Special Lecture : BSCM

Introduction to Supply Chain Management.

Session 1. Introduction to Materials Management

Objectives :
Describe the role and importance of manufacturing in our economy. Understand the conflicts in traditional supply systems. Understand the role, objectives, and responsibilities of materials management. Understand the differences among the various manufacturing processes. Recognize the importance of planning. Describe a planning and control system. Understand the planning hierarchy. Define manufacturing resource planning(MRP).

1. Role and Importance of Manufacturing

Wealth creation. - Wealth comes from natural resources, manufacturing, and services. - Manufacturing : It make natural resources available in a useful form, thus not to be useless. - Service : Many of these involve an operations or production function. We can increase our wealth by adding value to a product or service. The more value we can add to a product, the wealther we become. To add value, we must design effective production processes and operate them efficiently. Operating Environment - Government Regulation of business by the various levels of government is extensive. Environment, safety, product liability, taxation. - Economy One of the most frequently reviewed external conditions. Affecting the demand for a company's products or services and the availability of inputs. Although under the fickle economic climate, analysts continually develop strategies to deal with potential upswings and downturns. Economic recession, Materials and labor shortages or surpluses, Shift in the age of the population, Needs of ethnic groups, Low population growth, Freer trade between countries, Increased global competition, . . .

- Competition Competition is severe today. Manufacturing companies face competition from throughout the world. 1. Transportation and the movement of materials are relatively less costly. -1-

Special Lecture : BSCM

Introduction to Supply Chain Management.

2. Worldwide communications are fast, effective, and cheap. - Customers Both consumers and industrial customer have become much more demanding. Some requirements. 1. A fair price. 2. Higher (right) quality products and services. 3. Delivery lead time. 4. Better pre-sale and after-sale service. 5. Product and volume flexibility. - Technology trends New Technology and technology changes must be understood so that threats or opportunities can be considered. Order Winners and Qualifiers 1. Order Winners : Competitive characteristics that cause a customer to choose a firm's products over those of its competitors. 2. Qualifiers : Competitive characteristics that the firm must have to get into the competitive game 3. Non-Issues : There are some characteristics that do not play a significant role in the competitive picture. Business Strategy - To meet customer expectations, a company must be market oriented. - All functions in a business must support this concept. - Operations must be tuned to meet the needs of the marketplace. Lead Time - The time from receipt of an order to the delivery of the product. (The supplier) - The time for order preparation and transmittal. (The customer) - Delivery lead time vs. Cumulative lead time Delivery lead time : The time from the receipt of a customer order to the delivery of the product. Cumulative lead time : The longest planned length of time of accomplish to activity in question. - Customer want delivery lead time to be as short as possible, and manufacturing must design a strategy to achieve this. - The are four basic strategies : engineer-to-order, make-to-order, assemble-to-order, make-to-stock.

Manufacturing Strategies

-2-

Special Lecture : BSCM

Introduction to Supply Chain Management.

Figure 1. Manufacturing Environment and Manufacturing Leadtime - Make-to-Stock : The supplier manufactures the goods and sells from finished goods inventory. - Assemble-to-Order : The product is made from standard components that the manufacturer can inventory and assemble according to a customer order. - Make-to-Order : The manufacturer does not start to manufacture the product until a customer order is received. - Engineer-to-Order : The customer's specifications require unique engineering design or significant customization. Delivery lead time is long because it includes not only purchase lead time, but design lead time as well.

Company Organization

Figure 2. A Typical Manufacturing Organization

- Marketing & Sales : Responsible for discovering and developing the market demands. - Engineering : Responsible for research, development, and design of products. -3-

Special Lecture : BSCM

Introduction to Supply Chain Management.

: Product engineer ; 1. Take the ideas for new products. 2. Do all necessary product research and development. 3. Produce the final specifications so that manufacturing can make the product. - Human resource : Responsible for proper staffing and employee training. - Information Systems : Looking after the computer systems that provide the data needed to make. - Finance : Responsible for the fiscal well-being of the company. : Finance is concerned with profitability and cash flow. - Manufacturing : Manufacturing or process engineering Designing the manufacturing process that makes the product. Activities include design, equipment selection, plant layout, and methods engineering. : Materials management Managing the flow of materials into the manufacturing process, through the manufacturing process, and out to the customer. : Production or Manufacturing Making the product. : Industrial engineering Looking after the machinery, equipment, buildings, and grounds. Additional responsibilities include installing machinery and equipment ; maintenance; the light, heat, and power used in the building. - Quality : Ensuring that the manufacturing processes are producing a product according to specification.

2. The Conflicts in Traditional Supply Systems

The supply chain concepts

-4-

Special Lecture : BSCM

Introduction to Supply Chain Management.

Figure 3. Supply-Production-Distribution System.

- The supply chain includes all activities and processes to supply a product or service to a final customer. - Any number of companies can be linked together in the supply chain. - The customer can be a supplier to another customer so the total chain can have a number of supplier/customer relationships. - Product or services usually flow from supplier to customer and design and demand information usually flows from customer to supplier. - While the distribution system can be direct from supplier to customer, depending on the products and the markets, it can contain a number of intermediaries (distributors), such as wholesalers, warehouses, and retailers. Physical Supply/Distribution - Physical distribution : The movement of goods from suppliers to the beginning of the production process, and from the end of the production process to consumers. - The interrelated activities Transportation. Distribution inventory. Warehousing. Packaging. Material handling. Order entry.

Company Objectives - Profit = Revenue - Expense Provide best customer service. Provide lowest production costs. Provide lowest inventory investment. Provide lowest distribution costs. Conflicts in Traditional Systems

-5-

Special Lecture : BSCM

Introduction to Supply Chain Management.

Figure 4. Conflicting Objectives - Minimizing production costs will decrease expense and increase profits. - Inventory is money tied up that cannot be used for other profit-making activities. Carrying excess inventory therefore decreases profit and affects cash flow. - The major distribution costs are transportation, distribution inventory, and warehousing. Generally, it is less expensive to ship and warehouse full loads, but doing so increase distribution inventory and is counter to JIT principles.

3. What is Materials Management ?

Roles of Manufacturing Materials Management.

Figure 5. Role of Material Management

- It must balance the conflicting objectives of marketing, production, and finance by managing the flow of materials. - This means balancing the resources of the company and demand. - Two areas of material management. 1. Manufacturing planning and control. 2. Physical supply / distribution. - Customer service means being able to provide the customer with 1. Right quality. 2. Right quantity. 3. Right time. 4. Right place. 5. Right price. -6-

Special Lecture : BSCM

Introduction to Supply Chain Management.

- Material management adds value by ensuring that these service are provided. Manufacturing Planning and Control - Responsible for the planning and control of the flow of materials through the manufacturing process. - The primary activities. 1. Production Planning : Establishing correct priorities and make certain the capacity isavailable. a. Forecasting. b. Master planning. c. Material requirements planning. d. Capacity planning. Priority is defined as the " relative importance of jobs, i.e., the sequence in which jobs should be worked on." Priority refers to what is needed, how much is needed, and when it is needed. Capacity is " the capability of a worker, machine, work center, plant or organization to produce output per time periods." 2. Implementation and control Responsible for putting into action and achieving the plans made by production planning. These responsibilities are accomplished through production activity control(or shop floor control) and purchasing. 3. Inventory management Inventories are materials and supplies carried on hand either for sale or to provide materials or supplies to the production process. They are part of the planning process and provide a buffer against the difference in demand rates and production rates.

- Inputs to the manufacturing planning and control system. 1. The product description Engineering drawing and specifications. The bill of materials.(describes the components and the subassemblies) 2. Process specifications ; Related information Operations required to make the product. Sequence of operations. Equipment and accessories required. Standard time required to perform each operation. 3. The time needed to perform operations It is usually expressed in standard time. It is needed to schedule work through the plant, load the plant, make delivery promises, and cost the product. 4. Available facilitates Manufacturing planning and control must know what plant, equipment, and labor will be available to process work. This information is usually found in the work center file. -7-

Special Lecture : BSCM

Introduction to Supply Chain Management.

Figure 6. Routings and open order status(1).

Figure 7. Routings and open order status(2).

-8-

Special Lecture : BSCM

Introduction to Supply Chain Management.

Figure 8. The work center file

4. Manufacturing Processes.

Figure 9. Classification of Manufacturing Process

Three basic plant layouts 1. Product Layout. 2. Process Layout. 3. Project Layout.

-9-

Special Lecture : BSCM

Introduction to Supply Chain Management.

Three ways to organize manufacturing processes 1. Continuous flow. 2. Intermittent manufacturing. 3. Repetitive manufacturing. Characteristics of the product layout. - A limited range of similar products is produced. - Workstations are dedicated to specific operation. - Demand must be sufficient to justify setting up the process. - It is capital-intensive. - Little buildup of work-in-process inventory. - Short throughput and manufacturing lead times. - Generally lower unit cost. Characteristics of the process layout. - Lots or batches are produced intermittently. - General-purpose machinery is used. - Departments are based on similar types of skills and equipment. - Work moves only to those stations required and skips the rest. - Product or volume can be changed relatively easily. - Production and inventory control are complex and expensive. - Work-in-process inventory levels are high. - Lead times are longer.

Characteristics of the project layout. - The project layout is used for large, complex projects. - The product remains in one location for most or all of its full assembly. - Such projects as 1. Large buildings. 2. Ships. 3. Large aircraft. 4. Computer programs.

5. Planning
- Planning is needed to ensure availability of resource (material and capacity) to satisfy customer demand. Manufacturing's Objectives - The right goods. - Of the right quality - In the right quantities. - 10 -

Special Lecture : BSCM

Introduction to Supply Chain Management.

- At the right time. - At minimum cost. Four Basic Questions - What are we going to make ? - What does it take to make it ? - What do we already have ? - What must we get ? Priority and Capacity - Priority The relative importance of jobs, i.e., the sequence in which jobs should be worked on. Priority refers to what is needed, how much is needed, and when it is needed. - Capacity The capacity of a worker, machine, work center, plant, or organization to produce output per time period. In any workable plan, capacity must be equal to or greater than the workload.

Figure 10. Planning and Capacity Hierarchy

6. Planning and Control Hierarchy

Business Planning - Long-range strategic plan - Broad items - Top management Sales and Operations Planning - Medium-range plan - Product groups - Production rates - Management of inventory/backlog - Resource requirement planning Master Scheduling - Final level of master planning - Process includes 1. Forecasted demand, 2. Production leveling, 3. Inventory and backlog adjustment, 4. New product introductions, - 11 -

Special Lecture : BSCM

Introduction to Supply Chain Management.

5. On hand, on order, actual demand, safety stock. - Result of the process : The master production schedule (MPS) 1. Quantities to be produced. 2. By part number. 3. By week or day. - Horizon must be greater than the longest lead time. Material Requirements Planning - What items? How many? When? - MPS times component quantity per = Component gross requirements. - On hand, on order, and safety stock considered. - If more needed, net requirement. - Order rules applied to determine how many. - Lead time applied to determine when. - Process continuous level by level. Capacity Requirement Planning : CRP goes through the following steps. - Calculate labor and equipment load. - Base on planned and released orders. - Compare to capacity. - Balance capacity and load.

Production Activity Control - Make detailed plans and schedules. - Check resource availability. - Release orders. - Obtain feedback/update/make adjustments. At each level, there are three questions 1. What are the priorities ? 2. What capacity is available ? 3. How can differences be resolved ?

7. Manufacturing Resource Planning

Definition - It is a method for the effective planning of all resources of a manufacturing company. - It addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer "what if" questions. - It is made up of a variety of functions, each linked together ; Business planning. Sales and operations (production planning). Master production scheduling. Material requirements planning. The execution support systems for capacity and material. - Outputs Financial reports such as the business plan. Purchase commitment report. - 12 -

Special Lecture : BSCM

Introduction to Supply Chain Management.

Shipping budget. Inventory projections in dollars.

Performance Check
1. Why is manufacturing important to the economy ? A. It generates wealth and adds value to products. B. It uses natural resources and prevents waste. C. It decreases employment ad generates wealth. D. It prevents waste and decreases employment. 2. In a traditional manufacturing environment, which of the following objectives are in conflict ? A. Maximizing customer service and increasing inventory investment. B. Minimizing production costs and increasing inventory investment. C. Minimizing production costs and decreasing inventory investment. D. Minimizing customer service and decreasing inventory investment. 3. Which of th following statement is true ? A. The objectives of marketing and production can be met with higher inventories. B. The objectives of marketing and finance can be met with higher inventories. C. The objectives of marketing and production can be met with lower inventories. D. The objectives of marketing and finance can be met with lower inventories. 4. Which of the following strategies products the longest delivery lead time ? A. Make-to-Order. B. Assemble-to-order. C. Make-to-Stock. D. Continuous manufacturing. 5. Which of the following is a major objective of materials management ? A. Provide sufficient equitable employment. B. Provide the required level of customer service. C. Support cost accounting by decreasing inventory turns. D. Provide cost information for management decisions. 6. Which of the following are primary activities of manufacturing planning and control ? A. Inventory management and cost information. - 13 -

Special Lecture : BSCM

Introduction to Supply Chain Management.

B. Sales support and cost information. C. Production planning and inventory management. D. Sales support, implementation, and control. 7. Which of the following is an activity of physical supply/distribution ? A. Transportation. B. Work-in-process inventory. C. Production activity control. D. Materials requirement planning.

8. Which of the following statements is most accurate ? A. Marketing objectives can be met with low inventories and disruptions to production. B. Finance objectives can be met with disruptions to production of high inventories. C. Production objectives can be met with high customer service and no disruption to production. D. The conflict between marketing, production, and finance centers on customer service, disruption to production, and inventory levels. 9. Which of the following statement is true about the product layout (continuous process) ? A. Workstations are located according to the type of machinery. B. Workflow is lumpy. C. A wide variety of different products can be produced. D. There is little buildup of work-in-process inventory. 10. Which of the following statements is true regarding process layout (intermittent manufacturing)? A. Capital costs are generally higher than for product layout. B. Special-purpose machinery is used. C. Each workstation must be flexible. D. There is little buildup of work-in-process inventory.

- 14 -