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OUTLINE

OUTLINE. Any supply chain or facilities stories or news? New Homework Discuss Homework –names, team numbers, short titles, use solver to learn it also, submit excel file when using solver Review Chopra Chapters 1-6 and cost determination (check your edition)

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OUTLINE

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  1. OUTLINE • Any supply chain or facilities stories or news? • New Homework • Discuss Homework –names, team numbers, short titles, use solver to learn it also, submit excel file when using solver • Review • Chopra Chapters 1-6 and cost determination (check your edition) • Note – only what we covered in each of those chapters

  2. What is a supply chain? • All the activities required to fill a customer’s order • Objective – Maximize the overall value that is generated

  3. Phases • Design • Decide on structure • Planning • Define operating policies for short term operations • Annual forecast • Operation • Implement operating policies

  4. Process View • Cycles • Customer • Retailer • Distributor • Manufacturer • Supplier • Push/pull • Push : initiated by anticipation of orders • Pull : initiated by a customer order

  5. Strategies • Employing resources to achieve objectives • Broad in scope • Long term • Coordination among all units • Marketing • Design Engineering • Manufacturing • Distribution • Sales • Field support

  6. Performance - Introduction Competitive Strategy – set of customers’ needs that a company seeks to satisfy through its products and services All functions play a role and have their own strategies Supply chain and competitive strategies must fit together to form a coordinated strategy

  7. Performance – Achieving competitive fit Competitive fit is achieved in three steps: By understanding the uncertainties in customers’ needs and the supply chain By understanding the supply chain’s capabilities By matching the strategies

  8. Performance - Uncertainties Quantity Response time Variety Service level Price Rate of innovation

  9. Performance - Responsiveness Wide ranges of quantities Short lead times Large variety Innovation Service level Supply uncertainty Responsiveness comes at a cost

  10. Performance – Product Life Cycle Demand – uncertain to relatively certain Margins from high to low Availability essential early to capture the market Price – unimportant to important

  11. Definitions • Facilities – places where product is • Stored • Assembled • Fabricated • Inventory – • Raw materials • Work in process (WIP) • Finished goods (FG) • Transportation • Spares • Facilities – where services are provided

  12. Definitions - continued • Transportation – moving inventory from point to point • Ground • Road • Rail • Pipe line • Barge • Air • Ship • Information • Data • Analysis

  13. Definitions - continued • Transportation – moving inventory from point to point • Ground • Road • Rail • Pipe line • Barge • Air • Ship • Information • Data • Analysis

  14. Framework

  15. Facilities • Role in the chain – the where of the supply chain • Role in the competitive strategy – Location, location, location • Components of decisions • Location • Capacity • Operational methods • Warehousing methods • Tradeoff: Responsiveness vs. Efficiency

  16. Inventory • Role in the supply chain – alleviate mismatch between supply and demand • Increase demand that can be satisfied • Exploit economies of scale • Definitions: • Material flow (Flow time) – elapsed time between material entering the supply chain and exiting • Throughput – rate at which material moves through the chain • Little’s law: Inventory = Throughput x Flow time • Flow time is also called cycle time

  17. Inventory - continued • Role in competitive strategy: responsiveness • Components of inventory decisions: • Cycle inventory – satisfies demand between replenishments • Safety Stock – protects against variations in demand • Seasonal Inventory – built up to counter demand that exceeds capacity • Sources – from whom to buy (or make)

  18. Transportation • Role: move material • Role in competitive strategy: match required responsiveness • Components of decisions: • Mode (rail, truck, air, ship, pipeline, electronic) • Route and network selection • Sourcing • Who provides transportation services?

  19. Information • Role: connects the members of the chain and supports daily operations • Role in strategy: most important underpinning • Components of decisions: • Push/pull • What to share • Forecasting and planning • Pricing • Enabling technologies: Software (EDI, ERP, SCM)

  20. Obstacles • Increasing variety • Shorter life cycles • Demanding customers • Decreasing vertical integration • Globalization

  21. Types of Chains • Internal • Often as complex as complete chains • Good place to start integrating • Need to educate people in the organization to understand their internal supply chains • External • Consider potential conflicts among prospective members • Find common goals • Each must think they will benefit

  22. More on Information • EDI • Bar Coding and scanning • Data warehousing – separate from operational data • Internet • Started with DARPA (Defense Advanced Research Projects Agency) • Intranets • World Wide Web • Decision support systems • SQL, LP, Scheduling software • Definition ATP: Available to promise

  23. Benefits of collaboration • Establishing contacts • Gaining Insight • Joint projects

  24. Definitions • Benchmarking • Identifying, understanding and adapting outstanding practices from other organizations to improve performance • Logistics • Planning, implementing and controlling the flow and storage of goods, services and information

  25. International Chains – what is different? • Greater geographic and time distances • Diversity of demand and supply conditions • Wage rates • Taxes • Incentives • Political climates • Exchange rates • Special laws

  26. Cycle time • Definition – the total elapsed time required to complete a process (e.g. 4 years to get an engineering degree, one month to build an airplane) • Little’s Law: Cycle time = Work in process/Throughput • Causes of long cycle times: • Waiting • Old processes that don’t add value • Serial vs. parallel, external vs. internal • Repeated activities • Batching • Excessive controls

  27. Measuring Performance • What should measuring performance accomplish? • Basis for understanding the system • Influence behavior in the system • Provide information about results • Provide information that will initiate actions to improve the system • Create accountability in individual operations • The concept of Supply Chain Management requires that overall performance be measured, but intermediate points must also be measured to insure accountability

  28. Measuring Performance (continued) • Typical internal measures • % orders on time • Inventory turns • Cycle time • Costs/Goods sold • Aging of orders

  29. Measuring Performance (continued) • Typical supply chain measurements • Cycle time • % orders on time (service level) or fill rate • Order aging • Comparisons to competitors (Bench marking) • Responsiveness to changes in demand • End items sold/Total costs • Market Share

  30. Chapter 4 – Designing the distribution network in a Supply Chain • Move and store product between stages • The structure of the network influences: • Response time • Variety of products • Availability of products • Customers’ experience • Visibility of orders • Returnability

  31. Some basic relationships in a supply network • Lower response times require more facilities • Inventory costs increase with the number of facilities • Transportation costs decrease with the number of facilities • Total logistics costs vary parabolically with the number of facilities – there is an optimum number of facilities

  32. Major types of distribution networks • Definition: Inventory Turns = Annual Sales/ average inventory • Manufacturing Storage with direct shipping (drop) • Manufacturing Storage with direct shipping and in transit merge • Distributor Storage with carrier delivery • Distributor Storage with Last Mile delivery (not carrier) • Manufacturer/Distributor Storage with customer pickup • Retail Storage with customer pickup

  33. Models Capacitated Plant Location Gravity location model Allocation of demand

  34. Capacitated Plant Location Model

  35. Discounted Cash Flow • Money earned in the future is worth less today • Present Value = Future Value /( 1 + interest rate/period)^ # of periods • Example1: I lend someone $1000 for two years at 4% interest, compounded annually. How much do they have to pay me back four years from now? F = P(1+I)^n = 1000(1+.04)^2 = $1081.60 • Example2: A company will make a $5000 profit 3 years from now. How much should they invest now to break even at a 10% Minimum Attractive Rate of Return (MARR)? P = F/(1+I)^n = 5000/(1+.1)^3 = $3756.57

  36. Chapter 14 – Sourcing Decisions • Assessing suppliers • Selecting suppliers - Single or multiple • Contracts • Design Collaboration • Procurement Process

  37. Definitions • Cost of Goods Sold – total expenditures to obtain or manufacture the product. This does not include Sales and administrative costs. • Safety Inventory – Inventory held to protect against variations in demand and lead time • Cycle Inventory – Inventory held to account for lot sizing • Landed Cost – Purchase Price plus transportation in • Bullwhip effect – accentuation of variations in demand as we go up the chain • Replenishment lead time – time from ordering to receipt

  38. Adding up the costs (example) • A plant generates 270,000 earned hours (established by standards for each of the products produced). 85% efficiency is assumed. • The cost of an hour of labor, including benefits, is $30 • Indirect labor totals $30M • Materials cost $70M • Material overhead costs are $4M • What is the cost of a product containing 0.8 hours of standard labor and $20 of material? • We first calculate the total labor rate as (30,000,000+270,000*30/0.85)/270,000=$146.40/hour

  39. Adding up the costs (example continued) • Material overhead = $4M/$70M= 5.7% • Direct and indirect labor =0.8* $146.40=$117.12 • Material =$20.00 • Material Overhead= 0.057*20 =$1.14 • Total Cost =$138.26 • We can separate the direct and indirect labor into: • Direct labor = 0.8*30 =$24 • Indirect =$93.12 • And you can see why everyone attacks overhead • If you are independent, the profit would add another 10% or so. It is very dependent on the industry and level of investment

  40. Cost Distribution

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