What is Supply Chain Management?
It encompases the planning and management of all activities:
- sourcing & procurement
- conversion
- logistics
And also
- coordination & collaboration w/ all channel partners: suppliers, intermediaries, service providers, customers
In essence, SCM integrates SUPPLY & DEMAND management within and across companies.
What are the types and directions of flow along a Supply Chain?
- Physical flow (raw materials, WIP, finished goods..) down the chain
- Information & Cash Flow (orders, contracts, payments) up the chain
What is a process?
the collection of tasks connected by a flow of goods and information that transforms inputs to outputs
Inputs: Labor, capital, raw materials, customers
Transformation
Outputs: Finished goods, served customers
The 3 steps of process analysis
- Process Flow Diagram
- determine inputs & outputs
- tasks and their sequence
- resources for each task
- inventories in the process
- Bottleneck Analysis
- Capacity at each stage/resource
- Determine bottleneck stage/resource
- Determine capacitiy of the process
- Improvement Decisions / Recommendations
Parts of a Process Flow Diagram
- dashed line: information flow
- solid line: material flow
- square: activity/task
- triangle: activity buffer
- raute: decision point
–
- single station
- parallel stations, seperate queues
- parallel stations, single queue
Bottleneck Analysis: Process Definitions
- Cycle time: time between completion of successive units (time/activity) e.g. 5mins/order
- Capacity: Number of units produced per time (activity/time), e.g. 0.2orders/min
- capacity = inverse of cycle time
- Flow time: length of time a unit spends in the system
- Idle time: time spent per cycle not doing useful work
- Bottleneck: Stage with the lowest capacity
DETERMINE THE CYCLE TIME FOR EACH STAGE AND CONVERT THEM TO CAPACITIES!
Bottleneck Improvement
- Add capacity only at the bottleneck
- Always keep the bottleneck running
- “An hour lost at the bottleneck is an hour lost for the entire plant”
Relationships between process measures
- Adding parallel resources does not reduce flow time
- system cycle time = flow time,
- but usually, cycle time refers only to a step in a process, while flow time means the whole system
- individual cycle times are different from flow times when there are parallel resources, e.g. loan application -> approving takes 15mins/app, but with 2 loan officers, the cycle time is 7.5mins/app
- Capacity of the bottleneck = capacity of the process
- system capacity = inverse of system cycle time
Taxonomy of process types
- Job Shop: high uniqueness, variety of different products, low volume, high variable costs
- Project
- Job Shop
- Batch
- Flow Shop: High volume, same product, high fixed costs
- Batch
- Assembly line
- continuous flow
Match process type to production requirements, avoid lost sales or low utilization
Relationships between demand rate, capacity and troughput rate
- Demand rate ≤ Capacity (without initial inventory)
- no inventory buildup
- Throughput rate = demand rate
- Demand rate > capacity
- inventory buildup
- Troughput rate = capacity
- Demand rate ≤ capacity (with initial inventory)
- inventory depletes
- throughput rate = capacity
- Inventory buildup or depletion rate = demand rate - capacity rate
Little’s Law
- Goal: estimate average number of “customers waiting at the bathroom” => Inventory
- Always holds on average
- Can be applied to any part of the process and identifies why inventory is build up, the levers to pull etc.
INVENTORY = THROUGHPUT RATE * FLOW TIME
I = R * T
Impact of variability in a process
- Costs
- Increase WIP (holding costs)
- overtime or increased labor costs
- cost of information technology
- Quality
- rework/scrap
- returns
- Flexibility
- changeover costs
- equipment costs
- over- or understock
- Time
- opportunity costs due to time increase
- unreliable lead time & lost sales/market share
The P-K-Formula
Quantifies the impact of variability:
- utilization p = arrival rate lambda / service rate µ
- CV = Coefficient of Variance = SD / mean x
- Itotal = Iq + p, which is the utilization ≈ probability of having a unit in service
Impacts of variability:
Implications from the P-K-Formula
- If your capacity far exceeds demand (p close to 0), you can satisfy demand with little delay (short queue, low Iq)
- If you don’t have much excess capacity (p close to 1), you will experience significant delay (long queue, high Iq)
- If you can smooth demand (reduce Ca) or reduce service variability (reduce Cs), you can meet demand with less delay
How to manage variability
- External policies (finished goods inventories, smooth order, reduced variety)
- Internal policies (reduce batch sizes, smooth flows using buffers, sequencing, routing)
- Technology (flexible, automation, reliability)
Three cornerstones of meeting demand
- Inventory = Iq
- Capacity = p (utilization)
- Information = Ca and Cs
