Basics of Supply Chain Management Session 1 Introduction to Supply Chain Management

Course Objectives Provide a review of supply chain management from a manufacturing, planning, and control perspective. Provide a basis for further study leading to APICS CPIM certification.

Basics of Supply Chain Management Introduction to Supply Chain Management 1. Demand Management 2. Master Planning 3. Material Requirements Planning 4. Capacity Management and Production Activity Control 5. Aggregate Inventory Management Item Inventory Management Purchasing and Physical Distribution Lean and Quality Systems Theory of Constraints 6. 7. 8. 9. 10.

Learning Objectives Introduction to Manufacturing Explain the significance of the United Nations (UN) Global Compact. Describe the components of the manufacturing business model. Describe the impact of four significant aspects of the business environment on manufacturing. Manufacturing Environments and Process Choices Explain five manufacturing environments and their determinants. Explain the differences among the three process choices. The Manufacturing Supply Chain Differentiate between internal and external supply chains. Differentiate between conventional and cross-functional supply chains. Explain common supply chain conflicts and how to resolve them. Explain the relationship between strategic, tactical, and operational performance measures. Explain the role of materials management.

Learning Objectives (cont.) Manufacturing Planning and Control Identify five objectives of manufacturing. Describe the concepts of priority and capacity. Present an overview of the manufacturing planning and control (MPC) hierarchy. Describe the four steps in the evolution of MRP to ERP. The Impact of New Systems and Philosophies Present a high-level description of lean, total quality management (TQM), six sigma, and the theory of constraints (TOC).

Introduction to Supply Chain Management Session 1 Introduction to Supply Chain Management Introduction to Manufacturing 4350422 6

Adding value creates wealth Role of Manufacturing Adding value creates wealth Raw material Product Value to the customer

United Nations Global Compact Voluntary strategic policy initiative for businesses Alignment of business operations with principles in four areas: human rights labor practices environment anti-corruption Adoption of UN Global Compact Management Model Source: United Nations Global Compact: Corporate Sustainability in the World Economy, February 2011

Ten Principles Human rights Labor practices Environment 1 – Support and protect internationally proclaimed human rights. 2 – Ensure non-complicity in human rights abuses. 3 – Uphold freedom of association and right to collective bargaining. 4 – Eliminate forced and compulsory labor. 5 – Abolish child labor. 6 – Eliminate discrimination in employment and occupation. Labor practices 7 – Support a cautionary approach to environmental challenges. 8 – Promote greater environmental responsibility. 9 – Encourage the development and diffusion of environmentally friendly technologies. Environment Anti-corruption 10 – Work against corruption in all of its forms including extortion and bribery. Source: United Nations Global Compact: Corporate Sustainability in the World Economy, February 2011

UN Global Compact Management Model Commit Leadership commitment to mainstream Global Compact principles. Assess Assess risks, opportunities, and impacts. Define Define goals, strategies, and policies. Implement Implement strategies and policies across the company and supply chain. Measure Measure and monitor impacts and progress toward goals. Communicate Communicate progress and strategies; engage stakeholders. Source: United Nations Global Compact Management Model: Framework for Implementation, June 2010

Manufacturing Business Model Defining products and customers Designing products and processes Managing material flow Providing customer service and support

Customers and Products Product definition Customer definition Positioning Breadth of product line Price Quality Brand name or generic Design Packaging Returns policy Types of customers: industrial consumer institutional government Market segmentation Sales channels Market share/profitability Product design Choice of manufacturing environment (ETO, MTO, ATO, MTS) Choice of manufacturing process (project, intermittent, repetitive flow, continuous flow)

Designing Products and Processes Cost effectiveness Meet customer needs Quality DESIGN Accommodate planning parameters Efficiency

Managing Material Flow Material acquisition Manufacturing Distribution

Providing Customer Service and Support Understanding and meeting customer wants and needs Two-way communication Working with customers to solve problems

Global Environment Global competition Economic, government, and regulatory influences Customer expectations Corporate social responsibility

Customer Expectations Characteristics that provide value to the customer: Cost (price) Quality Speed (order lead time) Dependability Flexibility (product and volume)

Corporate Social Responsibility and Sustainability Human rights Responsible economic growth that benefits all segments of society in an equitable manner Labor practices Environment Anti-corruption

Introduction to Supply Chain Management Session 1 Introduction to Supply Chain Management Manufacturing Environments and Process Choices 4350422 19

Manufacturing Environments Engineer-to-order (ETO) Make-to-order (MTO) Assemble-to-order (ATO) Make-to-stock (MTS) Mass customization

Determinants of Manufacturing Environments Lead time expectations Product design input from customers Product volume and variety Product life cycle

Lead Time and Manufacturing Environments Engineer-to- order ETO delivery lead time Design Purchase Manufacture Assemble Ship Make-to-order MTO delivery lead time Inventory Manufacture Assemble Ship Assemble-to- order ATO delivery lead time Manufacture Inventory Assemble Ship MTS delivery Make-to-stock lead time Manufacture Assemble Inventory Ship Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education

Volume and Variety Relationships High Engineer-to-order Mass customization Make-to-order Product variety Assemble-to-order Make-to-stock Low High Product volume

Product Life Cycle Units sold Time Introduction Growth Maturity Decline Phase-out Units sold Time

Product Life Cycle and Manufacturing Environments Introduction Growth Maturity Decline Phase-out Units sold Time ETO MTO ATO MTS Mass customization

Choice of Processes and Layouts Intermittent Flow repetitive/line continuous Project

Intermittent Manufacturing Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education

Intermittent Manufacturing Characteristics Intermittent lot or batch production Work moves only to required stations Many different parts processed at workstations General-purpose machinery Relatively easy to change product or volume Complex and expensive production and inventory control High WIP inventory levels; long lead time

Intermittent Manufacturing Layout Intermittent manufacturing layout is called process layout. It also is called functional or job shop layout. Equipment and operations are grouped together by functional specialty. There are similar types of skills and equipment in each department. Volume is not high enough to justify assembly line.

Flow Manufacturing Workstations are in the sequence needed to make the product. Work flows at a nearly constant rate. There is little WIP inventory.

Flow Manufacturing Characteristics Layout is called product layout. There are fixed routings and dedicated machinery. The process is capital intensive. There are two types of flow: repetitive (line) and continuous. Repetitive produces discrete units, such as cell phones and automobiles. Continuous produces non-discrete products, such as liquids. There is a limited range of similar products. High product volumes occur.

Advantages of Product Layout Little WIP inventory Short throughput and manufacturing lead times Lower unit cost

Project Manufacturing Used for large, complex projects Project remains in one location for assembly Product made at one site Avoids cost of moving the product

Product Layout Versus Process Layout Problem 1.1 Product Layout Versus Process Layout Product Process Capital cost Flexibility Annual setup cost Run cost WIP inventory Production and inventory control costs Lead time

Product Layout Versus Process Layout Problem 1.1 Solution Product Layout Versus Process Layout Product Process Capital cost Flexibility Annual setup cost Run cost WIP inventory Production and inventory control costs Lead time

Introduction to Supply Chain Management Session 1 Introduction to Supply Chain Management The Manufacturing Supply Chain 4350422 36

Supply Chain Management Definitions supply chain—The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash supply chain management—The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally ─APICS Dictionary

Basic Supply Chain: External External supply chain from a manufacturer’s perspective Dominant flow of goods and services Returns and reverse logistics Suppliers Manufacturer Distributors Retailers Consumers Dominant flow of demand and design information Dominant flow of cash

Conventional Internal Supply Chain View Raw materials Purchasing Production Distribution Customers Lowest purchase price Inventory buffers High utilization percent Long runs (minimal changeovers) Low unit costs Safety stocks Full truckload quantities Best shipping rate Safety stocks

Cross-Functional Supply Chain View Supply chain processes Manage customer orders and reverse logistics Develop products and services Manage procurement Produce products Manage distribution Perform marketing and sales Key support processes: Manage finance Manage human resources The value chain consists of the value-adding processes that enable a company to take its products from conception to market. The internal supply chain is a subset of the value chain. Support processes are important but are not considered primary value chain processes.

Conflicts in Conventional Supply Systems Marketing Operations Finance Conventional objective Increase revenue and satisfy customers Reduce manufacturing cost Increase profit and cash flow, reduce investment 1 4 7 Customer service 2 5 8 Production efficiency 3 6 9 Inventory investment

Key performance indicators (KPI) Performance Measures Key performance indicators (KPI) Strategic Tactical Operational

Balanced Scorecard “Balanced” to show KPIs from the customer perspective business process perspective financial perspective innovation and learning perspective.

Role of Materials Management Demand Resources

Introduction to Supply Chain Management Session 1 Introduction to Supply Chain Management Manufacturing Planning and Control (MPC) 4350422 45

Objectives of Manufacturing The right products Of the right quality In the right quantities At the right time At the right cost

Why Plan? To satisfy customer demand and ensure the availability of the following resources: material capacity Demand Resources

A Good Planning and Control System What must we get and when? These are questions of priority and capacity. 48

Manufacturing Planning and Control Strategic and business planning Sales and operations planning Resource planning (RP) Master scheduling Rough-cut capacity planning (RCCP) Priority planning Capacity planning MPC activities Material requirements planning (MRP) Capacity requirements planning (CRP) Input/output control Execution Execution Order sequencing

Introduction to Supply Chain Management Session 1 Introduction to Supply Chain Management From MRP to ERP 4350422 50

Evolution from MRP to ERP MRP closed loop MRP II ERP MRP processor Closed-loop feedback Best practice processes Common database Sales and operations planning Total cross-functional software process integration

Introduction to Supply Chain Management Session 1 Introduction to Supply Chain Management The Impact of New Systems and Philosophies 4350422 52

Impact of New Systems TQM Lean Lean six sigma Six sigma TOC Lean six sigma Six sigma Reduced lead times Reduced inventory levels Improved worker productivity Improved product quality Cost reductions Increased profitability

Introduction to Supply Chain Management Session 1 Introduction to Supply Chain Management Wrap-Up and Homework 4350422 54

Learning Objectives Introduction to Manufacturing Explain the significance of the UN Global Compact. Describe the components of the manufacturing business model. Describe the impact of four significant aspects of the business environment on manufacturing. Manufacturing Environments and Process Choices Explain five manufacturing environments and their determinants. Explain the differences among the three process choices. The Manufacturing Supply Chain Differentiate between internal and external supply chains. Differentiate between conventional and cross-functional supply chains. Explain common supply chain conflicts and how to resolve them. Explain the relationship between strategic, tactical, and operational performance measures. Explain the role of materials management.

Learning Objectives (cont.) Manufacturing Planning and Control Identify five objectives of manufacturing. Describe the concepts of priority and capacity. Present an overview of the MPC hierarchy. Describe the four steps in the evolution of MRP to ERP. The Impact of New Systems and Philosophies Present a high-level description of lean, TQM, six sigma, and TOC.

Vocabulary Check Objective: Reinforce terminology used in this session. Complete the activity in class, individually or in pairs, or as homework.

Vocabulary Check Solution 1. f 2. i 3. l 4. k 5. d 6. h 7. g 8. a 9. j 10. c 11. e 12. b