Source: Adapted from Robert Hayes, Gary Pisano, David Upton, and Steven Wheelwright,
Operations Strategy and Technology: Pursuing the Competitive Edge (Hoboken, NJ: 2005), p. 120
Source: Adapted from R. Chase, N. Aquilano, and R. Jacobs, Operations Management for
Competitive Advantage (New York:McGraw-Hill, 2001), p. 210
1.
2.
3.
4.
5.
6.
Chase, and Aquilano, “Production and Operations Management”, 7th Edition, McGraw Hill, 1995
Vollmann, Berry, and Whybark, “Manufacturing Planning and Control Systems,” 5th Edition,
McGraw Hill, 2005
Tersine, “Principles of Inventory and Materials Management,” 3rd Edition, Elsevier Science
Publishing, 1988
Gaither and Frasier, “Operations Management,”9th Edition, South-Western Publishing, 2002
Krajewski and Ritzman, “Operations Management,” 6th Edition, Prentice Hall, 2002
http://www.vendormanagedinventory.com/setup.htm
WHY is ______ Successful?
DELL,RAHUL SINGH/711, JAPAN, VISHAL
BAMBANI/WALLLMART,SAMU RAM SANDIL/HP,WAIEL Sony : +
Sajid MD/AMAZON.COM,TWARITA NAYAN , NIKET- AMUL IS
SUCCESSFUL ?
AND.
 WHAT IS THE ROLE OF IT IN SUPPLY CHAIN MANAGEMENT?
WHAT ARE THE STEPS so that new investment in IT is
beneficial ( especially in Supply Chain Mgmt environment)?

Hard Copies
1 week time
What is role of supply chain in the success of the chosen company?
1. Electronic files : the Powerpoint + 1 Word file+ Folder : Back up of internet
article/ppt/pdf store in ARC 10
2. Individual Submit Word file : Hard copy
Submission : 31/ Mar














Amway =Anuradha
Vimal=Jayanta
E-bay= Nidhi
Dell =Devika+Karan+
Gail=Kishore + Bhaskar
Oriflame= Avantika+Loveleen+Debayan
Percept Picture Company / INOX: =Arijit
Amul=Goutam, Amresh, Niket,
McDonalds= Felix+ Deepak+Debashish
Nestle=Kanchan+Abhijit
Levis= Anubha
Nike= Kushal
Adidas= Mainak+Abhishek+Nag Gautam
Café Coffee Day =Kaberi
2weeks Date of
What is role of supply chain in the success of the chosen company?
1. Electronic files Powerpoint + 1 Word file+ Folder : Back up of internet
article/ppt/pdf
2. Submit Word file : Hard copy :








2weeks Date of Submission : 28/ Mar
Ratul + Santanu =Nano
Rohit + Sandip =DHL/ Fed Express
Ranbaxy /Baxter
Priya + Simran : Amway
Richa+ Waiel : Walmart,
Praveen +Sonia : Rebok + Nike:
Dell : Sarvesh +Vishal
Coca cola : Prashant +Vincent

Evaluation and Grade Sheet
Good....................OK…....................Poor
4
3
2
1
0
Introduction
___
___
___
___
___
Clarity
___
___
___
___
___
Organization
___
___
___
___
___
Professionalism ___
___
___
___
___
Communication ___
___
___
___
___
Conclusion
___
___
___
___
___
Time limits
___
___
___
___
___
Completeness
___
___
___
___
___
Understanding
___
___
___
___
___
Questions
___
___
___
___
___
Oral_Pres_Papers.doc
Session-1 :
Nature and scope of Resources of an organization
Strategic operations management
Introduction to Operations Management and its role in organization strategy- for
manufacturing and service organization.
Session-2 : Production Processes, Manufacturing and Service Operations`,
Process Planning and Process Design
Understanding the role and characteristics and nature of product and process
planning
Session-1 : Nature and scope of Resources of an organization
Rs 1/loaf
Rs 2/loaf
Rs 3/loaf
Rs 1/loaf
Rs 5/loaf
Rs 1/loaf
Rs 14/loaf
Session-1 : Nature and scope of Resources of an organization
Inputs
Machines
Men
Environment
Material
1. Machines
3 Key
Rsources
2. Men
3. Materials
PROCESSES
Outputs
Session-1 : Nature and scope of Resources of an organization
Inputs
Resources
Outputs
Machines
Men
Environment
Material
1. Machines
Age, condition, Utilisation rate, Value,
Replacement, Patents, Buildings
2. Men
Number, skills, Wage Costs, Proportion of total
costs,
3. Materials
Source, suppliers, partnering, waste, water
(Energy)
Product Session-1 : Nature and scope of Resources of an organization -
Inputs
PROCESSES
Outputs
Machines
Environment
Materials
Value Chain
Men
Material
Processing
Outputs
Flour, yeast,
Labels Plastic
wrapper sheets
Transporting Raw Material Bread
Water
Energy
Baking
Cutting
Men
Labor
Packing
Machines
Building
Labeling
Transporting the finished Bread
Oven Equipment
Making a recipe
Service
Hospital Process
Inputs
Doctors, nurses
Patients
Hospital
Medical Supplies
Equipment
Laboratories
Processing
Outputs
Examination
Surgery
Monitoring
Medication
Therapy
Healthy
patients
Rs 1/loaf
Rs 2/loaf
Rs 3/loaf
Rs 1/loaf
Rs 5/loaf
Rs 1/loaf
Rs 14/loaf
1. Machines
Age, condition, Utilisation rate, Value,
Replacement, Patents, Buildings
2. Men
Number, skills, Wage Costs, Proportion of total
costs,
3. Materials
Source, suppliers, partnering, waste,
4. Methods
How efficient are their activities? Outsourcing, JIT
5. Money
Credit and turnover periods, Cash surplus
deficits, Short term finance and long term finance
6.
Management
Size, management skills, loyalty, Career
progression, structure
7.
Management
Information
Ability to generate and disseminate ideas,
innovation, Information system
8. Markets
Products and customers
9. Make-up
Culture, Structure
Historical Evolution of Operations Management


Industrial revolution (1770’s)
Scientific management (1911)

Mass production
 Interchangeable parts
 Division of labor



Human relations movement (1920-60)
Decision models (1915, 1960-70’s)
Influence of Japanese manufacturers

Toyota
 TQM

Major trends




The Internet, e-commerce, e-business
Management technology
Globalization
Management of supply chains
 Agility
Session-2 : Strategic operations management
Rs 1/loaf
Rs 2/loaf
Rs 1/loaf
Rs 2/loaf
Rs 3/loaf
Rs 3/loaf
Rs 1/loaf
Rs 0.5/loa
Rs 5/loaf
Rs 4/loaf
Rs 1/loaf
Rs 1/loaf
Rs 14/loaf
Who will get more market share ?
Rs 12.5/loaf
Session-2 : Strategic operations management
Rs 1/loaf
Rs 2/loaf
Rs 1/loaf
Rs 2/loaf
Rs 3/loaf
Rs 3/loaf
Rs 1/loaf
Rs 5/loaf
Rs 0.5/loa
Rs 4/loaf
Rs 1/loaf
Rs 1/loaf
Rs 14/loaf
Rs 12.5/loaf
Least Cost strategy producer
3 Types of
Competitive strategy
Differentiation Strategy Rs 14/loaf as fruit bread
Focus strategy Rs 14/loaf with more hygenically produced and sold to
airlines
Session-2 : Strategic operations management
Rs 1/loaf
Rs 2/loaf
Rs 1/loaf
Rs 2/loaf
Rs 3/loaf
Rs 3/loaf
Rs 1/loaf
Rs 0.5/loaf
Rs 5/loaf
Rs 4/loaf
Rs 1/loaf
Rs 1/loaf
Rs 14/loaf
Inputs
Rs 12.5/loaf
Processes
Outputs
Machines
Men
Environment
Markets
Material
Methods
Money
Money
Management
Management
Information
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning

Strategy
 an organization’s overall approach for physically producing
goods and services
 Competitive strategy : Differentiation Strategy, Cost
Strategy, Focus strategy

Process
 a group of related tasks with specific inputs and outputs
Process design
 tasks need to be done and coordinated among functions,
people, and organizations
 Types of Process design – project, batch, mass
production
 Capital Requirements for process design
high investment or low investment
Process planning
 What is process planning ? converts designs into workable
instructions for manufacture or delivery
 How do we do process planning? 3 Process planning
aids –Assembly charts, Operations process charts, flow
process charts


Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning

Projects


Batch production


systems process many different jobs through the system in
groups or batches
Mass production


one-of-a-kind production of a product to customer order
produces large volumes of a standard product for a mass
market
Continuous production

used for very-high volume commodity products
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning
Process Selection with Break-Even Analysis

Cost
 Fixed costs
 constant regardless of the number of units produced
 Variable costs
 vary with the volume of units produced

Revenue
 price

Total revenue
 is

at which an item is sold
price times volume sold
Profit
 difference
between total revenue and total cost
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning
Process Selection with
Break-Even Analysis
Total cost = fixed cost + total variable cost
TC = cf + vcv
Total revenue = volume x price
TR = vp
Profit = total revenue - total cost
Z = TR – TC = vp - (cf + vcv)
TR = TC
vp = cf + vcv
vp - vcv = cf
v(p - cv) = cf
cf
v= p-c
v
Solving for Break-Even Volume
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning
Break-Even Analysis: Example
Fixed cost = cf = Rs 2,000
Variable cost = cv = Rs 5 per Loaf
Price = p = Rs10 per loaf
Break-even point is
cf
2000
v= p-c =
= 400 loafs
v
10 - 5
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning
Break-Even Analysis: Graph
Total
cost
line
Rs3,000 —
Rs2,000 —
Rs1,000 —
Total
revenue
line
400
Break-even point
Units
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning
Process Selection
Process A
Process B
Rs 2,000 + Rs 5v= 10,000 + 2v
3v = 8,000
v = 2,667
Below 2,667, choose A
Above 2,667, choose B
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning
Total cost of
process A
Rs20,000 —
Process
Selection:
Graph
Total cost of
process B
Rs15,000 —
Rs10,000 —
Choose
process A
Choose
process B
Rs 5,000 —
|
1000
|
2000
|
3000
|
4000 Units
Point of indifference = 2,667 Units
Process A
Process B
Rs 2,000 + Rs 5v = 10,000 + 2v
3v = 8,000
v = 2,667
Process Plans

Set of documents that detail manufacturing and
service delivery specifications
 assembly
charts
 operations sheets
 quality-control check-sheets
Sesame seed top bun
Beef patty
Salt
Cheese
SA
Lettuce
Sauce
Onions
Assembly Chart
for a Big Mac
First-layer assembly
Middle bun
Beef patty
Salt
Cheese
Lettuce
Sauce
Onions
Pickles
SA
Second-layer assembly
Bottom bun
Wrapper
Completed Big Mac
An Operations Sheet for a Plastic Part
Part name
Crevice Tool
Part No.
52074
Usage
Hand-Vac
Assembly No. 520
Oper. No.
Description
Dept.
Machine/Tools
Time
10
Pour in plastic bits
041
Injection molding
2 min
20
Insert mold
041
#076
2 min
30
Check settings
& start machine
041
113, 67, 650
20 min
40
Collect parts & lay flat
051
Plastics finishing
10 min
50
Remove & clean mold
042
Parts washer
15 min
60
Break off rough edges
051
Plastics finishing
10 min
Process Analysis

Process flowcharts
 Symbolic
representation of processes
 Incorporate
nonproductive activities (inspection,
transportation, delay, storage)
 productive activities (operations)

Process Flowchart
Symbols
Operations
Inspection
Transportation
Delay
Storage
Description
of
process
1
Unload apples from truck
2
Move to inspection station
3
Weigh, inspect, sort
4
Move to storage
5
Wait until needed
6
Move to peeler
7
Apples peeled and cored
15
8
Soak in water until needed
20
9
Place in conveyor
5
10
Move to mixing area
11
Weigh, inspect, sort
Page 1 0f 3
Distance
(feet)
Location: Graves Mountain
Process: Apple Sauce
Time
(min)
Operation
Transport
Inspect
Delay
Storage
Process
Flowchart
of Apple
Processing
Step
Date: 9-30-02
Analyst: TLR
20
100 ft
30
50 ft
360
20 ft
Total
20 ft
30
480
190 ft
Customer
Place order
Waiter
Salad Chef
Is order
complete?
Dinner Chef
N
Y
Give soup or salad order to chef
Prepare soup or
salad order
Prepare dinner
order
Give dinner order to chef
Drink
Get drinks for customer
Eat salad or
soup
Deliver salad or soup order to customer
Eat dinner
Deliver dinner to customer
Receives check
Deliver check to customer
Gives payment
to waiter
Receive payment for meal
Cash or
Credit?
Bring change to customer
Run credit card through
Fill in tip
amount
Return credit slip to customer
Collect tip
Give order
to waiter
Credit
Cash
Collect change,
leave tip
Give order
to waiter
A Process
Map of
Restaurant
Service
Service
Blueprint
for an
Installment
Lending
Operation
Source: Lynn Shostack, “Service Positioning through Structural Change,” Journal of Marketing 51 (January 1987), p.
36. Reprinted with permission by the American Marketing Association
Session-2 : Production Processes , Process Planning and Process Design
Understanding the role and characteristics and nature of product and process planning
Cost behaviour: operational gearing
Operational Gearing means Ratio of Fixed Costs to Variable cost
B E pt
Sales
Fixed Cost
Variable Cost
Total Cost
Time
Fixed Costs : High
As Machine Investment high, so small
investment in men
2 firms have same breakeven point
Rs
Fixed Costs : low
Profit zone
Sales
Fixed Cost
Variable Cost
Rs
loss zone
Total Cost
loss zone
Time
Fixed Costs : High
As Machine Investment high, so small labour force
2 firms have same breakeven point
Fixed Costs : low
What are the supply chain drivers of supply chain ?
What is the fit between supply chain strategy and competitive strategy ?
25 What is the role of IT in supply chain ?
26 How does E-Business help supply chain? E-business frame work and B2B
addition to the E-Business
2
Session 3 Production Technology
Understanding automation and mechanization in production
Session-4 : Objectives and functions of purchasing, purchasing cycle,
Session 3 Production Technology
Understanding automation and mechanization in production
Mission (Objectives)
Strategy –
1. Machines
2. Men
3. Materials
4. Methods
5. Money
Session 3 Production Technology
Understanding automation and mechanization in production
Components of e-Manufacturing
Product Technology







Computer-aided
design (CAD)
Group technology
(GT)
Computer-aided
engineering (CAE)
Collaborative
product commerce
(CPC)

Product data
management
(PDM)
Product life cycle
management (PLC)

Product definition





Creates and communicates designs
electronically
Classifies designs into families for easy
retrieval and modification
Tests functionality of CAD designs
electronically
Facilitates electronic communication and
exchange of information among designers
and suppliers
Keeps track of design specs and revisions
for the life of the product
Integrates decisions of those involved in
product development, manufacturing, sales,
customer service, recycling, and disposal
Confines products “built” by customers who
have selected among various options,
usually from a Web site
A Technology Primer (cont.)
Process Technology




Standard for
exchange of
product model data
(STEP)
Computer-aided
design and
manufacture
(CAD/CAM)
Computer aided
process (CAPP)
E-procurement




Set standards for communication among
different CAD vendors; translates CAD data
into requirements for automated inspection
and manufacture
Electronic link between automated design
(CAD) and automated manufacture (CAM)
Generates process plans based on
database of similar requirements
Electronic procurement of items from emarketplaces, auctions, or company
websites
A Technology Primer (cont.)
Manufacturing Technology

Computer
numerically control
(CNC)

Flexible
manufacturing
system (FMS)

Robots

Conveyors




Machines controlled by software code to perform a
variety of operations with the help of automated
tool changers; also collects processing information
and quality data
A collection of CNC machines connected by an
automated material handling system to produce a
wide variety of parts
Manipulators that can be programmed to perform
repetitive tasks; more consistent than workers but
less flexible
Fixed-path material handling; moves items along a
belt or overhead chain; “reads” packages and
diverts them to different directions; can be very fast
A Technology Primer (cont.)
Manufacturing Technology

Automatic guided
vehicle (AGV)

Automated storage
and retrieval system
(ASRS)

Process Control

Computer-integrated
manufacturing (CIM)

A driverless truck that moves material along a
specified path; directed by wire or tape embedded
in floor or by radio frequencies; very flexible

An automated warehouse—some 26 stores high—
in which items are placed in a carousel-type
storage system and retrieved by fast-moving
stacker cranes; controlled by computer

Continuous monitoring of automated equipment;
makes real-time decisions on ongoing operation,
maintenance, and quality

Automated manufacturing systems integrated
through computer technology; also called emanufacturing
A Technology Primer (cont.)

Electronic transactions between businesses
usually over the Internet

Electronic transactions between businesses and
their customers usually over the Internet

Business – to –
Business (B2B)
Business – to –
Customer (B2C)
Internet

A global information system of computer networks
that facilitates communication and data transfer

Intranet

Communication networks internal to an
organization; can be password (i.e., firewall)
protected sites on the Internet

Intranets connected to the Internet for shared
access with select suppliers, customers, and
trading partners



Extranet
A Technology Primer (cont.)
Information Technology

Bar Codes


Radio Frequency
Identification tags
(RFID)



Electronic data
interchange (EDI)
Extensive markup
language (XML)




Enterprise
resource planning
(ERP)
A series of vertical lines printed on most packages that
identifies item and other information when read by a
scanner
An integrated circuit embedded in a tag that can send
and receive information; a twenty-first century bar code
with read/write capabilities
A computer-to-computer exchange of business
documents over a proprietary network; very expensive
and inflexible
A programming language that enables computer – to computer communication over the Internet by tagging
data before its is sent
Software for managing basic requirements of an
enterprise, including sales & marketing, finance and
accounting, production & materials management, and
human resources
A Technology Primer (cont.)
Information Technology


Supply chain
management (SCM)

Customer relationship
management (CRM)



Decision support
systems (DSS)

Expert systems (ES)

Artificial intelligence
(AI)


Software for managing flow of goods and information
among a network of suppliers, manufacturers and
distributors
Software for managing interactions with customers and
compiling and analyzing customer data
An information system that helps managers make
decisions includes a quantitative modeling component
and an interactive component for what-if analysis
A computer system that uses an expert knowledge base
to diagnose or solve a problem
A field of study that attempts to replicate elements of
human thought in computer processes; includes expert
systems, genetic algorithms, neural networks, and fuzzy
logic
Session-4 : Objectives and functions of purchasing, purchasing cycle,
Vision
Mission
Strategy : D, C, F
Process
Decisions in Materials offer maximum Scope for cost reduction
Objectives
strategy in traditional manufacturing firms
1. Machines
2. Men
3. Materials
4. Methods
5. Money
Session-4 : Objectives and functions of purchasing, purchasing cycle,
Vision
Mission
Strategy : D, C, F
Objectives
Materials Maximum Scope for cost reduction
1. Machines
Pay reasonably low prices
2. Men
Recruit and develop people of Purchase department
Develop co-ordination with Production and other departments
3. Materials
Develop source of supply ( long term contracts with single
source)
Locate new materials for production and packaging
Keep low inventories but no stockouts
Rate the suppliers ( good/ bad, partnering) based on Rt quality,
Rt qty, Rt delivery date
4. Methods
How efficient are their activities? Outsourcing, JIT
5. Money
Credit and turnover periods,
As per Material budget,
Session-4 : Objectives and functions of purchasing, purchasing cycle,
Objectives
1. Machines
2. Men
3. Materials
Men in the department
function
Pay reasonably low prices
Recruit and develop people
Develop co-ordination with Production and other
departments
Inform Top management how to reduce cost
Develop source of supply,
Locate new materials for production and
packaging
Keep low inventories but no stockouts
Rate the suppliers ( good/ bad, partnering)
based on Rt quality, Rt qty, Rt delivery date
4. Methods
How efficient are their activities? Outsourcing,
JIT
5. Money
Credit and turnover periods,
As per Material budget,
Obtain reasonably low prices
Select and train
Select vendors
Award purchase orders to vendors
Follow up on deliveries
Adjust and settle complaints
Session-4 : Objectives and functions of purchasing, purchasing cycle,
1.Recognition of Need
2.Description of Need
3.Select suitable source
5. Prepare purchase order
and send to supplier
6. Supplier sends acceptance
of supply order
7. Follow up to ensure timely
delivery
8. Checking and approving
the invoice for payment,
Final payment
Session-4 : Objectives and functions of purchasing, purchasing cycle,
User department Raise a purchase requisition
1.Recognition of Need
2.Description of Need
Store department raises a Bill of
Materials
3.Select suitable source
A
listing of all raw materials, parts, subassemblies, and
assemblies needed to produce one unit
Level
Product structure Tree with 3 levels
5. Prepare purchase order
and send to supplier
0
X
6. Supplier sends acceptance
of supply order
B(2)
C
1
7. Follow up to ensure timely
delivery
8. Checking and approving
the invoice for payment,
Final payment
D(3)
E
E(2)
F(2) 2
Session-4 : Objectives and functions of purchasing, purchasing cycle,
1.Recognition of Need
2.Description of Need
3.Select suitable source
5. Prepare purchase order
and send to supplier
6. Supplier sends acceptance
of supply order
7. Follow up to ensure timely
delivery
8. Checking and approving
the invoice for payment,
Final payment
Session-4 : Objectives and functions of purchasing, purchasing cycle,
Group
Exercise
1.Recognition of Need
2.Description of Need
3.Select suitable source
Calculate the Vendor rating.
A
B
C
Suppliers data
5. Prepare purchase order
and send to supplier
6. Supplier sends acceptance
of supply order
7. Follow up to ensure timely
delivery
Quantity Supplied
100
100
100
Quantity accepted
78
80
70
Price of each item
Rs 4
Rs 4.2 Rs 3.9
Delivery promised
6 weeks
6 weeks
Delivery actually
made
8 weeks 6.2 weeks
6 weeks
7 weeks
8. Checking and approving
the invoice for payment,
Final payment
Vendor Rating = 70% X Quality + 20% X Price + 10% X Delivery
Session-4 : Objectives and functions of purchasing, purchasing cycle,
Group
Exercise
1.Recognition of Need
2.Description of Need
3.Select suitable source
Calculate the Vendor rating.
B
C
Suppliers data
5. Prepare purchase order
and send to supplier
6. Supplier sends acceptance
of supply order
7. Follow up to ensure timely
delivery
Quantity Supplied
100
100
100
Quantity accepted
78
80
70
Quality
Price of each item
Price
8. Checking and approving
the invoice for payment,
Final payment
A
0.78
Rs 4
4/ 3.9
0.8
Rs 4.2 Rs 3.9
4.2/ 3.9
Delivery promised
6 weeks
Delivery actually
made
Delivery
8 weeks 6.2 weeks
6/8
0.7
6 weeks
6/6.2
1.0
6 weeks
7 weeks
6/7
Vendor Rating = 70% X Quality + 20% X Price + 10% X Delivery
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Session-6 :Types of layouts, special arrangements for particular types of plants / facilities
Understanding the choice of layouts for operations.
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
McDonald’s - New Kitchen Layout

Major innovation - kitchen design
 No
food prepared ahead except patty
 Elimination of some steps, shortening of others
 New bun toasting machine (11 seconds vs 30 seconds)
 Repositioning condiment containers (one motion, not
two)
 Sandwiches assembled in order
 Production levels controlled by computer
 Discard only meat when sandwiches do not sell fast
enough
 Savings of $100,000,000 per year in food costs
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Vision
Mission
Strategy : D, C, F
Objectives
Decisions in Layout for cost reduction strategy
Efficient flow of management information, material, & men
1. Machines
After
Before
Assembly
Assembly
2. Men
4
6
7
9
8
10
9
3. Materials
8
5
2
1
4. Methods
A
Cell 26
12
10
3
4 Cell 1
11
B Raw
C materials
2
1
3
12
11
Cell 3
7
5
A B C
Raw materials
Session-5 : Plant Layout / Facilities layout -Services
Understanding the basic infrastructure decisions of Operations Management.
Vision
Mission
Strategy : D, C, F
Objectives
Decisions in Layout for cost reduction strategy
Increases availability of goods -> Increase
1. Markets
of sale ( Impulse purchase)
(customers)
Increase sale by exposing customers to
high margin goods
2. Men
3. Materials
Class Work
IT
Hospital Retail Hardware
Improves employee morale & safety
Reduces in-house transportation costs
Reduce in-factory transportation time
Reduces material storage costs
Reduce delays and wastes in process
4. Methods
5. Management
Information
Efficient flow of information, material, & people
Utilization of space, Machine (equipment) & Men
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Layout strategy
Example
Criteria
Service/retail
Drug store
Grocery store
Department store
Expose customer to high
margin items
Storage
Distributor
Warehouse
Minimize storage and
handling costs
Product oriented
TV assembly line
Minimize line imbalance,
delay, and idle time
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Retail/Service Layout
Design maximizes product exposure to
customers
 Decision variables

 Store
flow pattern
 Allocation of (shelf) space to products

Types
 Grid
design
 Free-flow design
Retail
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Visit a retail unit, provide examples of instances in which these rules were implemented ?
Retail Layouts Some Rules of Thumb





Locate high-draw items around the periphery of the store
Use prominent locations such as the first or last aisle for high-impulse
and high margin items
Remove crossover aisles that allow customers the opportunity to move
between aisles
Distribute what are known in the trade as “power items” (items that may
dominate a shopping trip) to both sides of an aisle, and disperse them to
increase the viewing of other items
Use end aisle locations because they have a very high exposure rate
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Retail /Service Layout -Grid Design
Grocery Store
Milk
Meat
Office
Carts
Checkout
Produce Frozen Foods
Bread
Store Layout - with Dairy, Bread, High Drawer Items in Corners
Identify differences between Grid layout 1 and Free flow
layout 2.
Grocery
Store
Meat
Office
Carts
Checkout
Produce Frozen Foods
Milk
Bread
2 ft.
SUAVE
SUAVE
5
facings
VO-5
PERT
VO-5
PERT
PERT
VO-5

PERT

Computerized tool for shelfspace management
Generated from store’s
scanner data on sales
Often supplied by
manufacturer
 Example: P&G
VO-5
VO-5

PERT
Retail Store Shelf Space Planogram
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Hospital : Emergency Room Layout
evaluate alternative layouts for an emergency room. Perhaps a visit to view a
local emergency room might be helpful.
Session-5 : Plant Layout / Facilities layout
Understanding the basic infrastructure decisions of Operations Management.
Hospital : Emergency Room ( ER)Layout
E.R.Triage
room
Patient A broken leg
Patient B - erratic
pacemaker
Hallway
E.R. beds
Pharmacy
Billing/exit
Session-6 :Types of layouts, special arrangements for particular types of plants / facilities
Understanding the choice of layouts for operations.
An Assembly Line Layout
Session-6 :Types of layouts, special arrangements for particular types of plants / facilities
Understanding the choice of layouts for operations.
Repetitive Layout
Work
1
Work Station
Station
2
3
4
Work
Station
5
Belt Conveyor
Office
Note: 5 tasks or operations; 3 work stations
Session-6 :Types of layouts, special arrangements for particular types of plants / facilities
Understanding the choice of layouts for operations.
Office Layout Floor Plan
Finance
Accounting
Fin.
Manager
Acct.
Brand X
Session-6 :Types of layouts, special arrangements for particular types of plants / facilities
Understanding the choice of layouts for operations.
Types of layouts
High
Variability
in
Service
Requirements
Customized
Clothing
Moderate
Dept. Store
Purchase
Low
Telephone
Purchase
None
Internet
Purchase
None
Low
Moderate
Degree of Contact with Customer
High
A
E
I
O
U
X
Production
Production
Offices
Stockroom
Shipping and
receiving
Locker room
Toolroom
Absolutely necessary
Especially important
Important
Okay
Unimportant
Undesirable
Offices Stockroom
O
Shipping and Locker room Toolroom
receiving
A
A
I
E
U
O
X
U
A
U
O
U
O
O
Relationship Diagramming:
Example
A Absolutely necessary
E
I
O
U
X
Production
Especially important
Important
Okay
Unimportant
Undesirable
O
Offices
A
U
Stockroom
Shipping and
receiving
E
O
A
U
U
O
O
O
A
X
U
Locker room
Toolroom
I
Relationship Diagrams: Example
(cont.)
(a) Relationship diagram of original layout
Offices
Stockroom
Locker
room
Toolroom
Shipping
and
receiving
Key: A
E
I
Production
O
U
X
A
E
I
O
U
X
Absolutely necessary
Especially important
Important
Okay
Unimportant
Undesirable
Relationship Diagrams: Example (cont.)
(a) Relationship diagram of original layout
Offices
Stockroom
Locker
room
Toolroom
Shipping
and
receiving
Production
Key: A
E
I
O
U
X
(b) Relationship diagram of revised layout
Stockroom
Shipping
and
receiving
Offices
Toolroom
Production
Locker
room
Key: A
E
I
O
U
X
Session-7 Production Planning and Control (PPC), Role, importance, benefits, objectives
and functions.
Understanding the need and importance of management in production Nature and method of
production and planning.
Session-8 Resource Requirement Planning (RRP)
Nature and various systems for RRP
ERP and MRP I & II systems used for Resource Requirement Planning
Session-7 Production Planning and Control (PPC), Role, importance, benefits, objectives
and functions.Understanding the need and importance of management in production
Nature and method of production and planning.
Vision
Mission
Strategy : D, C, F
IT
Objectives
Hospital
Retail
Hardware
Decisions in Planning - Level production or Chase Demand
1. Markets
(customers)
Production
Units
2. Men
3. Materials
Demand
4. Machine
5. Management
Information
6. Management
Time
Session-7 Production Planning and Control (PPC), Role, importance, benefits,
objectives and functions. Understanding the need and importance of management in
production Nature and method of production and planning.
Competitors’
behavior
External
capacity
Current
physical
capacity
Raw material
availability
Planning
for
production
Current
workforce
Inventory
levels
Market
demand
External
to firm
Economic
conditions
Activities
required
for
production
Internal
to firm
Session-7 Production Planning and Control (PPC), Role, importance, benefits,
objectives and functions. Understanding the need and importance of management in
production Nature and method of production and planning.
Vision
Mission
Strategy : D, C, F
P, Q, C, D, S, M
Decisions in Planning
Objectives
Benefits
Offers
advantage
over
competitors
1. Markets
(customers)
2. Men
3. Materials
Purchase
Dept
4. Methods
Production / Operations
Planners
Production
Planning
Product Planning
System
Process Planning
System
5. Management
Information
Production
Control
Mktg
Dept
Mkt
research
1. Balanced
production,
Productivity
improves
2. Balanced
quality of
inventory of RM,
WIP and FG
3. Cost reduction
through
Inventory Cost,
setup cost,
indirect costs
4. Reliable
Delivery (in qty,
quality, time)
5.Safety of people,
6.Morale goes up
Session-7 Production Planning and Control (PPC), Role, importance, benefits,
objectives and functions. Understanding the need and importance of management in
production Nature and method of production and planning.
Vision
Mission
Strategy : D, C, F
Objectives
Resources
1. Machines
2. Men
PPC Objectives
Productivity
Maximum productivity of all resources- 9 Ms
Improve Productivity = Output per m/c
Improve Manpower productivity = Output per person
Quality
Reduce reject incoming RM
Reduce rejects in WIP
Reduce rejects in FGs
Reduce wastage, scrap in-transport to market
3. Materials
4. Methods
Cost
5. Money
Delivery
6. Management
Information
7. Management
8. Markets
9. Make up
P, Q, C, D, S, M
Safety
Measure the cost of wastage
Aim for least total cost in the chain of RM to Market
least inventory cost
Ensure delivery dates are met
Aim for safety for people i.e no accidents
Aim for safety of papers/ old financial records
Morale Improve job satisfaction
No of hours of training, No of hours of entertainment
paid leaves, incentive
No of new ideas for improving the business
Session-7 Production Planning and Control (PPC), Role, importance, benefits, objectives
and functions. Understanding the need and importance of management in production
Nature and method of production and planning.
Vision
How do you plan for goods / services in Class Work
Mission
your company?
Strategy : D, C, F
IT
Objectives
Hospital
Retail
Hardware
Decisions in Planning
Purchase
Dept
Production / Operations
Planners
Get Firm orders from Mktg
Mktg
Dept
Mkt
research
Production Planning
Production Control
Estimating
Routing
Scheduling
Loading
Dispatching
Expediting, follow up,
check progress
Evaluate and Correct
Example:
QUARTER
SALES FORECAST (bags)
1st qtr Jan Feb March
80,000
Marketing department has
2nd qtr April- May-June 50,000
given the following demand
3rd qtr July- Aug-Sep
120,000
for 1 year.
4th qtr Oct-Nov-Dec
150,000
U can choose to produce for 1 year at fixed level of average demand with 100 people Or
Chase demand by hiring workmen when demand is more than what can be produced by 100
workmen and terminating when demand is less than what can be produced by 100 workmen
Cost of Hiring a worker = Rs 100 per worker
Cost of terminating = Rs 500 per worker
Regular production cost per bag
= Rs 2.00
Inventory carrying cost = Rs 0.50 per quarter
Production per employee = 1,000 bags per quarter
Beginning work force = 100 workers
Which choice is cost effective? : Produce at fixed level of avg demand Or Chase demand
by hiring and firing
Produce at fixed level of avg demand
Chase demand by hiring and terminating the workmen
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
100,000
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
80,000
50,000
120,000
150,000
Level Production Strategy
Level production
(50,000 + 120,000 + 150,000 + 80,000)
= 100,000 bags
4
QUARTER
Spring
Summer
Fall
Winter
SALES
FORECAST
80,000
50,000
120,000
150,000
PRODUCTION
PLAN
INVENTORY
100,000
20,000
100,000
70,000
100,000
50,000
100,000
0
400,000
140,000
Cost of Level Production Strategy
(400,000 X Rs 2.00) + (140,00 X Rs.50) = Rs 870,000
Chase Demand Strategy
QUARTER
SALES PRODUCTION
FORECAST
PLAN
Spring
Summer
Fall
Winter
80,000
50,000
120,000
150,000
80,000
50,000
120,000
150,000
WORKERS
NEEDED
80
50
120
150
WORKERS WORKERS
HIRED
Terminated
0
0
70
30
20
30
0
0
100
50
Cost of Chase Demand Strategy
(400,000 X Rs2.00) + (100 x Rs100) + (50 x Rs500) = Rs 835,000
Mixed Strategy


Combination of Level Production and Chase Demand strategies
Examples of management policies

no more than x% of the workforce can be laid off in one quarter
 inventory levels cannot exceed x dollars

Many industries may simply shut down manufacturing during
the low demand season and schedule employee vacations
during that time
Process planning
Long
range
Strategic capacity planning
Intermediate Forecasting
& demand
range
management
Sales and operations (aggregate) planning
Sales plan
Aggregate operations plan
Manufacturing
Services
Master scheduling
Material requirements planning
Short
range
Order scheduling
Weekly workforce and
customer scheduling
Daily workforce and customer scheduling
Session-7 Production Planning and Control (PPC), Role, importance, benefits, objectives and functions. Understanding
the need and importance of management in production Nature and method of production and planning.
Vision
Mission
Class Work
Strategy : D, C, F
IT
Objectives
Hospital
Retail
Hardware
Decisions in Planning – level production or Chase demand
1. Markets
(customers)
2. Men
3. Materials
4. Machine
5. Management
Information
6. Management
Build demand into in period of low demands by
Incentives, Sales promotions, Advertising
campaigns
Add men / reduce manpower to meet demand
Or Keep manpower same, if possible - Overtime
Build supplier partnership to reduce
information distortion along the supply chain
Add machine to meet demand
Or Add vendors if possible – or Overtime on m/c if
not working 3 shifts
Session-8 Resource Requirement Planning (RRP)
Nature and various systems for RRP
ERP and MRP I & II systems used for Resource Requirement Planning
Resource Requirement Planning (RRP) is Enterprise Resource Planning
system based on 3 systems : master production schedules, Material
requirement planning and capacity requirement planning.
Inputs
Marketing
Resource Requirement
Planning (RRP)
Give short range
Demand forecast
Finance
Determine cash
Availability
Master Production
Schedule (MPS)
Production
Give production capacity
Give norms for
inventory
Material Requirement
Planning (MRP)
Give production capacity
Give norms for
inventory
Specification of product
HR
Availability of people
Production schedule- what
month to produce what
item.
Manpower schedule – what
month what manpower
Raw material –Orders
planned to be released
Purchase
Engineering
Outputs
Resource Requirement
Planning
Capacity Requirement
Planning (CRP)
Raw Material/ Inventory
status (Beginning of period)
Session-8 Resource Requirement Planning (RRP)
Nature and various systems for RRP
ERP and MRP I & II systems used for Resource Requirement Planning
Firm orders
from known
customers
Engineering
design
changes
Bill of
material
file
Forecasts
of demand
from random
customers
CRP : How much
Of capacity?
( 100000 bags)
Master production
Schedule (MPS)
Inventory
transactions
Material
Requirement planning
(MRP
Inventory
record file
Secondary reports
Primary reports
Planned order schedule for inventory
and production control
Exception reports
Planning reports
Reports for performance control
MRP : Material Resources Planning
Independent demand
Dependent demand
100 x 1 =
100
tabletops
100 x 4 = 400 table legs
100 tables
400 –
No. of tables

Computerized inventory control and production planning system
When to use MRP?
 Dependent demand items
 Discrete demand items ( not continuous demand)
 Complex products
 Assemble-to-order environments
No. of tables

Continuous demand
300 –
200 –
1
2
3
Week
4
5
Discrete demand
400 –
300 –
200 –
M T W Th F
F
M T W Th
Master
production
schedule
Product
structure
file
Material
requirements
planning
Item
master
file
Planned
order
releases
Work
orders
Purchase
orders
Rescheduling
notices
Materials requirements planning (MRP) is a means for determining the
number of parts, components, and materials needed to produce a product
MRP provides time scheduling information specifying when each of the
materials, parts, and components should be ordered or produced
MRP is a software
Class Work
What is the Material requirement plan for the bag?
Lead Times
A
1 day
B
2 days
C
1 day
D
3 days
E
4 days
F
1 day
A : Bag
B(4)
D(2)
C(2)
E(1)
Day:
A
LT=1
B
LT=2
C
LT=1
D
LT=3
E
LT=4
F
LT=1
Required
Order Placement
Required
Order Placement
Required
Order Placement
Required
Order Placement
Required
Order Placement
Required
Order Placement
D(3)
1
Total Unit Demand
Day 10 50 A
Day 8
20 B (Spares)
Day 6
15 D (Spares)
F(2)
2
3
4
5
6
7
8
9
10
Example of MRP Logic and Product
Structure Tree
Given the product structure tree for “A” and the lead time and
demand information below, provide a materials requirements
plan that defines the number of units of each component and
when they will be needed
Product Structure Tree for Assembly A
A
B(4)
D(2)
C(2)
E(1)
D(3)
F(2)
Lead Times
A
1 day
B
2 days
C
1 day
D
3 days
E
4 days
F
1 day
Total Unit Demand
Day 10 50 A
Day 8
20 B (Spares)
Day 6
15 D (Spares)
First, the number of units of “A” are scheduled
backwards to allow for their lead time. So, in the
materials requirement plan below, we have to place an
order for 50 units of “A” on the 9th day to receive them
on day 10.
Day:
1
2
3
4
A Required
Order Placement
Total Unit Demand
Day 10 50 A
Day 8
20 B (Spares)
Day 6
15 D (Spares)
5
6
7
8
9
50
Lead Times
A
1 day
B
2 days
C
1 day
D
3 days
E
4 days
F
1 day
LT = 1 day
10
50
Next, we need to start scheduling the components that make up
“A”. In the case of component “B” we need 4 B’s for each A.
Since we need 50 A’s, that means 200 B’s. And again, we back
the schedule up for the necessary 2 days of lead time.
Day:
A
1
2
3
4
5
6
7
8
R e q u ire d
50
R e q u ire d
20
O rd e r P la c e m e n t
20
LT = 2
A
B(4)
D(2)
10
50
O rd e r P la c e m e n t
B
9
D(3)
200
Spares
4x50=200
C(2)
E(1)
200
F(2)
Lead Times
A
1 day
B
2 days
C
1 day
D
3 days
E
4 days
F
1 day
97
Finally, repeating the process for all components, we have the final materials
requirements plan:
Day:
A
LT=1
B
LT=2
C
LT=1
D
LT=3
E
LT=4
F
LT=1
1
2
Required
Order Placement
Required
Order Placement
Required
Order Placement
Required
Order Placement
Required
Order Placement
Required
Order Placement
3
4
5
6
20
7
8
9
20
50
200
10
50
200
100
55
20
400
55
400
20
200
100
300
300
200
200
200
Part D: Day 6
A
B(4)
D(2)
(20X2 )40 + 15 spares
Total Unit Demand
Day 10 50 A
Day 8
20 B (Spares)
Day 6
15 D (Spares)
C(2)
E(1) D(3)
F(2)
Lead Times
A
1 day
B
2 days
C
1 day
D
3 days
E
4 days
F
1 day
Example of Time Fences
Moderately
Firm
Frozen
Flexible
Capacity
Forecast and available
capacity
Firm Customer Orders
8

Frozen


Weeks
No schedule changes allowed within this window
Moderately Firm


15
Specific changes allowed within product groups as long as parts are available
Flexible

Significant variation allowed as long as overall capacity requirements remain at
the same levels
26
MRP Example
Item
X
A
B
C
D
Bag
A:Sides(2)
C(3)
B (1)
C(2)
On-Hand Lead Time (Weeks)
50
2
75
3
25
1
10
2
20
2
D(5)
Requirements include 95 units (80 firm orders and 15 forecast) of X
in week 10
X
LT=2
X
A(2)
Onhand
50
A
LT=3
It takes
2 A’s for
each X
Onhand
75
B
LT=1
Bag
A:Sides(2)
C(3)
Item
X
A
B
C
D
Onhand
25
C
LT=2
B (1)
C(2)
D(5)
On-Hand Lead Time (Weeks)
50
2
75
3
25
1
10
2
20
2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
B(1)
It takes
1 B for
each X
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
C(3)
It takes 3
C’s for
each A
B(1)
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
C(3)
B(1)
C(2)
It takes 2
C’s for
each B
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
X
LT=2
X
A(2)
C(3)
B(1)
C(2)
D(5)
It takes 5
D’s for each
B
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20
Day:
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
1
2
3
4
5
6
7
8
9
10
95
50 50
50
50
50
50
50
50
50
50
45
45
45
90
75 75
75
75
75
75
75
75
15
15
15
45
25 25
25
25
25
25
20
40
45
10 10
10
10
35
25
10
35
35
40
40
40
100
20 20
20
20
20
80
20
20
80
80
25
20
20
MRP Scheduling Terms

Gross Requirements : Total expected demand

Scheduled receipts : Open orders scheduled to arrive

Planned on hand : Expected inventory on hand at the beginning of each time
period

Projected available balance: how many items available at the start of plan

Net requirements: Actual amount needed in each time period

Planned order receipt : Quantity expected to received at the beginning of the
period, keeping in mind the lead time

Planned order release : Planned amount to order in each time period
Closed Loop MRP
Master Production Scheduling
Material Requirements Planning
Capacity Requirements Planning
No
Feedback
Realistic?
Yes
Execute:
Capacity Plans
Material Plans
Feedback
Session-8 Resource Requirement Planning (RRP)
Nature and various systems for RRP
ERP and MRP I & II systems used for Resource Requirement Planning
Material Requirement Planning :
Plan for dependent demand items.
MRP I systems
MRP II systems
Set of computer programs
Set of computer programs
Goal: Plan and monitor few critical
resources of a manufacturing firm :
Goal: Plan and monitor all resources of a
manufacturing firm (closed loop):
manufacturing
marketing
finance
engineering
Simulate the manufacturing system
1. Order planning and Control
2. Priority planning and control
3. Planning capacity
Does not include
marketing
finance
engineering
Session-9 : Aggregate Planning, Nature and objective, Operations Planning and Scheduling System, Need and
steps in aggregate capacity planning, Approaches to aggregate planning, Master Production Schedule, The role of
aggregate planning in supply chain, Identify the types of decisions that are best solved by aggregate planning and its
role in supply chain.
Session-10 : Benefits and Limitations of PPC, Effectiveness of PPC, PPC is different production system,
Understand the role of PPC.
Session-9 : Aggregate Planning, Nature and objective, Operations Planning and Scheduling System
Forecast
Horizon
Time
Span
Long-Range
Years
Aggregate
Planning
DCF
Medium-Range
Lowest cost
3 Months -1
year
Short-Range
Weeks
Item Being Forecast
Product lines
Factory capacities
Planning for new products
Capital expenditures
Facility location or expansion
R&D
 Product groups
 Department capacities
 Sales planning
 Production planning and budgeting
 Specific product quantities
 Machine capacities
 Planning
 Purchasing
 Scheduling
 Workforce levels
 Production levels
 Job assignments






Units of
Measure
Rs, tons, etc.
Rs, tons, etc.
Physical units of
products
Objective of aggregate planning is to develop plans that are feasible to meet demand within financial
constraints.
Session-9 : Aggregate Planning, Nature and objective, Operations Planning and
Scheduling System

Main objective : Specify the optimal combination of
 production rate (units completed per month or week ) for example
Jan
Feb March April May June
1000 1200 1250 2000 1500 1200

workforce level (number of workers)
 inventory on hand (inventory carried from previous period)
so that cost being least.

This planning is done over an intermediate-range planning period of 3 to
18 months
Session-9 : Aggregate Planning, Nature and objective, Operations Planning and
Scheduling System
Balancing Aggregate Demand
and Aggregate Production Capacity
10000
Suppose the figure to
the right represents
forecast demand in
units
10000
8000
8000
6000
7000
6000
5500
4500
4000
2000
0
Now suppose this
lower figure represents
the aggregate capacity of
the company to meet
demand
What we want to do is balance
out the production rate,
workforce levels, and
inventory to make an
aggregate plan for 6 months.
Jan
forecast demand
Feb
Mar
Apr
May
Jun
9000
10000
8000
8000
6000
6000
4500
4000
Jan
Feb
4000
4000
2000
0
aggregate capacity
Mar
Apr
May
Jun
Aggregate Planning Examples: Unit Demand
and Cost Data
Suppose we have the following unit
demand and cost information:
Demand/mo
Jan
Feb
Mar
Apr
4500
5500
7000
10000 8000
Materials
Holding costs
Marginal cost of stockout
Hiring and training cost
Layoff costs
Labor hours required
Straight time labor cost
Beginning inventory
Productive hours/worker/day
Paid straight hrs/day
May
Rs 5/unit
Rs 1/unit per mo.
Rs 1.25/unit per mo.
Rs 200/worker
Rs 250/worker
.15 hrs/unit
Rs 8/hour
250 units
7.25
8
Jun
6000
Cut-and-Try Example: Determining
Straight Labor Costs and Output
Given the demand and cost information below, what
are the aggregate hours/worker/month, units/worker, and Rs /worker?
Demand/mo
Jan
Feb
Mar
Apr
May
Jun
4500
5500
7000
10000
8000
6000
Productive hours/worker/day
Paid straight hrs/day
7.25
8
22x8hrsxRs
8=Rs1408
Jan
Days/mo
22
Hrs/worker/mo
159.5
Units/worker
1063.33
Rs/worker
RS 1408
Feb
19
137.75
918.33
1,216
Mar
21
152.25
1015
1,344
7.25
hrs/dayx22
7.25x0.15=48.33
units /day&
48.33x22=1063.33
Apr
21
152.25
1015
1,344
May
22
159.5
1063.33
1,408
Jun
20
145
966.67
1,280
Below are the complete calculations for the remaining
months in the six month planning horizon
Days/mo
Hrs/worker/mo
Units/worker
Rs/worker
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
Jan
22
159.5
1,063
Rs 1408
Feb
19
137.75
918
1,216
Mar
21
152.25
1,015
1,344
Apr
21
152.25
1,015
1,344
May
22
159.5
1,063
1,408
Jun
20
145
967
1,280
Jan
4,500
250
4,250
3.997
Feb
5,500
Mar
7,000
Apr
10,000
May
8,000
Jun
6,000
5,500
5.989
2
7,000
6.897
1
10,000
9.852
3
8,000
7.524
6,000
6.207
2
8
0
1
7
0
3
4
0
6
0
7
0
10
0
Chase Strategy
(Hiring & Firing to meet demand)
Days/mo
Hrs/worker/mo
Units/worker
Rs/worker
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
Jan
22
159.5
1,063.33
Rs 1408
Jan
4,500
250
4,250
3.997
3
4
0
Lets assume our current workforce is 7
workers.
First, calculate net requirements for
production, or 4500-250=4250 units
Then, calculate number of workers
needed to produce the net
requirements, or
4250/1063.33=3.997 or 4 workers
Finally, determine the number of
workers to hire/fire. In this case we
only need 4 workers, we have 7, so
3 can be fired.
Below are the complete calculations for the remaining months in
the six month planning horizon with the other costs included
Demand
Beg. inv.
Net req.
Req. workers
Hired
Fired
Workforce
Ending inventory
Material
Labor
Hiring cost
Firing cost
Jan
4,500
250
4,250
3.997
3
4
0
Jan
Rs 21250
5,627.59
750.00
Feb
5,500
Mar
7,000
Apr
10,000
May
8,000
Jun
6,000
5,500
5.989
2
7,000
6.897
1
10,000
9.852
3
8,000
7.524
6,000
6.207
2
8
0
1
7
0
May
Rs 40000
10,593.10
Jun
Rs 30000
7,944.83
500.00
250.00
6
0
7
0
10
0
Feb
Rs 27500
7,282.76
400.00
Mar
Rs 35000
9,268.97
200.00
Apr
Rs 50000
13,241.38
600.00
Costs
203,750.00
53,958.62
1,200.00
1,500.00
Rs260408.62
Level Workforce Strategy (Surplus and
Shortage Allowed)
Lets take the same problem as
before but this time use the
Level Workforce strategy
This time we will seek to use
a workforce level of 6 workers
Demand
Beg. inv.
Net req.
Workers
Production
Ending inventory
Surplus
Shortage
Jan
4,500
250
4,250
6
6,380
2,130
2,130
Below are the complete calculations for the remaining
months in the six month planning horizon
Demand
Beg. inv.
Net req.
Workers
Production
Ending inventory
Surplus
Shortage
Jan
4,500
250
4,250
6
6,380
2,130
2,130
Feb
5,500
2,130
3,370
6
5,510
2,140
2,140
Mar
7,000
2,140
4,860
6
6,090
1,230
1,230
Apr
10,000
1,230
8,770
6
6,090
-2,680
May
8,000
-2,680
10,680
6
6,380
-1,300
Jun
6,000
-1,300
7,300
6
5,800
-1,500
2,680
1,300
1,500
Note, if we recalculate this sheet with 7 workers
we would have a surplus
Below are the complete calculations for the remaining months
in the six month planning horizon with the other costs included
Jan
4,500
250
4,250
6
6,380
2,130
2,130
Feb
5,500
2,130
3,370
6
5,510
2,140
2,140
Mar
7,000
10
4,860
6
6,090
1,230
1,230
Apr
10,000
-910
8,770
6
6,090
-2,680
May
8,000
-3,910
10,680
6
6,380
-1,300
Jun
6,000
-1,620
7,300
6
5,800
-1,500
2,680
1,300
1,500
Note, total
costs under
this strategy
are less than
Chase at Rs
260.408.62
Jan
Feb
Mar
Apr
May
Jun
Rs 8448 Rs 7296 Rs 8064 Rs 8064 Rs 8448 Rs 7680 Rs 48000
31,900
27,550
30,450
30,450
31,900
29,000
181,250.00
2,130
2,140
1,230
5,500.00
3,350
1,625
1,875
6,850.00
Rs
241600
Labor
Material
Storage
Stockout
Session-9 : Aggregate Planning, Nature and objective, Master Production Scheduling (MPS) System
Resource Requirement
Planning (RRP)
Master Production
Schedule (MPS)
Material Requirement
Planning (MRP)
Capacity Requirement
Planning (CRP)
Time schedule for items promised to customer / marketing
department ( In Jan , mktg has given 6 months demand)
Demand/mth Jan Feb Mar Apr May Jun
450 550 700 1000 800 600
Concept of Time fence ( could be month or 1 week)
Demand/mth Jan Feb Mar Apr May
450 550 700 1000 800
Jun 08
600
jul
aug
1000 1000 1000
In the beginning of Jan, we are planning
for 6 months,
Frozen demand , Moderately Firm Demand,
flexible demand and open demand
Frozen demand
No schedule changes allowed within this window of 1 month (or 1 week)
Moderately Firm
Specific changes allowed within product groups as long as parts are available
Flexible demand
Significant variation allowed as long as overall capacity requirements remain at
the same levels.
Session-9 The role of aggregate planning in supply chain, Identify the types of decisions that are best solved by
aggregate planning and its role in supply chain.
P, Q, C, D, S, M
Aggregate planning
Organisational Objectives
Resource Requirement
Planning (RRP)
Productivity
Maximum productivity of all resources- 9 Ms
Improve Productivity = Output per m/c
Improve Manpower productivity = Output per person
Quality
Reduce reject incoming RM
Reduce rejects in WIP
Reduce rejects in FGs
Reduce wastage, scrap in-transport to market
Master Production
Schedule (MPS)
Material Requirement
Planning (MRP)
Capacity Requirement
Planning (CRP)
Cost
Measure the cost of wastage
Aim for least total cost in the chain of RM to Market
least inventory cost
Delivery Plan for firm demand
Flexibility for demand over time fence
Ensure delivery dates are met
Plan for Raw Materials
Safety
Aim for safety i.e no accidents
Morale Improve job satisfaction
Session-10 : Benefits and Limitations of PPC, Effectiveness of PPC, PPC is different production system, Understand the
role of PPC
Vision
Mission
Strategy : D, C, F
Objectives
Resources
1. Machines
2. Men
3. Materials
4. Methods
5. Money
6. Management
Information
7. Management
8. Markets
9. Make up
PPC Benefits
P, Q, C, D, S, M
Improved Productivity
Maximum productivity of all resources- 9 Ms
Improve Productivity = Output per m/c
Improve Manpower productivity = Output per person
Higher Quality
Reduce reject incoming RM
Reduce rejects in WIP
Reduce rejects in FGs
Reduce wastage, scrap in-transport to market
Lower Cost
Aim for least total cost in the chain of RM to Market
Reduced inventory leading to least inventory cost
On time Delivery
Ensure delivery dates are met
Reduced manufacturing cycle time.
Safety
Aim for safety i.e no accidents
Morale
Improve job satisfaction
Session-10 : Benefits and Limitations of PPC, Effectiveness of PPC, PPC is different production system, Understand
the role of PPC
Vision
Mission
Strategy : D, C, F
Objectives
Resources
1. Machines
2. Men
3. Materials
Limitations
P, Q, C, D, S, M
Based on assumptions of forecast of demand, plant
capacity, availability of Raw Material. If assumptions go
wrong, PPC is in effective.
Productivity standards may be set by management but
workmen may say that these norms are too tough or wage
needs to be increased. Low morale may lead to poor
quality , low safety and delivery and higher costs.
4. Methods
5. Money
6. Management
Information
7. Management
8. Markets
9. Make up
When external factors change rapidly PPC is ineffective.
1. technology changes
2. Customer taste changes so demand changes
3. Government policy changes
4. Suppliers negotiating power increases
5. rivalry in firms
Session-10 : Benefits and Limitations of PPC, Effectiveness of PPC, PPC in different production system, Understand
the role of PPC
Vision
Mission
Strategy : D, C, F
Objectives
Resources
1. Machines
2. Men
3. Materials
4. Methods
5. Money
6. Management
Information
7. Management
8. Markets
9. Make up
PPC Effectiveness
P, Q, C, D, S, M
Improved Productivity
Reduction in overtime hours worked
Improve Productivity = Output per m/c
Improve Manpower productivity = Output per person
Higher Quality
Reduce reject incoming RM
Reduce rejects in WIP
Reduce rejects in FGs
Reduce wastage, scrap in-transport to market
Lower Cost
Reduced inventory leading to least inventory cost
Value of obsolete inventory, value of non- moving
inventory
On time Delivery Ensure delivery dates are met, reduction in late
Reduced manufacturing cycle time.
Safety
Aim for safety i.e no accidents
Morale Improve job satisfaction
Session-10 : Benefits and Limitations of PPC, Effectiveness of PPC, PPC in different production system, Understand
the role of PPC
Vision
Mission
Strategy : D, C, F
Objectives
Type of product
Type of
customer
Product
demand
Production
Planning
Control
Production
Planning
Control
in Job
production
Production
Planning
Control
in Batch
production
Production
Planning
Control
in Continuous
production
Production
Planning
Control
in Process
Industry
JOB
BATCH
CONT.
Process
Unique
Made-to- order
Made-to- stock
Commodity
e.g Shipbuilding
(customized)
(standardized )
e.g Cement
One-at-a-time
Few individual
customers
Mass
market
Mass
market
Fluctuates
Stable
stable
Infrequent
Relatively
Tough
Routing is not
automatic.
Scheduling is
tough
Routing is
automatic.
Scheduling is
easy
Relatively
Simple
Routing is
automatic.
Scheduling is
easy
Session-10 : Benefits and Limitations of PPC, Effectiveness of PPC, PPC in different production system, Understand
the role of PPC
Production
Planning
Control
in Job
production
Examples
Construction,
shipbuilding,
spacecraft
MPS
Maintain flow of
(Master Production
work as a project
Schedule)
Material
Requirement
Planning
Dispatching
Slow but detailed
quality
Production
Planning
Control
in Batch
production
Production
Planning
Control
in Continuous
production
Production
Planning
Control
in Process
Industry
Machine shops,
print shops,
bakeries,
education
Lot of effort
before
production
planning to
design flow of
work
Automobiles,
televisions,
computers,
fast food
Paint, chemicals,
foodstuffs
Once in while
Demand leads
to non
Uniform
dispatching
Flow of work
as per demand
Issue of
repetitive
orders
Maintain flow of
work at a predetermined rate
Issue of repetitive
orders
Session 11 Process and Process Quality, Quality Control and TQM, Inventory
Management and Control factors, benefits and process.
Understanding of complementing areas of Operations Management
Session 12 Nature and importance of productivity, Methods of improving of productivity
Understanding the role and importance of Human as a resource in Operation
Management.
Session 11 Process and Process Quality, Quality Control and TQM, Inventory Management
and Control factors, benefits and process.
Understanding of complementing areas of Operations Management

Process Analysis

Process Flowcharting

Types of Processes

Process Performance Metrics
Process Analysis Terms
Process: Is any part of an organization that
takes inputs and transforms them into
outputs.
 Cycle Time: Is the average successive time
between completions of successive units.
 Utilization: Is the ratio of the time that a
resource is actually activated relative to the
time that it is available for use.


Process Performance Metrics
Operation time = Setup time
Run time

Throughput time = Average time for a unit to
move through the system

Velocity = Throughput time
Value-added time
Process Performance Metrics

Cycle time = Average time between
completion of units

Throughput rate =

Efficiency = Actual output
Standard Output
1
.
Cycle time
Process Performance Metrics

Productivity = Output
Input
Cycle Time Example
Suppose you had to produce 600 units in 80
hours to meet the demand requirements of a
product. What is the cycle time to meet this
demand requirement?
 Answer: There are 4,800 minutes (60
minutes/hour x 80 hours) in 80 hours. So the
average time between completions would
have to be: Cycle time = 4,800/600 units = 8
minutes.

Session 11
Process and Process Quality,
Quality Control and TQM,
Inventory Management and Control factors, benefits and process,
Understanding of complementing areas of Operations Management

Webster’s Dictionary


American Society for Quality


degree of excellence of a thing
totality of features and characteristics that satisfy needs
Consumer’s and producer’s perspective
Meaning of Quality
Meaning of Quality
Producer’s Perspective
Quality of Conformance
Production
• Conformance to
specifications
• Cost
Consumer’s Perspective
Quality of Design
• Quality characteristics
• Price
Fitness for
Consumer Use
Marketing
Total Quality Management

Commitment to quality throughout organization

Principles of TQM








Customer-oriented
Leadership
Strategic planning
Employee responsibility
Continuous improvement
Cooperation
Statistical methods
Training and education
Deming’s 14 Points
1.
2.
3.
4.
Create constancy of purpose
Adopt philosophy of prevention
Cease mass inspection
Select a few suppliers based on
quality
5. Constantly improve system and
workers
Deming’s 14 Points (cont.)
6.
7.
8.
9.
10.
Institute worker training
Instill leadership among
supervisors
Eliminate fear among employees
Eliminate barriers between
departments
Eliminate slogans
Deming’s 14 Points (cont.)
11.
12.
13.
14.
Remove numerical quotas
Enhance worker pride
Institute vigorous training and
education programs
Develop a commitment from top
management to implement
above 13 points
Deming Wheel: PDCA
Cycle
4. Act
1. Plan
Institutionalize
improvement;
continue
cycle.
Identify
problem and
develop plan
for
improvement.
3. Study/Check
2. Do
Assess plan; is it
working?
Implement
plan on a test
basis.
Quality Improvement
and Role of Employees

Participative
problem solving


employees involved in
quality management
every employee has
undergone extensive
training to provide quality
service to Disney’s guests
Quality Circle
Organization
8-10 members
Same area
Supervisor/moderator
Training
Presentation
Implementation
Monitoring
Group processes
Data collection
Problem analysis
Solution
Problem
Identification
Problem results
Problem
Analysis
Cause and effect
Data collection
and analysis
List alternatives
Consensus
Brainstorming
Strategic Implications of
TQM
 Strong
leadership
 Goals, vision, or mission
 Operational plans and policies
 Mechanism for feedback
Cost of Quality

Cost of Achieving Good Quality
 Prevention costs
 costs incurred during product design
 Appraisal costs
 costs of measuring, testing, and analyzing

Cost of Poor Quality
 Internal failure costs
 include scrap, rework, process failure, downtime,
and price reductions
 External failure costs
 include complaints, returns, warranty claims,
liability, and lost sales
Session 11
Process and Process Quality,
Quality Control and TQM,
Inventory Management and Control factors, benefits and process,
Understanding of complementing areas of Operations Management
Seven Quality Control Tools




Pareto Analysis
Flow Chart
Check Sheet
Histogram



Scatter Diagram
SPC Chart
Cause-and-Effect
Diagram
Quality Control Chart
24
UCL = 23.35
Number of defects
21
c = 12.67
18
15
12
9
6
LCL = 1.99
3
2
4
6
8
10
12
Sample number
14
16
Cause-and-Effect
Diagram
Measurement
Faulty
testing equipment
Tooling problems
Inadequate training
Old / worn
Quality
Problem
Defective from vendor
Not to specifications
Environment
Out of adjustment
Lack of concentration
Improper methods
Dust and Dirt
Machines
Poor supervision
Incorrect specifications
Inaccurate
temperature
control
Man
Materialhandling problems
Materials
Poor process design
Ineffective quality
management
Deficiencies
in product design
Methods/ Process
Process and Process Quality,
Quality Control and TQM,
Inventory Management and Control factors, benefits and process,
Understanding of complementing areas of Operations Management

Inventory is the stock of any item or resource used in an
organization and can include:





raw materials,
finished products,
component parts, supplies, and
work-in-process
An inventory system is the set of policies and controls that monitor
levels of inventory and determines what levels should be
maintained, when stock should be replenished, and how large
orders should be
11 Process and Process Quality,
Quality Control and TQM,
Inventory Management and Control factors, benefits and process,
Understanding of complementing areas of Operations Management
Cost




Holding (or carrying) costs
 Costs for storage, handling, insurance, etc
Setup (or production change) costs
 Costs for arranging specific equipment setups,
etc
Ordering costs
 Costs of someone placing an order, etc
Shortage costs
 Costs of canceling an order, etc
ABC Classification System

Items kept in inventory are not of equal
importance in terms of:

Rs invested
60
% of
Rs Value 30

profit potential

sales or usage volume % of
30
Use
60

stock-out penalties
0
A
B
C
So, identify inventory items based on percentage of total
Rs value, where “A” items are roughly top 15 %, “B”
items as next 35 %, and the lower 65% are the “C” items
Inventory Accuracy and Cycle Counting

Inventory accuracy refers to how well the
inventory records agree with physical count

Cycle Counting is a physical inventory-taking
technique in which inventory is counted on a
frequent basis rather than once or twice a year
Session 12 Nature and importance of productivity, Methods of improving of productivity
Understanding the role and importance of Human as a resource in Operation Management.
Output
productivity
Input
Methods of improving of productivity
1. PDCA teams
2. Measure , train, reward
Session 13 : Understanding the Supply Chain. And Decision Phases in a supply chain
Learning Outcome : Understanding importance of Supply chain, Flows in supply chain
Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization

1. Management
Information

2. Materials
4. Money
(Funds)
All facilities, functions, activities, associated with flow
and transformation of goods and services from raw
materials to customer, as well as the associated
information flows
An integrated group of processes to “source,” “make,”
and “deliver” products
Supply Chain
Supply
Chain
for
Denim
Jeans
Supply
Chain
for
Denim
Jeans
(cont.)
Session 13 : Understanding the Supply Chain. And Decision Phases in a supply chain
Learning Outcome : Understanding importance of Supply chain, Flows in supply chain

Value chain

every step from raw materials to the eventual end user
 ultimate goal is delivery of maximum value to the end user

Supply chain


activities that get raw materials and subassemblies into manufacturing operation
Terms are used interchangeably
3 Phase of Decisions
Long Term
Mid term
Daily term
Session 13 : Understanding the Supply Chain. And Decision Phases in a supply chain
Learning Outcome : Understanding importance of Supply chain, Flows in supply chain

Sony India managed to reduce its inventories by 70% just six
months after it began its SCM initiative

Maruti has wired all its suppliers together and 60% of business
transactions are now happening online.
Samsung manages a 5,000-dealers' online network with just 15
employees


Mahindra & Mahindra's tractor division aims for a reduction of 48%
in inventories, 30% in logistics costs and a cutback in production
cycle from a month to a week
Source: “Pulling Power”, DATAQUEST; 31 October 2001.
Session 13 : Understanding the Supply Chain. And Decision Phases in a supply chain
Learning Outcome : Understanding importance of Supply chain, Flows in supply chain
Supply Chain Decisions: Structuring Drivers
Strategy
(Design)
Planning
Operation
Source: Chopra & Meindl/Logistics Strategy
Strategic: How many warehouses should
Amazon build? Where should they be built?
Strategic decisions relate to allocation of
resources.
Planning: What titles are stocked in house?
What replenishment policies to follow?
Geographical responsibility by warehouse.
Planning decisions relate to policies for
utilization of resources.
Operation: How is a specific order to be filled?
From where? Shipping mode etc. Operation
decisions relate to filling specific orders given
resources.
Session 13 : Understanding the Supply Chain. And Decision Phases in a supply chain
Learning Outcome : Understanding importance of Supply chain, Flows in supply chain
Traditional View: Logistics in the Manufacturing Firm

Profit

Logistics Cost

Marketing Cost
Profit
Logistics
Cost
4%
21%
Marketing
Cost
27%
Manufacturing
Cost

Manufacturing Cost
Courtesy: S.Chopra/Logistics Strategy
48%
Session 13 : Understanding the Supply Chain. And Decision Phases in a supply chain
Learning Outcome : Understanding importance of Supply chain, Flows in supply chain
Supply Chain Management: The Magnitude in the
Traditional View

Estimated that the grocery industry could save $30 billion (10% of operating cost) by
using effective logistics and supply chain strategies
 A typical box of cereal spends 104 days from factory to sale
 A typical car spends 15 days from factory to dealership

Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago.

Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops
were not available when and where needed

When the 1 gig processor was introduced by AMD, the price of the 800 meg processor
dropped by 30%

P&G estimates it saved retail customers $65 million by collaboration resulting in a
better match of supply and demand
Courtesy: S.Chopra/Logistics Strategy
Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization
Competitive and supply chain strategies
 Achieving strategic fit
 Expanding strategic scope

Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization
What is Supply Chain Management?
Managing supply chain flows and assets, to maximize supply
chain surplus.
What is supply chain surplus?
( Profits = sales – cost)
•Supply chain surplus refers to what the customer has paid - total cost expended by
supply chain in filling order.
Source: Chopra & Meindl/Logistics Strategy
Competitive and Supply Chain Strategies




Competitive strategy: defines the set of customer needs a firm seeks
to satisfy through its products and services with focus, differentiated
products and / or at least cost
Product development strategy: specifies the portfolio of new
products that the company will try to develop
Marketing and sales strategy: specifies how the market will be
segmented and product positioned, priced, and promoted
Supply chain strategy:

determines the nature of material procurement, transportation of
materials, manufacture of product or creation of service, distribution of
product
 Consistency and support between supply chain strategy, competitive
strategy, and other functional strategies is important
Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization
The Value Chain: Linking Supply Chain and Business Strategy
Business Strategy
New Product
Strategy
Marketing
Strategy
New
Product
Development
Supply Chain Strategy
Marketing
and
Operations Distribution
Sales
Service
Finance, Accounting, Information Technology, Human Resources
Source: Chopra & Meindl/Logistics Strategy
Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization
Achieving Strategic Fit


Achieving Strategic fit means

Consistency between customer priorities of competitive strategy and
supply chain capabilities specified by the supply chain strategy

both the competitive and supply chain strategy have the same goals. All
functional strategies must fit together (be aligned) to form a coordinated
overall strategy
Not achieving strategic fit : If alignment is not achieved at the
strategic level, then conflicts arise between different functional
goals. A company may fail because of a lack of strategic fit or
because its processes and resources do not provide the capabilities
to execute the desired strategy
Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization
Conflict: One Example

Marketing publicizing the company’s ability to provide a large variety
of products quickly.

Distribution targeting lowest cost means of transportation [Leading to
delays because of the need to get better transportation economies
due to grouping of several orders]
Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization
How is Strategic Fit Achieved?

Step 1. understand the Customer
By mapping customer demand on the implied uncertainty
spectrum

Step 2 understand the Supply Chain
By mapping the supply chain on the responsiveness spectrum

Step 3 Achieve a Strategic Fit
How to identify the zone of strategic fit
Source: Chopra & Meindl/Logistics Strategy
How is Strategic Fit Achieved ?
Understanding the Customer

Understanding the Customer
 Lot
size
 Response time
 Service level
 Product variety
 Price
 Innovation
Understanding the Supply Chain
Achieving Strategic Fit
Source: Chopra & Meindl/Logistics Strategy
What would be
the demand ?
Certain Demand
Demand
Uncertain
How is Strategic Fit Achieved ?
Understanding the Customer
Implied Uncertainty Spectrum
Certain
demand
Purely
functional
products
(gasoline)
Somewhat
certain
demand
Established
goods
(Toothpaste)
Somewhat
uncertain
demand
New models
of existing
goods
(New car
model)
demand
uncertain
Entirely new
products
(“palmtop”,
Fashion
items)
EVEN WITH THE SAME PRODUCT,
DIFFERENT CUSTOMER SEGMENTS CAN HAVE DIFFERENT IMPLIED DEMAND
UNCERTAINTY GIVEN DIFFERENT SERVICE REQUIREMENTS.
Source: Chopra & Meindl/Logistics Strategy
Implied Demand Uncertainty

the uncertainty of customer demand for a
product.

Implied demand uncertainty is the
resulting uncertainty given the portion of
demand that the supply chain must handle
and the attributes the customer desires.
Source: Chopra & Meindl/Logistics Strategy
Levels of Implied Demand
Uncertainty
Detergent
Long lead time steel
High Fashion
Customer Need
Price
Responsiveness
Low
High
Implied Demand Uncertainty
Source: Chopra & Meindl/Logistics Strategy
Detergent
Long lead time steel
High Fashion
Customer Need
Price
Responsiveness
Low
Note:
1.
2.
3.
4.
High
Implied Demand Uncertainty
Products with uncertain demand are often less mature and have
less direct competition. Margins tend to be high.
Forecasting is more accurate when demand is more certain
Increased implied demand uncertainty leads to increased difficulty
matching supply with demand. (High over-stocking and understocking)
End of season discounts (markdowns) are high for products with
uncertain demands as there is oversupply.
Source: Chopra & Meindl/Logistics Strategy
How is Strategic Fit Achieved ?
Understanding the Customer
Understanding the Supply Chain


Supply Chain Responsiveness (ability to do the following at a cost )
 Respond to wide ranges of quantities demanded
 Meet short lead times
 Handle a large variety of products
 Build highly innovative products
 Meet a very high service level
Supply Chain Efficiency
 Responsiveness comes at a cost, while efficiency targets the least cost
alternative.
Source: Chopra & Meindl/Logistics Strategy
Understanding the Supply Chain: Cost-Responsiveness Efficient
Frontier
Responsiveness
The cost-responsiveness efficient
frontier is the curve showing the
lowest possible cost for a given
level of responsiveness.
High
Low
Cost
High
Source: Chopra & Meindl/Logistics Strategy
Low
The Responsiveness Spectrum
Highly
Efficient
Integrated
Steel Mills:
Production
scheduled
weeks or
months in
advance with
little variety
or flexibility
Somewhat
Efficient
Traditional
make-to-stock
manufacturer
with production
lead time of
several weeks
Somewhat
responsive
Most
automotive
production:
Highly
Responsive
Dell: Custom
made PCs
and servers
in a few days
7-ELEVEN JAPAN REPLENISHES ITS STORES WITH BREAKFAST ITEMS IN THE
MORNING, LUNCH ITEMS IN THE AFTERNOON , AND DINNER ITEMS AT NIGHT. A
HIGHLY RESPONSIVE SUPPLY CHAIN
Source: Chopra & Meindl/Logistics Strategy
Session-14 : Supply Chain performance, Competitive and Supply Chain Strategies
Learning Outcome : Conceptual understanding of Supply Chain in an organization
How is Strategic Fit Achieved?

Understanding the Customer
By mapping customer demand on the implied uncertainty
spectrum

Understanding the Supply Chain
By mapping the supply chain on the responsiveness spectrum

Achieving Strategic Fit
Identify the zone of strategic fit
Source: Chopra & Meindl/Logistics Strategy
Achieving Strategic Fit
Responsive
supply chain
THE DEGREE OF SUPPLY
CHAIN RESPONSIVENESS
MUST BE CONSISTENT WITH
THE IMPLIED DEMAND
UNCERTAINTY
Responsiveness
spectrum
?
Efficient supply
chain
Certain
demand
Source: Chopra & Meindl/Logistics Strategy
Implied
uncertainty
spectrum
Uncertain
demand
Achieving Strategic Fit
Responsive
supply chain
Responsiveness
spectrum
Efficient supply
chain
Certain
demand
Source: Chopra & Meindl/Logistics Strategy
Implied
uncertainty
spectrum
Uncertain
demand
Tailoring the Supply Chain

Therefore, the key issue for a company is to create a supply
chain that balances efficiency and responsiveness given its
portfolio of products and customer segments.

All products may share the same line but products requiring
high responsiveness may be shipped using FedEx.

Levi’s has set up a very flexible manufacturing process for
customized jeans and a more efficient manufacturing process
for standard-sized jeans.

W.W.Grainger holds fast moving items in its decentralized
locations close to customer and slow-moving items with high
implied demand uncertainty in a centralized warehouse.
Source: Chopra & Meindl/Logistics Strategy
Product Life Cycle
Beginning Stages of a Product:
1.
2.
3.
4.
Demand is very uncertain
High margins; and time is crucial to gaining sales
Product availability is crucial to capture market
share
Cost is of secondary consideration
Example: Pharmaceutical firm introducing a new
drug
Supply Chain Goal
Responsiveness with high product availability
Source: Chopra & Meindl/Logistics Strategy
Product Life Cycle
Later Stages of a Product:
1.
2.
3.
Demand has become more certain
Low margins due to increased competition
Price becomes a significant factor in customer
choice
In Pharmaceutical firm  drug goes out of patent
and generic drugs are introduced
Supply Chain Goal
Efficiency becomes the most important
characteristic
Source: Chopra & Meindl/Logistics Strategy
Changes in Supply Chain Strategy
(over the PLC)
Responsive
supply chain
Responsiveness
spectrum
As products mature, the supply
chain strategy should, in
general, move from being
responsive to being efficient.
Efficient supply
chain
Certain
demand
Source: Chopra & Meindl/Logistics Strategy
Implied
uncertainty
spectrum
Uncertain
demand
Key Point
To achieve strategic fit, a firm must tailor its
supply chain to best meet the needs of
different customer segments. To retain
strategic fit, supply chain strategy must be
adjusted over the life cycle of a product
and as the competitive landscape
changes.
Source: Chopra & Meindl/Logistics Strategy
Wal-Mart
Wal-Mart uses each supply chain driver to
achieve the right balance between
responsiveness and efficiency
w.r.t:
 Inventory: Efficiency over responsiveness
 Transportation: Own fleet to keep responsiveness high
 Facilities: Uses central distribution centers within its network
to keep the #facilities low and efficiency high
 Information: Shared all the way back to suppliers’ supplier
Drivers of Supply Chain Performance
How does a supply chain make the efficiency / responsiveness tradeoff and position at the
appropriate point - using Inventory, Transportation, Facilities, and Information decisions?
Efficiency
Responsiveness
Supply chain structure
Inventory
Transportation
Facilities
Drivers
Source: Chopra & Meindl/Logistics Strategy
Information
Considerations for Supply Chain Drivers
Driver
Efficiency
Responsiveness
Inventory
Cost of holding
Availability
Transportation
Consolidation
Speed
Facilities
Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective
Information
Source: Chopra & Meindl/Logistics Strategy
Session 15 :Designing the distributive network in a supply chain
Learning Outcome : Understanding Factors influencing distributive network design
Session 16 : Value of distributors in Supply Chain.
Learning Outcome
: Understanding the role of distribution in supply chain
Session 15 :Designing the distributive network in a supply chain
Learning Outcome : Understanding Factors influencing distributive network design
Session 16 : Value of distributors in Supply Chain.
Learning Outcome
: Understanding the role of distribution in supply chain
Outline






The Role of Distribution in the Supply Chain
Factors Influencing Distribution Network Design
Design Options for a Distribution Network
E-Business and the Distribution Network
Distribution Networks in Practice
Summary of Learning Objectives
The Role of Distribution in the Supply
Chain




Distribution: the steps taken to move and store a product from the
supplier stage to the customer stage in a supply chain
Distribution directly affects cost and the customer experience and
therefore drives profitability
Choice of distribution network can achieve supply chain objectives
from low cost to high responsiveness
Examples: Wal-Mart, Dell, Proctor & Gamble, Grainger
What factors Influence the distribution
network design ?

Distribution network performance evaluated along two dimensions at
the highest level:

Customer needs that are met
 Cost of meeting customer needs

Distribution network design options must therefore be compared
according to their impact on customer service and the cost to
provide this level of service
Factors Influencing Distribution Network
Design


Elements of customer service influenced by network structure:
 Response time
 Product variety
 Product availability
 Customer experience
 Order visibility
 Returnability
Supply chain costs affected by network structure:
 Inventories
 Transportation
 Facilities and handling
 Information
Service and Number of Facilities
Number of
Facilities
Response Time
Notes: Increasing the number of facilities moves them closer to the end consumer.
This reduces the response time. As Amazon has built warehouses, the average time
from the warehouse to the end consumer has decreased. McMaster-Carr provides 1-2
day coverage of most of the U.S from 6 facilities. W.W. Grainger is able to increase
coverage to same day delivery using about 370 facilities.
The Cost-Response Time Frontier
Hi
Local FG
Mix
Regional FG
Local WIP
Cost
Central FG
Central WIP
Central Raw Material and Custom production
Custom production with raw material at suppliers
Low
Low
Response Time
Hi
Notes: As the customer is willing to tolerate longer lead times, the pull phase of the supply chain
increases. The supply chain design must try and exploit this increase by centralizing assets to the extent
possible.
Local finished goods: Local Pizzahut (Immediate response)
Mix: W.W. Grainger (same day to next day response)
Regional: McMaster Carr (next day response)
Local WIP: PC assembler in India
Central FG/WIP: Dell
Central Raw Material and custom production: furniture manufacture)
Inventory, Transportation, Facilities, Information
Inventory Costs and Number
of Facilities
Inventory
Costs
Number of facilities
Notes: Inventory costs increase, facility costs
increase, and transportation costs decrease as we
increase the number of facilities.
Transportation Costs and
Number of Facilities
Transportation Costs and Number of
Facilities
Transportation
Costs
Number of facilities
Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as
we increase the number of facilities.
Facility Costs and Number of Facilities
Facility
Costs
Number of facilities
Notes: Inventory costs increase, facility costs increase, and transportation costs decrease as we
increase the number of facilities.
Total Costs Related to Number of Facilities
Total Costs
Total Costs
Facilities
Inventory
Transportation
Number of Facilities
Notes: Total costs decrease and then increase as we increase the number of facilities. The
responsiveness improves as we increase the number of facilities. A supply chain should always
operate above the lowest cost point. Operating beyond that point makes sense if the revenue
generated from better responsiveness exceeds the cost of better responsiveness.
Variation in Logistics Costs and Response Time with
Response Time Number of Facilities
Total Logistics Costs
Number of Facilities
Notes: Total costs decrease and then increase as we increase the number of facilities. The
responsiveness improves as we increase the number of facilities. A supply chain should always
operate above the lowest cost point. Operating beyond that point makes sense if the revenue
generated from better responsiveness exceeds the cost of better responsiveness.
Design Options for a Distribution Network
Key Decisions
1. Will there be an intermediate storage?
Options
 Design Option 1 : Manufacturer Storage with Direct Shipping
 Design Option 2 : Manufacturer Storage with Direct Shipping and InTransit Merge
 Design Option 3: Distributor Storage with Carrier Delivery
 Design Option 4 : Distributor Storage with Last Mile Delivery
 Design Option 5 : Manufacturer or Distributor Storage with
Consumer Pickup
 Design Option 6 : Retail Storage with Consumer Pickup
Selecting a Distribution Network Design
Product Flow
Design Option 1
Information Flow
Manufacturer Storage with Direct Shipping
Order taken by retailer , Direct shipping Retailer bypassed during shipping, e.g e-bags,
Manufacturer
Retailer
Customers
Cost Factor
Inventory
: Centralised at manufacturer
Service Factor
Response time
Transportation
Product variety
Facilities and handling : lower facilities cost
Product Availability
due to clubbing
Customer experience home delivery
Information : Significant investment in IT
Time to market
Order visibility
fast
Returnability
expensive
Product Flow
Design Option 2
Information Flow
Manufacturer storage , In-Transit Merge Network
Customer orders the product at a retailer. Company hold inventories in factories. Ships the product
Factories
In-Transit Merge by
Carrier
Retailer
Customers
Cost Factor
Inventory
: Centralised at manufacturer
Service Factor
Response time
Transportation
Product variety
Facilities and handling : higher facilities
Product Availability
cost than direct shipping
Information : Significant investment in IT
Customer experience
Time to market
Order visibility
fast
Returnability
expensive
Design Option 3
Product Flow
Information Flow
Distributor Storage with carrier Delivery
Customer orders the product at a retailer. Retailer or distributor hold inventories near the
market. Package carrier like Fed EX or other couriers used as transporters
Factories
Warehouse Storage by
Distributor/Retailer
Customers
Product Flow
Design Option 4
Information Flow
Distributor Storage with last Mile Delivery
Customer orders the product at a retailer. Retailer or distributor hold inventories near the
market. Distributor or retailer use their transporters to send the goods to the customer.
Factories
Distributor/Retailer
Warehouse
Customers
Design Option 5
Customer Flow
Product Flow
Information Flow
Manufacturer or Distributor Storage with Customer Pickup
Customer orders the product at a retailer. Retailer or distributor hold inventories near the
market. Customers use their transporters to send the goods to the customer.
Factories
Distrub
utor
Cross Dock DC
Pickup Sites
Customers
Customer Flow
Product Flow
Information Flow
Design Option 6
Retailer Storage with Customer Pickup
Factories
Retailer
Cross Dock DC
Pickup Sites
Customers
Comparative Performance of
Delivery Network Designs
Response Time
Retail
Storage with
Customer
Pickup
Manufacturer
Storage with
Direct Shipping
Manufacturer
Storage with InTransit Merge
Distributor
Storage with
Package
Carrier Delivery
Distributor
storage with
last mile
delivery
Manufacturer
storage with
pickup
2
4
1
4
4
4
1
1
2
3
1
4
1
1
2
3
1
Customer
Experience
5
4
3
2
1
5
Order Visibility
1
5
4
3
2
6
Returnability
1
5
5
4
3
2
Inventory
4
1
1
2
3
1
Transportation
1
4
3
2
5
1
Facility & Handling
6
1
2
3
4
5
Information
1
4
4
3
2
5
Product Variety
Product Availability
3
Linking Product Characteristics and Customer Preferences to
Network Design
Retail
Storage
with
Customer
Pickup
High demand product
Medium demand product
Low demand product
Very low demand
product
Many product sources
High product value
Quick desired response
High product variety
Low customer effort
Manufacturer
Storage with
Direct
Shipping
Manufacturer
Storage with
In-Transit
Merge
Distributor
Storage with
Package Carrier
Delivery
Distributor
storage with last
mile delivery
Manufacturer
storage with
pickup
+2
-2
-1
0
+1
-1
+1
-1
0
+1
0
0
-1
+1
0
+1
-1
+1
-2
+2
+1
0
-2
+1
+1
-1
-1
+2
+1
0
-1
+2
+1
+1
0
-2
+2
-2
-2
-1
+1
-2
-1
+2
0
+1
0
+2
-2
+1
+2
+2
+2
-1
E-Business and the Distribution
Network
Impact of E-Business on Customer
Service
 Impact of E-Business on Cost
 Using E-Business: Dell, Amazon, Peapod,
Grainger
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Distribution Networks in Practice
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The ownership structure of the distribution
network can have as big as an impact as the
type of distribution network
The choice of a distribution network has very
long-term consequences
Consider whether an exclusive distribution
strategy is advantageous
Product, price, commoditization, and criticality
have an impact on the type of distribution
system preferred by customers
Summary of Learning
Objectives
What are the key factors to be considered
when designing the distribution network?
 What are the strengths and weaknesses of
various distribution options?
 What roles do distributors play in the
supply chain?
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