1. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 1 OUTLINE Questions? Stories or experiences? Quiz results Go Over Quiz Review

2. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 2 Quiz results

3. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 3 Topics for Midterm Excel Costs Supply Chain Strategy Performance measurements Distribution types Inventory Obstacles Optimization of location and capacity

4. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 4 Excel Excel Orientation –VBA –Useful functions »Lookup, random, function information, special copies –Solver –Add ins, Data Analysis

5. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 5 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

6. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 6 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

7. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 7 What is a supply chain? All the activities required to fill a customer’s order Objective – Maximize the overall value that is generated

8. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 8 Phases Design –Decide on structure Planning –Define operating policies for short term operations –Annual forecast Operation –Implement operating policies

9. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 9 Process View Cycles –Customer –Retailer –Distributor –Manufacturer –Supplier Push/pull –Push : initiated by anticipation of orders –Pull : initiated by a customer order

10. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 10 Strategies Employing resources to achieve objectives Broad in scope Long term Coordination among all units –Marketing –Design Engineering –Manufacturing –Distribution –Sales –Field support

11. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 11 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

12. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 12 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

13. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 13 Performance - Uncertainties Quantity Response time Variety Service level Price Rate of innovation

14. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 14 Performance - Responsiveness Wide ranges of quantities Short lead times Large variety Innovation Service level Supply uncertainty Responsiveness comes at a cost

15. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 15 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

16. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 16 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

17. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 17 Definitions - continued Transportation – moving inventory from point to point –Ground »Road »Rail »Pipe line »Barge –Air –Ship Information –Data –Analysis

18. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 18 Definitions - continued Transportation – moving inventory from point to point –Ground »Road »Rail »Pipe line »Barge –Air –Ship Information –Data –Analysis

19. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 19 Framework

20. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 20 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

21. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 21 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

22. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 22 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)

23. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 23 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?

24. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 24 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)

25. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 25 Obstacles Increasing variety Shorter life cycles Demanding customers Decreasing vertical integration Globalization

26. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 26 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

27. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 27 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

28. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 28 Benefits of collaboration Establishing contacts Gaining Insight Joint projects

29. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 29 Definitions Benchmarking –Identifying, understanding and adapting outstanding practices from other organizations to improve performance

30. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 30 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

31. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 31 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

32. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 32 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

33. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 33 Measuring Performance (continued) Typical internal measures –% orders on time –Inventory turns –Cycle time –Costs/Goods sold –Aging of orders

34. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 34 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

35. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 35 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

36. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 36 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

37. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 37 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

38. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 38 Models Capacitated Plant Location Gravity location model Allocation of demand

39. FACILITIES PLANNING ISE310L SESSION 9 Review, February 10, 2015 Geza P. Bottlik Page 39 Capacitated Plant Location Model