Basics of Supply Chain Management

Introduction to Supply Chain Management

Session 1

APICS Certified in Production and Inventory Management (CPIM)

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Course Objectives

Provide a review of supply chain management from a

manufacturing, planning and control perspective
Provide a basis for further study leading to APICS CPIM
certification

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Basics of Supply Chain Management
1. 2. 3. 4. 5.

Introduction Capacity
Material Management
to Supply Demand Master
Requirements and Production
Chain Management Planning
Planning Activity
Management
Control

Theory of
Aggregate Purchasing Lean/JIT and
Item Inventory Constraints
Inventory and Physical Quality
Management and Review
Management Distribution Systems
Activity

6. 7. 8. 9. 10.

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Learning Objectives
Introduction to Manufacturing
Describe the components of the manufacturing business model
Describe the impact of four significant aspects of the business
environment on manufacturing

Production Environments and Process Choices

Explain five production environments and their determinants
Explain the difference between three process choices

The Manufacturing Supply Chain

Differentiate between internal and external supply chains
Differentiate between traditional and cross-functional supply chains
Explain common supply chain conflicts and how to resolve them
Explain the relationship between strategic, tactical, and operational
performance measures
Explain the role of materials management

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Learning Objectives (cont.)
Manufacturing Planning and Control
Identify five objectives of manufacturing
Describe the concepts of priority and capacity
Present an overview of the manufacturing planning and control
hierarchy
Describe the four steps in the evolution of MRP to ERP

The Impact of New Systems and Philosophies

Present a high-level description of lean/JIT, total quality management,
six sigma, and the theory of constraints

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Introduction to Supply Chain Management
Session 1

Introduction to
Manufacturing

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Role of Manufacturing
Adding value creates wealth

Raw material
Product

Value to the customer

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Manufacturing Business Model

Defining products and customers

Designing products and processes
Managing material flow
Providing customer service and support

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Customers and Products
Product Definition Customer Definition
Positioning Types of customers
Breadth of product line Industrial
Price Consumer
Quality Institutional
Brand name or generic Government
Design Market segmentation
Packaging Sales channels
Returns policy Market share/profitability

Choice of production environment

Product (ETO, MTO, ATO, MTS)
Design Choice of manufacturing process
(Project, intermittent, repetitive flow, continuous flow)

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Designing Products and Processes

Meets
Cost
Customer
Effective
Needs

DESIGN

Quality Efficiency

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Managing Material Flow
Material
Acquisition

Manufacturing

Distribution

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Providing Customer Service/Support

Understanding and meeting customer wants and needs

Two-way communication
Working with customers to solve problems

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Global Environment

Global competition
Customer expectations
Economic and government/regulatory
influences

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Customer Expectations

Characteristics that provide value to the customer

Price
Quality
Delivery
Pre- and post-sale service
Flexibility (product and volume)

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Customer Expectations (cont.)

Order qualifiers
Competitive characteristics that a firms products must
exhibit in order to be considered by customers
Order winners
Competitive characteristics that cause customers to
choose a firms products and services

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Introduction to Supply Chain Management
Session 1

Production
Environments and
Process Choices

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Production Environments

Engineer-to-order
Make-to-order
Assemble-to-order
Make-to-stock
Mass customization

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Determinants of Production Environments

Lead time expectations

Product design input from customers
Product volume and variety
Product life cycle

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Lead Time and Production Environments

ETO Delivery Lead Time Engineer-to-

Order
Design Purchase Manufacture Assemble Ship

MTO Delivery Lead Time

Make-to-Order
Inventory Manufacture Assemble Ship

ATO Delivery Lead Time Assemble-to-

Order
Manufacture Inventory Assemble Ship
MTS Delivery
Lead Time Make-to-Stock
Manufacture Assemble Inventory Ship

Source: Arnold et al., Introduction to Materials Management, 6th ed.

Reprinted by Permission of Pearson Education

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Volume/Variety Relationships

High
Engineer-to-Order
Mass
Customization
Product Variety

Make-to-Order

Assemble-to-Order

Make-to-Stock

Low High
Product Volume

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Product Life Cycle

Units
sold Time

Introduction Growth Maturity Decline Phase-out

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Product Life Cycle and Production Environments

Units
sold Time

Introduction Growth Maturity Decline Phase-out

ETO

MTO

ATO

MTS

MC
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Choice of Processes and Layouts

Intermittent
Flow
Repetitive/Line
Continuous

Project

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Intermittent Manufacturing Process

Source: Arnold et al., Introduction to Materials Management, 6th ed.

Reprinted by Permission of Pearson Education

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Intermittent Process Characteristics

Intermittent lot/batch production

Work moves only to required stations
Many different parts processed at workstations
General-purpose machinery
Relatively easy to change product or volume
Complex and expensive production and inventory control
High WIP inventory levels; long lead time

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Intermittent Manufacturing Layout

Intermittent manufacturing layout is called process layout

Also called functional or job shop layout
Equipment and operations grouped together by
functional specialty
Similar types of skills and equipment in each department
Volume not high enough to justify assembly line

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Flow Manufacturing Process

Workstations are in the sequence needed to make the

product
Work flows at a nearly constant rate
Little work-in-process inventory

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Flow Process Characteristics

Layout is called product layout

Fixed routings and dedicated machinery
Capital intensive
Two types of flow: repetitive/line and continuous
Repetitive = discrete units
Continuous = not discrete (liquids)
Limited range of similar products
High product volumes

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Advantages of Product Layout

Little work-in-process inventory

Short throughput and manufacturing lead times
Lower unit cost

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Project Manufacturing

Used for large, complex projects

Project remains in one location for assembly
Site layout
Avoids cost of moving the product

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Problem 1.1
Product Layout vs. Process Layout

Product Process
Capital cost
Flexibility
Annual setup cost
Run cost
Work-in-process inventory
Production and inventory control costs
Lead time

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Problem 1.1 Solution
Product Layout vs. Process Layout

Product Process
Capital cost
Flexibility
Annual setup cost
Run cost
Work-in-process inventory
Production and inventory control costs
Lead time

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Introduction to Supply Chain Management
Session 1

The Manufacturing
Supply Chain

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Supply Chain Management Definitions

Supply chain: The global network used to deliver

products and services from raw materials to end
customers through an engineered flow of information,
physical distribution, and cash.
Supply chain management: The design, planning,
execution, control, and monitoring of supply chain
activities with the objective of creating net value, building
a competitive infrastructure, leveraging world-wide
logistics, synchronizing supply with demand, and
measuring performance globally.
APICS Dictionary

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Basic Supply Chain: External
External supply chain from a manufacturers perspective

Dominant flow of goods and services

Returns and reverse logistics

Suppliers Manufacturer Distributors Retailers

Consumers

Dominant flow of demand and design information

Dominant flow of cash

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Traditional Internal Supply Chain View

Raw Materials

Purchasing Production Distribution

Customers
Lowest purchase High utilization % Full truckload
price quantities
Long runs minimize
Inventory buffers changeovers Best shipping rate
Low unit costs Safety stocks
Safety stocks

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Cross-Functional Supply Chain View
Supply chain processes

Manage Customer Orders and Reverse Logistics

Develop
Perform
Products Manage Produce Manage
Marketing
and Procurement Products Distribution
and Sales
Services

Key support processes:

Manage Finance

Manage Human Resources

The value chain consists of the value-adding processes that enable a

company to take its products from conception to market
The internal supply chain is a subset of the value chain
Support processes are important but are not considered value chain
processes
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Conflicts in Traditional Supply Systems

Marketing Operations Finance

Traditional Increase revenue/ Reduce Increase profit and
Objective satisfy customers manufacturing cost cash flow, reduce
investment

1 4 7
Customer service

2 5 8
Production efficiency

3 6 9
Inventory investment

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Performance Measures

Key Performance Indicators

Strategic

Tactical

Operational

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Balanced Scorecard

Balanced to show KPIs from the:

Customer perspective
Business process perspective
Financial perspective
Innovation and learning perspective

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Role of Materials Management

Demand Resources

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Introduction to Supply Chain Management
Session 1

Manufacturing
Planning and Control
(MPC)

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Objectives of Manufacturing

The right products

Of the right quality
In the right quantities
At the right time
At minimum cost (right price)

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Why Plan?

To satisfy customer demand and ensure the availability

of resources
Material
Capacity

Demand Resources

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A Good Planning and Control System

What must
we get
and
when?

These are questions of priority and capacity.

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Manufacturing Planning and Control
Master Planning
Business Planning

Sales & Operations Resource

Capacity Planning
Priority Planning

Planning Planning (RP)

Rough-Cut
Master Scheduling Capacity Planning
(RCCP)

Material Capacity
Requirements Requirements
Planning (MRP) Planning (CRP)

Execution
Execution

Input/Output
Production Activity Control
Control (PAC)
Order
Sequencing

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Introduction to Supply Chain Management
Session 1

From MRP to ERP

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Evolution from MRP to ERP

MRP
MRP Closed MRP II ERP
Loop

MRP Processor
Closed-Loop Feedback
Best Practice Processes
Common Database
Sales and Operations
Planning
Total Cross-Functional
Software Process Integration

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Introduction to Supply Chain Management
Session 1

The Impact of
New Systems and
Philosophies

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Impact of New Systems

TQM
Lean/JIT Theory of Constraints
Six Sigma
Reduced lead times
Reduced inventory levels
Improved worker productivity
Improved product quality
Cost reductions
Increased profitability

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Introduction to Supply Chain Management
Session 1

Wrap-Up and
Homework

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Learning Objectives
Introduction to Manufacturing
Describe the components of the manufacturing business model
Describe the impact of four significant aspects of the business
environment on manufacturing

Production Environments and Process Choices

Explain five production environments and their determinants
Explain the difference between three process choices

The Manufacturing Supply Chain

Differentiate between internal and external supply chains
Differentiate between traditional and cross-functional supply chains
Explain common supply chain conflicts and how to resolve them
Explain the relationship between strategic, tactical, and operational
performance measures
Explain the role of materials management

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Learning Objectives (cont.)
Manufacturing Planning and Control
Identify five objectives of manufacturing
Describe the concepts of priority and capacity
Present an overview of the manufacturing planning and control
hierarchy
Describe the four steps in the evolution of MRP to ERP

The Impact of New Systems and Philosophies

Present a high-level description of lean/JIT, total quality management,
six sigma, and the theory of constraints

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Vocabulary Check

Objective: Reinforce terminology used in this session

Complete the activity in class, individually or in pairs, or
as homework

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Vocabulary Check Solution

1. f 7. g
2. i 8. a
3. l 9. j
4. k 10. c
5. d 11. e
6. h 12. b

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