IE3104: Supply Chain Modeling: Manufacturing & Warehousing

1. IE3104: Supply Chain Modeling:Manufacturing & Warehousing Instructor: Spyros Reveliotis Office: Room 316, ISyE Bldng tel #: (404) 894-6608 e-mail: spyros@isye.gatech.edu homepage: www.isye.gatech.edu/~spyros

2. “Course Logistics” • TA: Mr. Karin Boonertvanich • Office Hours: 2-3:30pm MW (ow, an open-door policy will be generally adopted, but an appointment arranged by e-mail is preferred) • Grading policy: • Homework: 25% • Midterm I: 20% (Tent. Date: middle of February) • Midterm II: 20% (Tent. Date: end of March) • Final: 35% • Exams closed-book, with 2 pages of notes per exam • Make-up exams and Incompletes:Only for very serious reasons, which are officially documented. • Reading Materials: • Course Textbook: “Design and Analysis of Lean Production Systems” R. Askin and J. Goldberg • Material posted at my homepage or the library electronic reserves

3. Course Objectives(What this course is all about?) • How to design and operatemanufacturing and warehousing facilities (and more…) • A conceptual description and classification of modern production and warehousing environments and their operation • An identification of the major issues to be addressed during the planning and control of the production and warehousing activity • Decomposition of the overall production planning and control problem to a number of sub-problems and the development of quantitative methodologies for addressing the arising sub-problems • Computational implementation of the presented techniques (e.g., Excel, LP solvers, etc.) primarily through the homework assignments • Emerging trends, including the implications of a globalized and internet-based economy

4. Inputs Outputs • Materials • Prod. Equip. • Labor • Manag. Res. • Goods • Services Organization Stage 1 Stage 2 Stage 4 Stage 3 Stage 5 Organizational Operations • Organization / Production System: A transformation process (physical, locational, physiological, intellectual, etc.) • Supply or Value Chain / Network: Suppliers Customers

5. The major functional units of a modern (industrial) firm

6. The major functional units of a modern (industrial) firm (cont.)

7. Business Processes • The set of procedures designed to integrate people, knowledge, • materials, equipment, energy, and information in order to accomplish • a specific task; e.g., • design a product • enter a customer order • fill a customer order • acquire raw materials • etc. • Remarks: • Each process has a set of outcomes/products and customers • Processes often cross organizational and functional boundaries • Processes can be interconnected; modern information technology is a primary enabler of such process interaction • Processes require resources and therefore they must be derived from and serve the objectives of the firm

8. Corporate Mission • The mission of the organization • defines its purpose, i.e., what it contributes to society • states the rationale for its existence • provides boundaries and focus • defines the concept(s) around which the company can rally • Functional areas and business processes define their missions such that they support the overall corporate mission in a cooperative and synergistic manner.

9. Corporate Mission Examples(J. Heizer & B. Render, “Operations Management”, Prentice Hall) • Merck:The mission of Merck is to provide society with superior products and services-innovations and solutions that improve the quality of life and satisfy customer needs-to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return. • FedEx: FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained utilizing real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional for each other, and the public. We will strive to have a completely satisfied customer at the end of each transaction.

10. Defining the Corporate Strategy Responsiveness (Reliably faster; Efficiently accommodating innovation and demand fluctuation; e.g., Dell, Overnight Delivery Services) Competitive Advantage through which the company market share is attracted Cost Leadership (Cheaper; e.g., Wal-Mart, Southwest Airlines, Generic Drugs) Differentiation (Better; e.g., Luxury cars, Fashion Industry, Brand Name Drugs)

11. The operations frontier, trade-offs, and the operational effectiveness Responsiveness Cost Leadership Differentiation

12. Strategy Development Process(J. Heizer & B. Render, “Operations Management”, Prentice Hall) Environmental Analysis Understand the environment, customers, industry, and competitors Identify your strengths, weaknesses, opportunities and threats. Determine Corporate Mission State the reason for the firm’s existence and identify the value it wishes to create Form a Strategy Build and maintain a competitive advantage, such as low price, quick delivery or quality, by identifying and developing the critical success factors

13. Factors affecting Corporate Strategy • External • Emerging strengths and weaknesses of competitors => new threats and opportunities, respectively • New industry entrants • Development of substitute products • Development of new technologies • Legal developments (e.g., environmental concerns and regulations) • Economic and political developments (e.g., new international agreements, political crises) • Internal • Company politics and restructuring • Modified relationships with customers and suppliers • Product Life Cycle

14. Strategy and Issues during a Product’s Life(J. Heizer & B. Render, “Operations Management”, Prentice Hall) Growth Maturity Decline Introduction • Poor time to change image, price or quality • Competitive costs become critical • Defend market position • Cost control critical • Practical to change price or quality image • Strengthen niche • Best period to increase market share • R&D engineering critical Sales Time • Frequent product and process changes • Short production runs • High production costs • Limited models • Attention to quality • Little product differentiation • Overcapacity in the industry • Reduce capacity and eventually prune line to eliminate items not returning good margin • Forecasting critical • Products and process reliability • Increase capacity • Shift towards product focus • Enhance distribution • Standardization - minor product changes • Optimum capacity • Process stability • Long production runs

15. Implementing Corporate Strategy through Operations Management (OM) • Strategic fit: The consistency between the competitive advantage sought by a firm and the process capabilities and managerial policies that it uses to achieve this advantage. • Cost leadership => efficient and lean production processes • Quality of product and service => well-designed and well-maintained production and business processes, highly trained workforce, high-precision equipment • Product variety => flexible production processes, ability to support product customization through design for postponement • Responsiveness => build-up of excess production capacity and/or inventories (safety stock)

16. Customer Customer PULL Distribution Channels PULL Dell PUSH Virtual Integration Manufacturer Suppliers PUSH Suppliers Dell Supply Chain Typical PC Supply Chain (Compaq, HP, IBM, etc.) PC SUPPLY CHAINS

17. Dell model • Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour • Suppliers own inventory until used in production • Demand forecasting is critical – changes are shared immediately within Dell and with supply base • Customers frequently steered to “recommended configurations” with high availability to balance supply and demand • Demand pull throughout value chain – “information for inventory” substitution • Focused on strategic partnerships: suppliers down from 200 to 47 • External logistics supplier used to manage inbound supply chain

18. Dell Model Benefits • No production launch until customer order booked (pure pull!) • Very high product (configurable) variety – mass customization! • Direct fulfillment - no intermediaries • Very low finished goods inventory (costs) – high inventory turns (raw material inventory influenced by “recommended configurations”) • High velocity material flows & fulfillment

19. Dell performance

20. External and Internal Performance Measures • External performance measures estimate the firm’s ability to build and maintain its market share, by attracting and maintaining a happy customer, through the provided goods and services (e.g., customer retention, defection, turnover, the American Customer Satisfaction Index (ACSI) - a weighted score computed through customer surveys) • Internal performance measures translate the sought competitive advantage with respect o the product attributes of cost, differentiation and responsiveness to target process performance that must be achieved in order to support this advantage; e.g., • responsiveness to meet customer demand => fill rate, i.e., percentage of orders that are filled immediately from stock • process flexibility => time or cost needed to switch production from one item to another • product reliability => failure rate and mean time between failures

21. BOM Levels • Level 0: End Items (SKU’s) • Level 1: Items that constitute components (are children) of level-0 item(s) only • Level 2: Items that are children of level 1, and, potentially, some level 0 items only • Level i: Items that are children of level i-1, and, potentially, some level 0 to i-2 item(s) only A B C D F D H E F E C G E C G E F E F Level 0: A, B Level 1: D, H Level 2: C, G Level 3: E, F

22. A typical (logical) Organization of the Production Activity Assembly Line 1: Product Family 1 Raw Material & Comp. Inventory S1,1 S1,i S1,n Finished Item Inventory S1,2 Fabrication (or Backend Operations) Dept. 1 Dept. 2 Dept. j Dept. k S2,1 S2,2 S2,i S2,m Assembly Line 2: Product Family 2

23. Make-to-Stock delivery response times is a key competitive factor a limited number of products is manufactured repetitively ties investment capital and storage space runs the risk of damage and obsolescence more appropriate for commoditized products also appropriate strategy for components that are hard to acquire or their shortage would be too costly Make-to-order high degree of customization short shelf-lives due to obsolescence or spoilage Make-to-Stock vs. Make-to-Order • Assemble-to-order • Store high-level standardized subassemblies • Perform the final assembly only upon the reception of a customized order • Enabled by design-for-postponement • Engineer-to-order • Appropriate for highly customized, one-of-a-kind items

24. Back to the course objectives... Raw material Adminstrative Functions (Purchasing, Payroll, Finannce, Accounting) Forecasting Strategic Planning Aggregate Production Planning Disaggregation Production Scheduling Shop Floor Control Fabrication Parts Marketing Product design Process Planning Assembly Finished Products Distribution Center Manufacturing Support (Facilities Planning, Tool Management, Maintenance, Quality Control) Retailer Supporting Tech. & Admin. Functions Customer Product Flow Prod. Plan. & Control Dec. Hierarchy

25. Reading Assignment • Pages 1-28 from your textbook • Chapters 1 and 2 from “Managing Business Process Flows” by Anupindi et. al., posted at the library electronic reserves