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Summary Supply Chain Management
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Supply Chain ManagementLecture 1.
Supply chain is the flow of products and services from:
- Raw material manufacturers;
- Intermediate products manufacturers;
- End product manufacturers;
- Wholesalers and distributers;
- Retailers.
Which is connected by transportation and storage activities and integrated through information,
planning, financial and coordination activities.
Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers,
manufacturers, warehouses 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.
Many firms offer a combination of goods and services.
- Products are supported by services such as warranties and training;
- Services are enhanced through the inclusion of products.
Key observations
Every facility that impacts costs need to be considered
- Suppliers’ suppliers;
- Customers’ customers.
Efficiency and cost-effectiveness through the system is required (system level approach).
There are multiple levels of activities (strategic, tactical and operational).
In the beginning of supply chain management there were:
- Fewer channel intermediaries;
- Sole suppliers;
- Limited interactions and transactions.
,Henry Ford & Fully Integrated Supply Chains:
- Vertical Integration;
- Firm boundary was drawn to cover as many activities as possible;
- Ford Rouge plant.
Disintegrated with geographical proximity emergence of the Toyota city concept:
- Component and material suppliers are different firms;
- Located in the same geographical area;
- Toyota city.
Early supply chains were geographical proximity with integrated ownership structures. This was
because transportation took much time, communication was not very fast across the world.
Matching supply and demand is very difficult, forecasting doesn’t solve the problem. Multiple, inter-
related sources of uncertainty.
- Lead times;
- Transportation times;
- Natural disasters;
- Component availability.
Supply chain risk is the likelihood of a disruption that would impact the ability of a company to
continuously supply products or services.
- Supply chain coordination risks are associated with the day-to-day management of the
supply chain.
- Disruption risks are caused by natural or manmade disasters.
Risk management framework:
1. Identify the sources of potential disruptions;
2. Assess the potential impact of the risk;
3. Develop plans to mitigate the risk.
The goal of supply chain management is to minimize the cost and maximize customer service levels.
Sustainability is the ability to meet current resource needs without compromising the ability of
future generations to meet their needs.
The triple bottom line considers evaluating the firm against social, economic and environmental
criteria.
Social responsibility pertains to fair and
beneficial business practices.
Economic properity within a sustainability
framework, this dimension goes beyond
just profit for the firm but it also provides
lasting economic benefit to society.
Environmental stewardship refers to the
firm’s impact on the environment.
,Lecture 2. Forecasting
There are different types of forecast models:
- Qualitative, judgement;
- Time series analysis, data relating to the past can be used.
- Causal relation, related to an underlying factor;
- Simulation, representation of the system considering assumptions.
The components of demand are:
- Average;
- Trend;
- Seasonal element;
- Cycles;
- Random variation;
- Autocorrelation.
Quantitative forecast models are:
1. Simple Moving Average;
2. Weighted Moving Average;
3. Exponential Smoothing;
4. Exponential Smoothing with trend;
5. Linear Regression Analysis.
Decomposition of time series is identifying and separating in components (season + trend). First use
the linear regression equation and then apply the seasonal index.
The errors can be measured with the MAD, MAPE and the TS.
Qualitative forecast models generally takes advantages of the knowledge of experts and requires
much judgement. Qualitative techniques:
- Market research
- Panel consensus
o Panel forecasts are developed through open meetings with a free exchange of ideas
from all levels of management and individuals. The difficulty is that lower-level
employees are intimidated by higher levels of management.
- Historical analogy
o In trying to forecast demand for a new product, an ideal situation would be where an
existing product or generic could be used as a model.
- The Delphi method
o Everyone has the same weight. Procedurally, a moderator creates a questionnaire
and distributes it to participants. Their responses are summed and given back to the
entire group, along with new set of questions.
,Lecture 3. Capacity
Capacity is the amount of output that a system is capable of achieving over a specific period of time.
When looking at capacity, operations managers need to look at both resource inputs and products
outputs.
Capacity planning is generally viewed in three time durations:
- Long range (>1 year);
- Intermediate range (monthly or quarterly plans for the next 6 to 18 months);
- Short range (less than one month).
Strategic capacity planning is to provide an approach for determining the overall capacity level of
capital-intensive resource facilities, equipment and overall labour force size that best supports the
company’s long-term competitive strategy.
The best operation level is the level of capacity for which process was designed and thus is the
volume of output at which average unit cost is minimized.
Capacity used is the capacity that is used.
For example, our plant’s best operating level was 500 cars per day and the plant was currently
operating 480 cars per day. The capacity utilization rate would be 96 percent.
Economies of scale is that as a plant gets larger and volume increases, the average cost per unit of
output drops. At some point, the size of a plant becomes too large and diseconomies of scale
become a problem. (Economies of scale: +volume = -cost per unit).
, Job process, low-volume products and customized process with flexible and unique sequence of
tasks.
Small batch process / Large batch process, multiple products, with low to moderate volume. It’s a
disconnected line flow, moderately repetitive work.
Line process, few major products with higher volume, it’s a connected line with highly repetitive
work.
Continuous flow process, high volume, high standardization, commodity products which
continuously flow.
Capacity flexibility means having the ability to rapidly increase or decrease production levels, or to
shift production capacity quickly from one product or service to another.
- Flexible plants
o The ultimate flexibility is the zero-changeover-time plant. Using movable equipment,
knockdown walls and easily accessible and reroutable utilities, such a plant can
quickly adapt to change.
- Flexible processes
o Are epitomized by flexible manufacturing systems on the one hand and simple, easily
set up equipment on the other. Both of these technological approached permit rapid
low-cost switching from one product to another. Sometimes referred as economies
of scope.
- Flexible workers
Capacity planning
Many issues must be considered when adding or decreasing capacity. Three important ones are
system balance, frequency of capacity additions or reductions and use of external capacity.
- System balance
o In a perfectly balanced plant with three production stages, the output of stage 1
provides the exact input requirements for stage 2 and so on. But in real life this is
both impossible and undesirable. One of the reasons is that the best operating level
for each stage generally differ.
- Frequency of capacity additions
o There are two types of costs to consider when adding capacity, the costs of
upgrading too frequently and that of upgrading too infrequently. Upgrading is very
expensive.
- External sources
o In some cases it might be cheaper not to add capacity at all, but to use some existing
external source of capacity. Two common strategies used by organizations are
outsourcing and sharing capacity.
Capacity requirements:
- Use forecasting techniques to predict sales for individual products within each product line;
- Calculate equipment and labour requirements to meet product line forecasts;
- Project labour and equipment availabilities over the planning horizon.
Often the firm then decides on some capacity cushion that will be maintained between the projected
requirements and the actual capacity. A capacity cushion is an amount of capacity in excess of
expected demand.
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