Basics of Supply Chain Management : BSCM

Ch.1 Introduction to Materials Management

Basics of Supply Chain Management : BSCM

Chapter 1. Introduction to Materials Management

Main Issues :

· Describe Manufacturing and Some concepts relating Value-added.

· Describe Operation Environment and Competitive Advantages.

· Describe Delivery Lead Time and Manufacturing Strategies : MTS, ATO, MTO, ETO.

· Understand Company Organization and Roles of Material Management.

· Recognize The Supply Chain and Concepts of Supply Chain Management.

· Describe Characteristics of Manufacturing Processes.

1. Manufacturing and Value

□ Manufacturing

- A series of interrelated activities and operations involving the design, material selection,

planning, production, quality assurance, management, and marketing of discrete

consumer and durable goods.

□ Value and Some Concepts.

- Value : The worth of an item, goods or service.

- Value-added.

· In manufacturing terms, the actual increase of utility from the viewpoint of the

customer as a part is transformed from raw material to finished inventory.

· It is the contribution made by an operation or a plant to the final usefulness and

value of a product, as seen by the customer.

· The objective is to eliminate all non-value-added activities in producing and

providing a good or service.

- Value chain.

· The functions within a company that add value to the goods or services that the

organization sells to customers and for which it receives payment.

2. Some consideration for Value-added Operation.

□ Operating Environment

- Government

· Regulation of business by the various levels of government is extensive.

· Environment, safety, product liability, taxation.

- Economy

· One of the most frequently reviewed external conditions.

· Affecting the demand for a company's products or services and the availability of

inputs.

· Although under the fickle economic climate, analysts continually develop

strategies to deal with potential upswings and downturns.

· Economic recession, Materials and labor shortages or surpluses, Shift in the age

of the

population, Needs of ethnic groups, Low population growth, Freer trade between

countries, Increased global competition, . . .

- Competition

· Competition is severe today.

· Manufacturing companies face competition from throughout the world.

1. Transportation and the movement of materials are relatively less costly.

2. Worldwide communications are fast, effective, and cheap.

- Customers

· Both consumers and industrial customer have become much more demanding.

· Some requirements.

1. A fair price.

2. Higher (right) quality products and services.

3. Delivery lead time.

4. Better pre-sale and after-sale service.

5. Product and volume flexibility.

- Technology trends

· New Technology and technology changes must be understood so that threats or

opportunities can be considered.

□ Competitive Advantages and Order Winner.

- Competitive Advantages.

· Competitive edges.

· The superior ability of a seller obtained by a process, patent, management

philosophy, or distribution system.

· These enables the seller to control a larger market share or profit that the seller

would otherwise have.

- Order winners, Order qualifiers, and Order losers.

· Order winners

: Competitive characteristics that cause a customer to choose a firm's

: products over those of its competitors.

: Order winners can be considered to be competitive advantages for the firm.

: Order winners usually focus on one (rarely more than two) of the following

: strategic initiatives : price/cost, quality, delivery speed, delivery reliability,

: product design, flexibility, after-market service and image.

· Order qualifiers.

: Those competitive characteristics that a firm must exhibit to be a viable

: competitor in the marketplace.

: Fore example, a firm may seek to compete on characteristics other than

: price, but in order to "qualify" to compete, its costs and the related price

:  must be within a certain range to be considered by it customers.

· Order losers.

: There are some characteristics that do not play a significant role in the

:    competitive picture.

□ Strategic Initiatives : Competitive Advantage Factors.

- Price.

· One of the four P's (product, price, place and promotion) that constitute the set

of tools used to direct the business offering to the customer.

· Price is the amount charged for the product offering.

· The price set must take into account competition, substitute products, and

internal business costs to return a desirable product margin.

- Quality.

· Conformance to requirement or fitness for use.

· In current manufacturing environment, quality is the essential of customer

requirement and satisfaction rather than one of competitive advantages.

- Delivery speed.

· It means that the firm will provide its product to customers faster than its

competitors.

· Another form of competing through speed is the time the firm takes to bring a

new product to market : Time to Market concepts.

· Examples

: Motorola's ability to begin production on a customized order 17 minutes.

: Federal Express and UPS for next day or some day package delivery.

- Delivery Reliability.

· It is delivering the exact product(especially MTO) exactly when the product is

promised to its customers gains an advantage in reliability.

· There are more opportunities to reduce unnecessary inventories by improving

delivery reliability than by reducing demand uncertainty.

- Flexibility.

· This means the firm can rapidly respond to changes in the marketplace.

· It can increase or decrease volumes, absorb new technologies quickly, and

perhaps introduce new products rapidly.

· Just-in-Time principles are intended to provide competitive advantage with

increased flexibility.

- Product Design.

· It means that the firm have the following characteristics as competitive

advantages.

: A technologically superior product.

: An advanced design.

: A larger range of product offerings.

: A greater number of models.

: More features and/or options.

· Customer's perceptions of quality are often built around the specification of the

product.

- Service : After markets and internal.

· After markets service, serviceability is the competitive advantage gained when an

organization focuses on customer concerns after the sale.

· Internal service involves the way in which customers are treated throughout the

service process.

· Examples.

: Caterpillar Tractor guarantee to supply the spare part within 48 hours.

: IBM's superior response to products that have failed in the field.

□ Delivery Lead Time and Manufacturing Strategies

- Delivery lead time.

· Delivery cycle.

· The time from the receipt of a customer order to the delivery of the product.

Figure 1. Components of Delivery Lead time

Design	Procurement	Manufacture	Assemble	Ship

※ Demand lead time.

The amount of time potential customers are willing to wait for the delivery of a good

a service.

Syn : customer tolerance time.

- Delivery Lead time strategies.

1. Make-to-Stock.

· A production environment where products can be and usually are finished

before receipt of a customer order.

· Customer orders are typically filled from existing stocks, and production

orders are used to replenish those stocks.

Figure 2. Delivery Lead Time and MTS

2. Assemble-to-Order.

· A production environment where a good or service can be assembled after

receipt of a customer's order.

· The key components (bulk, semifinished, intermidiate, subassembly,

fabricated, purchased, packaging, etc.) used in the assembly or finishing

process are planned and possibly stocked in anticipation of a customer

order.

· Receipt of an order initiates assembly of the customized product. This

strategy is useful where a large number of end products (based on the

selection of options  and accessories) can be assembled from common

components.

Figure 3. Delivery Lead Time and ATO

3. Make-to-Order.

· A production environment where a good or service can be made after

receipt of a customer's order.

· The final product is usually a combination of standard items and item

custom-designed to meet the special needs of the customer.

Figure 4. Delivery Lead Time and MTO

4. Engineer-to-Order.

· Product whose customer specifications require unique engineering design,

significant customization, or new purchased materials.

· Each customer order results in a unique set of part numbers, bills of

material, and routings. (Syn : design-to-order)

Figure 5. Delivery Lead Time and ETO

3. Company Organization, Objectives and Roles of Functions.

□ Company Organization

Figure 6. A Typical Manufacturing Organization

□ Company Objectives

- Profit = Revenue - Expense

· Provide best customer service.

· Provide lowest production costs.

· Provide lowest inventory investment.

· Provide lowest distribution costs.

- Minimizing production costs will decrease expense and increase profits.

- Inventory is money tied up that cannot be used for other profit-making activities.

Carrying excess inventory therefore decreases profit and affects cash flow.

- The major distribution costs are transportation, distribution inventory, and warehousing.

Generally, it is less expensive to ship and warehouse full loads, but doing so increase

distribution inventory and is counter to JIT principles.

□ Roles of Core Functions.

- Marketing & Sales

· Responsible for discovering and developing the market demands.

- Engineering

· Responsible for research, development, and design of products.

· Product engineer ;

1. Take the ideas for new products.

2. Do all necessary product research and development.

3. Produce the final specifications so that manufacturing can make the product.

- Finance

· Responsible for the fiscal well-being of the company.

· Finance is concerned with profitability and cash flow.

- Manufacturing

· Manufacturing or process engineering

: Designing the manufacturing process that makes the product.

: Activities include design, equipment selection, plant layout, and methods

: ::  engineering.

· Materials management

: Managing the flow of materials into the manufacturing process, through the

:  manufacturing process, and out to the customer.

· Production or Manufacturing

: Making the product.

· Industrial engineering

: Looking after the machinery, equipment, buildings, and grounds.

: Additional responsibilities include installing machinery and equipment

:   maintenance - the light, heat, and power used in the building.

□ Conflicts in Traditional Systems

Figure 7. Conflicting Objectives

- Marketing's objective :

· To maintain and increase revenue.

· Therefore, it must provide the best customer service possible.

· Marketing strategy for its objectives.

1. Maintain high inventories so goods are always available for the customer.

2. Interrupt production runs so that a non-inventoried item can be

manufactured quickly.

3. Create an extensive and costly distribution system so goods can be

shipped to the customer rapidly.

- Finance' objective :

· To keep investment and costs low.

· Finance strategy for its objectives.

1. Reduce inventory so inventory investment is at a minimum.

2. Decrease the number of plants and warehouse.

3. Produce large quantities using long production runs.

4. Manufacture only to customer order.

- Production's objectives :

· To keep its operating costs as low as possible.

· Production strategy for its objectives.

1. Make long production runs of relatively few products.

. Fewer changeover will be needed and specialized equipment can be used,

thus reducing the cost of making the product.

2. Maintain high inventories for raw material and work in process so

production is . not disrupted by shortages.

□Roles of Manufacturing Materials Management.

- Material Management.

· Distribution planning and control and logistics management.

· New concept of having one department responsible for the flow of materials,

from supplier through production to customer.

· If companies wish to minimize total costs in this area and provide a better level

of customer service, they will be move in this direction.

- Role of material management.

· It must balance the conflicting objectives of marketing, production, and finance by

managing the flow of materials.

· This means balancing the resources of the company and demand.

· Two areas of material management.

1. Manufacturing planning and control.

2. Physical supply / distribution.

· Customer service means being able to provide the customer with

1. Right quality.

2. Right quantity.

3. Right time.

4. Right place.

5. Right price.

· Material management adds value by ensuring that these service are provided.

4. The Supply Chain.

□ The Concepts of Supply Chain Management.

- In the past.

· Many company managers placed most of their attention on the issues that were

internal to their companies.

· Many issues such as the impact of suppliers, customers, and distributors, were

often viewed as business entities only.

· There are specialists who are responsible for purchasing, sales, and logistics.

· Formal legal contracts are used for negotiation represented short-term

agreement.

· Suppliers were often viewed as business adversaries.

- The major change in that perspective.

· The explosive growth in Just-in-Time (JIT) in the 1970s.

: Supplier partnerships were felt to be a major aspect of successfulness.

: The supplier and the customer had mutually linked destinies as partners.

: Great emphasis was put on trust between the partners, and many of the

:  formal boundary mechanisms, such as the receiving/inspection activity of

:  incoming parts, were changed or eliminated altogether.

· Many other changes in the relations.

: Mutual analysis for cost reduction.

: Both parties examined the process used to transmit information and deliver

:   parts, with the idea that cost reductions would be shared between the two

:   parties.

: Mutual production design.

:         The supplier would know more about how to make a specific product, while

:        the customer would know more about the application for which the design

:       was intended.

: The concept of greatly reduced inventory in the process and the need for

:         rapid :delivery according to need, the speed of accurate information flow

:        became critical.

- The growth of the supply chain concept.

· As the 1980s gave way to the 1990s, the world continued to change, forcing

additional modifications to the trend :

: Explosive growth in computer capability and associated software application.

: A large growth in global competition.

: A large growth in technological capabilities for products and process.

: Product life cycles for many products are shrinking rapidly.

: There are many new approaches used in many companies for inter

:         organizational relationships.

: More and more companies are subcontracting more of their work to supplier,

: keeping only their most important core competencies as internal activities.

- What is the current supply chain concept ?

· The entire set of activities from raw material production to final customer

purchase as a linked chain of activities.

· Many issues :

1. Flow of materials.

2. Flow of information, mostly electronically.

3. Fund transfers.

· The most effective and efficient way to manage the activities among the chain.

: To view separate organization in the chain as an extension of one's

:         organization.

· To success in implementing SCM in the company.

1. Understanding the network of suppliers and customer along the chain.

2. Trying to efficiently plan material and information flows along the chain.

3. Maximizing cost efficiency, effectiveness, delivery, and flexibility.

· Requirements.

1. A different conceptual approach to supplier and customers.

2. A highly integrated information system and a different set of performance

issues.

3. Rapid flows of accurate information and increased organizational flexibility.

□ The Supply Chain Systems.

Figure 8. Supply-Production-Distribution System.

- The supply chain includes all activities and processes to supply a product or service to

a final customer.

- Any number of companies can be linked together in the supply chain.

- The customer can be a supplier to another customer so the total chain can have a

number of supplier/customer relationships.

- Product or services usually flow from supplier to customer, and demand information

usually flows from customer to supplier.

- While the distribution system can be direct from supplier to customer, depending on the

products and the markets, it can contain a number of intermediaries (distributors), such

as wholesalers, warehouses, and retailers.

□ Physical Supply/Distribution

- Physical distribution

· The movement of goods from suppliers to the beginning of the production

process, and from the end of the production process to consumers.

- The interrelated activities

· Transportation.

· Distribution inventory.

· Warehousing.

· Packaging.

· Material handling.

· Order entry.

□ Manufacturing Planning and Control

- Responsible for the planning and control of the flow of materials through the

manufacturing process.

- The primary activities.

1. Production Planning : Establishing correct priorities and make certain the capacity is

available.

· Forecasting.

· Master planning.

· Material requirements planning.

· Capacity planning.

2. Implementation and control

· Responsible for putting into action and achieving the plans made by

production planning.

· These responsibilities are accomplished through production activity control(or

shop floor control) and purchasing.

3. Inventory management

· Inventories are materials and supplies carried on hand either for sale or to

provide materials or supplies to the production process.

· They are part of the planning process and provide a buffer against the

difference in demand rates and production rates.

- Inputs to the manufacturing planning and control system.

1. The product description

· Engineering drawing and specifications.

· The bill of materials. (describes the components and the subassemblies)

2. Process specifications ; Related information

· Operations required to make the product.

· Sequence of operations.

· Equipment and accessories required.

· Standard time required to perform each operation.

3. The time needed to perform operations

· It is usually expressed in standard time.

· It is needed to schedule work through the plant, load the plant, make

delivery promises, and cost the product.

4. Available facilitates

· Manufacturing planning and control must know what plant, equipment, and

labor will be available to process work.

· This information is usually found in the work center file.

5. Manufacturing Processes.

Figure 9. Classification of Manufacturing Process

□ Three basic plant layouts

1. Product Layout.

2. Process Layout.

3. Project Layout.

□ Three ways to organize manufacturing processes

1. Continuous flow.

2. Intermittent manufacturing.

3. Repetitive manufacturing.

□ Characteristics of the product layout.

- A limited range of similar products is produced.

- Workstations are dedicated to specific operation.

- Demand must be sufficient to justify setting up the process.

- It is capital-intensive.

- Little buildup of work-in-process inventory.

- Short throughput and manufacturing lead times.

- Generally lower unit cost.

□ Characteristics of the process layout.

- Lots or batches are produced intermittently.

- General-purpose machinery is used.

- Departments are based on similar types of skills and equipment.

- Work moves only to those stations required and skips the rest.

- Product or volume can be changed relatively easily.

- Production and inventory control are complex and expensive.

- Work-in-process inventory levels are high.

- Lead times are longer.

□ Characteristics of the project layout.

- The project layout is used for large, complex projects.

- The product remains in one location for most or all of its full assembly.

- Such projects as

1. Large buildings.

2. Ships.

3. Large aircraft.

4. Computer programs.

■ Performance Check

1. Why is manufacturing important to the economy ?

A. It generates wealth and adds value to products.

B. It uses natural resources and prevents waste.

C. It decreases employment ad generates wealth.

D. It prevents waste and decreases employment.

2. In a traditional manufacturing environment, which of the following objectives are in conflict ?

A. Maximizing customer service and increasing inventory investment.

B. Minimizing production costs and increasing inventory investment.

C. Minimizing production costs and decreasing inventory investment.

D. Minimizing customer service and decreasing inventory investment.

3. Which of th following statement is true ?

A. The objectives of marketing and production can be met with higher inventories.

B. The objectives of marketing and finance can be met with higher inventories.

C. The objectives of marketing and production can be met with lower inventories.

D. The objectives of marketing and finance can be met with lower inventories.

4. Which of the following strategies products the longest delivery lead time ?

A. Make-to-Order.            B. Assemble-to-order.

C. Make-to-Stock.            D. Continuous manufacturing.

5. Which of the following is a major objective of materials management ?

A. Provide sufficient equitable employment.

B. Provide the required level of customer service.

C. Support cost accounting by decreasing inventory turns.

D. Provide cost information for management decisions.

6. Which of the following are primary activities of manufacturing planning and control ?

A. Inventory management and cost information.

B. Sales support and cost information.

C. Production planning and inventory management.

D. Sales support, implementation, and control.

7. Which of the following is an activity of physical supply/distribution ?

A. Transportation.

B. Work-in-process inventory.

C. Production activity control.

D. Materials requirement planning.

8. Which of the following statements is most accurate ?

A. Marketing objectives can be met with low inventories and disruptions to production.

B. Finance objectives can be met with disruptions to production of high inventories.

C. Production objectives can be met with high customer service and no disruption to

production.

D. The conflict between marketing, production, and finance centers on customer service,

disruption to production, and inventory levels.

9. Which of the following statement is true about the product layout (continuous process) ?

A. Workstations are located according to the type of machinery.

B. Work flow is lumpy.

C. A wide variety of different products can be produced.

D. There is little buildup of work-in-process inventory.

10. Which of the following statements is true regarding process layout (intermittent manufacturing)?

A. Capital costs are generally higher than for product layout.

B. Special-purpose machinery is used.

C. Each workstation must be flexible.

D. There is little buildup of work-in-process inventory.

Solutions :

1  2  3  4  5  6  7  8  9  10

A C A A B C A D D C