57.56 units
70
60
50
40
30
20
10
0
| | | | | | | | | | | | |
1 2 3 4 5 6 7 8 9 10 11 12 13
Actual
Demand
Period
Linear trend line
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 efficientand effective utilization of resources.
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Aggregate ProductionPlanning
Dr. Nitin Seth
Associate Professor,IIFT, New Delhi
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
Overview of Planning Levels
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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
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Aggregate Plan ManagerialInputs
Supplier capabilities
Storage capacity
Materials availability
Materials
Current machine capacities
Plans for future capacities
Workforce capacities
Current staffing level
Operations
New products
Product design changes
Machine standards
Engineering
Labor-market conditions
Training capacity
Human resources
Cost data
Financial condition
of firm
Accounting and finance
Aggregate
plan
Customer needs
Demand forecasts
Competition behavior
Distribution and marketing
Aggregate Plan Outputs
Units ordollars
subcontracted
Size ofWorkforce and
Workforce Adjustment
Productionper month
(in units or $)
InventoryLevels
Aggregate
plan
Units or dollars
Of Backlogs,backorders , or
stockout
Reac t i ve A l te rn a t i ves
ComplementaryProducts
CompetitivePricing
Aggressive A l te rna t i ves
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Aggregate Planning Strategies Proactive
Alter demand to match capacity
Reactive
Alter capacity to match demand
Mixed
Some of eachBalancing demand and capacityover the entire planning horizon
Pricing
Promotion
Back orders
New demand
Demand Options
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Hire and layoff workers
Overtime/slack time
Part-time workers
Inventories
Subcontracting
Capacity Options
Chase Demand
Time
Units
Production
Demand
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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
Time
Production
Demand
Units
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Level Approach
Advantages
Stable output rates and workforce
Disadvantages
Greater inventory costs
Increased overtime and idle time
Resource utilizations vary over time
Mixed Strategy
Time
Units
Production
Demand
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Aggregate Planning Strategies
Possible Alternatives Possible AlternativesStrategy during Slack Season during Peak Season
1. Chase #1: vary workforce Layoffs Hiringlevelto match demand
2. Chase #2: vary output Layoffs, undertime, Hiring, overtime,rateto match demand vacations subcontracting
3. Level #1: constant No layoffs, building No hiring, depletingworkforce level anticipation inventory, anticipation inventory,
undertime, vacations overtime, subcontracting,
backorders, stockouts4. Level #2: constant Layoffs, building antici- Hiring, depleting antici-output rate pation inventory, pation inventory, over-
undertime, vacations time, subcontracting,
backorders, stockouts
Aggregate Plan to MasterSchedule
AggregatePlanning
Disaggregation
MasterSchedule
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Disaggregating the AggregatePlan
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.
saggregat ng t e ggregatePlan
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Lessons Aggregate production planning is a
powerful tool for resources management
Suitable aggregate production planningstrategy for an organization depends on
various organizational and environmentalfactors
Thank You