presented by prof ven mvano, phd 1. recommended books 2 1. designing and managing the supply chain-...
TRANSCRIPT
Global Supply Chain Management
Presented byProf Ven Mvano, PhD
1
Recommended Books2
1. Designing and managing the supply chain- concepts, strategies and case studies, by David Simchi-Levi, Kaminski and Edith Simchi
2. Operations Management by Nigel Slack, Stuart Chambers and Robert Johnson (Third Edition, Prentice Hall)
3. Operations Management by R. S. Russell and B. W. Taylor III
Course Content
1. Supply Chain Management concepts
2. Inventory Management
3. Purchasing
4. Demand forecasting
5. Operations management – Overview
6. Capacity planning and control
3
Supply chain management4
What is supply chain management?Management of interconnection of organizations which relate to each other through upstream and downstream linkages between different processes that produce value in the form of products and services to the ultimate consumer (Nigel et al)
What is supply chain management?
5
Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying service level requirements (Smichi-Levi et al)
Why supply chain management?6
Many opportunities exist to cut cost in the supply chain
Strategic partnerships between suppliers and manufacturers may have significant impact on supply chain performance
Potential for improving both service level and inventory levels
Logistics network – key component of SCM7
Logistical network consists of suppliers, warehouses, and retailers as well as raw materials, work-in-process inventory, and finished products that flow between the facilities
Logistics network - key component of SCM8
Key issues include determining appropriate no of warehouses, warehouse location, warehouse size, allocation of space for products in each warehouse, and determining which products customers will receive from each warehouse
Data collection in the Supply Chain (SC)9
Location of customers, retailers, existing warehouses and distribution centers, manufacturing facilities, and suppliers
Products, including volumes, and special transportation modes
Annual demand for each product by customer location
Data collection in the Supply Chain (SC)10
Transportation rates by various modes Warehousing costs, including labor,
inventory carrying costs charges, and fixed operating costs
Shipment sizes and frequencies for customer delivery
Order processing costs Customer service requirements and goals
Data collection in the Supply Chain (SC)11
Transportation rates/tariffs Mileage estimation Warehouse costs Warehouse capacities Potential warehouse locations Service level requirements Future demand
Global market forces12
Foreign competitors Foreign customers Global proliferation of information Technological forces Global cost forces Political and economic forces
Competitive advantage in global industries13
Characteristics of global industries Differences in prices and costs Differences in buyer needs Differences in competition and ways of
competing Differences in trade rules and
governmental regulations
Competitive advantage in global industries (continued)
14
Strategic options License foreign firms to produce and
distribute the firm’s products Maintain a domestic production base and
export products to foreign countries Establish foreign based plants and
distribution
Risks and advantages of international supply chains
15
Fluctuating exchange rates Customer reactions Competitor reaction Government reactions
Issues in international supply chain management
16
International versus regional products Local autonomy versus control Different levels of productivity Partners may later become competitors Threat of protectionism
Issues in international supply chain management (continued)
17
Cultural differences Infrastructure Performance expectations and evaluation Information system availability Human resources
Inventory management18
Issues for discussion: What is inventory? Why is it necessary? How much inventory should be held? When should inventory be replenished? How can inventory be controlled?
What is inventory?19
Inventory, or stock, is “the stored accumulation of material resources in a transformation process”.
All operations keep inventories Why inventory exists – difference in rate of
demand and rate of supply Types of inventory – buffer, cycle, pipeline Inventory decisions
20
Importance of inventory management
Impact on customer service level and supply chain system-wide cost
Types of inventory: raw materials, work-in-process, finished products
Unexpected changes in customer demand Uncertainty in quantity and quality of
supply, supplier costs, and delivery times Economies of scale offered by
transportation companies
21
What are the key factors affecting inventory policy?
Customer demand Replenishment lead times Number of different products Length of the planning horizon Costs, including order costs and inventory
holding costs Service level requirements
22
Practical issues – effective inventory reduction strategies
Periodic inventory review Tight management of usage rates, lead times,
and safety stocks Reduce safety stock levels Introduce or enhance cycle counting Use ABC approach Shift more inventory or inventory ownership to
suppliers
Inventory decisions23
How much to order – Volume decision When to order – Timing decision How to control the system What procedures should be installed to
help make these decisions? Should different priorities be allocated to
different stock items? How should stock information be stored?
The volume decision – How much to order24
Inventory costs Cost of placing the order Price discount costs Stock-out costs Working capital costs Storage costs Obsolescence costs
The economic order quantity (EOQ) formula25
Assumptions: Total cost of holding 1 unit in stock - h Cost of placing an order - c Order quantity - Q Therefore, average inventory – Q/2 Demand per year - D
The EOQ Formula
26
EOQ = SQRT (2cD/h)
EOQ MODEL – Trial and error method
Assumptions1. Annual requirements/demand (in units) (D) 100002. Stock holding cost per unit per year (US $) 53. Order cost per order (US $) 100Required:Test cost implications of the following order policiesSuggested solution:Order amount No of orders Average Annual Annual stock Combined
in unitsorders per year stock held order cost holding cost annual cost
Q N Q/2 c h2500 4.0 1250.0 400.0 6250.0 6650.01250 8.0 625.0 800.0 3125.0 3925.0625 16.0 312.5 1600.0 1562.5 3162.5350 28.6 175.0 2857.1 875.0 3732.1200 50.0 100.0 5000.0 500.0 5500.0100 100.0 50.0 10000.0 250.0 10250.027
EOQ Illustration28
A building materials dealer obtains its cement from a single supplier. Demand is reasonably constant throughout the year. Last year the company sold 2000 tons of cement. It estimates cost of placing an order at around $25 per order. Inventory holding cost is estimated at 20% of purchase price. The company purchases cement at $60 per ton. How would a discount offer of 2% on orders of 200 units affect order size decision?
Illustration- How much cement should the company order at a time?
29
Order Quantity (Q)
Holding Cost (H)
Order Cost (C)
Total inventoryCost (TC)
70
80
90 *
100
110
420 480
540
600
660
725
625
550
500
450
1145
1105
1090
1100
1110
EOQ value derived using formula
30
Q = √(2*D*C)/h)= √(2*2000*25/12)= 91.3 units
The assumptions included in the model
31
Stability of demand Fixed and identifiable ordering cost Linear stock holding cost function Shortage costs which are identifiable
When to place an order32
Order when stock balance fall to or below Reorder Level amount e.g. 700 units. This is referred to as the two-bin and three-bin systems
Order ever after a predetermined periodic e.g. every two months. This is called periodic review system.
The timing decision – When to place an order
33
Inventorylevel
Time
Reorder level
Reorder point
Lead time
Order received
34
Assumptions Orders do not arrive instantaneously i.e.
there is a lag/lead time Demand and order lead time are perfectly
predictable• If either or both the demand and the lead
time are variable, we need to provide for safety or buffer stock.
Safety stocks35
Safety stocks are needed because forecasts or estimates of demand are not perfect, and suppliers sometimes fail to deliver goods on time.
There should be some protection against two unfavourable contingencies:A higher rate of usage than was forecastA late delivery of goods
36
The variations in lead time and or demand are absorbed by provision of safety stocks.
Their purpose is to cover demand during replenishment lead time in case actual demand exceeds expected demand, or actual lead time exceeds expected lead time
37
Safety stocks have two main effects on a firm’s costs: They decrease cost of stock-outsThey increase stock holding costs
Safety stock is an important component of the reorder level
Reorder level with safety stock38
ROL
Safety stock
Time
Inventorylevel
39
When safety stock (buffer stock) is held, the average inventory becomes
(S + Q/2)
Where S = safety stock and Q is order quantity
Inventory analysis and control systems40
Inventory priorities – the ABC system The Pareto law – 80/20 rule Class A items are those 20% or so of high value
items which account for around 60% of total stock value
Class B are those of medium value, usually the next 40% of items which account for around 30% of total value
Class C are the remaining 40% of items are low value items, perhaps accounting for 10% of all items
41
Value analysis classification – Illustration
Item Price Quantity Value
A 67 73 4891
B 32 278 8896
C 43 672 28896
D 12 260 3120
E 76 187 14212
F 123 120 14760
G 56 58 3248
H 49 98 4802
I 80 32 2560
J 95 74 7030
42
Item Price Quantity Value % Total Cum %
C 43 672 28896 31.3 31.3
F 123 120 14760 16.0 47.2
E 76 187 14212 15.4 62.6
B 32 278 8896 9.6 72.2
J 95 74 7030 7.6 79.9
A 67 73 4891 5.3 85.1
H 49 98 4802 5.2 90.3
G 56 58 3248 3.5 93.9
D 12 260 3120 3.4 97.2
I 80 32 2560 2.8 100.0
Total 92415 100
Item% of items
Cum % of items Price Quantity Value % Total Cum %
C 10 10 43 672 28896 31.3 31.3F 10 20 123 120 14760 16 47.2E 10 30 76 187 14212 15.4 62.6B 10 40 32 278 8896 9.6 72.2J 10 50 95 74 7030 7.6 79.9A 10 60 67 73 4891 5.3 85.1H 10 70 49 98 4802 5.2 90.3G 10 80 56 58 3248 3.5 93.9D 10 90 12 260 3120 3.4 97.2I 10 100 80 32 2560 2.8 100
Total 92415 100% of items % of
Class Items items value cut-off pointsA C, F 20 47.2 value >= 14700B E,B,J,A,H 50 43.1 4800 >= value < 14700C G,D,I 30 9.7 value < 4800
Implications for 1. ordering policy?2. stock taking/counting policy?3. Review/monitoring stock movement?
43
44
Measuring inventory Monetary value of all items in stock Number of weeks cover of the stock Stock turnover – how often the stock is
used up in a period
Inventory information systems45
‘Management Information System’ concept
Database concept Stock records Inventory management reports
Procurement46
Definition:
Obtaining goods and or services from an external source instead of making them within the organization
Operational procurement activities47
Requests by users for products and services Requests by procurement department for
quotations Quotations by suppliers/contractors of
specification, prices, delivery, etc Selection of preferred supplier/contractor Place purchase order or award of contract Produce and ship goods/services; execution of
the contract Receive goods and services
Traditional objectives of the procurement function
48
Right price Right time Right quality Right quantity Right source
Purchasing at the right price: Effect on profits
49
IllustrationTotal sales $10,000,000Purchased materials 7,000,000Salaries 2,000,000Overheads 500,000Therefore, Profit 500,000A 5% reduction in materials costs would
increase profit by 70% (from 500,000 to 850,000) !
Purchasing for delivery at the right time and in the right quantity
50
• Discussion on inventory management describes how order volumes and times are calculated based on current stock levels and historic demand
Purchasing at the right quality51
Make accurate quality specifications Supplier quality assurance programs
monitor and improve levels of supplier quality, partly by assessing supplier capability in terms of their equipment, systems, procedures and training
Specification of type and quantity of goods/services to be purchased
52
Design specifications Normally associated with civil works, plant and
mechanical equipment Performance specifications In terms of capacity and efficiency for a particular
purpose Specifications by chemical analysis or physical
characteristics Used for primary commodities, chemicals, metals,
and manufactured goods
Purchasing from the right source53
Determine important criteria for evaluating suppliers
Consider both short-term and long-term capability of the supplier
Decide whether to source from one or more than one supplier
Advantages of single- and multi-sourcing
Single sourcing Potentially better
quality Strong relationships More commitment Better communication Easier to cooperate on
new product
Multi sourcing More
competitive price Can switch
sources in case of supply failure
54
Advantages of single- and multi-sourcing
More scale economies
Higher confidentiality
Wide sources on knowledge and expertise to tap
55
Disadvantages of single- and multi-sourcing
Single sourcing More vulnerable to
disruption if a failure to supply occurs
Individual supplier more affected by volume fluctuations
Multi sourcing Difficult to
encourage commitment by supplier
Less easy to develop effective SQA
56
Disadvantages of single- and multi-sourcing
Supplier might exert pressure on prices
More effort needed to communicate
Supplier less likely to invest in new processes
Less scale economies
57
Identifying, assessing, short-listing and making contact with suppliers
58
Compile list of potential suppliers Send bid documents to potential suppliers Evaluate quotations/bids – check whether
tenders are complete, properly signed, arithmetically correct, and responsive to invitation to tender
Placing purchase order or contract and negotiating terms as appropriate
59
Negotiations may include price per unit; cash discounts; credit terms, supplier credit; mode of payment
Supervising delivery and performance of contract including inspection of goods
60
Issuing orders and instructions to contractor
Measuring and supervising the works Testing and examining materials used Ensuring workmanship is according to
specifications
61
Receiving, evaluating and advising employer on contract claims
Writing physical and financial progress reports Expediting Pre-shipment inspection
Taking custody of goods, paying necessary duties, clearing from customs62
Presentation of documents to the ship’s agency
Presentation of appropriate customs forms
Presentation of declaration and port release forms
Make-or-buy decisions63
If a company can make a part in-house more cheaply than it can buy it, it is likely to do so
Another rationale for buying in services is that they are not ‘core’ to the company’s main activity
Outsourcing benefits64
Economies of scale Risk pooling Reduce capital investment Focus on core competency
Outsourcing benefits65
Increased flexibility e.g. ability to react to changes in customer demand, ability to use supplier’s technical knowledge to accelerate product development cycle time, and ability to gain access to new technologies and innovation
Outsourcing risks66
Loss of competitive knowledge – outsourcing critical parts may open opportunities for competitor; outsourcing may imply that companies lose their ability to introduce new designs based on their own agenda rather than the supplier’s agenda
67
Overview of Operations Management
Nature of operations management68
Operations management is about the way organizations produce goods and services
Core functions of any organizations Marketing Product/service development Operations
69
Support functions in the organization Accounting and finance Human resources Information function Engineering/technical function Purchasing
The transformation process model
70
Transformationprocess
Transformedresources
Transformingresources
Input Environment
Environment
Output
Goods andservices
Transformed resourcesInputs
71
Materials Customers Information
Transforming resources
72
Buildings Equipment Process technology Staff
The transformation process73
Materials processing Transforms materials physical properties Changes materials location Changes possession of the materials Stores materials
74
Customer processing Change customers’ physical properties e.g.
hairdresser ‘Store’ (accommodate) customers e.g. hotels Airlines and bus companies transform the
location of their customers Hospitals transform physiological state of
customers/patients Other operations transform customers’
psychological state e.g. entertainment service providers
75
Information processing Transform their informational properties
(i.e. purpose or form of the information) Change possession of the information
(e.g. market research companies) Store the information (e.g. archives and
libraries) Change the location of the information
(e.g. telecommunication companies)
Outputs from the transformation process (products and services)
76
Products and services are seen as being different in several ways:
Tangibility Storability Transportability Simultaneity Customer contact Quality
Types of operations77
Operations differ in four important respects:
Volume of their output Variety of their output Variation in the demand for their output Degree of customer contact
78
The volume dimension Repeatability of tasks Specialization by staff Systemitization of the work Low unit costs
79
The variety dimension Flexibility Compare taxi operations and bus
operations
80
The variation dimension Seasonality of demand e.g. tours Implication for capacity planning
81
The visibility dimension (customer contact)
How much of the operation’s activities are experienced by customers
Activities of operations management82
Direct responsibilities of operations management
Understanding the operation’s strategic objectives (quality, speed, dependability, flexibility, and cost)
Developing an operations strategy for the organization
83
Designing the operation’s products, services and processes
Planning and controlling the operation Improving the performance of the
operation
84
Indirect responsibilities of operations management
Understanding process technology needs Understanding capabilities and
constraints of operations processes Understanding HR needs Provision of relevant information to other
departments e.g. Accounts and Finance
85
The broad responsibilities of operations management include understanding of:
Globalization issues Environmental protection Social responsibility Technological development Knowledge management
Operations performance objectives86
Operations performanceObjectives
Society• Increase employment• Enhance community well-
being• Produce sustainable products• Ensure clean environment Customers
• Appropriate product
• Consistent quality• Fast delivery• Dependable
delivery• Flexibility• Acceptable price
Employees• Continued employment• Fair pay• Good working conditions• Personal development
Shareholders• Shareholder value• Ethical value from
investment
Suppliers• Continue business• Develop supplier
capability• Provide information
87
The five customer performance objectives Quality Speed Dependability Flexibility Cost objective
The quality objective88
Quality means different things in different operations
Quality reduces costs Quality increases dependability Quality (like other objectives) has both an
external, which leads to customer satisfaction, as well as an internal aspect to it, which leads to a stable and efficient organization
Quality – some definitions89
Conformance to specifications Fitness for use Meeting customer expectations Innate ‘goodness’ Without errors/flaws
Quality means different things in different operation e.g.
90
Hospital Patients receive most appropriate
treatment Patients are consulted and kept informed Staff are courteous, friendly and helpful
Quality means different things in different operation e.g.
91
Supermarket Goods are in good condition Store is clean and tidy Decor is appropriate and attractive Staff are courteous, friendly and helpful
The speed objective92
Speed has to do with how long customers have to wait to receive their products or services
Speed means different things in different operations (e.g. hospital, car assembly, bus company, supermarket etc)
Speed reduces inventories When speed means life or death
Speed means different things in different operation e.g.
93
Hospital Time taken to be treated Time before test results are available• Car factory Time between dealers requesting vehicles
and receiving them Time to deliver spares to service centres
The dependability objective94
Doing things in time for customers to receive their goods or services when they were promised
Dependability saves time Dependability save money Dependability gives stability
Dependability means different things in different operations e.g.
95
Hospital Proportion of appointments which are
cancelled kept to minimum Keeping to appointments time Test results returned as promised Bus company Keeping to schedule Constant availability of seats for passengers
The flexibility objective96
Means being able to change the operation in some way e.g.Different products and servicesWide range or mix of products and
servicesDifferent quantities or volumes of
products and servicesDifferent delivery times
Flexibility means different things in different operation e.g.
97
Car plant Product flexibility – introduction of new
models Volume flexibility – ability to adjust no of
vehicles manufactured Deliver flexibility – ability to obtain out-of-
stock items
Flexibility means different things in different operation e.g.
98
Bus company Introduction of new routes Ability to adjust frequency of routes
The cost objective99
Low cost leads to lower price Cost elements:
staff costs facilities technology and equipment costmaterials costs
Cost is affected by other performance objectives:
100
High quality operations do not waste time or effort having to redo things
Fast operations reduce level of in-process inventory between micro operations
Dependable operations do not spring any unwelcome surprises on their customers (both internal and external)
Operations strategy101
All organizations need some strategic direction
Operations strategy means a set of principles which guide its decision-making
Strategic decisions are those which: Are widespread in their effect on organization Define position of organization relative to
environment Move organization closer to its long-term
goals
Content of operations strategy – 4 perspectives
102
1. Operations strategy is a top-down reflection of what the business wants to do
2. Operations strategy is a bottom-up activity where operations improvements cumulatively build strategy
Content of operations strategy – 4 perspectives
103
3. Operations strategy involves translating market requirements into operations decisions
4. Operations strategy involves exploiting capabilities of operations resources in chosen markets
The four perspectives on operations strategy
104
Top down perspective
Operations Resourcesperspective
Bottom up perspective
MarketRequirementsperspective
Operations strategy
What the business wants Operations to do
What the marketPosition requires Operations to do
What day to day experience
Suggests operations shoulddo
What operations resourcescan do
1.
2.
3.
4.
1. The top-down perspective of operations strategy
105
Corporate strategy decisions
Business strategy decisions
Functional strategy decisions
Corporate strategy decisions 106
What business to be in, i.e. how diversified
What businesses to acquire and what to divest
How to allocate cash to different businesses
How to manage relationships between different businesses
Business strategy decisions107
Defining the mission of the business Defining strategic objectives e.g. growth
targets, ROI, profitability targets, cash generation
Setting the way that the business wishes to compete in its markets
Functional strategy decisions 108
What role to play in contributing to the strategic objectives of the business
How to translate business and competitive objectives into functional objectives
How to manage the function’s resources so as to achieve functional objectives
What performance improvement priorities to establish
2. The bottom–up perspective of operations strategy
109
Consolidated into a formal strategy
Emergent sense of what the strategy should be
Operational day-to-dayexperiences and learning
3. The market requirements perspective110
Priority of performance objectives Customer influence on performance
objectives Order winning and qualifying objectives Different customer needs imply different
objectives Competitor influence on performance
objectives The product life cycle influence on
performance objectives
4. The operations resources perspective111
Resource-based view (RBV) of the firm holds that firms with above average strategic performance are likely to have gained their competitive advantage because of the competences of their resources.
Resource constraints and capabilities Operations resources and processes Structural and infrastructural decisions
Examples of structural decisions
112
New product/service development strategy
Vertical integration strategy Facilities strategy Technology strategy
Examples of infra-structural decisions113
Workforce and organization strategy Capacity adjustment strategy Supplier development Inventory strategy
114
Forecasting
Meaning of forecasting115
Predicting future events – Usually demand behaviour over a time frame Can be qualitative (based on subjective
methods) or quantitative (based on mathematical/statistical formulas)
Strategic role of forecasting116
Forecasts determine product demand and inventory requirements
Continuous replenishment systems require accurate short-term forecasts
Strategic planning requires forecasting Forecasting ensures customer satisfaction
Time frame117
Short range to medium range – daily, weekly, monthly forecasts of sales data, for example
- up to 2 years into the future Long range
- strategic planning of goals, products, markets
- planning beyond 2 years into the future
Forecasting process118
Identify the purpose of the forecast
Collect historical data
Plot data and identify patterns
Select a forecast model that seem appropriate for
the data
Develop/compute forecast period of historical data
Forecasting process (continued)
119
Check forecast accuracy
Is forecast accuracy acceptable?
If NO, select a new forecast model
If YES, continue with forecast model over the
planning horizon
Adjust forecast based on additional qualitative
information
Monitor results and measure forecast accuracy
120
An Overview of Forecasting Methods
F/castingmethods
Quantitative
CausalTime series
Smoothing Trend projection
Trend projectionAdjusted for seasonalinfluence
Qualitative
Qualitative methods of forecasting121
Management judgment, expertise, opinion
Market research
Delphi method
Panel consensus
Historical analogy
Quantitative/statistical Forecasting methods122
Moving average
Exponential smoothing
Linear trend line using regression analysis
Moving average method of forecasting123
Average several periods of data
Smooth out changes
124
Month Demand 3_mo MA 5_mo MAJan 120Feb 90Mar 100Apr 75 103.3May 110 88.3Jun 50 95.0 99.0Jul 75 78.3 85.0Aug 130 78.3 82.0Sep 110 85.0 88.0Oct 90 105.0 95.0Nov 110.0 91.0
Simple moving average example
125
0 2 4 6 8 10 120
20
40
60
80
100
120
140 Smoothing effects
Demand 3_mo MA5_mo MA
Month
Dem
an
d
126
Forecasting with Moving Average Method - Illustration
127
Year Quarter Time period Sales
t revenue($ '000)
2000 Jan 1 40
Apr 2 76
Jul 3 75
Oct 4 48
2001 Jan 5 54
Apr 6 70
Jul 7 82
Oct 8 64
2002 Jan 9 65
Apr 10 75
Jul 11 88
128
Year Quarter Time period Sales
T revenue($ '000)
Oct 12 70
2003 Jan 13 67
Apr 14 80
Jul 15 90
Oct 16 89
2004 Jan 17 70
Apr 18 86
Jul 19 94
Oct 20 95
Time MA Actual/MA
Year period Actual sales (SI)
200 1 40
2 76
jul_sep 3 75
4 48
2001 5 54 59.75 0.906 70 63.25 1.11
jul_sep 7 82 61.75 1.33
8 64 63.50 1.01
2002 9 65 67.50 0.9610 75 70.25 1.07
jul_sep 11 88 71.50 1.23
12 70 73.00 0.96
2003 13 67 74.50 0.9014 80 75.00 1.07
jul_sep 15 90 76.25 1.18
16 89 76.75 1.16
2004 17 70 81.50 0.8618 86 82.25 1.05
jul_sep 19 94 83.75 1.12
20 95 84.75 1.12
86.25
129
Trend line Equations:
(1)Using actual sales values
S = 54.98 + 1.80T
(2) Using moving average
values
S = 51.95 + 1.67T
130
Average seasonal indices
QTR 2000 2001 2002 2003 2004 Average SI
1 0.90 0.96 0.90 0.86 0.91
2 1.11 1.07 1.07 1.05 1.07
3 1.33 1.23 1.18 1.12 1.22
4 1.01 0.96 1.16 1.12 1.06
131
Forecasting using the moving average technique
132
Illustration: Suppose we wanted sales
projections for 2005, (a) second quarter
(Equation: S = 51.95 + 1.67T)
t = 22, S = 51.95 + (1.67) x 22 = 88.69
Adjusted forecast using moving averages seasonal indices
133
S = 88.69 x (1.07) = 94.898
134
Five Year Quarterly Sales (2000 - 2004)Time Actual sales Exp smoothing seasonal
2000Quarter period sales index (SI)Jan - Mar 1 40Apr - Jun 2 76 40.00 1.90 Jul - Sep 3 75 50.80 1.48 Oct - Dec 4 48 58.06 0.83
2001Jan - Mar 5 54 55.04 0.98 Apr - Jun 6 70 54.73 1.28 Jul - Sep 7 82 59.31 1.38 Oct - Dec 8 64 66.12 0.97
2002Jan - Mar 9 65 65.48 0.99 Apr - Jun 10 75 65.34 1.15 Jul - Sep 11 88 68.24 1.29 Oct - Dec 12 70 74.17 0.94
2003Jan - Mar 13 67 72.92 0.92 Apr - Jun 14 80 71.14 1.12 Jul - Sep 15 90 73.80 1.22 Oct - Dec 16 89 78.66 1.13
2004Jan - Mar 17 70 81.76 0.86 Apr - Jun 18 86 78.23 1.10 Jul - Sep 19 94 80.56 1.17 Oct - Dec 20 95 84.59 1.12
87.72
135
2000 2001 2002 2003 2004 Average SI
JAN-MAR 0.98 0.99 0.92 0.86 0.938
APR - JUN 1.9 1.28 1.15 1.12 1.1 1.310
JUL - SEP 1.48 1.38 1.29 1.22 1.17 1.308
OCT -DEC 0.83 0.97 O.94 1.13 1.12 1.013
SEASONAL INDICES
136
Using the exponential smoothing values the forecasting equation/model is
S = 44.97 + 2.03T
GSCM Forecasting Discussion Question
Quarterly demand for Product A (in MK mill) over 2011-2012 period
Year QuarterTime
Period DemandX Y
2011Jan-Mar 1 6.9Apr-Jun 2 6.3Jul-Sep 3 7.2Oct-Dec 4 8.5
2012Jan-Mar 5 8.3Apr-Jun 6 8.1Jul-Sep 7 9.2Oct-Dec 8 9.5
RQUIRED:1. Average quarterly demand2. 4-Quarterly Moving Average3. Exponential smoothing values using a smoothing factor of 0.3
4. Trend using a. actual values b. Moving average values c. Exponential smoothing values5. Average Quarterly (seasonal) indices
6. Seasonally adjusted forecasts for al quarters of 2013
139
Capacity Planning and Control
Capacity planning and control140
Capacity planning and control involves reconciling the aggregate capacity of the operation with its aggregate demand
Capacity is the maximum level of value-added activity over a period of time that the process can achieve under normal operating conditions
141
Objectives of capacity planning and control Minimize costs of the operation Maximize revenue Make effective use of working capital Ensure high quality of goods and services Enhance speed of response to customer
demand Ensure dependability of supply Enhance (volume) flexibility
142
Steps in capacity planning and control Measure aggregate demand and
aggregate capacity Identify the alternative capacity plans Choose the most appropriate capacity
plan
143
Measuring capacity Output measures Input measures
Illustration of input and output capacity measures
144
Operation Input measure Output measure
HospitalTheatreUniversityRetail storeAirline
ElectricityCompanyBrewery
Beds availableNumber of seatsNumber of studentsSales floor areaNumber of seats available on a sectorGenerator sizevolume of Fermentation tanks
Number of patients/weekNo of customers entertainedStudents graduating/yearNo of items sold/dayNo of passengers/weekMegawatts of electricityGeneratedLiters per week
145
Design capacity and effective capacity Design capacity is the maximum output per
time period that technical designers intended the operation to attain
Effective capacity is actual capacity after inevitable ‘losses have been accounted for
Ratio of actual output of an operation to its design capacity is called utilization
Ratio of actual output to effective capacity is called efficiency
146
Overall equipment effectiveness is based on its speed, the quality of product, and the time that is available to operate
Utilization as a measure of operations performance e.g. room occupancy level in hotels, load factor for aircraft seats
The alternative capacity plans 147
Level capacity plan Chase demand plan Demand management Mixed plans
148
Level capacity plan Processing capacity set at uniform level
throughout the planning period Stable employment, high process
utilization, high productivity with low unit costs
Need to know what to produce for inventory
Not suitable for perishable goods
149
Chase demand plan Attempts to match capacity closely to
varying levels of forecast demand Different numbers of staff, different
working hours, different amount of equipment
More usually adopted by operations which cannot store their output
Capacity planning illustration
Month Previous year'sactual sales (units)
Jan 290Feb 300Mar 200Apr 250May 400Jun 150Jul 500Aug 450Sep 550Oct 600Nov 350Dec 400
Total 4440
Capacity planning using level demand strategyPrevious year's Planned Current year's Stock
Month sales (units) Capacity demand level
Jan 290 370 320 50Feb 300 370 400 20Mar 200 370 450 (60)Apr 250 370 420 (110)May 400 370 200 60Jun 150 370 256 174Jul 500 370 310 234Aug 450 370 500 104Sep 550 370 340 134Oct 600 370 473 31Nov 350 370 400 1 Dec 400 370 300 71
Total 4440 4369
Capacity planning using chase demand strategyPrevious year's Planned Current year's Stock
Month sales (units) Capacity demand level
Jan 290 400.0 320 80.0 Feb 300 344.0 400 24.0 Mar 200 383.2 450 (42.8)Apr 250 430.0 420 (32.8)May 400 423.0 200 190.1 Jun 150 266.9 256 201.0 Jul 500 259.3 310 150.3 Aug 450 294.8 500 (54.9)Sep 550 438.4 340 43.5 Oct 600 369.5 473 (59.9)Nov 350 442.0 400 (18.0)Dec 400 412.6 300 94.6 Total 4440 4463.6 4369
154
Chase demand – methods of adjusting capacity
Overtime and idle time Varying the size of the workforce Using part-time staff Sub-contracting
155
Demand management Stable and uniform demand could allow
organization to reduce costs and improve service; capacity could be better utilized and profit potential could be enhanced
Change demand through price and advertising
Alternative products and services
156
Mixed plans
Most operations managers are required simultaneously to reduce costs and inventory, to minimize capital investment, and yet to provide a responsive and customer-oriented approach at all times. Hence the need for a mixture of the three approaches.
157
Yield management aims to maximize potential to generate profit. Especially useful where:
Capacity is relatively fixed Market can be fairly clearly segmented Service cannot be stored in any way Services are sold in advance Marginal cost of making a sale is low
158
Yield management – example of an airline Over-booking capacity Price discounting Varying service types
159
Previous year's Planned
Current year's Inventory
Month sales (units) Capacity demand level
Jan 226 200Feb 128 150Mar 155 197Apr 178 165May 170 180Jun 213 170
REQUIRED:1. Complete the 'planned capacity' column assuming (a) level demand plan and (b) chase demand plan2. For each capacity plan determine the inventory level assuming (a) 'back-orders' and (b) 'lost sales'
GROUP EXERCISE
160
Quality management
What is quality and why is it so important?
161
Quality as ‘innate excellence’ ‘Free of errors’; Conformance to specs Fitness for the purpose product was made Quality as ‘measurable set of
characteristics’ that is required to satisfy customer
Quality should be perceived in terms of cost and price
Different views of quality162
Operation’s view - Quality is consistent conformance to customers’ expectations
Customer’s view – Quality is what the customer perceives to be
Reconciling the two views of quality – Quality can be defined as the degree of fit between customers’ expectations and their perception of the product or service
163
Diagnosing quality problems Gap between customer’s specification and
operation’s specification Gap between the concept and
specifications Gap between the quality specifications and
actual quality Gap between the actual quality and
communicated image
Conformance to specification
164
Quality planning and control - six steps: Define quality characteristics of
product/service Decide how to measure each characteristic Set quality standards for each characteristic Control quality against those standards Find and correct causes of poor quality Continue to make improvements
Step 1: Define quality characteristics of product/service
165
Functionality e.g. speed, fuel consumption Appearance e.g aesthetics, shape,
cleanliness Reliability e.g. mean time to failure Durability e.g. useful life Recovery e.g. ease of repair, resolution of
service failures Contact e.g. knowledge and courtesy of staff
Step 2: Decide how to measure each characteristic
166
Involves taking a general characteristic and breaking it down into its constituent elements
Measures used to describe quality characteristics are of two types: variables and attributes
Step 3: Set quality standards167
Quality standard is that level of quality which defines the boundary between acceptable and unacceptable
Quality standard for the reliability of a watch might be 10 maintenance free years, for the availability of airline seats might be that seat should be available 95 per cent of the time
Step 4: Control quality against those standards
168
Where in the operation should managers check that it is conforming to standards?
Should they check every product or service or take a sample?
How should the checks be performed?
Statistical process control (SPC)169
SPC is concerned with checking a product or service during its creation
Control charts Variation in process quality Common causes Assignable causes Process variability – a measure of the
acceptability of the variation of the process