Instructor: Spyros Reveliotis

Office: Room 316, ISyE Bldng

tel #: (404) 894-6608

e-mail: spyros@isye.gatech.edu

homepage: www.isye.gatech.edu/~spyros

IE3104: Supply Chain Modeling:Manufacturing & Warehousing

“Course Logistics”• TA: Mr. Karin Boonertvanich• Office Hours: 2-3:30pm MW (ow, an open-door policy will be generally

adopted, but an appointment arranged by e-mail is preferred)• Grading policy:

– Homework: 25%– Midterm I: 20% (Tent. Date: middle of February)– Midterm II: 20% (Tent. Date: end of March)– Final: 35%– Exams closed-book, with 2 pages of notes per exam– Make-up exams and Incompletes: Only for very serious reasons, which are officially

documented.

• Reading Materials:– Course Textbook: “Design and Analysis of Lean Production Systems” R. Askin and J.

Goldberg– Material posted at my homepage or the library electronic reserves

Course Objectives(What this course is all about?)

• How to design and operate manufacturing and warehousing facilities (and more…)– A conceptual description and classification of modern production and

warehousing environments and their operation– An identification of the major issues to be addressed during the planning

and control of the production and warehousing activity– Decomposition of the overall production planning and control problem to

a number of sub-problems and the development of quantitative methodologies for addressing the arising sub-problems

– Computational implementation of the presented techniques (e.g., Excel, LP solvers, etc.) primarily through the homework assignments

– Emerging trends, including the implications of a globalized and internet-based economy

Organizational Operations

• Organization / Production System: A transformation process (physical, locational, physiological, intellectual, etc.)

Organization

Inputs Outputs•Materials•Prod. Equip.•Labor•Manag. Res.

•Goods•Services

• Supply or Value Chain / Network:

Stage 5

Stage 4

Stage 3

Stage 2Stage 1

Suppliers Customers

The major functional units of a modern (industrial) firm

Functional Unit Activities

Executive Committee Strategic Planning

Design Engineering Product Design

Product Engineering Process PlanningTest Design

Manufacturing Production PlanningSchedulingMaterials ManagementMaterial Handling & ShippingTooling

Facilities Building/Site LayoutMaintenanceEquipment InstallationUtilities

Product Assurance Quality Assurance

Research and Development Product DevelopmentNew Technology Evaluationand Implementation

The major functional units of a modern (industrial) firm (cont.)

Functional Unit Activities

Management InformationSystems

Data ProcessingReport Generation

Procurement Vendor CertificationPurchasing

Finance BudgetingCash Flow Management

Accounting Financial ReportingManagerial or Cost AccountingAccounts PayableAccounts Receivable

Marketing SalesOrder EntryForecastingCustomer RelationsAdvertising

Human Resources RecruitmentLabor RelationsWage AdministrationEmployee ProtectionTraining

Business ProcessesThe set of procedures designed to integrate people, knowledge, materials, equipment, energy, and information in order to accomplish a specific task; e.g.,

• design a product• enter a customer order• fill a customer order• acquire raw materials• etc.

Remarks:• Each process has a set of outcomes/products and customers• Processes often cross organizational and functional boundaries• Processes can be interconnected; modern information technology is a primary enabler of such process interaction• Processes require resources and therefore they must be derived from and serve the objectives of the firm

Corporate Mission

• The mission of the organization– defines its purpose, i.e., what it contributes to society

– states the rationale for its existence

– provides boundaries and focus

– defines the concept(s) around which the company can rally

• Functional areas and business processes define their missions such that they support the overall corporate mission in a cooperative and synergistic manner.

Corporate Mission Examples(J. Heizer & B. Render, “Operations Management”, Prentice Hall)

• Merck: The mission of Merck is to provide society with superior products and services-innovations and solutions that improve the quality of life and satisfy customer needs-to provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.

• FedEx: FedEx is committed to our People-Service-Profit philosophy. We will produce outstanding financial returns by providing totally reliable, competitively superior, global air-ground transportation of high-priority goods and documents that require rapid, time-certain delivery. Equally important, positive control of each package will be maintained utilizing real time electronic tracking and tracing systems. A complete record of each shipment and delivery will be presented with our request for payment. We will be helpful, courteous, and professional for each other, and the public. We will strive to have a completely satisfied customer at the end of each transaction.

Defining the Corporate Strategy

Differentiation (Better; e.g., Luxury cars, Fashion Industry, Brand Name Drugs)

Cost Leadership (Cheaper; e.g., Wal-Mart, Southwest Airlines, Generic Drugs)

Responsiveness (Reliably faster; Efficiently accommodating innovation and demand fluctuation; e.g., Dell, Overnight Delivery Services)

Competitive Advantage through whichthe company market share is attracted

The operations frontier, trade-offs, and the operational effectiveness

Differentiation

Cost Leadership

Responsiveness

Strategy Development Process (J. Heizer & B. Render, “Operations Management”, Prentice Hall)

Environmental AnalysisUnderstand the environment, customers, industry, and competitors

Identify your strengths, weaknesses, opportunities and threats.

Determine Corporate MissionState the reason for the firm’s existence and

identify the value it wishes to create

Form a StrategyBuild and maintain a competitive advantage, such as low price,

quick delivery or quality, by identifying and developing the critical success factors

Factors affecting Corporate Strategy• External

– Emerging strengths and weaknesses of competitors => new threats and opportunities, respectively

– New industry entrants– Development of substitute products– Development of new technologies– Legal developments (e.g., environmental concerns and regulations)– Economic and political developments (e.g., new international agreements,

political crises)

• Internal– Company politics and restructuring

– Modified relationships with customers and suppliers

– Product Life Cycle

Strategy and Issues during a Product’s Life(J. Heizer & B. Render, “Operations Management”, Prentice Hall)

Introduction Growth Maturity Decline

Time

Sales

• Best period to increase market share

•R&D engineering critical

• Frequent product and process changes•Short production runs•High production costs•Limited models•Attention to quality

•Practical to change price or quality image•Strengthen niche

•Forecasting critical•Products and process reliability•Increase capacity•Shift towards product focus•Enhance distribution

•Poor time to change image, price or quality•Competitive costs become critical•Defend market position

•Standardization - minor product changes•Optimum capacity•Process stability•Long production runs

•Cost control critical

•Little product differentiation•Overcapacity in the industry•Reduce capacity and eventually prune line to eliminate items not returning good margin

Implementing Corporate Strategy through Operations Management (OM)

• Strategic fit: The consistency between the competitive advantage sought by a firm and the process capabilities and managerial policies that it uses to achieve this advantage.– Cost leadership => efficient and lean production processes

– Quality of product and service => well-designed and well-maintained production and business processes, highly trained workforce, high-precision equipment

– Product variety => flexible production processes, ability to support product customization through design for postponement

– Responsiveness => build-up of excess production capacity and/or inventories (safety stock)

Vir

tual

Inte

gra

tio

n

Customer

Dell

Suppliers

Dell Supply Chain

PUSH

PULL

PC SUPPLY CHAINS

Typical PC Supply Chain(Compaq, HP, IBM, etc.)

Customer

DistributionChannels

Manufacturer

Suppliers

PUSH

PULL

Dell model• Suppliers maintain nearby ship points; delivery time 15 minutes

to 1 hour

• Suppliers own inventory until used in production

• Demand forecasting is critical – changes are shared immediately within Dell and with supply base

• Customers frequently steered to “recommended configurations” with high availability to balance supply and demand

• Demand pull throughout value chain – “information for inventory” substitution

• Focused on strategic partnerships: suppliers down from 200 to 47

• External logistics supplier used to manage inbound supply chain

Dell Model Benefits

• No production launch until customer order booked (pure pull!)

• Very high product (configurable) variety – mass customization!

• Direct fulfillment - no intermediaries• Very low finished goods inventory (costs) – high inventory

turns (raw material inventory influenced by “recommended configurations”)

• High velocity material flows & fulfillment

Dell performance

External and Internal Performance Measures

• External performance measures estimate the firm’s ability to build and maintain its market share, by attracting and maintaining a happy customer, through the provided goods and services (e.g., customer retention, defection, turnover, the American Customer Satisfaction Index (ACSI) - a weighted score computed through customer surveys)

• Internal performance measures translate the sought competitive advantage with respect o the product attributes of cost, differentiation and responsiveness to target process performance that must be achieved in order to support this advantage; e.g.,– responsiveness to meet customer demand => fill rate, i.e., percentage of orders that are

filled immediately from stock

– process flexibility => time or cost needed to switch production from one item to another

– product reliability => failure rate and mean time between failures

BOM Levels•Level 0: End Items (SKU’s)•Level 1: Items that constitute components (are children) of level-0 item(s) only•Level 2: Items that are children of level 1, and, potentially, some level 0 items only•Level i: Items that are children of level i-1, and, potentially, some level 0 to i-2 item(s) only

C

B

E F

GE C

F HDD

C GFE

FE

E

A

Level 0: A, B Level 1: D, H Level 2: C, G Level 3: E, F

A typical (logical) Organization of the Production Activity

RawMaterial& Comp.Inventory

FinishedItem

Inventory

S1,2S1,1 S1,n

S2,1 S2,2 S2,m

Assembly Line 1: Product Family 1

Assembly Line 2: Product Family 2

Fabrication (or Backend Operations)

Dept. 1 Dept. 2 Dept. k

S1,i

S2,i

Dept. j

Make-to-Stock vs. Make-to-Order

• Make-to-Stock• delivery response times is a key

competitive factor• a limited number of products is

manufactured repetitively• ties investment capital and storage

space• runs the risk of damage and

obsolescence• more appropriate for commoditized

products• also appropriate strategy for

components that are hard to acquire or their shortage would be too costly

• Make-to-order• high degree of customization• short shelf-lives due to

obsolescence or spoilage

• Assemble-to-order

• Store high-level standardized subassemblies

• Perform the final assembly only upon the reception of a customized order

• Enabled by design-for-postponement• Engineer-to-order• Appropriate for highly customized, one-of-a-kind items

Back to the course objectives...

Forecasting

StrategicPlanning

AggregateProductionPlanning

Disaggregation

ProductionScheduling

Shop FloorControl

AdminstrativeFunctions

(Purchasing,Payroll,

Finannce,Accounting)

Marketing

Productdesign

ProcessPlanning

ManufacturingSupport

(FacilitiesPlanning,

ToolManagement,Maintenance,

Quality Control)

Raw material

Fabrication

Assembly

DistributionCenter

Retailer

Customer

Parts

FinishedProducts

Product Flow Prod. Plan. & Control Dec. Hierarchy

SupportingTech. & Admin.Functions

Reading Assignment

• Pages 1-28 from your textbook

• Chapters 1 and 2 from “Managing Business Process Flows” by Anupindi et. al., posted at the library electronic reserves