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