Manufacturing Supply Chain Management: Key Decisions and Forecasting Structures

1. Chapter 18 of Business Dynamics

2. The Manufacturing Supply Chain • This chapter adapts the stock management structure of the previous chapter to represent the supply chain in manufacturing firms

3. The stock management structure… • Is broken up into • An order fulfillment structure • A production starts structure • A demand forecasting component

5. Overview Production Model

7. Key management decisions are made by • Order Fulfillment • Production Scheduling

8. Three Balancing Loops • Stockout loop regulates shipments as inventory varies • Inventory and WIP Control Loops adjust production starts to move the levels of inventory and WIP toward their desired levels

9. In this initial model there are… • No capacity constraints (from either labor or capital) • No stocks of materials

10. Production Structure

11. Production Rate = • DELAY3(Production Start Rate, Manufacturing Cycle time)

12. Terms • Manufacturing Cycle Time—the average transit time for all items aggregated together in the model • Manufacturing delay is being modeled as a fourth-order material (flow) delay

13. An Order Fulfillment Structure

14. Table for Order Fulfillment • From Fig. 18-3

15. Desired Shipment Rate = • Customer Order Rate

16. Order Fulfillment Ratio = • Table for Order Fulfillment(Maximum Shipment Rate/Desired Shipment Rate)

18. Minimum Order Processing Time = • 6 • Is a constant

19. Maximum Shipment Rate = • Inventory/Minimum Order Processinig Time

20. Safety Stock coverage = • 6 • Is a constant

21. Time to Average Order Rate = • 6 • Is a constant

22. Desired Inventory coverage =

23. Minimum Order Processing Time = • 6 • Is a constant

24. Desired Inventory = • whatever

25. Adjustment for Inventory = • Difference between desired inventory and actual inventory, all divided by the Inventory Adjustment Time

26. Inventory Adjustment Time = • 6 • Is a constant

27. A production starts structure

28. Manufacturing Cycle time = • 6 • Is a constant

29. Desired WIP = • Manufacturing Cycle Time * Desired Production • This is an implementation of Little’s Law

30. WIP Adjustment Time = • 6 • Is a constant

31. Adjustment for WIP = • Guess: f(Desired WIP, WIP Adjustment time, Work in Process Inventory)

32. Desired Production = • MAX(0, Expected Order Rate + Adjustment for Inventory)

33. Desired Production Start Rate = • Adjustment for WIP + Desired Production

34. Production Start Rate = • MAX(0, Desired Production Start Rate)

35. A demand forecasting component • This structure simply smoothes the customer order rate, much like exponential smoothing would do to provide a realistic model of the forecasting process used in many firms

36. The demand forecasting structure • What is the equation for Change in Exp Orders?

37. Typical constants • Minimum order processing time = 2 wks • Safety Stock Coverage = 2 wks • Manufacturing Cycle Time = 8 wks • Inventory Adjustment Time = 8 wks • WIP Adjustment Time = 2 wks

38. Initial Stocks for Equilibrium • Initial Inventory = Desired Inventory\ • Initial WIP = Desired WIP • Initial Expected Order Rate = Customer Order Rate • These are all the initial conditions needed to create an initial equilibrium

39. Behavior—Inventory • Inventory drops below desired inventory

40. Behavior—The Rates

41. What the rate BOT charts tell us • Amplification of the customer order rates by the production starts rate is unavoidable • This is what causes the bull whip effect in supply chains, especially when suppliers are linked to the manufacturer by JIT Kanban or signaling systems • There is a phase lag between receipt of the order and its fulfillment • There is no significant oscillation

42. What about backlogs? • Boeing, like not other manufacturer, carries backlogs stretching out years. • Boeing is a make to order manufacturer • Consideration of backlogs modifies the order fulfillment structure

43. The backlog structure

44. Backlog equations • What is the equation for backlog? • The equation for delivery delay is formulated from one of the most important principles in Operations Management—Little’s Law: • Delivery delay = backlog/order fulfillment rate • Desired Shipment Rate = Backlog/Target Delivery Delay

45. More Backlog Equations • Order fulfillment rate = shipment rate • These are, however, totally different entities • Shipment rate is a physical flow • Order fulfillment rate is an information accounting that reduces the amount of backlog within the computer’s database

46. Materials Inventory

48. The final single supplier model